<PAGE>   1
 
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1999
                                                     REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                            ------------------------
 
                     INTERNAP NETWORK SERVICES CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 

<TABLE>
<S>                              <C>                              <C>
           WASHINGTON                          7374                          91-896926
(STATE OR OTHER JURISDICTION OF    (PRIMARY STANDARD INDUSTRIAL           (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)    CLASSIFICATION CODE NUMBER)         IDENTIFICATION NUMBER)
</TABLE>

 
                          601 UNION STREET, SUITE 1000
                           SEATTLE, WASHINGTON 98101
                                 (206) 441-8800
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                              ANTHONY C. NAUGHTIN
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                     INTERNAP NETWORK SERVICES CORPORATION
                          601 UNION STREET, SUITE 1000
                           SEATTLE, WASHINGTON 98101
                                 (206) 441-8800
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                                   COPIES TO:
 

<TABLE>
<S>                                              <C>
          CHRISTOPHER W. WRIGHT, ESQ.                      PETER E. WILLIAMS III, ESQ.
             THOMAS B. YOUTH, ESQ.                             VICTOR H. SIM, ESQ.
            DOUGLAS H. HAEUBER, ESQ.                          MAILE Y.C. YANG, ESQ.
               COOLEY GODWARD LLP                            MORRISON & FOERSTER LLP
              5200 CARILLON POINT                               755 PAGE MILL ROAD
            KIRKLAND, WA 98033-7355                          PALO ALTO, CA 94304-1018
                 (425) 893-7700                                   (650) 813-5652
</TABLE>

 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
   As soon as practicable after the Registration Statement becomes effective.
 
    If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box.  [ ]
 
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [ ]
---------------
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering.  [ ]
---------------
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.  [ ]
---------------
 
    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [ ]
 

                        CALCULATION OF REGISTRATION FEE
 

<TABLE>
<S>                                                           <C>                     <C>
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
                                                                 PROPOSED MAXIMUM
             TITLE OF EACH CLASS OF SECURITIES                  AGGREGATE OFFERING          AMOUNT OF
                      TO BE REGISTERED                               PRICE(1)            REGISTRATION FEE
------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share.....................       $150,000,000              $41,700
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
</TABLE>

 
(1) Estimated solely for the purpose of calculating the amount of the
    registration fee in accordance with Rule 457(o) under the Securities Act of
    1933, as amended.
                            ------------------------
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>   2
 
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
 
PROSPECTUS (Subject to Completion)
 
Issued                , 1999
 
                                                  Shares
                                [INTERNAP LOGO]
 
                                  COMMON STOCK
 
                           -------------------------
 
INTERNAP NETWORK SERVICES CORPORATION IS OFFERING           SHARES OF ITS COMMON
STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS
FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $     AND $     PER SHARE.
 
                           -------------------------
 
OUR COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "INAP."
 
                           -------------------------
 
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.  SEE "RISK FACTORS" BEGINNING ON
PAGE 7.
                           -------------------------
 
                            PRICE $          A SHARE
 
                           -------------------------
 

<TABLE>
<CAPTION>

                                                       UNDERWRITING
                                        PRICE TO       DISCOUNTS AND      PROCEEDS
                                         PUBLIC         COMMISSIONS      TO INTERNAP
                                     ---------------  ---------------  ---------------
<S>                                  <C>              <C>              <C>
Per Share..........................  $                $                $
Total..............................  $                $                $
</TABLE>

 
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
 
InterNAP has granted the underwriters the right to purchase up to an additional
               shares of common stock to cover over-allotments. Morgan Stanley &
Co. Incorporated expects to deliver the shares to purchasers on                ,
1999.
 
                           -------------------------
 
MORGAN STANLEY DEAN WITTER
                  CREDIT SUISSE FIRST BOSTON
                                    DONALDSON, LUFKIN & JENRETTE
                                                  HAMBRECHT & QUIST
                    , 1999

<PAGE>   3
                                                            (Inside Front Cover)



                                [INTERNAP LOGO]

<PAGE>   4

The current Internet architecture was not designed for today's level of traffic
flows.

Fundamental scaling flaws in the design of the Internet can typically cause
latency and data packet loss at the interconnection points between backbone
providers. These scaling flaws include routing inefficiencies, a lack of
adequate network technology, the distributed management of public network access
point, or NAPs, and private peering points, and a lack of economic settlement
between network providers. All of these flaws result in unavoidable congestion
and poor Internet performance.


* The Internet infrastructure does not provide for economic settlement.

  Today's lack of economic settlement between network backbones at the public
  NAPs and private peering points results in little or no incentive for these
  networks to maintain an end to end quality of service.
 
* Public NAPs and private peering points are major intersections of the
  Internet, where large amounts of data traffic converge.

  The public NAPs and private peering points are not centrally managed, and no
  single entity has the economic incentive to facilitate problem resolution, to
  optimize peering, or to bring about centralized routing administration.

   [Graphic depicting interaction between network backbones and public network
   access points and private peering points]

* What does it all mean?

  As the rapid growth in Internet use continues, the congestion and data packet
  loss at the public NAPs and private peering points will hinder the performance
  of mission-critical applications over the public Internet.

* Congested intersections often result in data packet loss. 

  When public NAPs and private peering points are congested, data packet loss
  occurs, slowing downloads and decreasing the reliability of data
  transmissions.


<PAGE>   5
InterNAP provides consistent high performance Internet connectivity service 
that is faster and more reliable than conventional service. 
Delivering network quality without peer.(TM)

Utilizing our proprietary network architecture and advanced routing
technologies, we are able to route, or transfer, data to and from businesses
that are connected to one or more of our Private-Network Access Points, or
P-NAPs, in a manner that minimizes the use of congested public NAPs and private
peering points. This optimal routing of data traffic over the multiplicity of
networks that comprise the Internet enables higher transmission speeds, lower
instances of data packet loss and greater quality of service.

* InterNAP provides economic incentive to backbone providers.

  InterNAP pays the backbone providers for sending and receiving customer data
  across their networks and provides a differentiated quality of service for
  InterNAP customers.


* InterNAP's technology speeds data transmissions.

  With InterNAP's intelligent routing technology, data is routed directly to the
  backbone on which the destination resides, largely bypassing the
  often-congested public NAPs and private peering points.

* InterNAP optimally routes customer data.

  InterNAP customers' data is optimally routed to and from destinations on the
  Internet.



  [Graphic depicting interaction between network backbones and InterNAP P-NAP]



* InterNAP consolidates the benefits of direct access to major global
  Internet networks into one connection.

  InterNAP provides Internet connectivity services directly to major backbone
  providers for the price of one connection.

* What does it all mean?

  InterNAP customers receive fast, reliable and centrally managed Internet
  connectivity services that maximize the performance of their mission-critical
  Internet-based applications.


<PAGE>   6
                                                             (Inside Back Cover)


                                       *
                                    INTERNAP
                              1999 P-NAP Locations




                [Graphic of map depicting 1999 P-NAP locations]









*  Operational P-NAPs

*  P-NAPs to be operational by the end of 1999

<PAGE>   7
      [Graphic on page 37 depicting an example of routing over the Internet]



1. Backbone A passes off the ISP Customer request for data at the nearest
   private peering point to Backbone B, regardless of congestion or performance
   problems occurring at that point.


   Public NAPs and private peering points do not provide economic settlement
   between two peering networks, thereby resulting in "best effort" delivery
   with no guarantees or accountability for poor performance or lost data.


2. Using an asymmetric return route, Backbone B passes off the ISP Customer
   request at a public NAP, forcing the data to transit across yet another
   potentially congested network infrastructure, resulting in possible data
   packet loss and poor network performance.

<PAGE>   8
             [Graphic on page 38 depicting P-NAP routing method]


The InterNAP Solution:

1. The P-NAP intelligently routes data transmissions between the InterNAP
   Customer Web site and the backbone ISP Customer, bypassing congested and 
   unreliable public NAPs and private peering points.

2. For InterNAP ISP and Web site Customers that are connected to the same P-NAP,
   data transmissions occur within the local P-NAP infrastructure, bypassing the
   Internet entirely.

<PAGE>   9





           [Graphic on page 39 depicting the InterNAP virtual backbone]

<PAGE>   10



            [Graphic on page 43 depicting the P-NAP network design]

<PAGE>   11
 
                               TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                      PAGE
                                      ----
<S>                                   <C>
Prospectus Summary..................     3
Risk Factors........................     7
Use of Proceeds.....................    21
Dividend Policy.....................    21
Capitalization......................    22
Dilution............................    23
Selected Financial Data.............    24
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.....................    25
Business............................    35
</TABLE>

 

<TABLE>
<CAPTION>
                                      PAGE
                                      ----
<S>                                   <C>
Management..........................    48
Certain Transactions................    58
Principal Shareholders..............    61
Description of Capital Stock........    64
Shares Eligible for Future Sale.....    67
Underwriters........................    69
Legal Matters.......................    71
Experts.............................    71
Additional Information..............    71
Index to Financial Statements.......   F-1
</TABLE>

 
                           -------------------------
 
     You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
 
     In this prospectus, "InterNAP," "we," "us," and "our" refer to InterNAP
Network Services Corporation and not to the underwriters. Unless otherwise
indicated, all information contained in this prospectus:
 
     - Gives effect to the conversion of all outstanding shares of preferred
       stock into 49,469,479 shares of common stock upon the closing of this
       offering; and
 
     - Assumes no exercise of the underwriters' over-allotment option.
 
     UNTIL              , 1999, 25 DAYS AFTER COMMENCEMENT OF THIS OFFERING, ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
 
     InterNAP(R) and P-NAP(R) are registered trademarks of InterNAP. All other
brand names or trademarks appearing in this prospectus are the property of their
respective holders.
 
                                        2

<PAGE>   12
 

                               PROSPECTUS SUMMARY
 
     You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and the notes to our financial statements
appearing elsewhere in this prospectus.
 
                     INTERNAP NETWORK SERVICES CORPORATION
 
     InterNAP is a leading provider of fast, reliable and centrally managed
Internet connectivity services targeted at businesses seeking to maximize the
performance of mission-critical Internet-based applications. Customers connected
to one of our Private-Network Access Points, or P-NAPs, have their data
optimally routed to and from destinations on the Internet in a manner that
minimizes the use of congested public network access points, or NAPs, and
private peering points. We offer our high performance Internet connectivity
services at dedicated line speeds of 1.5 Megabits per second, or Mbps, to 155
Mbps to customers desiring higher transmission speeds, lower instances of data
packet loss and greater quality of service than they could receive from
conventional Internet connectivity providers. As of June 30, 1999, we provided
consistent high performance Internet connectivity services to approximately 130
customers, including Amazon.com, Fidelity Investments, Go2Net, ITXC, Nasdaq,
TheStreet.com and WebTV.
 
THE OPPORTUNITY
 
     The Internet is rapidly becoming a critically important medium for
communications and commerce. However, businesses are unable to benefit from the
full potential of the Internet due, in part, to slow and unreliable data
transfers. This results primarily from peering and routing practices, current
routing technologies and the Internet's architecture, which was not designed to
support today's large volumes of traffic. To compound this problem, Internet
traffic is expected to grow rapidly. Pioneer Consulting, LLC estimates that
Internet bandwidth demand in North America will grow from 175 Gigabits per
second in 1998 to 2,990 Gigabits per second in 2003, representing a 76% compound
annual growth rate. In addition, widespread adoption of applications that rely
on network quality and require consistent, high speed data transfer, such as
voice and fax over Internet Protocol, virtual private network services,
multimedia document distribution and audio and video streaming, will be hindered
by the performance problems of the Internet. We believe the future of Internet
connectivity services will be driven by providers that, through high performance
Internet routing services, enable businesses to successfully execute their
mission-critical Internet-based applications over the public network
infrastructures and provide consistent, high quality service.
 
OUR SOLUTION
 
     We provide high performance Internet connectivity services through the
deployment of P-NAPs, which are highly redundant network infrastructure
facilities coupled with our proprietary ASsimilator routing technology. Our
P-NAPs maintain high speed, dedicated connections to major global Internet
backbone networks, such as AGIS, AT&T, Cable & Wireless USA, GTE
Internetworking, ICG Communications, Intermedia, PSINet, Sprint, UUNET and
Verio. In addition, we have entered into a traffic exchange interconnect
agreement with America Online, Inc. which provides us with direct access to
AOL's network of over 19 million members. Our technology platform optimally
routes our customers' data packets through the backbone networks, generally
bypassing Internet traffic congestion and reducing data packet loss that
frequently occurs at public NAPs and private peering points. We currently
operate seven P-NAPs which are located in the Boston, Chicago, Los Angeles, New
York, San Jose, Seattle and Washington, D.C. metropolitan areas, and expect to
complete the deployment of five additional P-NAPs in the United States by the
end of 1999.
                                        3

<PAGE>   13
 
     Our services provide the following key advantages:
 
     - High Performance Connectivity. We route our customers' traffic over the
       Internet in a way that we believe provides consistently greater speed,
       along with superior end-to-end control, predictability and reliability,
       than services offered by conventional Internet connectivity providers.
 
     - Highly Reliable Network Architecture. P-NAPs are designed with a highly
       redundant network infrastructure, such that any of the Internet backbones
       connected to a P-NAP can be used to instantly reroute customers' data
       packets in the event of a backbone provider network outage.
 
     - Superior Route Optimization and Management. Our proprietary routing
       technology and network management system provide us with data to manage
       network traffic and to offer economic settlements to backbone providers
       for the transfer of our customers' data packets.
 
     - Scalability and Flexibility. We manage each P-NAP independently and make
       connection upgrades locally as required with each backbone provider. This
       allows us to more readily scale our capacity as traffic levels increase,
       without the need to make uniform upgrades throughout our system of
       P-NAPs.
 
     - Superior Customer Service and Support. Our customers receive the benefit
       of our proprietary network monitoring and reporting tools and a single
       point of contact with our highly skilled engineers for support inquiries,
       network troubleshooting and diagnosis 24 hours a day, seven days a week.
 
OUR STRATEGY
 
     Our objective is to be the leading provider of high performance Internet
connectivity services that enable businesses to run mission-critical
Internet-based applications and to establish and maintain the standard of
quality for Internet connectivity services. To achieve this objective we intend
to:
 
     - Enhance Our Core Technologies to Provide the Highest Performance Internet
       Connectivity Services. We intend to continue developing our P-NAP
       architecture and sophisticated routing technology to enable our customers
       to maximize the performance of existing applications and to take
       advantage of new services such as voice and fax over Internet Protocol,
       virtual private network services, multimedia document distribution and
       audio and video streaming.
 
     - Continue to Provide Superior Customer Service and Support. We intend to
       continue providing our customers with a superior customer service
       experience which we believe will continue to be a key competitive
       advantage.
 
     - Expand Our Geographic Coverage in Key Markets. We currently offer
       services through our P-NAPs in seven key metropolitan areas across the
       United States and we intend to aggressively deploy P-NAPs in key markets
       across the United States and internationally.
 
     - Continue to Build Our Brand Awareness. We intend to continue leveraging
       our brand name as our Internet connectivity services are increasingly
       associated with a high quality of service.
 
     - Continue to Target Strategic Markets. We intend to continue focusing our
       marketing message and experienced sales force on strategic market
       segments which are characterized by a need for fast, reliable and
       manageable Internet connectivity services.
 
     - Maintain Backbone Provider Neutrality. By maintaining backbone provider
       neutrality we are able to establish high-volume connections to major
       backbone providers. In order to maintain our high quality of service, we
       intend to continue to add backbone providers as they emerge, as existing
       backbone providers increase in importance, and as global Internet traffic
       patterns evolve.
                                        4

<PAGE>   14
 
                                  THE OFFERING
 
Common stock offered....................                         shares
 
Common stock to be outstanding after the
offering................................                         shares
 
Use of proceeds.........................     We intend to use the net proceeds
                                             from the offering for capital
                                             expenditures and general corporate
                                             purposes, including working
                                             capital. See "Use of Proceeds."
 
Nasdaq National Market Symbol...........     INAP
 
     The foregoing information is based upon the number of shares of common
stock outstanding as of June 30, 1999. This information does not include, as of
June 30, 1999:
 
     - 5,035,000 shares reserved for issuance under our 1998 Stock Option/Stock
       Issuance Plan, of which 4,132,622 shares were subject to outstanding
       options;
 
     - 6,500,000 shares reserved for issuance under our 1999 Equity Incentive
       Plan, of which 2,004,000 shares were subject to outstanding options;
 
     - 500,000 shares reserved for issuance under our 1999 Non-Employee Director
       Stock Option Plan;
 
     - 1,500,000 shares reserved for issuance under our 1999 Employee Stock
       Purchase Plan; and
 
     - 600,136 shares issuable upon exercise of outstanding warrants. See
       "Description of Capital Stock" and "Management -- Incentive Stock Plans."
                                        5

<PAGE>   15
 
                             SUMMARY FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                          PERIOD FROM
                                           INCEPTION         YEAR ENDED        SIX MONTHS ENDED
                                         (MAY 1, 1996)      DECEMBER 31,           JUNE 30,
                                        TO DECEMBER 31,   -----------------   ------------------
                                             1996          1997      1998      1998       1999
                                        ---------------   -------   -------   -------   --------
<S>                                     <C>               <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenues..............................      $   44        $ 1,045   $ 1,957   $   731   $  3,410
Total operating costs and expenses....         961          2,455     8,907     2,277     19,862
Loss from operations..................        (917)        (1,410)   (6,950)   (1,546)   (16,452)
Net loss..............................        (959)        (1,609)   (6,973)   (1,461)   (16,149)
Basic and diluted net loss per
  share...............................      $ (.29)       $  (.48)  $ (2.09)  $  (.44)  $  (4.78)
Weighted average shares used in
  computing basic and diluted net loss
  per share...........................       3,333          3,333     3,336     3,336      3,378
Pro forma basic and diluted net loss
  per share...........................                              $  (.31)            $   (.34)
Weighted average shares used in
  computing pro forma basic and
  diluted net loss per share..........                               22,733               47,771
</TABLE>

 
     Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock into shares of common stock, as
if the conversion occurred at the date of original issuance.
 
     The following table presents summary balance sheet data at June 30, 1999.
The pro forma as adjusted column in the balance sheet data below gives effect to
the conversion of our preferred stock outstanding as of June 30, 1999 into
49,469,479 shares of common stock and receipt of the net proceeds from the sale
of          shares of common stock at an assumed initial public offering price
of $   per share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
 

<TABLE>
<CAPTION>
                                                                 AS OF JUNE 30, 1999
                                                              -------------------------
                                                                           PRO FORMA
                                                              ACTUAL      AS ADJUSTED
                                                              -------    --------------
<S>                                                           <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...........  $13,296       $
Total assets................................................   30,830
Capital lease obligations, less current portion.............    6,776
Total shareholders' equity..................................   17,274
</TABLE>

 
                            ------------------------
 
     We are a Washington corporation. Our principal executive offices are
located at 601 Union Street, Suite 1000, Seattle, Washington 98101, and our
telephone number is (206) 441-8800. We maintain a worldwide web site at
www.internap.com. The reference to our worldwide web address does not constitute
incorporation by reference of the information contained at this site.
                                        6

<PAGE>   16
 

                                  RISK FACTORS
 
     You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to
us or that we currently think are immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be seriously harmed. In such
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.
 
RISKS RELATED TO OUR BUSINESS
 
     WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NOT ACHIEVE OR
     SUSTAIN ANNUAL PROFITABILITY
 
     We have incurred net losses in each quarterly and annual period since we
began operations. We incurred a net loss of $1.6 million for the year ended
December 31, 1997 and a net loss of $7.0 million for the year ended December 31,
1998. Our net loss for the six months ended June 30, 1999 was $16.1 million. As
of June 30, 1999, our accumulated deficit was $25.7 million. As a result of our
expansion plans, we expect to incur net losses and negative cash flows from
operations on a quarterly and annual basis in the foreseeable future. We cannot
assure you that we will achieve or sustain revenue growth or profitability on
either a quarterly or an annual basis. If we do not achieve or sustain
profitability in the future, we will be unable to continue our operations.
 
     OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR PROSPECTS
 
     The revenue and income potential of our business and market is unproven,
and our limited operating history makes it difficult to evaluate our prospects.
We have only been in existence since 1996, and our services are only offered in
limited regions. Due to our limited operating history, you should consider and
evaluate our prospects in light of the risks and difficulties frequently
encountered by relatively new companies, particularly companies in the rapidly
evolving Internet infrastructure and connectivity markets. To address the risks
we face, we must, among other things:
 
     - build and deploy our operations infrastructure, including additional
       P-NAPs;
 
     - maintain relationships with major backbone providers;
 
     - expand our sales organization and marketing programs;
 
     - increase awareness of the InterNAP brand;
 
     - provide reliable and cost-effective services to our customers;
 
     - respond to technological developments or service offerings by
       competitors; and
 
     - attract and retain qualified personnel.
 
     If we fail to adequately address these risks, our business, financial
condition and results of operations may be significantly harmed.
 
     FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY NEGATIVELY AFFECT OUR
     STOCK PRICE
 
     Our quarterly operating results have fluctuated in the past and are likely
to fluctuate significantly from quarter to quarter in the future due to a
variety of factors, not all of which are under our control. Accordingly, we
believe that period-to-period comparisons of our results of operations are not
 
                                        7

<PAGE>   17
 
meaningful and should not be relied upon as indications of future performance.
Some of the factors that could cause our revenues and operating results to
fluctuate include the following:
 
     - demand for and market acceptance of our Internet connectivity services;
 
     - the timing and magnitude of capital expenditures, including costs
       relating to the buildout and deployment of additional P-NAPs and the
       expansion of operations;
 
     - increasing operating expenses;
 
     - our practice of purchasing Internet connectivity from backbone providers
       at new P-NAPs, before customers are secured and our ability to generate
       revenues for our services from those P-NAPs;
 
     - our contractual obligation to purchase minimum levels of Internet
       connectivity from some backbone providers, without regard to the amount
       we resell to our customers;
 
     - changes in the prices for Internet connectivity we pay backbone
       providers;
 
     - our revenue mix between usage-based and fixed rate pricing plans;
 
     - our ability to obtain, and the pricing for, local loop connections to our
       P-NAPs;
 
     - fluctuations in the duration of the sales cycle for our services;
 
     - the compensation of our sales personnel based on achievement of periodic
       sales quotas;
 
     - the announcement or introduction of new or enhanced services by our
       competitors or us; and
 
     - conditions specific to the Internet and telecommunications industries and
       general economic factors.
 
     It is possible that in some future periods our results of operations may
fall below the expectations of public market analysts and investors. In this
event, the price of our common stock may fall. You should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance.
 
     WE MAY EXPERIENCE DIFFICULTY DEPLOYING AND MANAGING OUR NETWORK OF P-NAPS
 
     Our success depends on our ability to continue to deploy additional P-NAPs
and to integrate, operate and upgrade our P-NAP network and facilities. The
deployment of new P-NAP facilities, each of which takes approximately four to
six months to complete, is a key element of our business strategy. In addition
to our seven existing locations, we are planning to continue to deploy P-NAPs
across a wide range of geographic regions. Although we do market research in a
geographic area before deploying a P-NAP facility, we do not enter into service
contracts with customers prior to building a new facility. Any delay in the
opening of these P-NAP facilities would significantly harm our plans for
expansion of our business. We cannot assure you that we will be successful in
expanding our operations on a cost-effective and timely basis or in additional
geographic locations, if at all, or that there will be sufficient customer
demand to support our new P-NAP facilities.
 
     The successful deployment of new P-NAP facilities will require careful
management of the various risks that are associated with significant
construction projects, including identifying and locating P-NAP sites,
construction delays, cost estimation errors or overruns, equipment and material
delays or shortages, the inability to obtain necessary permits on a timely
basis, if at all, and other factors, many of which are beyond our control. Our
plans to rapidly build and deploy additional P-NAPs could place a significant
strain on our management's time and our resources. We cannot assure you that we
will be able to successfully deploy and manage our expanding network of P-NAPs.
 
                                        8

<PAGE>   18
 
     New P-NAP facilities, if completed, will result in substantial new
operating expenses, including expenses associated with hiring, training,
retaining and managing new employees, provisioning capacity from backbone
providers, purchasing new equipment, implementing new systems, leasing
additional real estate and incurring additional depreciation expense. In
addition, if we do not institute adequate financial and managerial controls,
reporting systems, and procedures with which to operate multiple facilities in
geographically dispersed locations, our operations will be significantly harmed.
 
     OUR REVENUES ARE HEAVILY DEPENDENT ON A FEW CUSTOMERS
 
     We currently derive a substantial portion of our total revenues from a
limited number of customers. For the six months ended June 30, 1999, revenues
from U.S. Electrodynamics, Inc. represented 10.6% of our total revenues. For the
year ended December 31, 1998, revenues from Go2Net represented 13.6% of our
total revenues. For the year ended December 31, 1997, revenues from Starcom
Service Corporation represented 20.8% of our total revenues and Go2Net
represented 18.1% of our total revenues. Typically, the agreements with our
customers are based on our standard terms and conditions of service and
generally have terms ranging from one year to three years. We cannot assure you
that revenues from these customers or from other customers that have accounted
for a significant portion of our revenues in past periods, individually or as a
group, will continue, or if continued, will reach or exceed historical levels in
any future period. For example, in 1998 Starcom defaulted on its payments to us,
subsequently filed for bankruptcy and is no longer a customer of ours. In
addition, we may not succeed in diversifying our customer base in future
periods. Accordingly, we may continue to derive a significant portion of our
revenues from a relatively small number of customers. Further, we have had
limited experience with the renewal of contracts by customers whose initial
service contract terms have been completed and cannot assure you that these
customers will renew their contracts with us.
 
     OUR SUCCESS DEPENDS ON OUR RELATIONSHIPS WITH INTERNET BACKBONE PROVIDERS
 
     In delivering our services, we rely on Internet backbones which are built
and operated by others. In order to be able to provide optimal routing to our
customers through our P-NAPs, we must purchase connections from several Internet
backbone providers. Currently, in each of our fully operational P-NAPs, we have
connections to at least six of the following 10 backbone providers: Apex Global
Information Systems (AGIS), AT&T, Cable & Wireless USA, Inc., GTE
Internetworking, Inc., ICG Communications, Intermedia Communications Inc.,
PSINet, Inc., Sprint Internet Services, UUNET, an MCI WorldCom Company, and
Verio, Inc. In addition, we do not begin to operate a P-NAP until it is
connected to at least two of the following four backbone providers: UUNET,
Sprint, Cable & Wireless USA and GTE Internetworking. We cannot assure you that
these Internet backbone providers will continue to provide service to us on a
cost-effective basis, if at all, or that these providers will provide us with
additional capacity to adequately meet customer demand. Furthermore, it is very
unlikely that we could replace our Internet backbone providers on comparable
terms. If we fail to maintain relationships with, or are unable to obtain
necessary additional capacity from, our existing backbone providers, or if we
fail to establish and maintain relationships with other backbone providers that
may emerge or that are significant in geographic areas in which we locate our
P-NAPs, our business and prospects could suffer significantly. In addition, our
business, financial condition and results of operations would be significantly
harmed if there is a material increase in our cost of obtaining Internet
connectivity.
 
     WE OPERATE IN AN EXTREMELY COMPETITIVE MARKET, AND WE MAY NOT BE ABLE TO
     COMPETE EFFECTIVELY AGAINST OUR MANY COMPETITORS
 
     The Internet connectivity services market is extremely competitive, and
there are few substantial barriers to entry. We expect that competition will
intensify in the future. Many of our competitors
 
                                        9

<PAGE>   19
 
have greater market presence, engineering and marketing capabilities, and
financial, technological and personnel resources than we do. As a result, as
compared to us, our competitors may:
 
     - develop and expand their network infrastructures and service offerings
       more efficiently or more quickly;
 
     - adapt more rapidly to new or emerging technologies and changes in
       customer requirements;
 
     - take advantage of acquisitions and other opportunities more effectively;
 
     - develop Internet services and products that are superior to or have
       greater market acceptance;
 
     - adopt more aggressive pricing policies and devote greater resources to
       the promotion, marketing, sale, research and development of their
       products and services;
 
     - make more attractive offers to our existing and potential employees and
       strategic partners or establish cooperative relationships with each other
       or with third parties; and
 
     - more effectively take advantage of existing relationships with customers
       or exploit a more widely recognized brand name to market and sell their
       services.
 
     Our competitors include:
 
     - backbone providers that provide us connectivity services, including AGIS,
       AT&T, Cable & Wireless USA, GTE Internetworking, ICG Communications,
       Intermedia, PSINet, Sprint, UUNET and Verio;
 
     - regional Bell operating companies which offer Internet access; and
 
     - global, national and regional Internet service providers.
 
In addition, if we are successful in implementing our international expansion,
we will encounter additional competition from international Internet service
providers as well as international telecommunications companies.
 
     We also believe that new competitors will enter our market. Such new
competitors could include computer hardware, software, media and other
technology and telecommunications companies. A number of telecommunications
companies and online service providers currently offer, or have announced plans
to offer or expand, their network services. Other companies, including GTE
Internetworking, PSINet and Verio, have expanded their Internet access products
and services through acquisition. Further, the ability of some of our
competitors to bundle other services and products with their network services
could place us at a competitive disadvantage. Various companies are also
exploring the possibility of providing, or are currently providing, high-speed
data services using alternative delivery methods including the cable television
infrastructure, direct broadcast satellites, wireless cable and wireless local
loop. In addition, Internet backbone providers may make technological
developments, such as improved router technology, that will enhance the quality
of their services.
 
     We may not have the financial resources, technical expertise, sales and
marketing abilities or support capabilities to compete successfully in the
intensely competitive market served by us. If we are unable to compete
successfully against our competitors, our business, financial condition and
results of operations will be significantly harmed.
 
     WE MAY ENCOUNTER PRICING PRESSURE THAT COULD AFFECT OUR OPERATING RESULTS
 
     We currently charge, and expect to continue to charge, more for our
Internet connectivity services than our competitors. By bundling their services
and reducing the overall cost of their solutions, telecommunications companies
that compete with us may be able to provide customers
 
                                       10

<PAGE>   20
 
with reduced communications costs in connection with their Internet connectivity
services or private network services, thereby significantly increasing pricing
pressure on us. We may not be able to offset the effects of any such price
reductions even with an increase in the number of our customers, higher revenues
from enhanced services, cost reductions or otherwise. Increased price
competition or other competitive pressures could erode our market share and
could significantly harm our business. In addition, we believe that the Internet
connectivity industry is likely to encounter consolidation in the future.
Consolidation could result in increased price and other competition in our
market, which could significantly harm our business, financial condition and
results of operations.
 
     A FAILURE IN OUR NETWORK OPERATIONS CENTER, P-NAPS OR COMPUTER SYSTEMS
     WOULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS
 
     Our business depends on the efficient and uninterrupted operation of our
network operations center, our P-NAPs and our computer and communications
hardware systems and infrastructure. We currently have one network operations
center located in Seattle, and we have seven P-NAPs which are located in the
Boston, Chicago, Los Angeles, New York, San Jose, Seattle and Washington, D.C.
metropolitan areas. If we experience a problem at our network operations center,
we may be unable to provide Internet connectivity services to our customers,
provide customer service and support or monitor our network infrastructure and
P-NAPs, any of which would seriously harm our business. While we have taken
precautions against systems failure, interruptions could result from natural
disasters as well as power loss, telecommunications failure and similar events.
We also lease capacity from Internet backbone providers whose service may be
interrupted. Any damage to or failure of our systems or infrastructure or our
service providers could result in reductions in, or terminations of, services
supplied by us to our customers, which could significantly harm our business,
financial condition and results of operations.
 
     OUR BRAND IS NOT WELL-KNOWN AND FAILURE TO DEVELOP BRAND RECOGNITION COULD
     HURT OUR BUSINESS
 
     To successfully execute our strategy, we must strengthen our brand
awareness. While many of our competitors have well-established brands associated
with the provision of Internet connectivity services, to date our market
presence has been limited principally to the Boston, Chicago, Los Angeles, New
York, San Jose, Seattle and Washington D.C. metropolitan areas. To date, we have
attracted our existing customers primarily through a relatively small sales
force and word of mouth. In order to build our brand awareness, we intend to
significantly increase our marketing efforts, which may not be successful, and
we must continue to provide high quality services. As part of our brand building
efforts, we expect to increase our marketing budget substantially as well as our
marketing activities, including advertising, tradeshows, direct response
programs and new P-NAP launch events. We cannot assure you that these efforts
will succeed as planned. If we do not build our brand awareness, our ability to
realize our strategic and financial objectives could be hurt.
 
     WE DEPEND UPON KEY PERSONNEL AND MAY BE UNABLE TO HIRE AND RETAIN
     SUFFICIENT NUMBERS OF QUALIFIED PERSONNEL
 
     Our future performance depends to a significant degree upon the continued
contributions of our executive management team and key technical personnel. The
loss of any member of our executive management team or a key technical employee,
such as our Chief Executive Officer, Anthony Naughtin, our Chief Technology
Officer, Christopher Wheeler, or our Chief Financial Officer, Paul McBride,
could significantly harm us. Any of our officers or employees can terminate his
or her relationship with us at any time. To the extent that we are able to
expand our operations and deploy additional P-NAPs, our workforce will be
required to grow. Accordingly, our future success depends on our ability to
attract, hire, train and retain a substantial number of highly skilled
management,
 
                                       11

<PAGE>   21
 
technical, sales, marketing and customer support personnel. Competition for
qualified employees is intense. Consequently, we may not be successful in
attracting, hiring, training and retaining the people we need, which would
seriously harm our business and results of operations.
 
     WE MAY NOT BE ABLE TO SUPPORT OUR RAPID GROWTH EFFECTIVELY
 
     Since the introduction of our Internet connectivity services, we have
experienced a period of rapid growth and expansion which has placed, and
continues to place, a significant strain on all of our resources. We expect our
growth to continue to strain our management, operational and financial
resources. For example, we may not be able to install adequate financial control
systems in an efficient and timely manner, and our current or planned
information systems, procedures and controls may be inadequate to support our
future operations. The difficulties associated with installing and implementing
new systems, procedures and controls may place a significant burden on our
management and our internal resources. Our inability to manage growth
effectively would seriously harm our business, financial condition and results
of operations.
 
     WE FACE RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
 
     Although we currently operate in seven domestic metropolitan markets, a key
component of our strategy is to expand into international markets. We have no
experience operating internationally. We may not be able to adapt our services
to international markets or market and sell these services to customers abroad.
In addition, we may find it more difficult and expensive to hire, train and
retain employees and to manage international operations together with our United
States operations. International operations are subject to a number of risks,
including:
 
     - expenses associated with localizing our services for foreign countries;
 
     - difficulties in establishing and maintaining relationships with foreign
       backbone providers and local vendors, including co-location and local
       loop providers;
 
     - difficulties in locating, building and deploying P-NAPs in foreign
       countries and managing P-NAPs and network operations centers across
       disparate geographic areas;
 
     - difficulties complying with different technical requirements and
       standards;
 
     - the development of technologies that are necessary for us to deliver our
       Internet connectivity services internationally;
 
     - business practices that favor local competition and protectionist laws;
 
     - multiple, conflicting and changing governmental laws and regulations;
 
     - longer sales cycles;
 
     - difficulties in collecting accounts receivable;
 
     - difficulties associated with enforcing agreements through foreign legal
       systems; and
 
     - foreign currency exchange rate fluctuations.
 
     If we fail to successfully address the risks associated with our currently
proposed international operations, our international sales growth will be
limited and our business, financial condition and results of operations may be
significantly harmed.
 
                                       12

<PAGE>   22
 
     OUR FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY
     AFFECT US, AND THERE IS A RISK OF INFRINGEMENT OF THIRD PARTY INTELLECTUAL
     PROPERTY RIGHTS
 
     We believe that patents and other intellectual property rights are
important to our business and our future success. We file patent applications to
protect our technology, inventions and improvements to inventions that we
consider important to our business. The United States Patent and Trademark
Office, USPTO, has recently notified us that it has allowed the claims in our
initial patent application. Additional claims that were included by amendment in
that application are still pending. We cannot assure you that the USPTO will
allow any additional claims under our patent application, or, if allowed, that
any patent issued will be of any benefit to us. It is possible that:
 
     - our pending patent applications may not result in the issuance of
       patents;
 
     - any patents that may be issued to us could still be successfully
       challenged by third parties, which could result in our loss of the right
       to prevent others from exploiting the inventions claimed in those
       patents;
 
     - current and future competitors may independently develop similar
       technologies, duplicate our services and products or design around any
       patents that may be issued to us;
 
     - effective patent protection may not be available in every country in
       which we intend to do business; and
 
     - any patents that may be issued to us may not provide significant
       proprietary protection or commercial advantage to us.
 
     In addition to patent protection, we believe the protection of our
copyrightable materials, trademarks and trade secrets is important to our future
success. We rely on a combination of laws, such as copyright, trademark and
trade secret laws and contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect our proprietary rights. In
particular, we generally enter into confidentiality agreements with our
employees and nondisclosure agreements with our customers and corporations with
whom we have strategic relationships. In addition, we generally register our
important trademarks with the USPTO to preserve their value and establish proof
of our ownership and use of these trademarks. Any trademarks that may be issued
to us may not provide significant proprietary protection or commercial advantage
to us. Despite any precautions that we have taken, intellectual property laws
and contractual restrictions may not be sufficient to prevent misappropriation
of our technology or deter others from developing similar technology.
 
     The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business. Any claims that our services infringe or may infringe
proprietary rights of third parties could significantly harm our business,
financial condition or results of operations. Any claims, with or without merit,
could be time-consuming, result in costly litigation, divert the efforts of our
technical and management personnel or require us to enter into royalty or
licensing agreements, any of which could significantly harm our operating
results. In addition, in our customer agreements, we agree to indemnify our
customers for any expenses or liabilities resulting from claimed infringement of
patents, trademarks or copyrights of third parties. In the event a claim against
us was successful, and we could not obtain a license to the relevant or a
substitute technology on acceptable terms, or redesign our products to avoid
infringement, our business, financial condition and results of operations would
be significantly harmed.
 
                                       13

<PAGE>   23
 
     WE ARE DEPENDENT ON THIRD PARTY SUPPLIERS FOR KEY COMPONENTS OF OUR NETWORK
     INFRASTRUCTURE
 
     We are dependent on other companies to supply various key components of our
infrastructure, including the local loops between our P-NAPs and our Internet
backbone providers and between our P-NAPs and our customers' networks. In
addition, the routers and switches used in our network infrastructure are
currently supplied by a limited number of vendors, including Cisco Systems, Inc.
We cannot assure you that additional sources of these products would be
available on satisfactory terms, if at all. We purchase these products pursuant
to purchase orders placed from time to time, we do not carry significant
inventories of these products, and we have no guaranteed supply arrangements
with our vendors. Any failure to obtain required products or services on a
timely basis and at an acceptable cost would significantly harm our business,
financial condition and results of operations. We have in the past experienced
delays in receiving shipments of equipment purchased. To date, these delays have
not adversely affected us, but we cannot assure you that we will not be
adversely affected by delays in the future. If Cisco Systems does not provide us
with its routers, our business, financial condition and results of operations
may be significantly harmed. In addition, any failure of our limited source
suppliers to provide products or services that comply with evolving Internet and
telecommunications standards or that interoperate with other products or
services used by us in our network infrastructure could cause our business,
financial condition or results of operations to suffer.
 
     YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS
 
     Many computers, software and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this design
decision, some of these systems could fail to operate or fail to produce correct
results if "00" is interpreted to mean 1900, rather than 2000. These problems
are widely expected to increase in frequency and severity as the year 2000
approaches and are commonly referred to as the "Year 2000 problem."
 
     The Year 2000 problem could result in system failures or miscalculations
causing disruptions of operations, including among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. The Year 2000 problem may affect the network
infrastructure, computers, software and other equipment that we use, operate or
maintain for our operations. We believe that we have identified most of the
major computers, software applications and related equipment used in connection
with our internal operations that will need to be evaluated to determine if they
must be modified, upgraded or replaced to minimize the possibility of a material
disruption to our business. We cannot assure you that our computers and systems
are Year 2000 compliant. In addition, many of our customers' and suppliers'
Internet operations may be affected by complications related to the Year 2000
problem. The failure of our customers or suppliers to ensure that their systems
are Year 2000 compliant could have a significantly harmful effect on our
customers and suppliers, resulting in decreased Internet usage or the delay or
inability to obtain necessary data communication or telecommunication capacity,
which in turn could have a significantly harmful effect on our business,
financial condition and results of operations. For further discussion of the
Year 2000 problem, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
 
     WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE AND MAY NOT BE ABLE TO
     SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO US
 
     The expansion and development of our business will require significant
capital, which we may be unable to obtain, to fund our capital expenditures and
operations, including working capital needs. Our principal capital expenditures
and lease payments include the purchase, lease and installation of network
equipment such as routers, telecommunications equipment and other computer
equipment. The timing and amount of our future capital requirements may vary
significantly depending on
 
                                       14

<PAGE>   24
 
numerous factors, including regulatory, technological, competitive and other
developments in our industry. During the next twelve months, we expect to meet
our cash requirements with existing cash, cash equivalents and short-term
investments, the net proceeds from this offering and cash flow from sales of our
services. However, our capital requirements depend on several factors, including
the rate of market acceptance of our services, the ability to expand our
customer base, the rate of deployment of additional P-NAPs and other factors. If
our capital requirements vary materially from those currently planned, or if we
fail to generate sufficient cash flow from the sales of our services, we may
require additional financing sooner than anticipated or we may have to delay or
abandon some or all of our development and expansion plans or otherwise forego
market opportunities.
 
     We may not be able to obtain future equity or debt financing on favorable
terms, if at all. In addition, our credit agreement contains covenants
restricting our ability to incur further indebtedness. Future borrowing
instruments such as credit facilities and lease agreements are likely to contain
similar or more restrictive covenants and will likely require us to pledge
assets as security for borrowings thereunder. Our inability to obtain additional
capital on satisfactory terms may delay or prevent the expansion of our
business, which could cause our business, financial condition and results of
operations to suffer.
 
RISKS RELATED TO OUR INDUSTRY
 
     OUR SUCCESS DEPENDS ON THE ACCEPTANCE OF OUR SERVICES IN AN EMERGING AND
     UNCERTAIN INTERNET CONNECTIVITY MARKET
 
     If the market for high performance Internet connectivity services fails to
develop, or develops more slowly than expected, or if our services do not
achieve widespread market acceptance, our business, financial condition and
results of operations would be significantly harmed. This market has only
recently begun to develop, is evolving rapidly and likely will be characterized
by an increasing number of entrants. There is significant uncertainty as to
whether this market ultimately will prove to be viable or, if it becomes viable,
that it will grow. Our future growth depends on the growth of the Internet as a
global communications and commerce medium. Even if Internet usage grows, we
cannot assure you that we will be able to successfully and cost-effectively
market and sell our services to a sufficiently large number of customers. We
typically charge more for our services than do our competitors, which may affect
market acceptance of our services. Furthermore, if the Internet becomes subject
to a form of central management, or if the Internet backbone providers establish
an economic settlement arrangement regarding the exchange of traffic between
backbones, the problems of congestion, latency and data packet loss addressed by
our Internet connectivity services could be largely resolved and our business,
financial condition and results of operations could be significantly harmed.
 
     In order to be successful in this emerging market, we must be able to
differentiate ourselves from the competition through service offerings and brand
name recognition. We cannot assure you that we will be successful in making this
differentiation or achieving widespread acceptance of our services, or that we
will not experience difficulties that could delay or prevent the successful
development, introduction or marketing of our services.
 
     OUR BUSINESS IS DEPENDENT ON THE CONTINUED GROWTH IN USE AND IMPROVEMENT OF
     THE INTERNET
 
     Critical issues concerning the commercial use of the Internet remain
unresolved and may affect the growth of Internet use, especially in the business
market targeted by us. Despite growing interest in the varied commercial uses of
the Internet, many businesses have been deterred from purchasing Internet
connectivity services for a number of reasons, including inconsistent quality of
service, lack of availability of cost-effective, high-speed options, a limited
number of local access points for corporate users, inability to integrate
business applications on the Internet, the need to deal with
 
                                       15

<PAGE>   25
 
multiple and frequently incompatible vendors and a lack of tools to simplify
Internet access and use. Capacity constraints caused by growth in the use of the
Internet may, unless resolved, impede further development of the Internet to the
extent that users experience delays, transmission errors and other difficulties.
Further, the adoption of the Internet for commerce and communications,
particularly by those individuals and enterprises that have historically relied
upon alternative means of commerce and communication, generally requires the
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, enterprises that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be particularly reluctant or slow to adopt a new strategy that may make their
existing personnel and infrastructure obsolete. The failure of the market for
business related Internet solutions to further develop could cause our business,
financial condition and results of operations to suffer.
 
     IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID
     TECHNOLOGICAL CHANGE, OUR BUSINESS COULD SUFFER
 
     The Internet connectivity industry is characterized by rapidly changing
technology, industry standards, customer needs and competition, as well as by
frequent new product and service introductions. If we do not successfully use or
develop new technologies, adapt our network infrastructure to changing customer
requirements and industry standards, introduce new services or enhance our
existing services on a timely basis, or if new technologies or enhancements used
or developed by us do not gain market acceptance, our business could be hurt.
While continuing to develop our business model, deploy additional P-NAPs and
offer additional services, our future success will depend, in part, on our
ability to accomplish all of the following in a timely and cost-effective
manner:
 
     - effectively use and integrate leading technologies;
 
     - continue to develop our technical expertise;
 
     - enhance our current Internet connectivity services;
 
     - develop new services that meet changing customer needs;
 
     - achieve significant market acceptance of our services; and
 
     - influence and respond to emerging industry standards and other changes.
 
     We cannot assure you that we will successfully use or develop new
technologies, introduce new services or enhance our existing services on a
timely basis, if at all, or that new technologies or enhancements used or
developed by us will achieve market acceptance. Our pursuit of necessary
technological advances may require substantial time and expense. In addition, we
cannot assure you that, if required, we will successfully adapt our network and
services to alternate access devices and technologies.
 
     If our services do not continue to be compatible and interoperable with
products and architectures offered by other industry members, our ability to
compete could be impaired. Our ability to compete successfully is dependent, in
part, upon the continued compatibility and interoperability of our services with
products and architectures offered by various other industry participants.
Although we intend to support emerging standards in the market for Internet
connectivity, we cannot assure you that we will be able to conform to new
standards in a timely fashion, if at all, or maintain a competitive position in
the market. New technologies and industry standards have the potential to
replace or provide lower cost alternatives to our services. The adoption of such
new technologies or industry standards could render our existing services
obsolete and unmarketable. For example, our services rely on the continued
widespread commercial use of the Transmission Control Protocol/Internetwork
Protocol, commonly known as TCP/IP. Alternative open
 
                                       16

<PAGE>   26
 
protocol and proprietary protocol standards could emerge and become widely
adopted. A resulting reduction in the use of TCP/IP could render our services
obsolete and unmarketable. Our failure to anticipate the prevailing standard or
the failure of a common standard to emerge could hurt our business. Further, we
anticipate the introduction of other new technologies, such as voice and fax
over Internet Protocol, virtual private network services, multimedia document
distribution and audio and video streaming, requiring broadband access to the
Internet, but we cannot assure you that such technologies will create
opportunities for us. If alternative technologies are developed that make our
services obsolete, our business, financial condition and results of operations
will be significantly harmed.
 
     WE COULD EXPERIENCE SYSTEM FAILURES AND CAPACITY CONSTRAINTS, WHICH WOULD
     AFFECT OUR ABILITY TO COMPETE
 
     Interruptions in service to our customers could hurt our business. Our
operations depend upon our ability to protect our customers' data and equipment,
our equipment and our network infrastructure, including our connections to our
backbone providers, against damage from human error or "acts of God." Even if we
take precautions, the occurrence of a natural disaster or other unanticipated
problem could result in interruptions in the services we provide to our
customers.
 
     At this time, we do not have a formal disaster recovery plan. Although we
have built redundancy into our network and hosting facilities, our network is
currently subject to various single points of failure. For example, a problem
with one or more of our backbone providers could cause an interruption in the
services we provide to some of our customers. Any interruptions in service
could:
 
     - cause end users to seek damages from us for losses incurred;
 
     - require us to spend more money replacing existing equipment, expanding
       facilities or adding redundant facilities;
 
     - cause us to spend money on existing or new equipment and infrastructure
       earlier than we plan;
 
     - damage our reputation for reliable service;
 
     - cause existing customers to cancel our service; or
 
     - make it more difficult for us to attract new customers and partners.
 
     Any of these results could hurt our business.
 
     Failure of the backbone providers and other Internet infrastructure
companies to continue to grow in an orderly manner could result in service
interruptions. While the national telecommunications networks and Internet
infrastructures have historically developed in an orderly manner, there is no
guarantee that this will continue as more services, users and equipment connect
to the networks. Failure by our telecommunications and Internet service
providers to provide us with the data communications capacity we require could
cause service interruptions, which could hurt our business.
 
     OUR NETWORK AND SOFTWARE ARE VULNERABLE TO SECURITY BREACHES AND SIMILAR
     THREATS WHICH COULD RESULT IN OUR LIABILITY FOR DAMAGES AND HARM OUR
     REPUTATION
 
     Despite the implementation of network security measures, the core of our
network infrastructure is vulnerable to computer viruses, break-ins, network
attacks and similar disruptive problems. This could result in our liability for
damages, and our reputation could suffer, thereby deterring potential customers
from working with us. Security problems caused by third parties could lead to
interruptions and delays or to the cessation of service to our customers.
Furthermore, inappropriate use of the network by third parties could also
jeopardize the security of confidential information stored in our computer
systems and in those of our customers.
 
                                       17

<PAGE>   27
 
     Although we intend to continue to implement industry-standard security
measures, in the past some of these industry-standard measures have occasionally
been circumvented by third parties, although not in our system. Therefore, we
cannot assure you that the measures we implement will not be circumvented. The
costs and resources required to eliminate computer viruses and alleviate other
security problems may result in interruptions, delays or cessation of service to
our customers, which could hurt our business.
 
     CHANGES IN GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
 
     There is currently only a small body of laws and regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, international, federal, state and
local governments may adopt laws and regulations which affect the Internet. The
nature of any new laws and regulations and the manner in which existing and new
laws and regulations may be interpreted and enforced cannot be fully determined.
The adoption of any future laws or regulations might decrease the growth of the
Internet, decrease demand for our services, impose taxes or other costly
technical requirements or otherwise increase the cost of doing business on the
Internet or in some other manner have a significantly harmful effect on us or
our customers. The government may also seek to regulate some segments of our
activities as it has with basic telecommunications services. Moreover, the
applicability to the Internet of existing laws governing intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment, personal privacy and other issues is uncertain and
developing. We cannot predict the impact, if any, that future regulation or
regulatory changes may have on our business.
 
RISKS RELATED TO OUR OFFERING
 
     OUR STOCK HAS NO PRIOR TRADING MARKET; YOU MAY NOT BE ABLE TO RESELL YOUR
     STOCK AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE
 
     Before this offering, there has not been a public trading market for our
common stock and there are no assurances that an active trading market for our
common stock will develop or be sustained after this offering. Further, the
market price of our common stock may decline below our initial public offering
price. The initial public offering price will be determined by negotiations
between the representatives of the underwriters and us. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
 
     INTERNET RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY
     MAY DEPRESS OUR STOCK PRICE
 
     The stock market and specifically the stock prices of Internet related
companies have been very volatile. This volatility is often not related to the
operating performance of the companies. This broad market volatility and
industry volatility may reduce the price of our common stock, without regard to
our operating performance. Due to this volatility, the market price of our
common stock could significantly decrease.
 
     SIGNIFICANT SHAREHOLDERS AND CURRENT MANAGEMENT WILL CONTROL APPROXIMATELY
          % OF OUR COMMON STOCK AFTER THIS OFFERING, AND THESE PARTIES MAY HAVE
     CONFLICTS OF INTEREST
 
     Immediately following this offering, Morgan Stanley Venture Partners III,
L.P. and certain affiliated funds, collectively, Morgan Stanley Dean Witter
Venture Partners, H&Q InterNAP Investors, L.P., Oak Investment Partners VIII,
L.P., Vulcan Ventures Incorporated and Robert J. Lunday, Jr. will beneficially
own approximately      %,      %,      %,      % and      %, respectively, of
our outstanding common stock. See "Principal Shareholders" and "Underwriters".
In
 
                                       18

<PAGE>   28
 
addition, our executive officers and directors may be deemed to beneficially own
in the aggregate approximately      % of our outstanding common stock, including
shares of our common stock owned by and Robert J. Lunday, Jr. that may be deemed
to be owned by some of our officers and directors as a result of their
relationships with these entities. Accordingly, Morgan Stanley Dean Witter
Venture Partners, H&Q InterNAP Investors, L.P., Oak Investment Partners VIII,
L.P., Vulcan Ventures Incorporated and Robert J. Lunday, Jr. and our executive
officers and directors, whether acting alone or together, will be able to exert
considerable influence over any stockholder vote, including any vote on the
election or removal of directors and any merger, consolidation or sale of all or
substantially all of our assets, and control our management and affairs. This
control could discourage others from initiating potential merger, takeover or
other change in control transactions. As a consequence, our business could be
hurt. Each of Morgan Stanley Dean Witter Venture Partners, H&Q InterNAP
Investors, L.P., Oak Investment Partners VIII, L.P. and Vulcan Ventures
Incorporated has one representative on our board of directors. In addition,
Robert J. Lunday, Jr. is one of our directors.
 
     FUTURE SALES OF OUR COMMON STOCK BY OUR EXISTING SHAREHOLDERS COULD CAUSE
     OUR STOCK PRICE TO FALL
 
     If our shareholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. Such sales might also make it more difficult
for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate. After completion of this offering, we will have
               shares of common stock outstanding, assuming no exercise of
outstanding options or warrants after June 30, 1999. For further information
regarding sales of stock subsequent to this offering, see "Shares Eligible for
Future Sale" and "Underwriting."
 
     OUR MANAGEMENT HAS BROAD DISCRETION IN THE APPLICATION OF PROCEEDS, WHICH
     MAY INCREASE THE RISK THAT THE PROCEEDS WILL NOT BE APPLIED EFFECTIVELY
 
     The net proceeds of this offering are not allocated for specific purposes.
Our management will have broad discretion in determining how to spend the
proceeds of this offering and may spend proceeds in a manner that our
shareholders may not deem desirable.
 
     YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION OF BOOK VALUE PER
     SHARE
 
     The initial public offering price of our common stock will be substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. Therefore, based upon an assumed initial
public offering price of $     per share, if you purchase our common stock in
this offering, you will incur immediate dilution of approximately $          .
If additional shares are sold by the underwriters following exercise of their
over-allotment option, or if outstanding options or warrants to purchase shares
of common stock are exercised, there will be further dilution.
 
     WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT MAY DISCOURAGE TAKE-OVER
     ATTEMPTS AND DEPRESS THE MARKET PRICE OF OUR STOCK
 
     Provisions of our amended and restated articles of incorporation and
by-laws, as amended, as well as provisions of Washington law, may make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our shareholders. See "Descriptions of Capital Stock" for a discussion of
such anti-takeover provisions.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
     This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by
 
                                       19

<PAGE>   29
 
terminology such as "may," "will," "should," "except," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined under "Risk Factors." These factors may cause our actual results
to differ materially from any forward-looking statement.
 
     Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
 
                                       20

<PAGE>   30
 

                                USE OF PROCEEDS
 
     The net proceeds to be received by us from the sale of
               shares of common stock in this offering are estimated to be
$          ($          if the underwriters exercise their over-allotment option
in full), at an assumed initial public offering price of $     per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
 
     We expect to use the net proceeds primarily for capital expenditures
associated with the expansion of our network, and for general corporate
purposes, including working capital. The amounts we actually expend for this
expansion and other purposes may vary significantly and will depend on a number
of factors, including the amount of our future revenues and other factors
described under "Risk Factors." Accordingly, our management will retain broad
discretion in the allocation of the net proceeds of this offering. A portion of
the net proceeds may also be used to acquire or invest in complementary
businesses, technologies, product lines or products. We have no current plans,
agreements or commitments with respect to any acquisitions, and we are not
currently engaged in any negotiations with respect to any such transaction.
Pending these uses, the net proceeds of this offering will be invested in short
term, interest-bearing, investment grade securities.
 

                                DIVIDEND POLICY
 
     We have never declared nor paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. In addition, our loan and security
agreement with a commercial bank prohibits the payment of dividends.
 
                                       21

<PAGE>   31
 

                                 CAPITALIZATION
 
     The following table sets forth our capitalization as of June 30, 1999:
 
     - on an actual basis,
 
     - on a pro forma basis to reflect the conversion upon the closing of this
       offering of all outstanding shares of preferred stock into 49,469,479
       shares of common stock; and
 
     - on a pro forma as adjusted basis to reflect the sale of the common stock
       offered in this offering at an assumed initial public offering price of
       $     per share, and the receipt of the net proceeds therefrom, after
       deducting estimated underwriting discounts and commissions and estimated
       offering expenses payable by us.
 
     This information should be read in conjunction with our unaudited financial
statements and our unaudited pro forma financial information included elsewhere
in this prospectus.
 

<TABLE>
<CAPTION>
                                                                  AS OF JUNE 30, 1999
                                                        ---------------------------------------
                                                                                     PRO FORMA
                                                         ACTUAL      PRO FORMA      AS ADJUSTED
                                                        --------   --------------   -----------
                                                           (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                     <C>        <C>              <C>
Capital lease obligations, less current portion.......  $  6,776      $  6,776        $ 6,776
                                                        --------      --------        -------
Shareholders' equity:
  Convertible preferred stock: $.001 par value per
     share, 50,069,615 shares authorized, 49,469,479
     issued and outstanding, actual; 10,000,000 shares
     authorized, no shares issued and outstanding, pro
     forma and pro forma as adjusted..................        50            --             --
  Common stock: $.001 par value per share, 300,000,000
     shares authorized, 4,031,749 issued and
     outstanding, actual; 300,000,000 shares
     authorized, 53,501,228 shares issued and
     outstanding, pro forma; and 500,000,000 shares
     authorized,           shares issued and
     outstanding, pro forma as adjusted...............         4            54
  Additional paid-in capital..........................    57,023        57,023
  Deferred stock compensation.........................   (14,113)      (14,113)
  Accumulated deficit.................................   (25,690)      (25,690)
                                                        --------      --------        -------
     Total shareholders' equity.......................    17,274        17,274
                                                        --------      --------        -------
          Total capitalization........................  $ 24,050      $ 24,050        $
                                                        ========      ========        =======
</TABLE>

 
     This capitalization table excludes the following shares:
 
     - 6,136,622 shares subject to options outstanding as of June 30, 1999 with
       a weighted average exercise price of $1.58 per share;
 
     - 6,703,296 shares that could be issued under our stock plans; and
 
     - 600,136 shares issuable upon exercise of outstanding warrants at a
       weighted average exercise price of $.60 per share. See "Description of
       Capital Stock" and "Management -- Incentive Stock Plans."
 
                                       22

<PAGE>   32
 
                                    DILUTION
 
     Our pro forma net tangible book value as of June 30, 1999 was approximately
$     million, or approximately $     per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the number of outstanding shares of common
stock, assuming conversion of all outstanding shares of preferred stock into
common stock. After giving effect to our sale of the                shares of
common stock in this offering at an assumed initial public offering price of
$     per share, and our receipt of the estimated net proceeds therefrom, our
pro forma net tangible book value as of June 30, 1999 would have been
approximately $     million, or $     per share. This represents an immediate
increase in net tangible book value of $     per share to existing shareholders
and an immediate dilution of $     per share to new investors. The following
table illustrates this per share dilution:
 

<TABLE>
    <S>                                                           <C>       <C>
    Assumed initial public offering price per share.............            $
      Pro forma net tangible book value per share as of June 30,
         1999...................................................  $
      Increase per share attributable to new investors..........
                                                                  -------
    Pro forma net tangible book value per share after this
      offering..................................................
                                                                            -------
    Dilution per share to new investors.........................            $
                                                                            =======
</TABLE>

 
     The following table summarizes, on a pro forma basis as of June 30, 1999,
the differences between existing shareholders and the purchasers of shares in
this offering (at an assumed initial public offering price of $     per share)
with respect to the number of shares of common stock purchased, the total
consideration paid and the average price per share paid, before deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by us:
 

<TABLE>
<CAPTION>
                                    SHARES PURCHASED        TOTAL CONSIDERATION       AVERAGE
                                 ----------------------    ----------------------    PRICE PER
                                   NUMBER       PERCENT      AMOUNT       PERCENT      SHARE
                                 -----------    -------    -----------    -------    ---------
<S>                              <C>            <C>        <C>            <C>        <C>
Existing shareholders..........   53,501,228         %     $$40,948,275        %       $ .77
New investors..................
                                 -----------      ---      -----------      ---
          Total................                      %     $                   %
                                 ===========      ===      ===========      ===
</TABLE>

 
     The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding as of June 30, 1999. As of June 30, 1999, there were
options outstanding to purchase a total of 6,136,622 shares with a weighted
average exercise price of $1.58 per share and warrants outstanding to purchase a
total of 600,136 shares with a weighted average exercise price of $.60 per
share. To the extent that any of these options or warrants are exercised, there
will be further dilution to new investors.
 
                                       23

<PAGE>   33
 
                            SELECTED FINANCIAL DATA
     The following selected financial data are qualified by reference to, and
should be read in conjunction with, our financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus. The statement of
operations data presented below for the period from inception (May 1, 1996) to
December 31, 1996 and for the years ended December 31, 1997 and 1998 and the
selected balance sheet data at December 31, 1997 and 1998 are derived from our
financial statements that have been audited by PricewaterhouseCoopers LLP,
independent accountants, included elsewhere in this prospectus. The selected
balance sheet data at December 31, 1996 are derived from our financial
statements that have also been audited by PricewaterhouseCoopers LLP and that
are not included in this prospectus. The selected statement of operations data
for the six months ended June 30, 1998 and 1999 and the balance sheet data at
June 30, 1999 are derived from our unaudited financial statements included
elsewhere in this prospectus. The unaudited financial statements include, in the
opinion of our management, all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and results of operations for these periods. The financial data for the
six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999 or any other future
period.
 

<TABLE>
<CAPTION>
                                                                              YEAR ENDED         SIX MONTHS ENDED
                                                  PERIOD FROM INCEPTION      DECEMBER 31,            JUNE 30,
                                                    (MAY 1, 1996) TO      ------------------    -------------------
                                                    DECEMBER 31, 1996      1997       1998       1998        1999
                                                  ---------------------   -------    -------    -------    --------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>                     <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................          $  44           $ 1,045    $ 1,957    $   731    $  3,410
                                                          -----           -------    -------    -------    --------
Costs and expenses:
  Cost of network and customer support..........            321             1,092      3,216        994       7,906
  Product development...........................            184               389        754        318       1,395
  Sales and marketing...........................             78               261      2,822        352       5,869
  General and administrative....................            378               713      1,910        594       2,905
  Amortization of deferred stock compensation...             --                --        205         19       1,787
                                                  -------------           -------    -------    -------    --------
         Total operating costs and expenses.....            961             2,455      8,907      2,277      19,862
                                                  -------------           -------    -------    -------    --------
Loss from operations............................           (917)           (1,410)    (6,950)    (1,546)    (16,452)
Other income (expense):
  Interest income...............................              6                36        169        121         450
  Interest and financing expense................            (48)             (235)       (90)       (36)       (147)
  Loss on disposal of assets....................             --                --       (102)        --          --
                                                  -------------           -------    -------    -------    --------
Net loss........................................          $(959)          $(1,609)   $(6,973)   $(1,461)   $(16,149)
                                                  -------------           -------    -------    -------    --------
                                                  -------------           -------    -------    -------    --------
Basic and diluted net loss per share(1).........          $(.29)          $  (.48)   $ (2.09)   $  (.44)   $  (4.78)
                                                  -------------           -------    -------    -------    --------
                                                  -------------           -------    -------    -------    --------
Weighted average shares used to compute basic
  and diluted net loss per share(1).............          3,333             3,333      3,336      3,336       3,378
                                                  -------------           -------    -------    -------    --------
                                                  -------------           -------    -------    -------    --------
Pro forma basic and diluted net loss per
  share(2)......................................                                     $  (.31)              $   (.34)
                                                                                     -------               --------
                                                                                     -------               --------
Weighted average shares used in computing pro
  forma basic and diluted net loss per
  share(2)......................................                                      22,733                 47,771
                                                                                     =======               ========
</TABLE>

 

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31,
                                                              --------------------------    AS OF JUNE 30,
                                                               1996      1997      1998          1999
                                                              ------    ------    ------    --------------
                                                                             (IN THOUSANDS)
<S>                                                           <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...........  $  145    $4,770    $  275       $13,296
Total assets................................................   1,099     5,987     7,487        30,830
Capital lease obligations, less current portion.............     421       240     2,342         6,776
Total shareholders' equity (deficit)........................      43     4,829      (436)       17,274
</TABLE>

 
-------------------------
(1) See note 1 of notes to financial statements for a description of the
    computation of basic and diluted net loss per share and the number of shares
    used to compute basic and diluted net loss per share.
(2) Pro forma per share calculations reflect the conversion of preferred stock
    into shares of common stock as if the conversion occurred as of the date of
    original issuance.
 
                                       24

<PAGE>   34
 

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     You should read the following discussion and analysis together with our
financial statements, including the notes, appearing elsewhere in this
prospectus. Some information contained in the discussion and analysis set forth
below and elsewhere in this prospectus, including information with respect to
our plans and strategy for our business and related financing, includes
forward-looking statements that involve risk and uncertainties. See "Risk
Factors" for a discussion of important factors that could cause actual results
to differ materially from the results described in or implied by the
forward-looking statements contained in this prospectus.
 
OVERVIEW
 
     We are a leading provider of fast, reliable and centrally managed Internet
connectivity services targeted at businesses seeking to maximize the performance
of mission-critical Internet-based applications. Customers connected to one of
our P-NAPs have their data optimally routed to and from destinations on the
Internet in a manner that minimizes the use of congested public NAPs and private
peering points. This optimal routing of data traffic over the multiplicity of
networks that comprise the Internet enables higher transmission speeds, lower
instances of packet loss and greater quality of service. As of June 30, 1999, we
provided our high quality Internet connectivity services to approximately 130
customers, including Amazon.com, Fidelity Investments, Go2Net, ITXC, Nasdaq,
TheStreet.com and WebTV Networks.
 
     We were founded in May 1996 and began selling Internet connectivity
services from our first P-NAP, located in Seattle, during October 1996. We began
selling services from our second and third P-NAPs in New York City and San Jose
by December 1998. During the first six months of 1999, we began selling services
from our P-NAPs located in the Washington D.C., Los Angeles, Chicago and Boston
metropolitan areas. In addition, we expect to complete the deployment of five
additional P-NAPs in the United States by the end of 1999, bringing the total
number of revenue-generating P-NAPs to 12 by the end of 1999.
 
     After we decide to open a new P-NAP, we enter into a deployment phase which
typically lasts four to six months, during which time we undertake to complete
the necessary arrangements required to make the P-NAP commercially ready for
service. Among other things, this usually entails obtaining co-location space to
locate our equipment, entering into agreements with backbone providers,
obtaining local loop connections from local telecommunications providers,
building P-NAPs and initiating pre-sales and marketing activities. Consequently,
we usually incur a significant amount of upfront costs related to making a P-NAP
commercially ready for service prior to generating revenues. Therefore, our
results of operations will be negatively affected during times of P-NAP
deployment.
 
     Our customers are primarily businesses that desire high performance
Internet connectivity services in order to run mission-critical Internet-based
applications. Due to our high quality of service we generally price our services
at a premium to providers of conventional Internet connectivity services. We
expect to remain a premium provider of high quality Internet connectivity
services and anticipate continuing our pricing policy in the future. We believe
customers will continue to demand the highest quality of service as their
Internet connectivity needs grow and become even more complex and, as such, will
continue to pay a premium for high quality of service.
 
     Our revenues are generated primarily from the sale of Internet connectivity
services and, to a lesser extent, other ancillary services primarily provided
from our Seattle data center, such as co-location, web hosting and server
management services, and installation services at fixed rate or usage
 
                                       25

<PAGE>   35
 
based pricing to our customers that desire a DS-3 or faster connection. We offer
T-1 connections only at a fixed rate. We recognize our revenues when we have
provided the related services.
 
     Network and customer support costs are primarily comprised of the costs for
connecting to and accessing Internet backbone providers, as well as the costs
related to deploying, operating, installing and maintaining P-NAPs and our
network operations center. To the extent a P-NAP is located a distance from the
respective Internet backbone providers, we may incur additional local loop
charges on a recurring basis. Additionally, rental fees and depreciation costs
related to our P-NAPs are included in cost of network and customer support.
 
     Product development costs consist principally of compensation and other
personnel costs, consultant fees and prototype costs related to the design,
development and testing of our proprietary technology, enhancement of our
network management software and development of our internal systems.
Significantly all of our product development costs are expensed as incurred.
 
     Sales and marketing costs consist of compensation, commissions and other
costs for personnel engaged in marketing, sales and field service support
functions, as well as collateral advertising, tradeshows, direct response
programs, new P-NAP launch events, management of our web site and other
promotional costs.
 
     General and administrative costs consist primarily of compensation and
other expenses for executive, finance, human resources and administrative
personnel, professional fees and other general corporate costs.
 
     During the year ended December 31, 1998 and the six months ended June 30,
1999, in connection with the grant of certain stock options to employees, we
recorded deferred stock compensation totaling $16.1 million, representing the
difference between the deemed fair value of our common stock on the date such
options were granted and the exercise price. Such amount is included as a
reduction of shareholders' equity and is being amortized over the vesting period
of the individual options, generally four years, using an accelerated method as
described in Financial Accounting Standards Board Interpretation No. 28. We
recorded amortization of deferred stock compensation in the amount of $205,000
for the year ended December 31, 1998 and $1.8 million for the six months ended
June 30, 1999. At June 30, 1999, we had a total of $14.1 million remaining to be
amortized over the corresponding vesting periods of the stock options.
 
     The revenue and income potential of our business and market is unproven,
and our limited operating history makes it difficult to evaluate our prospects.
We have only been in existence since 1996, and our services are only offered in
limited regions. We have incurred net losses in each quarterly and annual period
since our inception, and as of June 30, 1999, our accumulated deficit was $25.7
million.
 
                                       26

<PAGE>   36
 
QUARTERLY RESULTS OF OPERATIONS
 
     The following tables set forth our statement of operations data for the six
quarters ended June 30, 1999, as well as the percentage of total revenues
represented by each item. This information has been derived from our unaudited
financial statements. In the opinion of our management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements appearing elsewhere in this prospectus and include all adjustments,
consisting only of normal recurring adjustments that we consider necessary for a
fair presentation of such information. The quarterly data should be read in
conjunction with our audited financial statements and the notes thereto
appearing elsewhere in this prospectus. The results of operations for any one
quarter are not necessarily indicative of the results of operations for any
future period.
 

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                    ----------------------------------------------------------------
                                                    MAR. 31,   JUN. 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUN. 30,
                                                      1998       1998       1998        1998       1999       1999
                                                    --------   --------   ---------   --------   --------   --------
                                                                             (IN THOUSANDS)
<S>                                                 <C>        <C>        <C>         <C>        <C>        <C>
Revenues..........................................   $ 314      $  417     $   472    $   754    $ 1,244    $  2,166
                                                     -----      ------     -------    -------    -------    --------
Costs and expenses:
  Costs of network and customer support...........     440         554         797      1,425      2,346       5,560
  Product development.............................     160         158         187        249        565         830
  Sales and marketing.............................     128         224         715      1,755      2,236       3,633
  General and administrative......................     235         359         487        829      1,172       1,733
  Amortization of deferred stock compensation.....      10           9         110         76        349       1,438
                                                     -----      ------     -------    -------    -------    --------
         Total operating costs and expenses.......     973       1,304       2,296      4,334      6,668      13,194
                                                     -----      ------     -------    -------    -------    --------
Loss from operations..............................    (659)       (887)     (1,824)    (3,580)    (5,424)    (11,028)
Other income (expense):
  Interest income.................................      65          56          38         10        206         244
  Interest and financing expense..................     (12)        (24)        (27)       (27)       (57)        (90)
  Loss on disposal of assets......................      --          --          --       (102)        --          --
                                                     -----      ------     -------    -------    -------    --------
Net loss..........................................   $(606)     $ (855)    $(1,813)   $(3,699)   $(5,275)   $(10,874)
                                                     =====      ======     =======    =======    =======    ========
</TABLE>

 

<TABLE>
<CAPTION>
                                                                       AS A PERCENTAGE OF REVENUES
                                                     ----------------------------------------------------------------
                                                     MAR. 31,   JUN. 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUN. 30,
                                                       1998       1998       1998        1998       1999       1999
                                                     --------   --------   ---------   --------   --------   --------
<S>                                                  <C>        <C>        <C>         <C>        <C>        <C>
Revenues...........................................     100%       100%       100%        100%       100%       100%
                                                       ----       ----       ----        ----       ----       ----
Costs and expenses:
  Costs of network and customer support............     140        133        170         189        189        257
  Product development..............................      51         38         40          33         45         38
  Sales and marketing..............................      41         54        151         233        180        168
  General and administrative.......................      75         86        103         110         94         80
  Amortization of deferred stock compensation......       3          2         23          10         28         66
                                                       ----       ----       ----        ----       ----       ----
         Total operating costs and expenses........     310        313        487         575        536        609
                                                       ----       ----       ----        ----       ----       ----
Loss from operations...............................    (210)      (213)      (387)       (475)      (436)      (509)
Other income (expense):
  Interest income..................................      21         14          8           1         17         11
  Interest and financing expense...................      (4)        (6)        (5)         (4)        (5)        (4)
  Loss on disposal of assets.......................      --         --         --         (13)        --         --
                                                       ----       ----       ----        ----       ----       ----
Net loss...........................................    (193)%     (205)%     (384)%      (491)%     (424)%     (502)%
                                                       ====       ====       ====        ====       ====       ====
</TABLE>

 
     Our quarterly operating results have fluctuated significantly. We expect
that future operating results will be subject to similar fluctuations for a
variety of factors, which are difficult or impossible to predict. See "Risk
Factors -- Fluctuations in Our Operating Results May Negatively Affect Our Stock
Price."
 
                                       27

<PAGE>   37
 
     SIX MONTHS ENDED JUNE 30, 1998 AND 1999
 
     Revenues. Revenues increased from $731,000 for the six-month period ended
June 30, 1998 to $3.4 million for the six-month period ended June 30, 1999. This
increase of $2.7 million was primarily due to increased Internet connectivity
revenues. The increase in Internet connectivity revenues was attributable to the
increased sales at our existing P-NAPs and the opening of six additional P-NAPs
during 1999 and the second half of 1998, resulting in a total of seven
operational P-NAPs at June 30, 1999, as compared to one P-NAP at June 30, 1998.
 
     Costs of Network and Customer Support. Costs of network and customer
support increased from $1.0 million for the six-month period ended June 30, 1998
to $7.9 million for the six-month period ended June 30, 1999. This increase of
$6.9 million was primarily due to increased connectivity costs related to added
connections to Internet backbone providers at each P-NAP, and to a lesser
extent, increased compensation costs related to our network operations center,
depreciation expense related to the equipment at newly deployed P-NAPs and costs
related to the P-NAP deployment and customer installations. Network and customer
support costs as a percentage of total revenues are generally greater than 100%
for newly deployed P-NAPs, because we purchase Internet connectivity capacity
from the backbone providers in advance of securing new customers. We expect
these costs to increase in absolute dollars as we deploy additional P-NAPs.
 
     Product Development. Product development costs increased from $318,000 for
the six-month period ended June 30, 1998 to $1.4 million for the six-month
period ended June 30, 1999. This increase of $1.1 million was primarily due to
increased compensation costs related to increased head count and administrative
and facility costs for our product development department. We expect product
development costs to increase in absolute dollars for the foreseeable future.
 
     Sales and Marketing. Sales and marketing costs increased from $352,000 for
the six-month period ended June 30, 1998 to $5.9 million for the six-month
period ended June 30, 1999. This increase of $5.5 million was primarily due to
increased compensation costs, and to a lesser extent, facility and
communications costs related to the addition of sales offices. As part of our
expanded sales and marketing activities, we hired a vice president of sales and
marketing during the second quarter of 1998 and additional sales personnel
during 1999 and the second half of 1998.
 
     General and Administrative. General and administrative costs increased from
$594,000 for the six-months ended June 30, 1998 to $2.9 million for the
six-month period ended June 30, 1999. This increase of $2.3 million was
primarily due to increased compensation costs, increased depreciation and
amortization costs due to the addition of corporate office space during the
third quarter of 1998 and professional services costs. We expect general and
administrative costs to increase in absolute dollars as we deploy additional
P-NAPs.
 
     Other Income (Expense). Other income (expense) consists of interest income,
interest and financing expense and other non-operating expenses. Other income,
net, increased from $85,000 for the six-month period ended June 30, 1998 to
$303,000 for the six-month period ended June 30, 1999. This increase was
primarily due to interest income earned on the proceeds from the Series C
preferred stock financing, partially offset by increased interest expense on
capital lease obligations.
 
                                       28

<PAGE>   38
 
RESULTS OF OPERATIONS
 
     The following table sets forth, as a percentage of total revenues, selected
statement of operations data for the periods indicated:
 

<TABLE>
<CAPTION>
                                              PERIOD FROM       YEAR ENDED       SIX MONTHS
                                               INCEPTION       DECEMBER 31,    ENDED JUNE 30,
                                           (MAY 1, 1996) TO    ------------    --------------
                                           DECEMBER 31, 1996   1997    1998    1998     1999
                                           -----------------   ----    ----    -----    -----
<S>                                        <C>                 <C>     <C>     <C>      <C>
Revenues.................................          100%         100%    100%    100%     100%
                                                ------         ----    ----    ----     ----
Costs and expenses:
  Cost of network and customer support...          730          105     164     136      232
  Product development....................          418           37      39      43       41
  Sales and marketing....................          177           25     144      48      172
  General and administrative.............          859           68      98      81       85
  Amortization of deferred stock
     compensation........................           --           --      10       3       52
                                                ------         ----    ----    ----     ----
          Total operating costs and
             expenses....................        2,184          235     455     311      582
                                                ------         ----    ----    ----     ----
Loss from operations.....................       (2,084)        (135)   (355)   (211)    (482)
Other income (expense):
  Interest income........................           13            3       9      16       12
  Interest and financing expense.........         (109)         (22)     (5)     (5)      (4)
  Loss on disposal of assets.............           --           --      (5)     --       --
                                                ------         ----    ----    ----     ----
Net loss.................................       (2,180)%       (154)%  (356)%  (200)%   (474)%
                                                ======         ====    ====    ====     ====
</TABLE>

 
     INCEPTION TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1997 AND 1998
 
     Revenues. Revenues increased from $44,000 during the period from May 1,
1996 through December 31, 1996 to $1.0 million in 1997 and to $2.0 million in
1998. The increase of $1.0 million in 1997, as compared to the period ended
December 31, 1996, and the increase of $1.0 million in 1998, as compared to
1997, were primarily due to increased Internet connectivity revenues, other
ancillary service revenues and, to a lesser extent, installation fees. The
increase in Internet connectivity revenues was attributable to the deployment of
our first P-NAP at the end of 1996 and of two additional P-NAPs during 1998,
resulting in a total of three operational P-NAPs at December 31, 1998.
 
     Costs of Network and Customer Support. Costs of network and customer
support increased from $321,000 during the period from May 1, 1996 through
December 31, 1996 to $1.1 million in 1997 and to $3.2 million in 1998. Costs of
network and customer support increased by $771,000 in 1997, as compared to the
period ended December 31, 1996, and by $2.1 million in 1998, as compared to
1997. These increases were primarily due to increased connectivity costs related
to added connections to Internet backbone providers at each P-NAP, local loop
costs related to expansion of existing and deployment of new P-NAPs,
depreciation expense related to the equipment at newly deployed P-NAPs and costs
related to renting space for the newly deployed P-NAPs. In addition, the
increase in costs of network and customer support from 1997 to 1998 also
included increased compensation costs related to our network operations center.
 
     Product Development. Product development costs increased from $184,000
during the period from May 1, 1996 through December 31, 1996 to $389,000 in 1997
and to $754,000 in 1998. Product development costs increased by $205,000 in
1997, as compared to the period ended December 31, 1996, and by $365,000 in
1998, as compared to 1997. These increases were primarily due to increased
compensation costs in 1997 and 1998, and increased travel costs related to
developing systems at new
 
                                       29

<PAGE>   39
 
P-NAPs, training and support and administrative and facility costs for our
product development department.
 
     Sales and Marketing. Sales and marketing costs increased from $78,000
during the period from May 1, 1996 through December 31, 1996 to $261,000 in 1997
and to $2.8 million in 1998. Sales and marketing costs increased by $183,000 in
1997, as compared to the period ended December 31, 1996 and by $2.5 million in
1998, as compared to 1997. These increases were primarily due to increased
compensation costs, commissions, marketing costs, facility costs related to the
addition of remote sales offices, training and support costs, and travel and
entertainment costs and administrative costs related to developing and
maintaining the sales and marketing departments.
 
     General and Administrative. General and administrative costs increased from
$378,000 during the period from May 1, 1996 through December 31, 1996 to
$713,000 in 1997 and to $1.9 million in 1998. General and administrative costs
increased by $335,000 in 1997, as compared to the period ended 1996 and by $1.2
million in 1998, as compared to 1997. These increases were primarily due to
increased compensation costs, depreciation and amortization, facility costs,
office expense, outside consulting fees, travel costs related to the deployment
of new P-NAPs, communications costs, bad debt expense in 1998 and the subsequent
bankruptcy of a significant customer and an increase in general administrative
costs related to managing our business and operations.
 
     Other Income (Expense). Other expense, net, increased from $42,000 for the
period from May 1, 1996 through December 31, 1996 to $199,000 in 1997 and
decreased to $23,000 in 1998. Other expense, net, increased by $157,000 in 1997
as compared to the period ended December 31, 1996 primarily due to an expense of
$124,000 related to the issuance of warrants to purchase Series B preferred
stock, and additional interest expense on capital lease obligations, partially
offset by additional interest income on the proceeds from the Series B preferred
stock financing. Other expense, net, decreased by $176,000 in 1998 primarily due
to increased interest income earned on the proceeds from the Series B preferred
stock financing, offset by a loss on disposal of assets of $102,000.
 
PROVISION FOR INCOME TAXES
 
     We incurred operating losses from inception through June 30, 1999, and
therefore have not recorded a provision for income taxes. We have recorded a
valuation allowance for the full amount of our net deferred tax assets, as the
future realization of the tax benefit is not currently likely.
 
     As of December 31, 1998, we had net operating loss carry-forwards of $7.2
million. These loss carry-forwards are available to reduce future taxable income
and expire at various dates through 2018. Under the provisions of the Internal
Revenue Code, certain substantial changes in our ownership may limit the amount
of net operating loss carry-forwards that could be utilized annually in the
future to offset taxable income.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Since our inception, we have financed our operations primarily through the
issuance of our equity securities, capital leases and bank loans. We have raised
an aggregate of approximately $40.7 million, net of offering expenses, through
the sale of our equity securities.
 
     At June 30, 1999, we had cash, cash equivalents and short-term investments
of $13.3 million. We have a revolving line of credit under which we are allowed
to borrow, subject to certain conditions, up to $750,000. At June 30, 1999, we
had drawn $625,000 on the line of credit, with the remaining balance reserved as
collateral for our company credit cards.
 
                                       30

<PAGE>   40
 
     Net cash used in operations was $13.3 million for the six months ended June
30, 1999. Net cash used in operations was $5.3 million in 1998, $1.1 million in
1997 and $679,000 in the period ended December 31, 1996. Net cash used in
operations for the six months ended June 30, 1999 was primarily due to net
operating losses, increases in accounts receivable and prepaid expenses,
partially offset by non-cash charges and an increase in accounts payable. Net
cash used in operations for the year ended December 31, 1998 was primarily due
to net operating losses and increases in accounts receivable and prepaid
expenses, partially offset by non-cash charges and increases in accounts payable
and accrued liabilities. Net cash used in operations for the year ended December
31, 1997 was primarily due to net operating losses and accounts receivable,
partially offset by non-cash charges. Net cash used in operations for the period
ended December 31, 1996 was primarily due to operating losses and prepaid
expenses, partially offset by an increase in accounts payable.
 
     Net cash used in investing activities was $14.2 million for the six months
ended June 30, 1999. Net cash used in investing activities was $702,000 in 1998,
$141,000 in 1997 and $174,000 in the period ended December 31, 1996. Net cash
used in investing activities in each period reflects increased purchases of
property and equipment not financed by capital leases. Purchases of property and
equipment related to P-NAP deployments was primarily financed by capital leases
(such purchases are excluded from the net cash used in investing activities in
the statement of cash flows), and totaled $6.3 million for the six months ended
June 30, 1999, $3.6 million for the year ended 1998, $260,000 for the year ended
1997, and $740,000 for the period ended December 31, 1996. Additionally, for the
six month period ended June 30, 1999, $10.0 million was used to purchase short-
term investments.
 
     Net cash provided from financing activities was $30.6 million for the six
months ended June 30, 1999, $1.5 million in 1998, $5.9 million in 1997 and $1.0
million in the period ended December 31, 1996. Net cash from financing
activities primarily reflects proceeds from the private sales of our equity
securities.
 
     We expect to spend significant additional capital to recruit and train our
customer installation team and the sales force and to build out the sales
facilities related to newly deployed P-NAPs. In addition to P-NAP deployment,
although to a lesser extent, product development and the development of our
internal systems and software will continue to require significant capital
expenditures in the foreseeable future, as will the expansion of our marketing
efforts. We expect to continue to expend significant amounts of capital on
property and equipment related to the expansion of facility infrastructure,
computer equipment and for research and development laboratory and test
equipment to support on-going research and development operations.
 
     We believe that the net proceeds from this offering, together with our cash
and cash equivalents, short-term investments and funds available under the
revolving and capital lease lines will be sufficient to satisfy our cash
requirements for at least the next 12 months. Our management intends to invest
cash in excess of current operating requirements in short-term,
interest-bearing, investment-grade securities.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Substantially all of our cash equivalents, short-term investments and
capital lease obligations are at fixed interest rates, and therefore the fair
value of these instruments is affected by changes in market interest rates.
However, as of June 30, 1999, all of our cash equivalents mature within three
months and all of our short-term investments mature within one year. As of June
30, 1999, we believe the reported amounts of cash equivalents, short-term
investments and capital lease obligations to be reasonable approximations of
their fair values. As a result, we believe that the market risk arising from our
holdings of financial instruments is minimal.
 
                                       31

<PAGE>   41
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, which will be effective for us for the fiscal years and quarters beginning
after June 15, 2000, requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. We are assessing the requirements of SFAS No. 133 and
the effects, if any, on our financial position, results of operations and cash
flows.
 
     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of
Start-Up Activities." This standard requires companies to expense the costs of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The adoption of
SOP 98-5 did not have a material impact on our results of operations.
 
     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This standard
requires companies to capitalize qualifying computer software costs which are
incurred during the application development stage and amortize them over the
software's estimated useful life. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998, however early adoption is allowed. We adopted
the requirements of SOP 98-1 during 1998.
 
IMPACT OF YEAR 2000
 
     Many computers, software and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this design
decision, some of these systems could fail to operate or fail to produce correct
results if "00" is interpreted to mean 1900, rather than 2000. These problems
are widely expected to increase in frequency and severity as the year 2000
approaches, and are commonly referred to as the "Year 2000 problem."
 
     General Readiness Assessment. The Year 2000 problem may affect the network
infrastructure, computers, software and other equipment that we use, operate or
maintain for our operations. As a result, we have formalized our Year 2000
compliance plan, to be implemented by a team of employees, led by our internal
information technology staff, responsible for monitoring the assessment and
remediation status of our Year 2000 projects and reporting their status to the
audit committee of our board of directors. Additionally, according to our Year
2000 compliance plan, the project team has compiled a listing of all
mission-critical items, both internally developed and externally purchased,
which may be impacted by the Year 2000 problem. We are in the process of
obtaining verification or validation from any independent third parties whose
products and services are deemed mission-critical to our processes to assess and
correct any of our Year 2000 problems or the costs associated with these
products and services. We expect to have all third party verifications, or
replacement of the related item, completed by the end of the third quarter of
1999. We believe that we have identified most of the major computers, software
applications and related equipment used in connection with our internal
operations that will need to be evaluated to determine if they must be modified,
upgraded or replaced to minimize the possibility of a material disruption to our
business. We expect to complete this process before the occurrence of any
material disruption of our business.
 
     Assessment of Internal Infrastructure. Beginning in 1998, we began
assessing the ability of our internally developed software, infrastructure and
technologies to operate properly in the year 2000. We believe that our current
internally developed software, infrastructure and technologies are Year
 
                                       32

<PAGE>   42
 
2000 compliant. We have completed a testing plan and expect to complete
replacement of any required components by the end of the third quarter of 1999.
Additionally, as we design and develop new products, we subject them to testing
for Year 2000 compliance and the ability to distinguish between various date
formats.
 
     Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices may
be affected by the Year 2000 problem. We are currently contacting all related
third party suppliers or testing the related items. We expect to have this
process completed and necessary replacements finished by the end of third
quarter of 1999.
 
     Costs of Remediation. We estimate the total cost of completing any required
modifications, upgrades or replacements of our internal systems will not exceed
$50,000, most of which we expect to incur during calendar 1999. This estimate is
being monitored, and we will revise it as additional information becomes
available.
 
     Based on the activities described above, we do not believe that the Year
2000 problem will significantly harm our business or operating results. In
addition, we have not deferred any material information technology projects, nor
equipment purchases, as a result of our Year 2000 problem activities.
 
     Suppliers. As part of our Year 2000 plan, we intend to contact third-party
suppliers of components used in the delivery of our services to identify and, to
the extent possible, resolve issues involving the Year 2000 problem. However, we
have limited or no control over the actions of these third-party suppliers.
Thus, while we expect that we will be able to resolve any significant Year 2000
problems with these third parties, there can be no assurance that these
suppliers will resolve any or all Year 2000 problems before the occurrence of a
material disruption to the operation of our business. Any failure of these third
parties to timely resolve Year 2000 problems with their systems could
significantly harm our business, financial condition and results of operations.
 
     Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 problems that could significantly harm our business
operations. However, we believe that it is not possible to determine with
complete certainty that all Year 2000 problems affecting us have been identified
or corrected. The number of devices and systems that could be affected and the
interactions among these devices and systems are too numerous to address. In
addition, no one can accurately predict which Year 2000 problem-related failures
will occur or the severity, timing, duration, or financial consequences of these
potential failures. As a result, we believe that the following consequences are
possible:
 
     - a significant number of operational inconveniences and inefficiencies for
       us, our suppliers and our customers that will divert management's time
       and attention and financial and human resources from ordinary business
       activities;
 
     - possible business disputes and claims, including claims under our quality
       of service warranty, due to Year 2000 problems experienced by our
       customers and incorrectly attributed to our services or performance,
       which we believe will be resolved in the ordinary course of business; and
 
     - a few serious business disputes alleging that we failed to comply with
       the terms of contracts or industry standards of performance, some of
       which could result in litigation or contract termination.
 
     Contingency Plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct Year 2000 problems affecting
our internal systems are not effective. We
 
                                       33

<PAGE>   43
 
expect to complete our contingency plans by the end of the third quarter of
1999. Depending on the systems affected, these plans could include:
 
     - accelerated replacement of affected equipment or software;
 
     - short to medium-term use of backup equipment and software or other
       redundant systems;
 
     - increased work hours for our personnel or the hiring of additional
       information technology staff; and
 
     - the use of contract personnel to correct, on an accelerated basis, any
       Year 2000 problems that arise or to provide interim alternate solutions
       for information system deficiencies.
 
     Our implementation of any of these contingency plans could significantly
harm our business, financial condition and results of operations.
 
                                       34

<PAGE>   44
 

 
                                   BUSINESS
 
OVERVIEW
 
     InterNAP is a leading provider of fast, reliable and centrally managed
Internet connectivity services targeted at businesses seeking to maximize the
performance of mission-critical Internet-based applications. Customers connected
to one of our Private-Network Access Points, or P-NAPs, have their data
optimally routed to and from destinations on the Internet in a manner that
minimizes the use of congested public NAPs and private peering points. This
optimal routing of data traffic over the multiplicity of networks that comprise
the Internet enables higher transmission speeds, lower instances of data packet
loss and greater quality of service than services offered by conventional
Internet connectivity providers. As of June 30, 1999, we provided consistent
high performance Internet connectivity services to approximately 130 customers,
including Amazon.com, Fidelity Investments, Go2Net, ITXC, Nasdaq, TheStreet.com
and WebTV.
 
     We offer our high performance Internet connectivity services at dedicated
line speeds of 1.5 Megabits per second, or Mbps, to 155 Mbps to customers
desiring a superior level of Internet performance. We provide our high
performance connectivity services through the deployment of P-NAPs, which are
highly redundant network infrastructure facilities coupled with our proprietary
routing technology. P-NAPs maintain high speed, dedicated connections to major
global Internet networks, commonly referred to as backbones, such as AGIS, AT&T,
Cable & Wireless USA, GTE Internetworking, ICG Communications, Intermedia,
PSINet, Sprint, UUNET and Verio. In addition, we have entered into a traffic
exchange interconnect agreement with America Online, Inc. which provides us
direct access to AOL's network of over 19 million members. We currently operate
seven P-NAPs which are located in the Boston, Chicago, Los Angeles, New York,
San Jose, Seattle and Washington, D.C. metropolitan areas. We expect to complete
the deployment of an additional five P-NAPs in the United States by the end of
1999.
 
     We believe that our P-NAPs provide a quality of service over the public
Internet enabling our customers to realize the full potential of their existing
Internet-based applications, such as e-commerce and on-line trading. In
addition, we believe our P-NAPs will enable our customers to take advantage of
new services, such as voice and fax over Internet Protocol, virtual private
network services, multimedia document distribution and audio and video
streaming.
 
INDUSTRY BACKGROUND
 
     THE GROWING IMPORTANCE OF THE INTERNET FOR MISSION-CRITICAL INTERNET-BASED
     APPLICATIONS
 
     The Internet has emerged as a global medium for communications and
commerce. The growth in data that is transmitted over the Internet, or data
traffic, is driven by a number of factors, including the rapidly increasing
number of network-enabled and Internet-based applications, the growing number of
personal computers linked to the Internet, improvements in network-enabled
devices, servers and routers, and the increasing availability of broadband
connections. As an illustration of this growth, Pioneer Consulting, LLC
estimates that Internet bandwidth demand in North America will grow from 175
Gigabits per second in 1998 to 2,990 Gigabits per second in 2003, representing a
76% compound annual growth rate.
 
     Once primarily used for e-mail and retrieving information, the Internet is
now being used as a communications platform for an increasing number of
mission-critical Internet-based applications, such as those relating to
electronic commerce, virtual private networks, voice and fax over Internet
Protocol, supply chain management, customer service and project coordination. To
improve the
 
                                       35

<PAGE>   45
 
effectiveness of their mission-critical Internet-based applications, businesses
are requiring increasing levels of network performance, including speed,
reliability and manageability, across the Internet.
 
     The loss of data as it is transmitted over the Internet, or data packet
loss, and inefficiencies in transferring data across the Internet are
fundamental causes of unsatisfactory performance of Internet-based applications.
Many of these problems are caused by the architectural shortcomings of the
Internet that have led to the largely unorchestrated transfer of data traffic
from one commercially run network to another. The recent increases in network
capacity and improvements in the performance of network devices fail to address
many of the problems associated with exchanging data between the multiple
networks which comprise the Internet. Further, the popularity of the Internet
has resulted in an ever-increasing number of users transmitting rapidly
increasing volumes of data across the Internet.
 
     THE EMERGENCE OF MULTIPLE INTERNET BACKBONES
 
     The Internet originated as a restricted network designed to provide
efficient and reliable long distance data communications among the disparate
computer systems used by government funded researchers and organizations. As
businesses began to use the Internet for functions critical to their core
strategies, telecommunications companies established additional networks, or
backbones, to supplement the original public infrastructure and satisfy this
increasing demand. In this way, the original public Internet infrastructure has
grown into a "network of networks" run by numerous commercial telecommunications
companies, each of which manages its own backbone. Currently, the Internet is a
global collection of hundreds of interconnected computer networks. Of these
networks, approximately a dozen commercial backbones contain the majority of the
global addressable routes on the Internet. These backbones were developed at
great expense but are nonetheless constrained by the fundamental limitations of
the Internet's architecture. They must connect to one another, or peer, to
permit their customers to communicate with each other. Consequently, many
backbone providers have agreed to exchange large volumes of data traffic through
a limited number of public NAPs.
 
     Five major public NAPs are in use today, including the Metropolitan Area
Exchange East, or MAE East, near Washington, D.C. and MAE West in San Jose. The
public NAPs are not centrally managed and no single entity has the economic
incentive or ability to facilitate problem resolution, to optimize peering
within the public NAPs or to bring about centralized routing administration. As
a consequence of the lack of coordination among backbones at these public
peering points and in order to avoid the increasing congestion and resulting
data packet loss at the public NAPs, a number of the backbone providers have
established private interfaces connecting pairs of backbones for the exchange of
traffic. Although private peering arrangements are helpful for exchanging
traffic, they do not overcome the structural and economic shortcomings of the
Internet.
 
     THE PROBLEM OF INEFFICIENT ROUTING OF DATA TRAFFIC ON THE INTERNET
 
     Data packet loss is a fundamental cause of the slowness and unreliability
that are characteristic of the Internet today. Data packet loss occurs when the
devices handling data lose track of packets before they can be transferred, or
routed, to their destination. When this occurs, the computer that originally
sent a lost packet will resend it until it receives confirmation of receipt by
the destination device, thus compounding the congestion. Data packet loss most
frequently occurs at Internet exchange points, such as public NAPs and private
peering points. We believe that packet loss at the public NAPs can exceed 20%
during peak hours. This can have a dramatic impact on the effective speed at
which data is transmitted over the Internet. For example, according to an
industry source, downloading a file from a web site under conditions with 1%
data packet loss can take up to twice as long as doing so when there is no data
packet loss.
 
                                       36

<PAGE>   46
 
     Due to the Internet's lack of central management, there is no organized
mechanism to route traffic to avoid congestion at the public NAPs and private
peering points. The individual backbone providers only control the routing of
data packets within their backbones, and their routing practices tend to
compound the inefficiency of the Internet. When a backbone provider receives a
packet that is not destined for one of its own customers, it must route it to
another backbone provider to complete the delivery of the packet on the
Internet.
 
     Since the use of a public NAP or a private peering point typically involves
no economic settlement, a backbone provider will often route the data packet to
the nearest point of traffic exchange, in an effort to get the packet off its
network and onto a competitor's backbone as quickly as possible. In this manner,
the backbone provider reduces capacity and management burdens on its transport
network. Consequently, in order to complete a communication, data packets
ordinarily pass through multiple networks and peering points without regard to
congestion or other factors that inhibit performance. Further, once a data
packet leaves a backbone destined for another network, the backbone provider has
no way of controlling the quality of the end-to-end connection. As a result, it
is virtually impossible for a single backbone provider to offer a high quality
of service across disparate networks. For customers of conventional Internet
connectivity providers, this results in lost data packets, slower and more
erratic transmission speeds, and an overall lower quality of service. Equally
important, these customers have no control over these arrangements and have no
single point of contact that they can hold accountable for any decrease in
service levels, such as poor data transmission performance. An example of
routing over the Internet is depicted in the figure below.
                                   [GRAPHIC]
     The Internet is rapidly becoming a critically important medium for
communications and commerce. However, businesses are unable to benefit from the
full potential of the Internet primarily because peering and routing practices,
current routing technologies, and the Internet's architecture were not designed
to support today's large and rapidly growing volume of traffic. We believe the
emergence of technologies and applications that rely on network quality and
require consistent and high speed data transfer, such as voice and fax over
Internet Protocol, virtual private network services, multimedia document
distribution and audio and video streaming, will be hindered by the performance
problems of the Internet. We also believe the future of Internet connectivity
services will
 
                                       37

<PAGE>   47
 
be driven by providers that, through high performance Internet routing services,
provide consistent high quality of service and enable businesses to successfully
execute their mission-critical Internet-based applications over the public
network infrastructures.
 
THE INTERNAP SOLUTION
 
     We are a leading provider of fast, reliable and centrally managed Internet
connectivity services targeted at businesses seeking to maximize the performance
of mission-critical Internet-based applications. Utilizing our proprietary
network architecture and advanced routing technologies, we route our customers'
data in an optimal manner over the Internet. We currently operate seven P-NAPs
across the United States. Our P-NAP network model is depicted below:
                                   [GRAPHIC]
 
     By connecting to one of our P-NAPs, mission-critical inbound and outbound
data transmissions travel an optimal route to and from destinations on the
Internet. This optimal routing of data traffic over the Internet enables higher
transmission speeds, lower instances of data packet loss and greater quality of
service. Our high performance Internet connectivity services provide the
following key advantages:
 
     High Performance Connectivity. We route our customers' traffic over the
Internet in a way that we believe provides consistently greater speed, along
with superior end-to-end control, predictability and reliability, than services
offered by conventional Internet connectivity providers. Our P-NAPs have
high-speed, direct connections to major global Internet backbones. Our
proprietary technology may be used to route data packets directly to the
Internet backbone on which a given destination resides, thereby giving our
customers direct access to the destination network for a large majority of
global Internet addresses. This network architecture combined with our
proprietary routing technology generally bypasses congested public NAPs and
private peering points, reduces data packet loss and improves reliability and
performance for our customers to any of our multiple backbone connections. In
addition, customers directly connected to the same P-NAP get one-hop access when
communicating with each other, completely avoiding the public Internet.
 
                                       38

<PAGE>   48
 
     We use multiple connections to major backbones to create our own virtual
backbone, instead of owning or operating an expensive long-haul backbone
infrastructure. As a result, we can offer customers improved service levels by
optimally routing traffic between any two P-NAPs using our virtual backbone.
Consequently, any customer connected to any P-NAP will experience optimal public
backbone network performance in communicating with any other customer connected
to any other P-NAP. A model of InterNAP's virtual backbone created between any
two P-NAPs is depicted below:
                                   [GRAPHIC]
 
     Highly Reliable Network Architecture. P-NAPs are designed with a highly
redundant network infrastructure, including multiple local loop connections from
multiple carriers. This design minimizes interruptions of network operations. If
a backbone network connected to a P-NAP should fail, we can instantly reroute
data using any of the remaining networks connected to the P-NAP. As a result,
our customers experience more reliable services and are less likely to need and
pay for redundant Internet backbone connections.
 
     Superior Route Optimization and Management. Our proprietary routing
technology and network management system provide us with data that enables us to
manage network traffic and to offer economic settlements to backbone providers
for the transfer of our customers' data packets. As a result, we are able to
obtain full sets of global Internet Protocol routes from each backbone provider
connected to a P-NAP, and choose from among these routes the most optimal route
for our customers' traffic. We are therefore able to hold all of our backbone
providers accountable for performance within their respective networks. In
addition, because we manage all backbone connections into and out of each P-NAP,
we are able to centrally forecast and plan for upgrades. We believe this
consistently provides our customers with better service and minimizes congestion
and data packet loss for all of the backbones to which our P-NAPs are connected.
 
     Scalability and Flexibility. Our Internet connectivity services are
designed to be scalable and flexible. Since P-NAPs are localized
infrastructures, not long haul backbones, we can manage capacity issues and
traffic flows for each backbone provider at each P-NAP separately. Unlike a
 
                                       39

<PAGE>   49
 
backbone provider, we do not need to make uniform capacity upgrades across an
entire network as traffic levels increase. Furthermore, an upgrade to one
backbone provider does not require similar upgrades to all backbones connected
to a P-NAP or upgrades throughout our system of P-NAPs. This allows us to more
readily scale our capacity as traffic levels increase.
 
     Superior Customer Service and Support. Our network operations center is
staffed 24 hours a day, seven days a week, by skilled engineers. Equipped with
sophisticated traffic management reporting and diagnostic tools, they provide
our customers with a single point of contact for support inquiries, network
troubleshooting and diagnosis. The network operations center constantly monitors
the operation of all our P-NAPs, as well as the backbones connected to them, and
provides our customers and backbone providers with real-time notification and
management of events that might affect service, such as network congestion,
equipment failures and network or power outages. Given the overall complexity of
our technology and our highly skilled engineers, we believe that our customer
support services create a significant barrier to entry for competitors. In
addition, since we are a paying customer of each backbone provider connected to
a P-NAP, we believe we can get better response times, service level agreements
and trouble ticket resolution than Internet service providers that rely on free
public peering arrangements.
 
STRATEGY
 
     Our objective is to be the leading provider of high performance Internet
connectivity services that enable businesses to run mission-critical
Internet-based applications and to establish and maintain the standard of
quality for Internet connectivity services. We are committed to attracting,
hiring and retaining exceptional employees at all levels of our organization in
order to realize these objectives. Key components of our strategy include:
 
     Enhance Our Core Technologies to Provide the Highest Performance Internet
Connectivity Services. We plan to continue developing our P-NAPs, as well as our
network operations center, to enhance the level of service we provide to our
customers. Our P-NAPs and network operations center have been designed to allow
expansion of the features and functionalities of our services and have the
scalability required to meet the growing needs of customers. We believe that
enhancements to our proprietary technologies are integral to our ability to
continue to penetrate new markets and to provide new value-added services to
existing customers. For example, we intend to use the intelligent routing
capabilities of our P-NAPs to enable our customers to take advantage of new
services such as voice and fax over Internet Protocol, virtual private network
services, multimedia document distribution and audio and video streaming.
 
     Continue to Provide Superior Customer Service and Support. We intend to
continue providing our customers with superior customer service and support
24-hours a day, seven days a week. We believe that we can continue to improve
our competitive position by supporting our service with our highly-skilled
engineers, sophisticated traffic management reporting and diagnostic tools, and
network operations center. To reduce the risk of service interruptions, we plan
to build a second network operations center that will also monitor all of our
P-NAPs. We intend to use our status as a paying customer of the major backbone
providers to obtain a higher level of service which we can pass on to our
customers.
 
     Expand Our Geographic Coverage in Key Markets. We currently offer our
services through our P-NAPs in seven key metropolitan areas across the United
States and intend to aggressively deploy P-NAPs in key markets across the United
States and internationally. As part of our deployment plan, we expect to
complete the deployment of five additional P-NAPs in the United States by the
end of 1999.
 
                                       40

<PAGE>   50
 
     Continue to Build Our Brand Awareness. We intend to aggressively build our
customer base by increasing awareness of the InterNAP brand. We believe that
associating our brand with a high quality of service is key to the expansion of
our customer base. As we grow in size, we intend to invest in building brand
awareness through a marketing plan that includes P-NAP launch events, trade
shows, speaking events and media appearances, news announcements, advertisements
and customer testimonials.
 
     Continue to Target Strategic Markets. We intend to expand our sales and
marketing activities by continuing to focus on five strategic market segments,
including high technology, e-commerce and retail, communication providers,
financial services, and entertainment and publishing. The businesses in these
market segments are characterized by early adoption of Internet services and a
need for fast, reliable and manageable Internet connectivity services. By
focusing on specific strategic markets we expect to be able to leverage our
industry knowledge and highly experienced sales force to extend our market
reach. We also intend to expand our indirect sales channels by partnering with
leading resellers with strong backgrounds and market presence in these markets.
 
     Maintain Backbone Provider Neutrality. At each P-NAP, we have connections
with at least four major backbone providers. In order to provide one-hop service
to a large majority of Internet destinations, we must maintain high-volume
connections with major backbone providers. We plan to continue to do this as new
backbone providers emerge, as existing backbone providers increase in market
size in the metropolitan areas where our P-NAPs are located and as global
Internet traffic patterns change. We do not favor one backbone provider over
another, but rather use our proprietary technology to route packets directly to
the backbone on which an Internet destination is located. We believe this
provides substantial benefits to all backbone providers to whom we connect,
because we deliver only packets destined for each backbone provider's customers,
thus improving the efficiencies of their infrastructure.
 
CUSTOMERS
 
     We have established a diversified base of customers across a wide range of
industries. As of June 30, 1999, we had approximately 130 customers. The
following is a list of selected customers whose monthly bill was between $5,000
and $89,000 for June 1999:
 

<TABLE>
<S>                              <C>                              <C>
Adforce                          Go2Net                           Seattle Times
Adknowledge                      Homegrocer.com                   Shopping.com
Advanced Radio Telecom           Humongous Entertainment          TheStreet.com
Amazon.com                       ITXC Corp                        Tradescape.com
art.com                          Nasdaq                           U.S. Electrodynamics
Datek Online                     Primus Telecommunications        Waterhouse Investor Services
eBay                             Recreational Equipment, Inc.     WebTV Networks
Enron Communications             Seanet Corporation               Won.net
Fidelity Investments
</TABLE>

 
     We offer superior customer service and support from our network operations
center staffed 24 hours a day, seven days a week by highly skilled network
engineers who use our sophisticated traffic management reporting and diagnostic
tools. As of June 30, 1999, we had 92 employees dedicated to customer service,
network support and P-NAP engineering. Our customer service personnel are also
available to assist customers whose operations require specialized procedures.
 
     Our customer contracts generally cover the provision of services for a one
to three year period and may contain service level warranties. To date, none of
our customers has utilized this warranty to receive a credit for a period of
free service. We have had limited contract renewal experience with customers
whose initial service contract terms have expired.
 
                                       41

<PAGE>   51
 
SERVICES
 
     We offer Internet connectivity services to our customers over T-1, DS-3 and
OC-3 connections at speeds ranging from 1.5 Mbps to 155 Mbps. Our list prices
for a single connection range from $2,695 to $193,320 per month depending on the
connection purchased. Customers who connect to a P-NAP with a DS-3 or faster
connection have a choice of fixed rate pricing or usage based pricing.
Otherwise, customers pay a fixed fee for our Internet connectivity services.
Usage based pricing varies according to the volume of data sent and received
over the connection.
 
     Customers that have networking equipment or servers located within P-NAP
facilities may connect directly to the P-NAP using standard Ethernet connections
with speeds ranging from 10 Mbps to 200 Mbps. We also offer our customers
additional value added services, including:
 
     - InterNAP Diversity Plus. Our Diversity Plus service allows customers to
       maintain multiple connections to InterNAP and other backbone providers
       while still taking advantage of the optimal routing capabilities of the
       P-NAP. In a typical Diversity Plus configuration, the customer has a
       connection to a P-NAP and to one or more backbone providers of their
       choice. The customer's router is configured using our proprietary routing
       technology to route packets addressed to Internet destinations located on
       the alternate provider's backbone through the customer's direct
       connection while other packets are routed to the P-NAP. In this manner,
       the customer can use redundant Internet connections, while also taking
       advantage of the unique features of the P-NAP.
 
     - Connections to Data Centers. Many of our customers have their servers
       located at third party data centers. We connect to these customers either
       by establishing a circuit directly to their routers or through a
       connection we have with the network maintained by the third party data
       center operator. We have our own data center in our Seattle P-NAP at
       which a number of our customers have co-located their servers.
 
     - Installation Services. We perform installation services necessary to
       connect our customers' networks to our P-NAPs.
 
TECHNOLOGY
 
     P-NAP Architecture. The P-NAP architecture was engineered as a redundant,
fault tolerant, scalable, production quality network access point. We currently
use two primary P-NAP configurations. The P-NAP network design shown below
represents the base configuration that is installed when a new P-NAP is deployed
in a market. Type II P-NAPs support customer connectivity up to full DS-3 and
100 Mbps fast Ethernet, while Type III P-NAPs support up to 155 Mbps OC-3. As
shown in this figure, multiple redundant, full duplex fast Ethernet or Gigabit
Ethernet connections between each router and the backbone switches are part of
the standard P-NAP configuration. Customer connection routers, or border
routers, as well as core routers each have more than one path from a P-NAP to
each other router and backbone connection, thus providing redundancy in the face
of failure of one or more of the paths. Backbone network connections are divided
among multiple core routers for redundancy and load balancing purposes. In the
event of a
 
                                       42

<PAGE>   52
 
core router failure, there is sufficient equipment and backbone provider
capacity to accommodate all of the P-NAP's traffic and to continue to route
traffic optimally.
                                   [DIAGRAM]
 
     The P-NAP architecture is designed to scale to the demands of customers
terminating on border routers as well as the demands of backbone providers
connected to the core routers. Our P-NAP model provides for the addition of
significant backbone providers to the core router fabric, as necessary. The
P-NAP architecture is also designed so that:
 
     - a hot spare of each individual piece of P-NAP equipment also runs live in
       the P-NAP for redundancy purposes;
 
     - failure of a border router is transparent to the servers, because all
       critical servers are duplicated among multiple local area networks within
       the P-NAP where each local area network is connected to two border
       routers; and
 
     - all critical Internet services are duplicated among multiple P-NAP
       servers.
 
     Every network device is also connected to the network via a terminal server
connection to the console to facilitate problem resolution. This allows for
additional access to any malfunctioning device and also provides a means of
retrieving potentially useful information to help isolate and prevent future
recurrences of similar problems. This form of redundancy is vital to maintaining
and building a high quality production environment.
 
                                       43

<PAGE>   53
 
     InterNAP only co-locates P-NAPs within central office grade facilities. All
P-NAP facilities are equipped with battery backup and emergency generators, as
well as dual heating, ventilation and air conditioning systems.
 
     ASsimilator Routing Technology. ASsimilator technology is an automated
system for Internet Protocol route management that interfaces with the P-NAP
infrastructure to provide the high performance routing service characteristics
of the P-NAP. The system is a seamless integration of databases, topology
locator algorithms, automated router configuration processes and route
verification methods.
 
     ASsimilator periodically downloads the global routing tables being
advertised by all of the backbone networks touching the P-NAP. It then
automatically determines exactly which Internet Protocol routes are attached to
which networks and assesses how the world of Internet Protocol addresses are
connected to the Internet. ASsimilator then configures the Border Gateway
Protocol, the primary routing Protocol of the Internet, within the routers so
that they will route Internet Protocol packets to their intended destination
backbone in normal instances as well as in failure scenarios. A verification
system also allows ASsimilator to monitor the routing of packets, and if routing
is found to be suboptimal, adjustments can be made to optimize routing.
ASsimilator controls both outbound routing to a backbone network from the P-NAP
as well as inbound routing from a backbone network.
 
     Distributed Network Management System. We have developed a highly scalable
proprietary network management system optimized for distributed network
monitoring of P-NAPs. With the use of our distributed network management system,
our network operations center is capable of real-time monitoring of the
backbones connected to each P-NAP, customer circuits, network devices and
servers 24 hours a day, seven days a week. The distributed network management
system provides our network operations center with proactive trouble
notification, allowing for real-time identification and handling of problems,
frequently before our customers become aware of network problems. The
distributed network management system also captures and provides capacity usage
reports for billing and customer reports. Data provided by the distributed
network management system is an integral part of our capacity planning and
provisioning process, helping us to forecast and plan upgrades before capacity
becomes strained.
 
SALES AND MARKETING
 
     Our sales and marketing objective is to achieve broad market penetration
and increase brand name recognition by targeting enterprises that depend upon
the Internet for mission-critical operations. As of June 30, 1999, we had 50
employees engaged in direct sales and sales management, 17 in sales
administration and support, 13 in technical support and 12 in marketing located
in 10 cities.
 
     Sales. We have developed a direct high-end sales organization with managers
who have an average of over 15 years of relevant sales experience and
representatives who have many years of relevant sales experience with a broad
range of telecommunications and technology companies. In addition, our highly
trained technical sales engineers and client interaction engineers, who
facilitate optimal routing solutions for our customers, are responsible for
generating recurring sales revenues and serve to complement our sales force.
When we deploy a new P-NAP, we set up a dedicated team of sales representatives
and engineers focused exclusively on that market. We believe this localized
direct sales approach allows us to respond to regional competitive
characteristics, educate customers, and identify and close business
opportunities better than a centralized sales force. We are also developing an
indirect sales channel for our products and services through relationships with
content
 
                                       44

<PAGE>   54
 
developers, cable companies, DSL service providers, consulting companies and
Internet service providers.
 
     Marketing. Our marketing efforts are designed to help educate customers in
our targeted vertical markets to understand that a service provider is now
available that can provide a quality of service over the entire Internet that
enables them to launch and execute mission-critical Internet-based applications.
Our marketing activities have included collateral advertising, tradeshows,
direct response programs, new P-NAP launch events and management of our Web
site. These programs are targeted at key information technology executives as
well as senior marketing and finance managers. In addition, we conduct
comprehensive public relations efforts focused on cultivating industry analyst
and media relationships with the goal of securing broad media coverage and
public recognition of our proprietary high speed public Internet communications
solutions.
 
     Our marketing organization is responsible for expanding our value added
service offerings into horizontal markets as new capacity intensive applications
such as voice and fax over Internet Protocol, virtual private network services,
multimedia document distribution, audio and video streaming and other emerging
technologies are introduced.
 
COMPETITION
 
     The Internet-based connectivity services market is extremely competitive.
Many of our competitors have greater market presence, engineering and marketing
capabilities, and financial, technological and personnel resources than we do.
Our competitors include:
 
     - backbone providers that provide us connectivity services including AGIS,
       AT&T, Cable & Wireless USA, GTE Internetworking, ICG Communications,
       Intermedia, PSINet, Sprint, UUNET and Verio;
 
     - regional Bell operating companies which offer Internet access; and
 
     - global, national and regional Internet service providers.
 
     Because relatively low barriers to entry characterize our market, we expect
other companies to enter our market. In addition, if we are successful in
implementing our international expansion, we will encounter additional
competition from international Internet service providers as well as
international telecommunication companies. As new participants enter the
Internet connectivity services market, we will face increased competition. Such
new competitors could include computer hardware, software, media and other
technology and telecommunications companies. A number of telecommunications
companies and online service providers currently offer, or have announced plans
to offer or expand, their network services. Other companies have expanded their
Internet access products and services as a result of acquisitions. Further, the
ability of some of our competitors to bundle other services and products with
their network services could place us at a competitive disadvantage. Various
companies are also exploring the possibility of providing, or are currently
providing, high-speed data services using alternative delivery methods. In
addition, Internet backbone providers may make technological developments, such
as improved router technology, that will enhance the quality of their services.
 
     We believe that the principal competitive factors in our market are speed
and reliability of connectivity, quality of facilities, level of customer
service and technical support, price, brand recognition, the effectiveness of
sales and marketing efforts, and the timing and market acceptance of new
solutions and enhancements to existing solutions developed by us and our
competitors. We believe that we presently are positioned to compete favorably
with respect to most of these factors. In particular, many of our competitors
have built and must maintain capital-intensive backbone
 
                                       45

<PAGE>   55
 
infrastructures that are highly dependent on traditional public and private
peering exchanges. Each backbone provider tries to offer high quality service
within its own network but is unable to guarantee a service quality once a data
packet leaves its network, and there is little incentive to optimize the
interoperability of traffic between networks. We actively route traffic in an
optimal manner, thereby providing customers with a high level of service and
increasing the efficiency of the backbone providers themselves. However, the
market for Internet connectivity services is evolving rapidly, and we cannot
assure you that we will compete successfully in the future. As a result, we may
not maintain a competitive position against current or future competitors. See
"Risk Factors -- We Operate in an Extremely Competitive Market, and We May Not
Be Able to Compete Effectively Against Our Many Competitors."
 
INTELLECTUAL PROPERTY
 
     We rely on a combination of patent, copyright, trademark, trade secret and
other intellectual property law, nondisclosure agreements and other protective
measures to protect our proprietary technology. InterNAP and P-NAP are
registered United States trademarks of InterNAP. The United States Patent and
Trademark Office has recently notified us that it has allowed the claims in our
initial patent application. Additional claims that were included by amendment in
that application are still pending. In addition, we have filed an international
patent application under the Patent Cooperation Treaty.
 
     We also enter into confidentiality and invention assignment agreements with
our employees and consultants and control access to and distribution of our
proprietary information. Despite our efforts to protect our proprietary rights,
departing employees and other unauthorized parties may attempt to copy or
otherwise obtain and use our products and technology. Monitoring unauthorized
use of our products and technology is difficult, and we cannot be certain that
the steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
 
     From time to time, third parties may assert patent, copyright, trademark
and other intellectual property rights claims or initiate litigation against us
or our suppliers or customers with respect to existing or future products and
services. Although we have not been a party to any claims alleging infringement
or intellectual property rights, we cannot assure you that we will not be
subject to these claims in the future. Further, we may in the future initiate
claims or litigation against third parties for infringement of our proprietary
rights to determine the scope and validity of our proprietary rights or those of
our competitors. Any of these claims, with or without merit, may be
time-consuming, result in costly litigation and diversion of technical and
management personnel or require us to cease using infringing technology, develop
noninfringing technology or enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on acceptable
terms, if at all. In the event of a successful claim of infringement and our
failure or inability to develop noninfringing technology or license the
infringed or similar technology on a timely basis, our business and results of
operations may be seriously harmed.
 
EMPLOYEES
 
     As of June 30, 1999, we employed 221 full-time persons, 12 of whom were
engaged in product development, 92 in sales and marketing, 92 in professional
services and 25 in finance, administration and operations. None of our employees
is represented by a labor union, and we have not experienced any work stoppages
to date. We consider our employee relations to be good.
 
                                       46

<PAGE>   56
 
FACILITIES
 
     Our executive offices are located in Seattle, Washington and consist of
approximately 20,700 square feet that are leased under an agreement that expires
in 2003. On July 1, 1999, we entered into a third amendment to our lease
increasing our total square footage to approximately 74,100 square feet as of
October 1, 1999. We lease facilities for our network operations center, sales
offices and P-NAPs in a number of metropolitan areas and specific cities. We
believe that our existing facilities, including the additional space, are
adequate for our current needs and that suitable additional or alternative space
will be available in the future on commercially reasonable terms as needed.
 
LEGAL PROCEEDINGS
 
     From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently involved in
any material legal proceedings.
 
                                       47

<PAGE>   57
 

                                   MANAGEMENT
 
     Our executive officers and directors, the positions held by them and their
ages as of June 30, 1999 are as follows:
 
EXECUTIVE OFFICERS AND DIRECTORS
 

<TABLE>
<CAPTION>
                  NAME                     AGE                   POSITION
                  ----                     ---                   --------
<S>                                        <C>   <C>
Anthony C. Naughtin......................  43    Chief Executive Officer, President and
                                                   Director
Paul E. McBride..........................  37    Chief Financial Officer and Vice
                                                 President of Finance
Christopher D. Wheeler...................  32    Chief Technology Officer and Vice
                                                 President
Charles M. Ortega........................  44    Vice President of Sales & Marketing
Richard Perez............................  46    Vice President of Deployment, Field
                                                   Engineering & Provisioning
Eugene Eidenberg.........................  59    Chairman of the Board
William J. Harding(1)....................  51    Director
Frederic W. Harman(1)....................  39    Director
Robert J. Lunday, Jr.(2).................  60    Director
Kevin L. Ober(1)(2)......................  38    Director
Robert D. Shurtleff, Jr.(2)..............  45    Director
</TABLE>

 
-------------------------
(1) Member of audit committee.
(2) Member of compensation committee.
 
     Anthony C. Naughtin founded InterNAP and has served as our Chief Executive
Officer and President since May 1996. Mr. Naughtin has also served as our
director since October 1997. Prior to founding InterNAP, he was vice president
for commercial network services at ConnectSoft, Inc., an Internet and e-mail
software developer, from May 1995 to May 1996. From February 1992 to May 1995,
Mr. Naughtin was the director of sales at NorthWestNet, an NSFNET regional
network. Mr. Naughtin has served as a director of Fine.com International Corp.,
a services-computer processing and data preparation company since December 1996.
Mr. Naughtin holds a Bachelor of Arts in communications from the University of
Iowa and is a graduate of the Creighton School of Law.
 
     Paul E. McBride has served as our Vice President of Finance and
Administration since May 1996. He has also served as our Chief Financial Officer
since June 1999. Prior to joining InterNAP, Mr. McBride was Vice President of
Finance and Operations at ConnectSoft Inc. from February 1995 to March 1996.
From December 1992 to January 1995, he served as Chief Financial Officer and
Vice President of Finance at PenUltimate, Inc., a software developer. Mr.
McBride holds a Bachelor of Arts in Economics and a Bachelor of Science in
Finance from the University of Colorado and holds a Master of Business
Administration from the University of Southern California.
 
     Christopher D. Wheeler has served as our Chief Technology Officer and Vice
President since May 1996. Prior to joining InterNAP, Mr. Wheeler was co-founder,
President and Chief Executive Officer of interGlobe Networks, Inc., a TCP/IP
consulting firm from 1994 to 1996. Mr. Wheeler also worked in advanced
network/Internet technology areas at NorthwestNet, which is now Verio Northwest,
and was responsible for backbone engineering, routing technology design, network
management tools development, network operations and systems engineering at the
University of
 
                                       48

<PAGE>   58
 
Washington from 1989 to 1994. Mr. Wheeler holds a Bachelor of Science in
Computer Science from the University of Washington.
 
     Charles M. Ortega has served as our Vice President of Sales and Marketing
since April 1998. Prior to joining InterNAP, Mr. Ortega was Director of Sales
for Global and Corporate National Accounts at MCI Communications Corporation
from 1989 to April 1998. Prior to MCI, he held senior sales management positions
with Wang Laboratories and Hewlett Packard. Mr. Ortega holds a Bachelor of
Science degree in Kinesiology from UCLA, and a Master of Business Administration
from the Joan Anderson School of Business at UCLA.
 
     Richard Perez has served as our Vice President of Deployment, Field
Engineering and Provisioning since December 1998. Prior to joining InterNAP, Mr.
Perez worked for 17 years at MCI Communications Corporation, serving in various
managerial and technical positions. Mr. Perez attended the University of
Maryland and is a past Advisory Board member of the University of Washington's
Data Communications Extension.
 
     Eugene Eidenberg has served as a director and chairman of InterNAP since
November 1997 and as chairman of the board of directors since 1998. Dr.
Eidenberg has served as a Principal of Hambrecht & Quist Venture Associates
since 1998 and was an advisory director at the San Francisco investment banking
firm of Hambrecht & Quist from 1995 to 1998. Dr. Eidenberg served for 12 years
in a number of senior management positions with MCI Communications Corporation.
His positions at MCI included Senior Vice President for Regulatory and Public
Policy, President of MCI's Pacific Division, Executive Vice President for
Strategic Planning and Corporate Development and Executive Vice President for
MCI's international businesses. Dr. Eidenberg is currently a director of LXR
Biotechnology, AAPT Ltd. and several private companies. Dr. Eidenberg holds a
Ph.D. and a Master of Arts degree from Northwestern University and a Bachelor of
Arts degree from the University of Wisconsin.
 
     William J. Harding has served as a director of InterNAP since January 1999.
Since 1994, Dr. Harding has been an employee and Principal of Morgan Stanley &
Co. Incorporated. In addition, Dr. Harding has served as a managing member of
Morgan Stanley Venture Partners, L.L.C., the general partner of Morgan Stanley
Dean Witter Venture Partners. Prior to joining Morgan Stanley Dean Witter, he
was a General Partner of several venture capital partnerships affiliated with
J.H. Whitney & Co. Dr. Harding was associated with Amdahl Corporation from 1976
to 1985, serving in various technical and business positions. He is currently a
director of ScanSoft, Inc., Persistence Software, Inc., Commerce One, Inc. and
several private companies. Dr. Harding holds a Ph.D. in engineering from Arizona
State University and a Master of Science degree in systems engineering and
Bachelor of Science degree in engineering mathematics from the University of
Arizona.
 
     Frederic W. Harman has served as a director of InterNAP since January 1999.
Since 1994, Mr. Harman has served as a Managing Member of the General Partners
of venture capital funds affiliated with Oak Investment Partners. Mr. Harman
served as a General Partner of Morgan Stanley Venture Capital, L.P. from 1991 to
1994. Mr. Harman serves as a director of Inktomi Corporation, ILOG, S.A., Primus
Knowledge Solutions and several privately held companies. Mr. Harman holds a
Bachelor of Science degree and a Masters degree in electrical engineering from
Stanford University and a Master of Business Administration from Harvard
University.
 
     Robert J. Lunday, Jr. has served as a director of InterNAP since inception.
Mr. Lunday has served as President of Lunday Communications, Inc., an investment
company, since 1973. He was a founder of Commnet Cellular, Inc. and served on
its board of directors from 1983 to 1989.
 
                                       49

<PAGE>   59
 
     Kevin L. Ober has served as a director of InterNAP since October 1997. Mr.
Ober has been a member of the investment team at Vulcan Ventures, Inc. since
November 1993 and in this capacity serves as a director in several portfolio
companies including Nexabit Networks, NETSchools Corporation and Command Audio,
Inc. Prior to working at Vulcan Ventures, Mr. Ober served in various positions
at Conner Peripherals, Inc., a computer hard disk drive manufacturer. Mr. Ober
holds a Master of Business Administration from Santa Clara University and
Bachelor of Science degree in business administration from St. John's
University.
 
     Robert D. Shurtleff, Jr. has served as a director of InterNAP since January
1997. In 1999, Mr. Shurtleff founded S.L. Partners, a strategic consulting group
focused on early stage companies. From 1988 to 1998, Mr. Shurtleff held various
positions at Microsoft Corporation, including Program Management and Development
Manager and General Manager Workgroup Solutions Product Unit. Prior to working
at Microsoft Corporation, Mr. Shurtleff worked at Hewlett Packard Company from
1979 to 1988. Mr. Shurtleff holds a Bachelor of Arts degree in computer science
from the University of California at Berkeley.
 
BOARD COMPOSITION
 
     Upon the closing of this offering, we will have authorized a range of
directors from five to nine. In accordance with the terms of our amended
articles of incorporation, the terms of office of the board of directors will be
divided into three classes:
 
     - Class I directors, whose term will expire at the annual meeting of
       shareholders to be held in 2000;
 
     - Class II directors, whose term will expire at the annual meeting of
       shareholders to be held in 2001; and
 
     - Class III directors, whose term will expire at the annual meeting of
       shareholders to be held in 2002.
 
     Our Class I directors will be Robert J. Lunday, Jr. and Robert D.
Shurtleff, Jr., our Class II directors will be Frederic W. Harman and Kevin L.
Ober, and our Class III directors will be Eugene Eidenberg, William J. Harding
and Anthony C. Naughtin. At each annual meeting of shareholders after the
initial classification, the successors to directors whose terms will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of our board of directors may have the effect
of delaying or preventing a change in control or management of InterNAP.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     The board of directors has established an audit committee and a
compensation committee. Our audit committee consists of Kevin L. Ober, Frederic
W. Harman and William J. Harding. The audit committee reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants.
 
     Our compensation committee consists of Kevin L. Ober, Robert J. Lunday, Jr.
and Robert D. Shurtleff, Jr. The compensation committee reviews and recommends
to the board of directors the compensation and benefits of all our officers and
establishes and reviews general policies relating to compensation and benefits
for our employees.
 
                                       50

<PAGE>   60
 
BOARD-COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
 
DIRECTOR COMPENSATION
 
     Our directors currently do not receive any cash compensation for their
services on the board of directors or any committees of the board. They are
reimbursed for certain expenses in connection with attendance at board and
committee meetings. From time to time, certain non-employee directors have
received grants of options to purchase shares of our common stock. In March
1998, Messrs. Eidenberg and Ober each were granted an option to purchase 200,000
shares of our common stock at an exercise price of $.06 per share. Non-employee
directors are expected to receive an initial option to purchase 40,000 shares of
common stock and an annual option to purchase 10,000 shares of common stock
under our 1999 non-employee directors' stock option plan.
 

EXECUTIVE COMPENSATION
 
     The table below sets forth summary information concerning compensation paid
by us during the fiscal year ended December 31, 1998 to (a) our Chief Executive
Officer and President and (b) three of our other executive officers other than
the Chief Executive Officer whose salary and bonus for fiscal year 1998 exceeded
$100,000 and who served as an executive officer during fiscal year 1998:
 
                           SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                                        LONG-TERM
                                      ANNUAL COMPENSATION              COMPENSATION
                             --------------------------------------    ------------
                                                       ALL OTHER        SECURITIES
                                                        ANNUAL          UNDERLYING       ALL OTHER
NAME AND PRINCIPAL POSITION  SALARY($)   BONUS($)   COMPENSATION($)     OPTIONS(#)    COMPENSATION($)
---------------------------  ---------   --------   ---------------    ------------   ---------------
<S>                          <C>         <C>        <C>                <C>            <C>
Anthony C. Naughtin,
  Chief Executive Officer
  and President..........    $123,750    $    --        $    --          $    --          $   --
Paul E. McBride,
  Chief Financial Officer
  and Vice President.....     113,750         --             --               --              --
Christopher D. Wheeler,
  Chief Technical Officer
  and Vice President.....     113,750         --             --               --              --
Charles M. Ortega,
  Vice President of Sales
  and Marketing..........      81,658     20,000         30,000          360,000          12,000(1)
</TABLE>

 
---------------
 
(1) Consists of living expenses.
 
                                       51

<PAGE>   61
 
             STOCK OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR
 
     The following table sets forth information regarding options granted to
certain of our executive officers during the fiscal year ended December 31,
1998:
 

<TABLE>
<CAPTION>
                                                                                            POTENTIAL REALIZABLE
                                                    INDIVIDUAL GRANTS                         VALUE AT ASSUMED
                                 -------------------------------------------------------      ANNUAL RATES OF
                                                TOTAL OPTIONS                                      STOCK
                                   SHARES        GRANTED TO                                   APPRECIATION FOR
                                 UNDERLYING       EMPLOYEES      EXERCISE                      OPTION TERM($)
                                   OPTIONS        IN FISCAL      PRICE PER    EXPIRATION    --------------------
             NAME                GRANTED(#)        YEAR(%)       SHARE($)        DATE          5%         10%
             ----                -----------    -------------    ---------    ----------    --------    --------
<S>                              <C>            <C>              <C>          <C>           <C>         <C>
Charles M. Ortega..............    360,000          10.5%          $ .06       7/21/08      $13,584     $34,425
</TABLE>

 
     Twenty-five percent of these options vest on the first anniversary of the
date of hire and the remainder vest in equal installments each month over the
three-year period following the first anniversary of the date of hire. Options
were granted at an exercise price equal to the fair market value of our common
stock, as determined by the board of directors on the date of grant.
 
     The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC. There can be no assurance provided to any
executive officer or any other holder of our securities that the actual stock
price appreciation over the option term will be at the assumed 5% and 10% levels
or at any other defined level.
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES
 
     The following table sets forth information as of December 31, 1998
regarding options held by certain of our executive officers. There were no stock
appreciation rights outstanding at December 31, 1998:
 

<TABLE>
<CAPTION>
                                                            NUMBER OF SHARES
                                                         UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED
                                                                OPTIONS                 IN-THE-MONEY OPTIONS AT
                          SHARES                        AT DECEMBER 31, 1998(#)           DECEMBER 31, 1998($)
                        ACQUIRED ON       VALUE       ----------------------------    ----------------------------
         NAME           EXERCISE(#)    REALIZED($)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
         ----           -----------    -----------    -----------    -------------    -----------    -------------
<S>                     <C>            <C>            <C>            <C>              <C>            <C>
Charles M. Ortega.....         --             --             --         360,000              --         $32,400
</TABLE>

 
     In the table above, the value of unexercised in-the-money options is based
on the fair market value of our common stock, determined by the board of
directors as discussed above to be $.15 per share on or about December 31, 1998,
minus the per share exercise price multiplied by the number of shares.
 
EMPLOYMENT AGREEMENTS
 
     We have entered into employment letter agreements with several of our
officers, including Anthony C. Naughtin, Paul E. McBride, Christopher D. Wheeler
and Charles M. Ortega. Each letter agreement sets forth the officer's
compensation level. Under each letter agreement an officer serves at-will and
employment may be terminated by us or by the officer at any time, with or
without cause and with or without notice. Each employment agreement contains a
noncompetition covenant one year in duration.
 
                                       52

<PAGE>   62
 
INCENTIVE STOCK PLANS
 
     1998 Stock Option/Stock Issuance Plan. Our board of directors adopted our
1998 Stock Option/Stock Issuance Plan on February 2, 1998 and our shareholders
approved it on March 1, 1998. On January 19, 1999, our board reserved an
additional 1,000,000 shares for option grants under the 1998 Plan, which the
shareholders approved on January 26, 1999. We have reserved a total of 5,035,000
shares for issuance under the 1998 Plan. As of June 30, 1999, 695,082 shares had
been issued upon the exercise of options granted under the 1998 Plan and options
to purchase 4,132,622 shares were outstanding, with 207,296 shares reserved for
future grants or purchases under the 1998 Plan. Options currently outstanding
under the 1998 Plan will continue in full force and effect under the terms of
the 1998 Plan until such outstanding options are exercised or terminated in
accordance with their terms.
 
     The 1998 Plan provides for grants of incentive stock options that qualify
under Section 422 of the Internal Revenue Code of 1986, as amended, and
nonstatutory stock options and common stock awards to employees, directors and
consultants. Incentive stock options may be granted only to employees.
 
     The 1998 Plan is administered by a committee appointed by the board, which
determines the terms of awards granted, including the exercise price, the number
of shares subject to the award and the exercisability of awards. The exercise
price of incentive stock options granted under the 1998 Plan must be at least
equal to the fair market value of our common stock on the date of grant.
However, for any employee holding more than 10% of the voting power of all
classes of our stock, the exercise price of incentive stock options must be not
less than 110% of the fair market value. The exercise price of nonstatutory
stock options is set by the administrator of the 1998 Plan. The maximum term of
options granted under the 1998 Plan is ten years.
 
     An optionee whose relationship as an employee, director or consultant with
us or any related corporation ceases for any reason, other than for death, total
and permanent disability or "for cause," may exercise options in the three-month
period following such cessation, or such other period of time as determined by
the administrator, unless such options terminate or expire sooner, or later, by
their terms. The three-month period is extended to twelve months for
terminations due to total and permanent disability or death. Options terminate
immediately upon an optionee's termination "for cause." Generally, the
optionholder may not transfer a stock option other than by will or the laws of
descent or distribution.
 
     In the event of certain corporate transactions, the board of directors may,
in its sole discretion, either (i) accelerate the vesting of outstanding options
under the 1998 Plan, (ii) arrange for outstanding options to be assumed or
substituted for similar options by a successor corporation, (iii) arrange for
outstanding options to be replaced by a comparable cash incentive program of the
successor corporation or (iv) take no action with respect to outstanding
options, whereby such options will terminate upon the consummation of the
corporation transaction.
 
     The 1998 plan will terminate on the earlier of 10 years from its adoption
by the board or the date all shares have been issued. As of June 19, 1999, no
further options will be granted under the 1998 plan.
 
     1999 Equity Incentive Plan. Our Board adopted the 1999 Equity Incentive
Plan on June 19, 1999. As of June 30, 1999, an aggregate of 6,500,000 shares of
common stock, subject to shareholder approval, have been authorized for issuance
under the 1999 Plan. As of June 30, 1999, options to purchase an aggregate of
2,004,000 shares were outstanding under the 1999 Plan and 4,496,000 shares were
currently available for future grant of stock awards under the 1999 Plan.
 
                                       53

<PAGE>   63
 
     The Incentive Plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, nonstatutory
stock options, restricted stock purchase rights and stock bonuses to our
employees, consultants and directors. Incentive stock options may be granted
only to employees. The Incentive Plan is administered by the board of directors
or a committee appointed by the board, which determines the terms of awards
granted, including the exercise price, the number of shares subject to the award
and the exercisability of awards. The exercise price of incentive stock options
granted under the 1999 Plan must be at least equal to the fair market value of
our common stock on the date of grant. However, for any employee holding more
than 10% of the voting power of all classes of our stock, the exercise price
will be no less than 110% of the fair market value. The exercise price of
nonstatutory stock options is set by the administrator of the 1999 Plan, but can
be no less than 85% of the fair market value. The maximum term of options
granted under the 1999 Plan is ten years.
 
     Unless otherwise provided in an option agreement, an optionee whose
relationship as an employee, director or consultant with us or any related
corporation ceases for any reason, other than for death, total and permanent
disability or "for cause," may exercise options in the three-month period
following such cessation, or such other period of time as determined by the
administrator, unless such options terminate or expire sooner, or later, by
their terms. The three-month period is extended to twelve months for
terminations due to total and permanent disability and eighteen months for
terminations due to death. Options terminate immediately upon an optionee's
termination "for cause." Generally, the optionholder may not transfer a stock
option other than by will or the laws of descent or distribution unless the
optionholder holds a nonstatutory stock option that provides for transfer in the
stock option agreement. However, an optionholder may designate a beneficiary who
may exercise the option following the optionholder's death.
 
     In the event of the sale of substantially all of our assets or merger with
or into another corporation (a "change in control"), any outstanding options
held by persons then performing services for us as an employee, director or
consultant may either be assumed or continued or an equivalent award may be
substituted by the surviving entity or, if such options are not assumed,
continued or substituted, such options shall become fully exercisable, including
shares as to which they would not otherwise be exercisable, and restricted stock
shall become fully vested. Options also become fully exercisable in the event of
a securities acquisition representing 50% or more of the combined voting power
of our securities and in the event that a participant's service is terminated by
a surviving corporation for any reason other than "for cause" within 13 months
following a change in control.
 
     As of the first nine anniversaries of the effective date of the 1999 Plan,
an additional number of shares will automatically be added to the number of
shares already reserved for issuance under the 1999 Plan. The additional number
of shares will not be more than the lesser of (i) 3 1/2% of the number of shares
of our common stock issued and outstanding on an anniversary date or (ii)
6,500,000 shares.
 
     When we become subject to Section 162(m) of the Internal Revenue Code,
which, among other things, denies a deduction to publicly held corporations for
certain compensation paid to specified employees in a taxable year to the extent
that the compensation exceeds $1,000,000, no person may be granted options under
the 1999 Plan covering more than 3,000,000 shares of common stock in any
calendar year.
 
     Restricted stock purchase awards granted under the 1999 Plan may be granted
pursuant to a repurchase option in favor of InterNAP in accordance with a
vesting schedule determined by the board or a committee appointed by the board.
The price of a restricted stock purchase award under the 1999 Plan cannot be
less than 85% of the fair market value of the stock subject to the award on the
date of grant. Stock bonuses may be awarded in consideration of past services
without a purchase
 
                                       54

<PAGE>   64
 
payment. Unless otherwise specified, rights under a stock bonus or restricted
stock bonus agreement generally may not be transferred other than by will or the
laws of descent and distribution during such period as the stock awarded
pursuant to such an agreement remains subject to the agreement.
 
     Our board of directors may amend (subject to shareholder approval as
necessary) the 1999 Plan at any time. The Incentive Plan will terminate on the
day before the 10th anniversary of its adoption by the board.
 
     1999 Employee Stock Purchase Plan. In July 1999, our board of directors
adopted, subject to shareholder approval, the 1999 Employee Stock Purchase Plan.
A total of 1,500,000 shares of common stock have been reserved for issuance
under the purchase plan. As of the first nine anniversaries of the adoption of
the purchase plan, the number of shares reserved for issuance under the purchase
plan will automatically be increased by 2% of the total number of shares of
common stock then outstanding or, if less, by 1,500,000 shares. The purchase
plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code.
 
     The purchase plan provides a means by which employees may purchase common
stock of InterNAP through payroll deductions. The purchase plan is implemented
by offerings of rights to eligible employees. Under the purchase plan, InterNAP
may specify offerings with a duration of not more than 27 months, and may
specify shorter purchase periods within each offering. The first offering will
begin on the effective date of this offering and terminate on June 30, 2001.
Purchase dates will occur each December 31 and June 30 under the initial
offering.
 
     Employees who participate in an offering may have up to 15% of their
earnings withheld pursuant to the purchase plan. The amount withheld is then
used to purchase shares of the common stock on specified dates determined by the
board of directors. The price of common stock purchased under the purchase plan
will be equal to 85% of the lower of the fair market value of the common stock
at the commencement date of each offering period or the relevant purchase date.
Employees may end their participation in an offering at any time during such
offering except during the 15 day period immediately prior to a purchase date.
Employees' participation in all offerings will end automatically on termination
of their employment with us or one of our subsidiaries.
 
     Unless otherwise determined by our board of directors, employees are
eligible to participate in the purchase plan only if they are customarily
employed by us or one of our subsidiaries designated by the board of directors
for at least 20 hours per week and five months per calendar year. No employee
may be granted rights under the purchase plan if immediately after such rights
are granted, such employee will have voting power over 5% or more of InterNAP's
outstanding capital stock. Eligible employees may be granted rights only if the
rights together with any other rights granted under employee stock purchase
plans do not permit such employee's rights to purchase stock of InterNAP to
accrue at a rate which exceeds $25,000 of fair market value of such stock for
each calendar year in which such rights are outstanding.
 
     Upon a change in control of InterNAP, our board of directors has discretion
to provide that each right to purchase common stock will be assumed or an
equivalent right substituted by the successor corporation or that all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to such change in control. The board of directors has the authority to
amend or terminate the purchase plan, provided, however, that no such action may
adversely affect any outstanding rights to purchase common stock.
 
     1999 Non-Employee Directors' Stock Option Plan. In July 1999, our board of
directors adopted, subject to shareholder approval, the 1999 Non-Employee
Directors' Stock Option Plan to provide for the automatic grant of options to
purchase shares of common stock to non-employee directors of InterNAP. The
directors' plan is administered by our compensation committee.
 
                                       55

<PAGE>   65
 
     The aggregate number of shares of common stock that may be issued pursuant
to options granted under the directors' plan is 500,000. Pursuant to the terms
of the directors' plan, each of our directors who is not an employee of InterNAP
will be automatically granted an option to purchase 40,000 shares of common
stock on the effective date of this offering. Each person who is elected or
appointed for the first time to be a non-employee director after the effective
date of this offering will be granted an Initial Grant upon such election or
appointment. In addition, on the day following each annual meeting of our
shareholders, each non-employee director who has served as a non-employee
director for at least six months and who continues to serve as a non-employee
director of InterNAP will be automatically granted an option to purchase 10,000
shares of common stock. Each option granted under the directors' plan will be
fully vested on the date it is granted. No option granted under the directors'
plan may be exercised after the expiration of ten years from the date on which
it was granted. The exercise price of options under the directors' plan will
equal the fair market value of the common stock on the date of grant. A
non-employee director whose service as a non-employee director or employee of or
consultant to InterNAP or any of our affiliates ceases for any reason other than
death or permanent and total disability may exercise vested options in the
three-month period following such cessation (unless such options terminate or
expire sooner by their terms). Vested options may be exercised during the
12-month period after a non-employee director's service ceases due to disability
and during the 18-month period after such service ceases due to death. The
directors' plan will terminate in July 2009, unless terminated earlier by our
board of directors.
 
     Upon certain changes in control of InterNAP, all outstanding stock awards
under the directors' plan may be assumed by the surviving entity or replaced
with similar stock awards granted by the surviving entity.
 
     401(k) Plan. We have established a tax-qualified employee savings and
retirement plan, the 401(k) Plan, for eligible employees. Eligible employees may
elect to defer a percentage of their pre-tax gross compensation in the 401(k)
Plan, subject to the statutorily prescribed annual limit. We may make matching
contributions on behalf of all participants in the 401(k) Plan in an amount
determined by our board of directors. We may also make additional discretionary
profit sharing contributions in such amounts as determined by the board of
directors, subject to statutory limitations. Matching and profit-sharing
contributions, if any, are subject to a vesting schedule; all other
contributions are at all times fully vested. We intend the 401(k) Plan, and the
accompanying trust, to qualify under Sections 401(k) and 501 of the Internal
Revenue Code so that contributions by employees or by InterNAP to the 401(k)
Plan, and income earned (if any) on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan, and so that we will be able to
deduct our contributions, if any, when made. The trustee under the 401(k) Plan,
at the direction of each participant, invests the assets of the 401(k) Plan in
any of a number of investment options.
 
LIMITATIONS ON DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND INDEMNIFICATION
 
     Our articles of incorporation limit the liability of directors to the
fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, subject to
the Washington Business Corporation Act, no director will be personally liable
to us or our shareholders for monetary damages resulting from his or her conduct
as a director of InterNAP, except liability for:
 
     - acts or omissions involving intentional misconduct or knowing violations
       of law;
 
     - unlawful distributions; or
 
     - transactions from which the director personally receives a benefit in
       money, property or services to which the director is not legally
       entitled.
 
                                       56

<PAGE>   66
 
     Upon the closing of this offering, our articles of incorporation will also
provide that we may indemnify any individual made a party to a proceeding
because that individual is or was a director or officer of ours, and this right
to indemnification will continue as to an individual who has ceased to be a
director or officer and will inure to the benefit of his or her heirs, executors
or administrators. Any repeal of or modification to our articles of
incorporation may not adversely affect any right of a director or officer of
ours who is or was a director or officer at the time of such repeal or
modification. To the extent the provisions of our articles of incorporation
provide for indemnification of directors or officers for liabilities arising
under the Securities Act of 1933, as amended, those provisions are, in the
opinion or the Securities and Exchange Commission, against public policy as
expressed in the Securities Act and they are therefore unenforceable.
 
     Upon the closing of this offering, our bylaws will provide that we will
indemnify our directors and officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law.
 
     Upon the closing of this offering, we will enter into agreements to
indemnify our directors and certain officers, in addition to indemnification
provided for in our articles of incorporation or bylaws. These agreements, among
other things, indemnify our directors and certain officers for certain expenses,
including attorneys' fees, judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by us arising
out of such person's services as our director or officer or any other company or
enterprise to which the person provides services at our request. We believe that
these provisions and agreements are necessary to attract and retain qualified
persons as directors and officers. We also currently maintain liability
insurance for our officers and directors.
 
CHANGE OF CONTROL ARRANGEMENTS
 
     Under the 1998 Stock Option/Stock Issuance Plan, in the event of certain
corporate transactions, including the sale of substantially all of our assets or
merger with or into another corporation, the plan administrator may, in its sole
discretion, either (i) accelerate the vesting of outstanding options under the
1998 Plan, (ii) arrange for outstanding options to be assumed or substituted for
similar options by a successor corporation, (iii) arrange for outstanding
options to be replaced by a comparable cash incentive program of the successor
corporation or (iv) take no action with respect to outstanding options, whereby
such options will terminate upon the consummation of the corporation
transaction.
 
     Under the 1999 Equity Incentive Plan, in the event of the sale of
substantially all of our assets or merger with or into another corporation (a
"change in control"), any outstanding options held by persons then performing
services for us as an employee, director or consultant may either be assumed or
continued or an equivalent award may be substituted by the surviving entity or,
if such options are not assumed, continued or substituted, such options shall
become fully exercisable, including shares as to which they would not otherwise
be exercisable, and restricted stock shall become fully vested. Options also
become fully exercisable in the event of a securities acquisition representing
50% or more of the combined voting power of our securities and in the event that
a participant's service is terminated by a surviving corporation for any reason
other than "for cause" within 13 months following a change in control.
 
                                       57

<PAGE>   67
 

                              CERTAIN TRANSACTIONS
 
     Since our inception in May 1996, we have issued and sold securities to the
following persons who are our executive officers, directors or principal
shareholders:
 

<TABLE>
<CAPTION>
                                                      SERIES A    SERIES B    SERIES C
                                                      PREFERRED   PREFERRED   PREFERRED                 COMMON
                    INVESTOR(1)                       STOCK(2)    STOCK(3)    STOCK(4)    WARRANTS(5)    STOCK
                    -----------                       ---------   ---------   ---------   -----------   -------
<S>                                                   <C>         <C>         <C>         <C>           <C>
Anthony C. Naughtin.................................         --          --          --          --     916,952
Paul E. McBride(6)..................................         --          --          --          --     916,952
Christopher D. Wheeler..............................         --          --          --          --     916,952
Robert D. Shurtleff, Jr.(7).........................         --     338,304     357,160     432,266          --
Robert J. Lunday, Jr.(8)............................  6,666,667          --          --          --          --
H&Q InterNAP Investors, L.P.(9).....................         --   1,685,000   1,866,958          --          --
Morgan Stanley Dean Witter Venture Partners(10).....         --          --   9,259,259          --          --
Oak Investment Partners VIII, L.P.(11)..............         --          --   6,018,519          --          --
TI Ventures, LP(12).................................         --   1,666,667   1,759,556          --          --
Vulcan Ventures Incorporated(13)....................         --   2,500,000   2,236,071          --          --
</TABLE>

 
-------------------------
 (1) See "Principal Shareholders" for more detail on shares held by these
     purchasers.
 
 (2) The per share purchase price for our Series A preferred stock was $.102.
     Upon the closing of the offering, each outstanding share of Series A
     preferred stock will convert into one share of common stock.
 
 (3) The per share purchase price for our Series B preferred stock was $.60.
     Upon the closing of the offering, each outstanding share of Series B
     preferred stock will convert into one share of common stock.
 
 (4) The per share purchase price for our Series C preferred stock was $1.08.
     Upon the closing of the offering, each outstanding share of Series C
     preferred stock will convert into one share of common stock.
 
 (5) Warrants are exercisable for our Series B preferred stock at a per share
     exercise price of $.60.
 
 (6) Consists of 916,952 shares of common stock issued to Mr. McBride, of which
     250,000 shares of common stock were subsequently transferred by Mr. McBride
     to the McBride Trust and 46,000 shares of common stock to other
     shareholders.
 
 (7) Consists of 338,304 shares of Series B preferred stock issued to Mr.
     Shurtleff, of which 199,916 were subsequently transferred to other
     shareholders, warrants to purchase 432,266 shares of Series B preferred
     stock, of which Mr. Shurtleff subsequently exercised 116,666, and 357,160
     shares of Series C preferred stock issued to Mr. Shurtleff.
 
 (8) Consists of 6,666,667 shares of Series A preferred stock issued to Mr.
     Lunday, of which 844,280 were subsequently transferred to other
     shareholders.
 
 (9) Mr. Eidenberg, one of our directors, is a principal of Hambrecht & Quist
     Venture Associates.
 
(10) Consists of 780,000 shares of Series C preferred stock held by Morgan
     Stanley Venture Investors III, L.P., 355,417 shares of Series C preferred
     stock held by The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
     and 8,123,842 shares of Series C preferred stock held by Morgan Stanley
     Venture Partners III, L.P. Dr. Harding, one of our directors, is a managing
     member of the general partner of the Morgan Stanley Dean Witter Venture
     Partners Funds. The institutional managing member of the general partner of
     each of the Morgan
 
                                       58

<PAGE>   68
 
     Stanley Dean Witter Venture Partners Funds is a wholly-owned subsidiary of
     Morgan Stanley Dean Witter & Co., the parent of Morgan Stanley & Co.
     Incorporated.
 
(11) Consists of 5,904,167 shares of Series C preferred stock held by Oak
     Investment Partners VIII, L.P. and 114,352 shares of Series C preferred
     stock held by Oak VIII Affiliates Fund, L.P. Mr. Harman, one of our
     directors, is a managing member of the general partner of venture capital
     funds affiliated with Oak Investment Partners.
 
(12) Consists of 1,666,667 shares of Series B preferred stock held by TI
     Ventures, LP, and 1,759,556 shares of Series C preferred stock issued to TI
     Ventures, LP of which 88,047 were subsequently transferred to other
     shareholders.
 
(13) Mr. Ober, one of our directors, is a member of the investment team of
     Vulcan Ventures Incorporated.
 
     In addition, we have granted options to certain of our executive officers.
See "Management -- Executive Compensation."
 
     Pursuant to a Limited Liability Company Agreement of InterNAP Network
Services, L.L.C., in October 1996, we sold 1,787,180 Class A Units in InterNAP
Network Services, L.L.C. to certain investors, including our officers Paul E.
McBride, Christopher D. Wheeler and Anthony C. Naughtin, for an aggregate
consideration of $1,787. InterNAP Network Services, L.L.C. was dissolved on
October 27, 1997. InterNAP was incorporated in the State of Washington in
October 1997. These Class A Units were exchanged for shares of common stock at
an exchange of 1 to 1.667.
 
     In May 1996, we issued 2,000,000 Class B Units in InterNAP Network
Services, L.L.C. to Robert J. Lunday, Jr., in consideration for arranging a
guarantee of certain of our leasehold obligations and an unconditional promise
to contribute $500,000 to our capital on or before October 15, 1996.
Additionally, Lunday Communications loaned us $475,000 in 1996 and we repaid the
principal and interest during 1996. Robert J. Lunday, Jr., one of our directors,
is president of Lunday Communications, Inc. Further, in May 1996, Mr. Lunday
purchased an additional 2,000,000 Class B Units for $500,000. These Class B
Units were exchanged for shares of Series A preferred stock at an exchange ratio
of 1 to 1:667.
 
     Pursuant to a shareholders agreement, dated October 1, 1997, among
InterNAP, Robert J. Lunday, Jr., and some of our founders, including Anthony C.
Naughtin, Paul E. McBride and Christopher D. Wheeler, Mr. Lunday granted to each
founder an option to purchase, under conditions set out in the shareholder
agreement, his or her pro rata share (as that term is defined in the shareholder
agreement) of 5,000,000 of the 6,666,667 shares of Series A preferred stock, or
common stock upon conversion, owned by Mr. Lunday at the date of the shareholder
agreement at a price of $1.26 per share. Mr. Lunday, one of our directors, is
father-in-law of Mr. McBride, our Chief Financial Officer and Vice President of
Finance.
 
     In an assignment agreement, dated October 3, 1997, between InterNAP, Ophir
Ronen and Christopher D. Wheeler, our Chief Technology Officer, Mr. Wheeler and
Mr. Ronen assigned all of their right, title and interest in and to that certain
application for Letters Patent of the United States entitled Private Network
Access Point Router for Interconnecting Among Internet Route Providers.
 
     On October 29, 1997, December 29, 1997 and February 4, 1998, we sold an
aggregate of 12,862,558 shares of Series B preferred stock to 36 investors,
including H&Q InterNAP Investors, L.P., TI Ventures, LP and Vulcan Ventures
Incorporated, three of our principal shareholders, at an aggregate purchase
price of $7,717,534 or $.60 per share. The investor group included Robert D.
Shurtleff, Jr., one of our directors, who converted a promissory note dated
February 13, 1997 in the amount of $125,000 plus accrued interest for 221,638
shares of Series B preferred stock.
 
                                       59

<PAGE>   69
 
     On January 11, 1999, Lunday Communications, Inc. loaned $500,000 to us,
represented by a promissory note that bore interest at the rate of prime plus 2%
and had a maturity date of February 15, 1999. We repaid the outstanding
principal and accrued interest on the loan in February 1999 from the proceeds of
the Series C financing.
 
     On January 13, 1999, Robert D. Shurtleff, Jr., one our directors, loaned
$600,000 to us, represented by a promissory note that bore interest at the rate
of prime plus 2% and had a maturity date of February 15, 1999. We repaid the
outstanding principal and accrued interest on the loan in February 1999 from the
proceeds of the Series C financing.
 
     On January 28, 1999 and February 26, 1999, we sold an aggregate of
29,629,630 shares of Series C preferred stock to 44 investors, including Robert
D. Shurtleff, Jr., one of our directors, and H&Q InterNAP Investors, L.P.,
Morgan Stanley Dean Witter Venture Partners, Oak Investment Partners VIII, L.P.,
TI Ventures, LP and Vulcan Ventures Incorporated, five of our principal
shareholders, at an aggregate purchase price of $32,000,000, or $1.08 per share.
 
     We have entered into employment letter agreements with several of our key
employees, including Anthony C. Naughtin, Paul E. McBride, Charles M. Ortega and
Christopher D. Wheeler. These agreements are described in "Management-Employment
Agreements."
 
     We plan to enter into indemnification agreements with our directors and
executive officers for the indemnification of and advancement of expenses to
such persons to the fullest extent permitted by law. We also intend to enter
into these agreements with our future directors and executive officers.
 
     We believe that the foregoing transactions were in our best interest and
were made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. All future transactions between us and any of our
officers, directors or principal shareholders will be approved by a majority of
the independent and disinterested members of the board of directors, will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties and will be in connection with our bona fide business purposes.
 
                                       60

<PAGE>   70
 
                             PRINCIPAL SHAREHOLDERS
 
     The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of June 30, 1999 and as adjusted to
reflect our sale of shares for:
 
     - each person who we know to own beneficially more than five percent of the
       common stock,
 
     - each of our directors,
 
     - certain of our executive officers, and
 
     - all directors and executive officers as a group.
 
     Except as indicated, and subject to community property laws where
applicable, the persons named have sole voting and investment power with respect
to all shares shown as beneficially owned by them. Percentage of beneficial
ownership is based on 53,501,228 shares of common stock outstanding on an
as-converted basis as of June 30, 1999. This assumes no exercise of the
underwriters' over-allotment option. If the underwriters' over-allotment option
is exercised in full, we will sell up to an aggregate of                shares
of common stock and up to                shares of common stock will be
outstanding after the completion of this offering.
 
     The number of shares beneficially owned by each shareholder is determined
under rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under these rules,
beneficial ownership includes any shares as to which the individual or entity
has sole or shared voting power or investment power and any shares as to which
the individual or entity has the right to acquire beneficial ownership within 60
days after June 30, 1999 through the exercise of any stock option or other
right. The inclusion in this table of these shares, however, does not constitute
an admission that the named shareholder is a direct or indirect beneficial owner
of, or receives the economic benefit from these shares.
 
     Unless otherwise indicated in the table set forth below, each person or
entity named below has an address in care of our principal executive offices.
 

<TABLE>
<CAPTION>
                                                                              PERCENTAGE OF
                                                                           SHARES BENEFICIALLY
                                                                                  OWNED
                                                              SHARES       --------------------
                                                           BENEFICIALLY    PRIOR TO     AFTER
          NAME AND ADDRESS OF BENEFICIAL OWNER                OWNED        OFFERING    OFFERING
          ------------------------------------             ------------    --------    --------
<S>                                                        <C>             <C>         <C>
Morgan Stanley Dean Witter Venture Partners(1)...........    9,259,259       17.3%           %
     c/o Morgan Stanley Dean Witter Venture Partners
     1221 Avenue of the Americas
     New York, NY, 10020
William G. Harding(1)....................................    9,259,259       17.3
H&Q InterNAP Investors, L.P.(2)..........................    7,090,134       13.2
     c/o Hambrecht & Quist LLC
     One Bush Street
     San Francisco, CA 94104
TI Ventures, LP(2).......................................    7,090,134       13.2
     c/o Hambrecht & Quist LLC
     One Bush Street
     San Francisco, CA 94104
Eugene Eidenberg(2)......................................    7,090,134       13.2
</TABLE>

 
                                       61

<PAGE>   71
 

<TABLE>
<CAPTION>
                                                                              PERCENTAGE OF
                                                                           SHARES BENEFICIALLY
                                                                                  OWNED
                                                              SHARES       --------------------
                                                           BENEFICIALLY    PRIOR TO     AFTER
          NAME AND ADDRESS OF BENEFICIAL OWNER                OWNED        OFFERING    OFFERING
          ------------------------------------             ------------    --------    --------
<S>                                                        <C>             <C>         <C>
Oak Investment Partners VIII, L.P.(3)....................    6,018,519       11.2
     535 University Avenue, Suite 1300
     Palo Alto, CA, 94301
Frederic W. Harman(3)....................................    6,018,519       11.2
Robert J. Lunday, Jr.(4) ................................    5,822,387       10.9
Vulcan Ventures Incorporated(5)..........................    4,936,071        9.2
     110 100th Avenue Northwest, Suite 550
     Bellevue, WA, 98004
Kevin L. Ober(5).........................................    4,936,071        9.2
Fidelity Investors II Limited Partnership(6).............    2,777,778        5.2
     82 Devonshire Street, R25D
     Boston, MA, 02110-2106
FTT Ventures Limited(6)..................................    2,777,778        5.2
     82 Devonshire Street, R25D
     Boston, MA, 02110-2106
Paul E. McBride(7).......................................    2,689,804        5.0
Anthony C. Naughtin(8)...................................    2,292,380        4.3
Christopher D. Wheeler(9)................................    2,292,380        4.3
Robert D. Shurtleff, Jr.(10).............................      894,398        1.7
Charles M. Ortega(11)....................................      120,000          *
Richard Perez(12)........................................       25,000          *
All directors and executive officers as a group
  (11 persons)(13).......................................   37,314,048       69.0
</TABLE>

 
-------------------------
  *  Represents beneficial ownership of less than 1%.
 
 (1) Consists of 780,000 shares held by Morgan Stanley Venture Investors III,
     L.P., 355,417 shares held by The Morgan Stanley Venture Partners
     Entrepreneur Fund, L.P. and 8,123,842 shares held by Morgan Stanley Venture
     Partners III, L.P. The institutional managing member of the general partner
     of Morgan Stanley Dean Witter Venture Partners is a wholly-owned subsidiary
     of Morgan Stanley Dean Witter & Co., the parent of Morgan Stanley & Co.
     Incorporated. Dr. William J. Harding, one of our directors, is a managing
     member of the general partner of Morgan Stanley Dean Witter Venture
     Partners. Dr. Harding disclaims beneficial ownership of the shares held by
     Morgan Stanley Dean Witter Venture Partners, except to the extent of his
     proportionate interest therein.
 
 (2) Consists of 3,551,958 shares held by H&Q InterNAP Investors, L.P.,
     3,338,176 shares held by TI Ventures, LP, 83,333 shares issuable upon
     exercise of vested options that are held by Mr. Eugene Eidenberg and
     116,667 shares issuable upon exercise of options held by Mr. Eidenberg that
     are exercisable within 60 days of June 30, 1999 but subject to repurchase
     by InterNAP under terms set forth in a notice of grant of stock option. Mr.
     Eidenberg, the chairman of our board of directors, is a Principal of
     Hambrecht and Quist Venture Associates. Mr. Eidenberg disclaims beneficial
     ownership of the shares held by H&Q InterNAP Investors, L.P. and TI
     Ventures, LP.
 
                                       62

<PAGE>   72
 
 (3) Consists of 5,904,167 shares held by Oak Investment Partners VIII, L.P. and
     114,352 shares held by Oak VIII Affiliates Fund L.P. Mr. Frederic W.
     Harman, one of our directors, is a managing member of the general partners
     of venture capital funds affiliated with Oak Investment Partners. Mr.
     Harman disclaims beneficial ownership of the shares held by Oak Investment
     Partners VIII, L.P. and Oak VIII Affiliates Fund L.P.
 
 (4) Includes 5,000,000 shares subject to an option under a Shareholders
     Agreement dated October 1, 1997, in favor of original Class A Members of
     InterNAP Network Services, L.L.C., including Paul E. McBride, Anthony C.
     Naughtin and Christopher D. Wheeler.
 
 (5) Consists of 4,736,071 shares held by Vulcan Ventures Incorporated, 83,333
     shares held by Mr. Kevin L. Ober and 116,667 shares held by Mr. Ober that
     are subject to repurchase by InterNAP under terms set forth in a notice of
     grant of stock option. Mr. Ober, one of our directors, is a member of the
     investment team of Vulcan Ventures Incorporated. Mr. Ober disclaims
     beneficial ownership in the shares held by Vulcan Ventures Incorporated.
 
 (6) Consists of 1,388,889 shares owned by Fidelity Investors II Limited
     Partnership and 1,388,889 shares owned by FTT Ventures Limited, an
     affiliate of Fidelity Investors II Limited Partnership.
 
 (7) Includes 250,000 shares held by the McBride Trust, 110,856 shares held by
     Mr. McBride FBO Emily A. McBride UTMA, 110,856 shares held by Mr. McBride
     FBO Seth L. McBride UTMA, 110,856 shares held by Mr. McBride's wife in her
     own name, and 1,375,428 shares that may be purchased from Mr. Robert J.
     Lunday, Jr. upon exercise of an outstanding option under a Shareholder
     Agreement, dated October 1, 1997. Mr. Lunday is Mr. McBride's father-
     in-law.
 
 (8) Includes 1,375,428 shares that may be purchased from Mr. Robert J. Lunday,
     Jr. upon exercise of an outstanding option under a Shareholder Agreement,
     dated October 1, 1997.
 
 (9) Includes 1,375,428 shares that may be purchased from Mr. Robert J. Lunday,
     Jr. upon exercise of an outstanding option under a Shareholder Agreement,
     dated October 1, 1997.
 
(10) Includes 315,600 shares issuable upon exercise of warrants exercisable
     within 60 days of June 30, 1999.
 
(11) Includes 15,000 shares issuable upon exercise of options exercisable within
     60 days of June 30, 1999.
 
(12) Includes 25,000 shares issuable upon exercise of options exercisable within
     60 days of June 30, 1999.
 
(13) Includes 555,600 shares subject to options and warrants which are
     exercisable within 60 days of June 30, 1999.
 
                                       63

<PAGE>   73
 

                          DESCRIPTION OF CAPITAL STOCK
 
     Effective upon the closing of this offering, the authorized capital stock
consists of 500,000,000 shares of common stock, $.001 par value, and 10,000,000
shares of preferred stock, $.001 par value. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our amended and restated articles of incorporation and bylaws
and by the applicable provisions of Washington law.
 
COMMON STOCK
 
     As of June 30, 1999, there were 53,501,228 shares of common stock
outstanding, after giving effect to the conversion of all outstanding shares of
preferred stock into 49,469,479 shares of common stock.
 
     The holders of common stock are entitled to one vote per share on all
matters to be voted on by the shareholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up, holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock.
 
PREFERRED STOCK
 
     Upon the closing of this offering, all outstanding shares of preferred
stock will be converted at a rate of one share of common stock for each share of
preferred stock into an aggregate of 49,469,479 shares of common stock.
Following the conversion, our articles of incorporation will be amended and
restated to delete all references to such shares of preferred stock. Under the
amended and restated articles of incorporation, the board has the authority,
without further action by shareholders, to issue up to 10,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges, qualifications and restrictions granted to or imposed upon such
preferred stock, including dividend rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preference and sinking fund terms,
any or all of which may be greater than the rights of the common stock. The
issuance of preferred stock could adversely affect the voting power of holders
of common stock and reduce the likelihood that such holders will receive
dividend payments and payments upon liquidation. Such issuance could have the
effect of decreasing the market price of the common stock. The issuance of
preferred stock could have the effect of delaying, deferring or preventing a
change in control. We have no present plans to issue any shares of preferred
stock.
 
WARRANTS
 
     As of June 30, 1999, warrants to purchase an aggregate of 600,136 shares of
Series B preferred stock were outstanding at an exercise price of $.60 per
share. Each warrant contains provisions for the adjustment of the exercise price
and the aggregate number of shares issuable upon the exercise of the warrant in
the event of stock dividends, stock splits, reorganizations and
reclassifications and consolidations. Upon the closing of this offering, all
warrants described herein will become exercisable for common stock at the rate
of one share of common stock for each share of preferred stock underlying the
warrants.
 
                                       64

<PAGE>   74
 
REGISTRATION RIGHTS
 
     After this offering, the holders of 52,965,681 shares of common stock,
including shares issuable upon exercise of warrants, or their permitted
transferees, are entitled to certain rights with respect to the registration of
such shares under the Securities Act. If we propose to register any of our
securities under the Securities Act for our own account or the account of any of
our shareholders other than the holders of the registrable shares, holders of
the registrable shares are entitled, subject to certain limitations and
conditions, to notice of this registration and are, subject to certain
conditions and limitations, entitled to include registrable shares in the
registration, provided, among other conditions, that the underwriters of any
such offering have the right to limit the number of shares included in the
registration. In addition, commencing 180 days after the effective date of the
registration statement of which this prospectus is a part, we may be required to
prepare and file a registration statement under the Securities Act at our
expense if requested to do so by the holders of at least 21,186,272 of the
registrable shares, provided the reasonably expected aggregate offering price
will equal or exceed $5,000,000. We are required to use our best efforts to
effect such registration, subject to certain conditions and limitations. We are
not obligated to effect more than two of these shareholder-initiated
registrations. Further, holders of registrable securities may require us to file
additional registration statements on Form S-3, subject to certain conditions
and limitations.
 
     We are required to bear substantially all costs incurred in connection with
any of the registrations described above, other than underwriting discounts and
commissions. The registration rights described above could result in substantial
future expenses and adversely affect any future equity or debt offerings.
 
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION, BYLAWS, AS AMENDED, AND WASHINGTON LAW
 
     Our board of directors, without shareholder approval, will have upon the
closing of this offering authority under our amended and restated articles of
incorporation to issue preferred stock with rights superior to the rights of the
holders of common stock. As a result, our board could issue preferred stock
quickly and easily, which could adversely affect the rights of holders of common
stock and which our board could issue with terms calculated to delay or prevent
a change in control or make removal of management more difficult.
 
     Election and Removal of Directors. Effective upon the closing of this
offering, our articles of incorporation will provide for the division of our
board of directors into three classes, as nearly as equal in number as possible,
with the directors in each class serving for a three-year term, and one class
being elected each year by our shareholders. The Class I term will expire at the
annual meeting of shareholders to be held in 2000; the Class II term will expire
at the annual meeting of shareholders to be held in 2001; and the Class III term
will expire at the annual meeting of shareholders to be held in 2002. At each
annual meeting of shareholders after the initial classification, the successors
to directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following election.
Because this system of electing and removing directors generally makes it more
difficult for shareholders to replace a majority of the board of directors, it
may discourage a third party from making a tender offer or otherwise attempting
to gain control and may maintain the incumbency of the board of directors.
 
     Shareholder Meetings. Upon the closing of this offering our bylaws, as
amended, will provide that, except as otherwise required by law or by our
amended and restated articles of incorporation, special meetings of the
shareholders can only be called pursuant to a resolution adopted by our board of
directors, the chairman of the board or president. These provisions of our
amended and restated articles of incorporation and bylaws, as amended, could
discourage potential acquisition proposals and
 
                                       65

<PAGE>   75
 
could delay or prevent a change in control. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
board of directors and in the policies formulated by the board of directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our shares that could result from actual or
rumored takeover attempts. Such provisions also may have the effect of
preventing changes in our management.
 
     Washington law also imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19.040 of the
Washington Business Corporation Act prohibits a "target corporation," with
certain exceptions, from engaging in certain significant business transactions
with an "acquiring person," which is defined as a person or group of persons
that beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members of
the target corporation's board of directors prior to the time of acquisition.
Such prohibited transactions include, among other things:
 
     - a merger or consolidation with, disposition of assets to, or issuance or
       redemption of stock to or from, the acquiring person;
 
     - termination of 5% or more of the employees of the target corporation as a
       result of the acquiring person's acquisition of 10% or more of the
       shares; or
 
     - allowing the acquiring person to receive any disproportionate benefits as
       a shareholder.
 
     After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deferring or preventing a change in control.
 
TRANSFER AGENT
 
     The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
 
                                       66

<PAGE>   76
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
     Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.
 
     Upon completion of this offering, we will have outstanding           shares
of common stock, assuming the issuance of              shares of common stock
offered in this prospectus, conversion of all shares of preferred stock and no
exercise of options or warrants after June 30, 1999. Of these shares, the blank
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act; provided, however, that if shares
are purchased by "affiliates," as that term is defined in Rule 144 under the
Securities Act, their sales of shares would be subject to certain limitations
and restrictions that are described below.
 
     We issued and sold the remaining           shares of common stock, assuming
conversion of all shares of preferred stock, held by existing shareholders as of
June 30, 1999 in reliance on exemptions from the registration requirements of
the Securities Act. Of these shares,           shares will be subject to lock-up
agreements described below on the effective date of the offering. Upon
expiration of the lock-up agreements 180 days after the effective date of the
prospectus,           shares will become eligible for sale, subject in most
cases to the limitations of Rule 144. In addition, holders of stock options and
warrants could exercise their options and warrants and sell the shares issued
upon exercise as described below.
 

<TABLE>
<CAPTION>
   DAYS AFTER DATE OF     SHARES ELIGIBLE
    THIS PROSPECTUS          FOR SALE                              COMMENT
   ------------------     ---------------                          -------
<S>                       <C>               <C>
Upon effectiveness......                    Shares sold in the offering
90 days.................                    Shares saleable under Rule 144 that are not subject to
                                            the lock-up
180 days................                    Lock-up released: shares saleable under Rules 144 and
                                            701
</TABLE>

 
     As of June 30, 1999 there were a total of 600,136 shares of common stock
that could be issued upon exercise of outstanding warrants.      of these shares
are subject to lock-up agreements. As of June 30, 1999, there were a total of
6,136,622 shares of common stock subject to outstanding options under our stock
plans,        of which were vested. However, all of these shares are subject to
lock-up agreements. Immediately after the completion of the offering, we intend
to file registration statements on Form S-8 under the Securities Act to register
all of the shares of common stock issued or reserved for future issuance under
our stock plans. On the date 180 days after the effective date of this
prospectus, a total of 352,160 shares of common stock subject to outstanding
options are exercisable. After the effective dates of the registration
statements on Form S-8, shares purchased upon exercise of options granted
pursuant to our 1998 Stock Option/Stock Issuance Plan generally would be
available for resale in the public market.
 
     The officers, directors and certain of our shareholders have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this prospectus. Morgan Stanley & Co. Incorporated, however, may in
its sole discretion, at any time and in most cases without notice, release all
or any portion of the shares subject to lock-up agreements.
 
                                       67

<PAGE>   77
 
RULE 144
 
     In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
 
     - 1% of the number of shares of common stock then outstanding, which will
       equal approximately                shares immediately after the effective
       date of this offering; or
 
     - the average weekly trading volume of the common stock on the Nasdaq
       National Market during the four calendar weeks preceding the filing of a
       notice on Form 144 with respect to such sale.
 
     Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us.
 
RULE 701
 
     In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of the offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
 
     The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of these options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one year minimum holding period
requirement.
 
     In addition, following this offering, the holders of           shares of
common stock and of warrants exercisable for           shares of common stock
will, under certain circumstances, have rights to require us to register their
shares for future sale.
 
LOCK-UP AGREEMENTS
 
     All officers and directors and certain holders of common stock or
securities convertible for common stock and options and warrants to purchase
common stock have agreed pursuant to certain "lock-up" agreements that they will
not offer, sell, contract to sell, pledge, grant any option to sell, or
otherwise dispose of, directly or indirectly, any shares of common stock or
securities convertible or exchangeable for common stock, or warrants or other
rights to purchase common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated.
 
                                       68

<PAGE>   78
 
                                  UNDERWRITERS
 
     Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Credit Suisse First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation, and Hambrecht & Quist L.L.C. are acting as
representatives, have severally agreed to purchase, and we have agreed to sell
to them, severally, an aggregate of                shares of common stock. The
number of shares of common stock that each underwriter has agreed to purchase is
set forth opposite its name below:
 

<TABLE>
<CAPTION>
                                                              NUMBER OF
                            NAME                               SHARES
                            ----                              ---------
<S>                                                           <C>
Morgan Stanley & Co. Incorporated...........................
Credit Suisse First Boston Corporation......................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Hambrecht & Quist LLC.......................................
                                                              --------
          Total.............................................
                                                              ========
</TABLE>

 
     The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares of common stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to take and pay for all of the shares of common stock
offered by this prospectus if any shares are taken. However, the underwriters
are not required to take or pay for the share covered by the underwriters
over-allotment option described below.
 
     The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $          a share under the public offering price.
Any underwriters may allow, and such dealers may reallow, a concession not in
excess of $          a share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
 
     Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to purchase
up to an aggregate of           additional shares of common stock at the public
offering price listed on the cover page of this prospectus, less underwriting
discounts and commissions. The underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered by this prospectus. To the extent
such option is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of the
additional shares of common stock as the number listed next to such
underwriter's name in the preceding table bears to the total number of shares of
common stock listed next to the names of all underwriters in the preceding
table. If the underwriter's over-allotment option is exercised in full, the
total price to the public would be $          , the total underwriters'
discounts and commissions would be $          and the total proceeds to us would
be $          .
 
     The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
 
                                       69

<PAGE>   79
 
     Our common stock has been approved for quotation, subject to official
notice of issuance, on the Nasdaq National Market under the symbol "INAP."
 
     We, the directors, officers, shareholders and certain optionholders of ours
have each agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, we will not, during the period
commencing on the date of this prospectus and ending 180 days after such date,
directly or indirectly:
 
      - offer, pledge, sell, contract to sell, sell any option or contract to
        purchase, purchase any option or contract to sell, grant any option,
        right or warrant to purchase, lend or otherwise transfer or dispose of,
        directly or indirectly, any shares of common stock or any securities
        convertible into or exercisable or exchangeable for common stock; or
 
      - enter into any swap or other arrangement that transfers to another, in
        whole or in part, any of the economic consequences of ownership of
        common stock.
 
Any such transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
 
     The restrictions described in the previous paragraph do not apply to:
 
      - the sale to the underwriters of the shares of common stock under the
        underwriting agreement;
 
      - the issuance by us of shares of common stock upon the exercise of an
        option or a warrant or the conversion of a security outstanding on the
        date of this prospectus which is described in this prospectus;
 
      - transactions by any person other than us relating to shares of common
        stock or other securities acquired in open market transactions after the
        completion of the offering of the shares; or
 
      - issuances of certain shares of common stock or options to purchase
        shares of common stock pursuant to our employee benefit plans as in
        existence on the date of this prospectus.
 
     In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering if the syndicate repurchases previously distributed
shares of common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities and may
end any of these activities at any time. Upon consummation of this offering,
affiliates of Morgan Stanley & Co. Incorporated will own   % of the common stock
on an as-converted basis (  % if the over-allotment option granted to the
underwriters is exercised in full). Currently, affiliates of Morgan Stanley &
Co. Incorporated have designated one member to the board of directors (Dr.
Harding). Dr. Harding is a principal and employee of Morgan Stanley & Co.
Incorporated. See "Management." Morgan Stanley & Co. Incorporated may continue
to provide investment banking and financial advisory services to us for which it
may receive customary fees and commissions.
 
                                       70

<PAGE>   80
 
     We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
 
PRICING OF THE OFFERING
 
     Prior to this offering, there has been no public market for the common
stock. The public offering price for the shares of common stock will be
determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be our record of operations, our current financial position
and future prospects and our industry in general, the experience of our
management, sales, earnings and certain of our other financial and operating
information in recent periods, the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to ours. The estimated public offering
price range set forth on the cover page of this prospectus is subject to change
as a result of market conditions and other factors.
 

                                 LEGAL MATTERS
 
     The legality of the shares of common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Kirkland, Washington. An investment
partnership of Cooley Godward attorneys beneficially owns an aggregate 46,296
shares of our common stock. Certain legal matters will be passed upon for the
underwriters by Morrison & Foerster LLP, Palo Alto, California.
 

                                    EXPERTS
 
     The financial statements of InterNAP Network Services Corporation as of
December 31, 1997 and 1998 and for the period from inception (May 1, 1996) to
December 31, 1996 and for the years ended December 31, 1997 and 1998, included
in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
 
                             ADDITIONAL INFORMATION
 
     We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the common stock offered hereby. As permitted by
the rules and regulations of the SEC, this prospectus, which is a part of the
registration statement, omits certain information, exhibits, schedules and
undertakings set forth in the registration statement. For further information
pertaining to us and the common stock offered hereby, reference is made to such
registration statement and the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents or provisions of any contract or
other document referred to herein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. A copy of the registration statement may be
inspected without charge at the office of the SEC at 450 Fifth Street, NW,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of all or any part of the registration statement may be obtained from such
offices upon the payment of the fees prescribed by the SEC. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1 800-SEC-0330. In addition, registration statements and certain other
filings made with the SEC through its Electronic Data Gathering, Analysis and
Retrieval, or EDGAR, system are publicly available through the SEC's Web site on
the Internet's World Wide Web, located at http://www.sec.gov. The registration
statement, including all exhibits thereto and amendments thereof, was filed with
the SEC through EDGAR.
 
                                       71

<PAGE>   81
 
                     INTERNAP NETWORK SERVICES CORPORATION
 

                         INDEX TO FINANCIAL STATEMENTS
 

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................  F-2
Balance Sheet...............................................  F-3
Statement of Operations.....................................  F-4
Statement of Shareholders' Equity (Deficit).................  F-5
Statement of Cash Flows.....................................  F-6
Notes to Financial Statements...............................  F-7

</TABLE>

 
                                       F-1

<PAGE>   82
 

                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and Shareholders
InterNAP Network Services Corporation
 
     In our opinion, the accompanying balance sheet and the related statements
of operations, of shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of InterNAP Network
Services Corporation at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from inception (May 1, 1996) to
December 31, 1996 and for the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
 
PricewaterhouseCoopers LLP
 
Seattle, Washington
April 2, 1999

 
                                       F-2

<PAGE>   83
 
                     INTERNAP NETWORK SERVICES CORPORATION
 
                                 BALANCE SHEET
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                                                                             PRO FORMA
                                                                                           SHAREHOLDERS'
                                                              DECEMBER 31,                   EQUITY AT
                                                            -----------------   JUNE 30,     JUNE 30,
                                                             1997      1998       1999         1999
                                                            -------   -------   --------   -------------
                                                                                      (UNAUDITED)
<S>                                                         <C>       <C>       <C>        <C>
                          ASSETS
Current assets:
  Cash and cash equivalents...............................  $ 4,770   $   275   $  3,301
  Short-term investments..................................       --        --      9,995
  Accounts receivable, net of allowance of $27, $65, and
     $78, respectively....................................      228       766      1,577
  Prepaid expenses and other assets.......................        8       280        197
                                                            -------   -------   --------
          Total current assets............................    5,006     1,321     15,070
Property and equipment, net...............................      867     5,828     13,665
Restricted cash...........................................       --        --      1,019
Patents and trademarks, net...............................       48        48         79
Deposits and other assets, net............................       66       290        997
                                                            -------   -------   --------
          Total assets....................................  $ 5,987   $ 7,487   $ 30,830
                                                            =======   =======   ========
      LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable........................................  $   345   $ 2,603   $  2,638
  Accrued liabilities.....................................       94       713        737
  Deferred revenues.......................................       84       284         23
  Note payable............................................       34        --         --
  Line of credit..........................................       --       650        625
  Capital lease obligations, current portion..............      361     1,331      2,757
                                                            -------   -------   --------
          Total current liabilities.......................      918     5,581      6,780
Capital lease obligations, less current portion...........      240     2,342      6,776
                                                            -------   -------   --------
          Total liabilities...............................    1,158     7,923     13,556
                                                            -------   -------   --------
Commitments and contingencies
Shareholders' equity (deficit):
  Convertible preferred stock, $.001 par value, authorized
     50,070 shares; 17,195, 19,645, 49,469 and no pro
     forma shares issued and outstanding, respectively;
     aggregate liquidation preference of $6,998, $8,466
     and $40,584, respectively............................       18        20         50     $     --
  Common stock, $.001 par value, authorized 300,000
     shares; 3,333, 3,336, 4,032, and 53,501 (pro forma)
     shares issued and outstanding, respectively..........        3         3          4           54
  Additional paid-in capital..............................    7,376     9,576     57,023       57,023
  Deferred stock compensation.............................       --      (494)   (14,113)     (14,113)
  Accumulated deficit.....................................   (2,568)   (9,541)   (25,690)     (25,690)
                                                            -------   -------   --------     --------
          Total shareholders' equity (deficit)............    4,829      (436)    17,274     $ 17,274
                                                            -------   -------   --------     ========
          Total liabilities and shareholders' equity
            (deficit).....................................  $ 5,987   $ 7,487   $ 30,830
                                                            =======   =======   ========
</TABLE>

 
   The accompanying notes are an integral part of these financial statements.
                                       F-3

<PAGE>   84
 
                     INTERNAP NETWORK SERVICES CORPORATION
 
                            STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                          PERIOD FROM                               SIX
                                           INCEPTION        YEARS ENDED         MONTHS ENDED
                                         (MAY 1, 1996)     DECEMBER 31,           JUNE 30,
                                          TO DECEMBER    -----------------   ------------------
                                           31, 1996       1997      1998      1998       1999
                                         -------------   -------   -------   -------   --------
                                                                                (UNAUDITED)
<S>                                      <C>             <C>       <C>       <C>       <C>
Revenues...............................     $   44       $ 1,045   $ 1,957   $   731   $  3,410
                                            ------       -------   -------   -------   --------
Costs and expenses:
  Cost of network and customer
     support...........................        321         1,092     3,216       994      7,906
  Product development..................        184           389       754       318      1,395
  Sales and marketing..................         78           261     2,822       352      5,869
  General and administrative...........        378           713     1,910       594      2,905
  Amortization of deferred stock
     compensation......................         --            --       205        19      1,787
                                            ------       -------   -------   -------   --------
       Total operating costs and
          expenses.....................        961         2,455     8,907     2,277     19,862
                                            ------       -------   -------   -------   --------
  Loss from operations.................       (917)       (1,410)   (6,950)   (1,546)   (16,452)
Other income (expense):
  Interest income......................          6            36       169       121        450
  Interest and financing expense.......        (48)         (235)      (90)      (36)      (147)
  Loss on disposal of assets...........         --            --      (102)       --         --
                                            ------       -------   -------   -------   --------
     Net loss..........................     $ (959)      $(1,609)  $(6,973)  $(1,461)  $(16,149)
                                            ======       =======   =======   =======   ========
Basic and diluted net loss per share...     $ (.29)      $  (.48)  $ (2.09)  $  (.44)  $  (4.78)
                                            ======       =======   =======   =======   ========
Weighted average shares used in
  computing basic and diluted net loss
  per share............................      3,333         3,333     3,336     3,336      3,378
                                            ======       =======   =======   =======   ========
Pro forma basic and diluted net loss
  per share (unaudited)................                            $  (.31)            $   (.34)
                                                                   =======             ========
Weighted average shares used in
  computing pro forma basic and diluted
  net loss per share (unaudited).......                             22,733               47,771
                                                                   =======             ========
</TABLE>

 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-4

<PAGE>   85
 
                     INTERNAP NETWORK SERVICES CORPORATION
 
                  STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
                 FROM INCEPTION (MAY 1, 1996) TO JUNE 30, 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                               CLASS A AND       CONVERTIBLE          COMMON
                                  B UNIT       PREFERRED STOCK        STOCK
                              --------------   ----------------   --------------   ADDITIONAL      DEFERRED
                                        PAR               PAR               PAR     PAID-IN         STOCK        ACCUMULATED
                              UNITS    VALUE   SHARES    VALUE    SHARES   VALUE    CAPITAL      COMPENSATION      DEFICIT
                              ------   -----   -------   ------   ------   -----   ----------   --------------   -----------
<S>                           <C>      <C>     <C>       <C>      <C>      <C>     <C>          <C>              <C>
Issuance of Class A Units...   2,000    $ 2        --     $--        --     $--     $    --        $     --       $     --
Issuance of Class B Units...   4,000      4        --      --        --      --         996              --             --
Net loss....................      --     --        --      --        --      --          --              --           (959)
                              ------    ---    ------     ---     -----     ---     -------        --------       --------
Balances, December 31,
  1996......................   6,000      6        --      --        --      --         996              --           (959)
Exchange of Class A Units
  for common stock at an
  exchange ratio of
  1:1.667...................  (2,000)    (2)       --      --     3,333       3          (1)             --             --
Exchange of Class B Units
  for Series A preferred
  stock at an exchange ratio
  of 1:1.667................  (4,000)    (4)    6,667       7        --      --          (3)             --             --
Convertible notes payable
  and accrued interest
  converted to Series B
  preferred stock...........      --     --       927       1        --      --         556              --             --
Value ascribed to bridge
  financing warrants........      --     --        --      --        --      --         124              --             --
Issuance of Series B
  preferred stock, net of
  issuance costs
  of $47....................      --     --     9,601      10        --      --       5,704              --             --
Net loss....................      --     --        --      --        --      --          --              --         (1,609)
                              ------    ---    ------     ---     -----     ---     -------        --------       --------
Balances, December 31,
  1997......................      --     --    17,195      18     3,333       3       7,376              --         (2,568)
Issuance of Series B
  preferred stock, net of
  issuance costs
  of $21....................      --     --     2,333       2        --      --       1,376              --             --
Issuance of common stock to
  an employee...............      --     --        --      --         3      --           1              --             --
Value ascribed to lease
  financing warrants........      --     --        --      --        --      --          54              --             --
Exercise of warrants to
  purchase Series B
  preferred stock...........      --     --       117      --        --      --          70              --             --
Deferred compensation
  related to grants of stock
  options...................      --     --        --      --        --      --         699            (699)            --
Amortization of deferred
  stock compensation........      --     --        --      --        --      --          --             205             --
Net loss....................      --     --        --      --        --      --          --              --         (6,973)
                              ------    ---    ------     ---     -----     ---     -------        --------       --------
Balances, December 31,
  1998......................      --     --    19,645      20     3,336       3       9,576            (494)        (9,541)
Issuances of Series C
  preferred stock, net of
  issuance costs
  of $85....................      --     --    29,630      30        --      --      31,884              --             --
Exercise of warrants to
  purchase Series B
  preferred stock...........      --     --       194      --        --      --         116              --             --
Exercise of employee stock
  options...................      --     --        --      --       696       1          41              --             --
Deferred compensation
  related to grants of stock
  options...................      --     --        --      --        --      --      15,406         (15,406)            --
Amortization of deferred
  stock compensation........      --     --        --      --        --      --          --           1,787             --
Net loss....................      --     --        --      --        --      --          --              --        (16,149)
                              ------    ---    ------     ---     -----     ---     -------        --------       --------
Balances, June 30, 1999
  (unaudited)...............      --    $--    49,469     $50     4,032     $ 4     $57,023        $(14,113)      $(25,690)
                              ======    ===    ======     ===     =====     ===     =======        ========       ========
 
<CAPTION>
 
                               TOTAL
                              --------
<S>                           <C>
Issuance of Class A Units...  $      2
Issuance of Class B Units...     1,000
Net loss....................      (959)
                              --------
Balances, December 31,
  1996......................        43
Exchange of Class A Units
  for common stock at an
  exchange ratio of
  1:1.667...................        --
Exchange of Class B Units
  for Series A preferred
  stock at an exchange ratio
  of 1:1.667................        --
Convertible notes payable
  and accrued interest
  converted to Series B
  preferred stock...........       557
Value ascribed to bridge
  financing warrants........       124
Issuance of Series B
  preferred stock, net of
  issuance costs
  of $47....................     5,714
Net loss....................    (1,609)
                              --------
Balances, December 31,
  1997......................     4,829
Issuance of Series B
  preferred stock, net of
  issuance costs
  of $21....................     1,378
Issuance of common stock to
  an employee...............         1
Value ascribed to lease
  financing warrants........        54
Exercise of warrants to
  purchase Series B
  preferred stock...........        70
Deferred compensation
  related to grants of stock
  options...................        --
Amortization of deferred
  stock compensation........       205
Net loss....................    (6,973)
                              --------
Balances, December 31,
  1998......................      (436)
Issuances of Series C
  preferred stock, net of
  issuance costs
  of $85....................    31,914
Exercise of warrants to
  purchase Series B
  preferred stock...........       116
Exercise of employee stock
  options...................        42
Deferred compensation
  related to grants of stock
  options...................        --
Amortization of deferred
  stock compensation........     1,787
Net loss....................   (16,149)
                              --------
Balances, June 30, 1999
  (unaudited)...............  $ 17,274
                              ========
</TABLE>

 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-5

<PAGE>   86
 
                     INTERNAP NETWORK SERVICES CORPORATION
 
                            STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                               PERIOD FROM
                                                                INCEPTION          YEAR ENDED        SIX MONTHS ENDED
                                                             (MAY 1, 1996) TO     DECEMBER 31,           JUNE 30,
                                                               DECEMBER 31,     -----------------   ------------------
                                                                   1996          1997      1998      1998       1999
                                                             ----------------   -------   -------   -------   --------
                                                                                                       (UNAUDITED)
<S>                                                          <C>                <C>       <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................     $  (959)       $(1,609)  $(6,973)  $(1,461)  $(16,149)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization.........................         103            297       725       247      1,305
      Loss on disposal of assets............................          --             --       102        --         --
      Non-cash interest and financing expense...............          --            146         7         2          9
      Provision for doubtful accounts.......................          --             27       140        92         58
      Amortization of deferred stock compensation...........          --             --       205        19      1,787
      Changes in operating assets and liabilities:
         Accounts receivable................................         (31)          (224)     (678)     (135)      (869)
         Prepaid expenses and other assets..................        (113)            38      (391)     (117)      (580)
         Accounts payable...................................         264             82       721       (75)     1,370
         Deferred revenues..................................          --             84       200       (75)      (261)
         Accrued liabilities................................          57             37       619        57         24
                                                                 -------        -------   -------   -------   --------
         Net cash used in operating activities..............        (679)        (1,122)   (5,323)   (1,446)   (13,306)
                                                                 -------        -------   -------   -------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................        (174)           (93)     (641)     (343)    (4,221)
  Deposits on property and equipment........................          --             --       (58)       --         --
  Purchase of short-term investments........................          --             --        --        --     (9,995)
  Payments for patents and trademarks.......................          --            (48)       (3)       --        (33)
                                                                 -------        -------   -------   -------   --------
         Net cash used in investing activities..............        (174)          (141)     (702)     (343)   (14,249)
                                                                 -------        -------   -------   -------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from shareholder loan and line of credit.........         475            180        --        --      1,100
  Repayment of shareholder loan and line of credit..........        (475)          (180)       --        --     (1,100)
  Issuance of notes payable.................................          69             --        --        --         --
  Proceeds from issuance of Class A and B Units.............       1,002             --        --        --         --
  Principal payments on note payable........................          --            (34)      (34)       --         --
  Net increase (decrease) in line of credit.................          --             --       650       250        (25)
  Payments on capital lease obligations.....................         (73)          (327)     (534)     (187)      (875)
  Proceeds from equipment leaseback financing...............          --             --        --        --        428
  Restricted cash related to obtaining lease line...........          --             --        --        --     (1,019)
  Proceeds from exercise of stock options...................          --             --        --        --         42
  Proceeds from issuance of convertible notes payable.......          --            660        --        --         --
  Principal payments on convertible note payable............          --           (125)       --        --         --
  Proceeds from issuance of preferred stock, net of issuance
    cost....................................................          --          5,714     1,448     1,378     32,030
                                                                 -------        -------   -------   -------   --------
         Net cash provided by financing activities..........         998          5,888     1,530     1,441     30,581
                                                                 -------        -------   -------   -------   --------
Net increase (decrease) in cash and cash equivalents........         145          4,625    (4,495)     (348)     3,026
Cash and cash equivalents at beginning of period............          --            145     4,770     4,770        275
                                                                 -------        -------   -------   -------   --------
Cash and cash equivalents at end of period..................     $   145        $ 4,770   $   275   $ 4,422   $  3,301
                                                                 =======        =======   =======   =======   ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest, net of amounts capitalized........     $    48        $   103   $    82   $    34   $    138
                                                                 =======        =======   =======   =======   ========
  Purchase of property and equipment financed with capital
    leases..................................................     $   740        $   260   $ 3,606   $    --   $  6,307
                                                                 -------        -------   -------   -------   --------
  Purchase of property and equipment included in accounts
    payable.................................................     $    --        $    --   $ 1,537   $    --   $    202
                                                                 =======        =======   =======   =======   ========
  Conversion of convertible notes to Series B preferred
    stock...................................................     $    --        $   535   $    --   $    --   $     --
                                                                 =======        =======   =======   =======   ========
  Value ascribed to warrants................................     $    --        $   124   $    54   $    14   $     --
                                                                 =======        =======   =======   =======   ========
</TABLE>

 
   The accompanying notes are an integral part of these financial statements.
                                       F-6

<PAGE>   87
 
                     INTERNAP NETWORK SERVICES CORPORATION
 
                         NOTES TO FINANCIAL STATEMENTS
 
1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES:
 

THE COMPANY
 
     InterNAP Network Services Corporation (the "Company") was originally
incorporated in the State of Washington as a limited liability company ("LLC")
in May 1996. The Company was re-incorporated in the State of Washington in
October 1997 as a C corporation without changing its ownership. The Articles of
Incorporation were further amended in January 1999 to provide for the
authorization of additional common and preferred stock and, accordingly, the
disclosures in the financial statements and related notes have been adjusted to
reflect this amendment for all periods presented.
 
     The Company is a leading provider of fast, reliable and centrally managed
Internet connectivity services targeted at businesses seeking to maximize the
performance of mission-critical Internet-based applications. Customers connected
to one of the Company's Private-Network Access Points ("P-NAPs") have their data
optimally routed to and from destinations on the Internet in a manner that
minimizes the use of congested public network access points and private peering
points.
 
     The Company began selling Internet connectivity services from its first
P-NAP, located in Seattle, during October 1996. The Company began selling
services from its second and third P-NAPs in New York City and San Jose by
December 1998. During the six months ended June 30, 1999, the Company began
selling services from P-NAPs located in the Washington D.C., Los Angeles,
Chicago and Boston metropolitan areas.
 
     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses since
inception and the expansion and development of its business plan will require
significant capital. The Company is currently seeking additional financing;
however, there can be no assurance that the Company will be able to obtain such
equity or debt financing when required, or, if available, on acceptable terms.
If the Company fails to obtain capital when required, the Company could modify,
delay or abandon some or all of the Company's business and expansion plans,
which management believes would result in the reduction of expenditures.
 
INTERIM FINANCIAL INFORMATION
 
     The financial information at June 30, 1999 and for the six months ended
June 30, 1998 and 1999, and the related notes, are unaudited but include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation, in all material respects, of its
financial position, operating results, and cash flows for the interim date and
periods presented. Results for the six-month period ended June 30, 1999 are not
necessarily indicative of results for the entire fiscal year or future periods.
 
ESTIMATES AND ASSUMPTIONS
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities in the
financial statements and disclosure of contingent assets and liabilities at the
date of the financial statements. Examples of estimates subject to possible
revision based upon the outcome of future events include depreciation of
property and equipment, income tax liabilities,
 
                                       F-7

<PAGE>   88
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
the valuation allowance against the deferred tax assets and the allowance for
doubtful accounts. Actual results could differ from those estimates.
 
CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
 
     The Company generally considers any highly liquid investments purchased
with an original or remaining maturity of three months or less at the date of
purchase to be cash equivalents.
 
     The Company classifies, at the date of acquisition, its marketable
securities into categories in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Currently, the Company classifies its securities as
available-for-sale which are reported at fair market value with the related
unrealized gains and losses included in shareholders' equity (deficit).
Unrealized gains and losses were not material for all periods presented.
Realized gains and losses and declines in value of securities judged to be other
than temporary are included in other income (expense). Interest and dividends on
all securities are included in interest income. The fair value of the Company's
short-term investments are based on quoted market prices. The carrying value of
those investments approximates their fair value. At June 30, 1999, short-term
investments consisted of commercial paper and government securities with
maturities of less than one year.
 
     The Company invests its cash and cash equivalents in deposits with two
financial institutions that may, at times, exceed federally insured limits.
Management believes that the risk of loss is minimal. To date, the Company has
not experienced any losses related to temporary cash investments.
 
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
 
     The Company extends trade credit terms to its customers based upon a credit
analysis performed by management. Further credit reviews are done on a periodic
basis as necessary. Generally, collateral is not required on accounts
receivable, however, advance deposits are collected for accounts considered
credit risks.
 
     During 1998, the Company had two significant customers representing
approximately 13.6% and 9.6% of revenues and 9.9% and 11.0% of accounts
receivable at December 31, 1998, respectively. Additionally, the Company had a
single customer which is billed for its quarterly services in advance and, as a
result, comprised 23.4% of accounts receivable at December 31, 1998. Similarly,
during 1997, the Company had two significant customers representing 18.1% and
20.8% of revenues and 28.1% and 35.5% of accounts receivable at December 31,
1997, respectively. For 1996, the Company had two significant customers which
represented 14.9% and 56.2% of revenues.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The Company's financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, capital lease
obligations, and the line of credit are carried at cost. The Company's
short-term financial instruments approximate fair value due to their relatively
short maturities. The carrying value of the Company's long-term financial
instruments approximate fair value as the interest rates approximate current
market rates of similar debt.
 
                                       F-8

<PAGE>   89
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
PROPERTY AND EQUIPMENT
 
     Property and equipment consists principally of routers, telecommunications
equipment and other computer equipment. Network equipment and furniture and
equipment are carried at original acquisition cost and depreciated or amortized
on a straight-line basis over the estimated useful lives of the assets which
range from 3 to 7 years. Leasehold improvements are amortized on a straight-line
basis over the shorter of their estimated useful lives or the term of the
related lease. Additions and improvements that increase the value or extend the
life of an asset are capitalized. Maintenance and repairs are expensed as
incurred. Gains or losses from asset disposals are charged to operations in the
year of disposition.
 
     Direct construction costs of each P-NAP, including equipment and labor
costs, are capitalized during the construction period. In addition, the Company
capitalizes interest costs as part of the cost of its P-NAPs when the P-NAPs
require an extended period of time to ready them for their intended use. During
1998, the Company capitalized approximately $78,000 and $34,000 of labor and
interest costs, respectively, related to the construction of several P-NAPs.
These costs are included as part of the cost of the network equipment.
 
     The Company currently purchases the majority of its network equipment from
one vendor. The Company does not carry significant inventory of such equipment.
Failure to obtain the network equipment when required could negatively impact
the Company's operating results until an alternative supply source is
established. Although there are a limited number of other suppliers, there can
be no assurance that such equipment would be available and on comparable terms.
 
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
 
     Costs of computer software developed or obtained for internal use are
capitalized while in the application development stage and are expensed while in
the preliminary stage and the post-implementation stage. During 1998, the
Company capitalized approximately $76,000 of internal development costs incurred
during the application development stage of certain software. These costs are
included as part of the cost of network equipment.
 
PATENTS AND TRADEMARKS
 
     Capitalized patent and trademark costs represent professional fees incurred
for patent and trademark filings and are capitalized at cost. Patents and
trademarks are amortized over 15 years. Accumulated amortization as of December
31, 1997 and 1998 was $284 and $3,698, respectively.
 
VALUATION OF LONG LIVED ASSETS
 
     The Company periodically evaluates the carrying value of its long-lived
assets, including, but not limited to, property and equipment, patents and
trademarks, and other assets. The carrying value of a long-lived asset is
considered impaired when the undiscounted cash flow from such asset is
separately identifiable and is estimated to be less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long lived assets to be disposed
of would be
 
                                       F-9

<PAGE>   90
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
determined in a similar manner, except that fair market values would be reduced
by the cost of disposal.
 
INCOME TAXES
 
     The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The Company provides a valuation allowance, if necessary,
to reduce deferred tax assets to their estimated realizable value.
 
DEBT ISSUED WITH STOCK PURCHASE WARRANTS
 
     Proceeds from debt issued with stock purchase warrants are allocated
between the debt and the warrants based on their relative fair values, and the
value ascribed to the warrants, based on the Black-Scholes option pricing model,
is amortized to interest expense over the term of the related debt using the
effective interest method. When the Company issues stock purchase warrants in
conjunction with obtaining a lease financing line of credit, the fair value of
the warrants, based on the Black-Scholes option pricing model, is included as a
deferred financing cost in deposits and other assets and is amortized to
interest expense over the term of the lease line using the straight-line method.
At December 31, 1998, $46,934 of deferred financing costs, net of accumulated
amortization of $7,525, are included in deposits and other assets, net.
 
STOCK-BASED COMPENSATION
 
     Employee stock options are accounted for under the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25 ("APB 25") "Accounting
for Stock Issued to Employees" and related interpretations.
 
REVENUE RECOGNITION
 
     The Company recognizes service revenues as they are earned. Revenues from
initial installation of customer network connections are recognized when
installations are complete. Customers are billed on the last day of each month
either on a usage or a flat-rate basis. The usage based billing relates to the
month in which the billing occurs, whereas certain flat rate billings are for
the month subsequent to the billing month. Deferred revenues consist of revenues
for services to be delivered in the future and consist primarily of advance
billings for flat rate customers.
 
PRODUCT DEVELOPMENT COSTS
 
     Product development costs are primarily related to network engineering
costs associated with changes to the functionality of the Company's proprietary
services and network architecture. Such costs that do not qualify for
capitalization are expensed as incurred.
 
                                      F-10

<PAGE>   91
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
ADVERTISING COSTS
 
     The Company expenses advertising costs as they are incurred. Advertising
expense for 1997 and 1998 was $15,670 and $63,433, respectively. There was no
advertising expense for the period from inception (May 1, 1996) to December 31,
1996.
 
COMPREHENSIVE INCOME
 
     The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective
January 1, 1998. SFAS No. 130 requires the disclosure of comprehensive income
and its components in a full set of general-purpose financial statements.
Comprehensive income is the change in equity from transactions and other events
and circumstances other than those resulting from investments by owners and
distributions to owners. SFAS No. 130 had no impact on the Company and,
accordingly, a separate statement of comprehensive income has not been
presented.
 
NET LOSS PER SHARE
 
     Basic and diluted net loss per share has been computed using the weighted
average number of shares of common stock outstanding during the period, less the
weighted average number of unvested shares of common stock issued that are
subject to repurchase. Basic and diluted pro forma net loss per share, as
presented in the statement of operations, has been computed as described above
and also gives effect to the conversion of the convertible preferred stock
(using the if-converted method) from the original date of issuance. The Company
has excluded all convertible preferred stock, warrants to purchase convertible
preferred stock, outstanding options to purchase common stock and shares subject
to repurchase from the calculation of diluted net loss per share, as such
securities are antidilutive for all periods presented.
 
                                      F-11

<PAGE>   92
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
     The following table presents the calculation of basic and diluted and pro
forma basic and diluted (unaudited) net loss per share (in thousands, except per
share data):
 

<TABLE>
<CAPTION>
                                         PERIOD FROM                              SIX MONTHS
                                          INCEPTION          YEAR ENDED             ENDED
                                       (MAY 1, 1996) TO     DECEMBER 31,           JUNE 30,
                                         DECEMBER 31,     -----------------   ------------------
                                             1996          1997      1998      1998       1999
                                       ----------------   -------   -------   -------   --------
                                                                                 (UNAUDITED)
<S>                                    <C>                <C>       <C>       <C>       <C>
Net loss.............................       $ (959)       $(1,609)  $(6,973)  $(1,461)  $(16,149)
                                            ======        =======   =======   =======   ========
Basic and diluted:
  Weighted average shares of common
     stock outstanding used in
     computing basic and diluted net
     loss per share..................        3,333          3,333     3,336     3,336      3,378
                                            ======        =======   =======   =======   ========
Basic and diluted net loss per
  share..............................       $ (.29)       $  (.48)  $ (2.09)  $  (.44)  $  (4.78)
                                            ======        =======   =======   =======   ========
Pro forma (unaudited):
  Net loss...........................                               $(6,973)            $(16,149)
                                                                    =======             ========
  Shares used above..................                                 3,336                3,378
  Pro forma adjustment to reflect
     weighted effect of assumed
     conversion of convertible
     preferred stock.................                                19,397               44,393
                                                                    -------             --------
  Weighted average shares used in
     computing pro forma basic and
     diluted net loss per common
     share...........................                                22,733               47,771
                                                                    =======             ========
Pro forma basic and diluted net loss
  per common share (unaudited).......                               $  (.31)            $   (.34)
                                                                    =======             ========
Antidilutive securities not included
  in diluted net loss per share
  calculation:
     Convertible preferred stock.....        6,667         17,195    19,645    19,529     49,469
     Options to purchase common
       stock.........................           --             --     3,412       400      6,137
     Warrants to purchase Series B
       preferred stock...............           --            786       794       828        600
     Unvested shares of common stock
       subject to repurchase.........           --             --        --        --         50
                                            ------        -------   -------   -------   --------
                                             6,667         17,981    23,851    20,757     56,256
                                            ======        =======   =======   =======   ========
</TABLE>

 
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
 
     Upon closing of the offering contemplated by this prospectus, all of the
convertible preferred stock outstanding will automatically be converted into
common stock. Unaudited pro forma shareholders' equity at June 30, 1999, as
adjusted for the assumed conversion of convertible preferred stock based on the
shares of convertible preferred stock outstanding at June 30, 1999, is disclosed
on
 
                                      F-12

<PAGE>   93
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
the balance sheet. Series A, B and C preferred stock convert to common stock at
a conversion rate of one to one.
 
SEGMENT INFORMATION
 
     The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131") "Disclosures about Segments of an Enterprise and Related
Information," which is effective for fiscal years beginning after December 31,
1997. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas,
and major customers. The Company's operations consist of Internet connectivity
services, other ancillary services, such as co-location, web hosting and server
management, and installation services. Management uses one measurement of
profitability and does not disaggregate its business for internal reporting.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, which will be effective for the Company for fiscal years and quarters
beginning after June 15, 2000, requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company is assessing the
requirements of SFAS No. 133 and the effects, if any, on the Company's financial
position, results of operations and cash flows.
 
     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
requires companies to capitalize qualifying computer software costs which are
incurred during the application development stage and amortize them over the
software's estimated useful life. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. The Company adopted the requirements of SOP
98-1 during 1998.
 
     In April 1998, the American Institute of Certified Public Accountants
issued Statements of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities." This statement requires companies to expense the costs of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company
adopted SOP 98-5 during 1999, which did not have a material impact on its
results of operations.
 
                                      F-13

<PAGE>   94
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
2. PROPERTY AND EQUIPMENT:
 
     Property and equipment consists of the following (in thousands):
 

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                           ----------------      JUNE 30,
                                                            1997      1998         1999
                                                           ------    ------    ------------
                                                                               (UNAUDITED)
<S>                                                        <C>       <C>       <C>
Network equipment........................................  $   88    $1,150      $ 1,972
Network equipment under capital lease....................     908     4,465        9,735
Furniture, equipment and software........................       7       424        2,322
Furniture, equipment and software under capital lease....      92       142          948
Leasehold improvements...................................     171       688          998
                                                           ------    ------      -------
                                                            1,266     6,869       15,975
Less: Accumulated depreciation and amortization ($258,
  $952 and $1,747 (unaudited) related to capital leases
  at December 31, 1997 and 1998, and June 30, 1999,
  respectively)..........................................    (399)   (1,041)      (2,310)
                                                           ------    ------      -------
Property and equipment, net..............................  $  867    $5,828      $13,665
                                                           ======    ======      =======
</TABLE>

 
     Depreciation and amortization expense for the period from inception (May 1,
1996) to December 31, 1996, the years ended December 31, 1997 and 1998 and the
six months ended June 30, 1998 and 1999 amounted to $102,746, $297,027,
$720,762, $245,320 (unaudited) and $1,303,253 (unaudited), respectively. Assets
under capital leases are pledged as collateral for the underlying lease
agreements.
 
3. ACCRUED LIABILITIES:
 
     Accrued liabilities consist of the following (in thousands):
 

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                                       ------------      JUNE 30,
                                                       1997    1998        1999
                                                       ----    ----    ------------
                                                                       (UNAUDITED)
<S>                                                    <C>     <C>     <C>
Compensation payable.................................  $33     $567        $423
Taxes payable........................................   49       95          52
Other................................................   12       51         262
                                                       ---     ----        ----
                                                       $94     $713        $737
                                                       ===     ====        ====
</TABLE>

 
4. NOTES PAYABLE AND LINE OF CREDIT:
 
     During November 1997, the Company entered into a line of credit agreement
(the "Line") with a bank allowing aggregate borrowings of up to $750,000 for the
purchase of equipment and for working capital. The Line is collateralized by the
assets of the Company and interest is payable at prime plus 1% (8.75% at
December 31, 1998). The Line requires interest only payments monthly and expires
in May 1999. Among other things, the lender has the right to require immediate
payment in the event of a material adverse change in the financial position or
prospects of the Company. As of December 31, 1998 and 1997, the Company had
$650,000 and $0, respectively, outstanding on the Line.
 
                                      F-14

<PAGE>   95
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
     During 1997, the Company entered into a series of convertible notes payable
(the "Bridge Financing Agreements") to finance working capital equipment
requirements prior to the sale of Series B preferred stock. The total amount
borrowed under the Bridge Financing Agreements was $660,000. The Bridge
Financing Agreements had various due dates within 1997, with interest at 9% per
year. The Bridge Financing Agreements were either converted to Series B
preferred stock or repaid during 1997 and there were no amounts outstanding at
December 31, 1997. In connection with the Bridge Financing Agreements, the
Company issued warrants to purchase 785,759 shares of Series B preferred stock
at a price of $.60 per share, which resulted in financing expense of $124,310.
 
     The Company also entered into an agreement during 1997 with a shareholder
to provide a $250,000 working capital line of credit. During 1997, the Company
borrowed $180,000 on the line and recorded interest expense of $5,020. All
amounts borrowed under the working capital line of credit were repaid during
1997.
 
     At December 31, 1997, the Company had a note payable due to a lessor for
leasehold improvements in the amount of $34,444, which was repaid in full during
1998. The note included interest at 10% and was guaranteed by certain
shareholders and officers of the Company.
 
5. CAPITAL LEASES:
 
     The Company has leases for a significant portion of its property and
equipment which are classified as capital leases. Interest on equipment and
furniture leases range from 4% to 20%, expire through 2003 and generally include
an option allowing the Company to purchase the equipment or furniture at the end
of the lease term for fair market value.
 
     Future minimum capital lease payments together with the present value of
the minimum lease payments are as follows as of December 31, 1998 (in
thousands):
 

<TABLE>
<CAPTION>

YEARS ENDING
DECEMBER 31,
------------
<S>                                                           <C>
1999........................................................  $ 1,663
2000........................................................    1,414
2001........................................................    1,152
2002........................................................       39
2003........................................................       10
                                                              -------
          Total minimum lease payments......................    4,278
Less: amount representing interest..........................     (605)
                                                              -------
Present value of minimum lease payments.....................    3,673
Less: current portion.......................................   (1,331)
                                                              -------
  Capital lease obligations, less current portion...........  $ 2,342
                                                              =======
</TABLE>

 
     At December 31, 1998, the Company had approximately $900,000 available on a
lease line with a financing company and, in January and February 1999, the
Company drew the remaining $900,000 for the purchase of certain property and
equipment.
 
     In March 1999, the Company amended an existing lease credit facility with a
vendor which increased the available line by $4,000,000 through March 31, 1999
and an additional $2,000,000 subsequent to March 31, 1999, if certain terms and
conditions are met. The $4,000,000 and
 
                                      F-15

<PAGE>   96
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
$2,000,000 increases require the Company to maintain $539,100 and $359,400,
respectively, in a restricted account for twenty four months. Alternatively, the
Company may establish an unused line of credit at a commercial bank for the same
amounts.
 
6. INCOME TAXES:
 
     Prior to the re-incorporation of the Company in October 1997, the Company
operated as an LLC and was not subject to income taxes.
 
     As of December 31, 1998, the Company has net operating loss carryforwards
of approximately $7,242,000, expiring through 2018. The Company has placed a
valuation allowance against its deferred tax assets due to the uncertainty
surrounding the realization of such assets. Management evaluates, on a quarterly
basis, the recoverability of the deferred tax asset and the level of the
valuation allowance. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.
 
     The Company's ability to use its net operating losses to offset future
income is subject to restrictions in the Internal Revenue Code which could limit
the Company's future use of its net operating losses if certain stock ownership
changes occur. The Company's deferred tax assets and liabilities are as follows
(in thousands):
 

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              ----------------
                                                              1997      1998
                                                              -----    -------
<S>                                                           <C>      <C>
Deferred income tax assets:
  Net operating loss carryforwards..........................  $  94    $ 2,680
  Allowance for doubtful accounts...........................      9         24
  Property and equipment....................................      9         --
  Other.....................................................      2         --
                                                              -----    -------
                                                                114      2,704
Deferred income tax liabilities:
  Property and equipment....................................     --        (58)
                                                              -----    -------
                                                                114      2,646
  Valuation allowance.......................................   (114)    (2,646)
                                                              -----    -------
  Net deferred tax assets...................................  $  --    $    --
                                                              =====    =======
</TABLE>

 
     The following is a reconciliation of the income tax benefit to the amount
calculated based on the statutory federal rate of 34% and the estimated state
apportioned rate of 3%, net of the federal tax benefit, for the period from
inception (May 1, 1996) to December 31, 1996 and for the years ended December
31, 1997 and 1998.
 

<TABLE>
<CAPTION>
                                                             1996    1997    1998
                                                             ----    ----    ----
<S>                                                          <C>     <C>     <C>
Federal income tax benefit at statutory rates..............  (34)%   (34)%   (34)%
State income tax benefit at statutory rates................   --      --      (3)
Non-taxable LLC losses.....................................   34      25      --
Change in valuation allowance..............................   --       9      37
                                                             ---     ---     ---
Effective tax rate.........................................   --%     --%     --%
                                                             ===     ===     ===
</TABLE>

 
                                      F-16

<PAGE>   97
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
7. EMPLOYEE RETIREMENT PLAN:
 
     During March 1998, the Company established a 401(k) Retirement Plan (the
"Plan") which covers substantially all eligible employees. The Plan is a
qualified salary reduction plan in which all eligible participants may elect to
have a percentage of their pre-tax compensation contributed to the Plan, subject
to certain guidelines issued by the Internal Revenue Service. The Company can
contribute to the plan at the discretion of the Board of Directors. To date, no
contributions have been made by the Company.
 
8. COMMITMENTS AND CONTINGENCIES:
 
OPERATING LEASES
 
     Leases relating to office space and P-NAP rental space are classified as
operating. Future minimum lease payments on non-cancelable operating leases are
as follows at December 31, 1998 (in thousands):
 

<TABLE>
<CAPTION>

YEARS ENDING
DECEMBER 31,
<S>                                                           <C>
1999........................................................  $1,009
2000........................................................     944
2001........................................................     904
2002........................................................     754
2003........................................................     484
                                                              ------
                                                              $4,095
                                                              ======
</TABLE>

 
     Rent expense was approximately $61,000, $111,000, $571,000, $95,827
(unaudited) and $1,003,136 (unaudited) for the period from inception (May 1,
1996) to December 31, 1996, for the years ended December 31, 1997 and 1998 and
for the six months ended June 30, 1998 and 1999, respectively.
 
SERVICE COMMITMENTS
 
     The Company has entered into contracts with a backbone service provider and
a local exchange carrier to provide interconnection services. The contract with
the local exchange carrier provides for volume pricing based on a minimum
monthly payment. The required minimum monthly payment to the local exchange
carrier does not begin until six months after the deployment of the related
P-NAP and, as a result, will not begin until mid-1999. During that interim
period, the monthly payments are based on actual usage.
 
                                      F-17

<PAGE>   98
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
     Minimum payments under these service commitments are as follows at December
31, 1998 (in thousands):
 

<TABLE>
<CAPTION>

YEARS ENDING
DECEMBER 31,
<S>                                                           <C>
1999........................................................  $  693
2000........................................................   1,383
2001........................................................   1,054
2002........................................................     240
                                                              ------
                                                              $3,370
                                                              ======
</TABLE>

 
9. SHAREHOLDERS' EQUITY (DEFICIT):
 
     In January 1999, the Articles of Incorporation were amended to provide for
the authorization of additional common and preferred stock (the "Amendment")
and, accordingly, the disclosures in the financial statements and related notes
have been adjusted to reflect the Amendment for all periods presented.
 
CONVERTIBLE PREFERRED STOCK
 
     At December 31, 1998, after giving effect to the Amendment, preferred stock
consists of the following (in thousands):
 

<TABLE>
<CAPTION>
                        ISSUED                   ADDITIONAL     COMMON STOCK
           SHARES         AND                      PAID-IN      RESERVED FOR   LIQUIDATION
SERIES   DESIGNATED   OUTSTANDING   PAR VALUE   CAPITAL (NET)    CONVERSION    PREFERENCE
------   ----------   -----------   ---------   -------------   ------------   -----------
<S>      <C>          <C>           <C>         <C>             <C>            <C>
  A         6,667        6,667         $ 7         $  993           6,667        $  680
  B        13,773       12,978          13          7,706          12,978         7,786
  C        29,630           --          --             --              --            --
           ------       ------         ---         ------          ------        ------
           50,070       19,645         $20         $8,699          19,645        $8,466
           ======       ======         ===         ======          ======        ======
</TABLE>

 
     Preferred stock may be issued in one or more series, each with such
designations, preferences, rights, qualifications, limitations and restrictions
as the Board of Directors of the Company may determine at the time of issuance.
During 1997, the Board of Directors authorized 30,000,000 shares of preferred
stock. As a result of the Amendment in January 1999, the number of shares
authorized for preferred stock was increased to 50,069,615 shares.
 
     Each share of Series A, Series B and Series C preferred stock is
convertible on a one-for-one basis to common stock at the option of the holder,
subject to adjustment in certain instances or automatically upon registration of
the Company's common stock pursuant to a public offering under the Securities
Act of 1933, as amended (an "Offering"). The Series A and Series B preferred
stock would be converted upon an Offering at a price of not less than $1.20 per
share with aggregate proceeds of not less than $7,000,000. The Series C
preferred stock would be converted upon an Offering at a price of not less than
$3.00 per share with aggregate proceeds of not less than $20,000,000. Automatic
conversion of Series A and Series B preferred stock would also occur on such
date as fewer than 1,333,333 and 2,185,609 shares remained outstanding,
respectively. Additionally, automatic conversion of Series A preferred stock
would occur upon written agreement of the holders
 
                                      F-18

<PAGE>   99
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
of a majority of Series A preferred stock, or, in the case of Series B and
Series C preferred stock, upon written agreement of the holders of 66 2/3% of
such shares.
 
     The holder of each share of preferred stock has the right to one vote for
each share of common stock into which such preferred stock can be converted.
Preferred shareholders have the same voting rights and powers as common
shareholders. Holders of the Company's preferred stock and warrants also have
certain registration rights.
 
     Holders of preferred stock are entitled to receive dividends in preference
to any dividends paid to holders of common stock. Dividends are based on a rate
equal to 8% per share per annum of the original issue price, or $.102, $.60 and
$1.08 per share for Series A, Series B, and Series C preferred stock,
respectively. No dividends shall be paid to common or Series A preferred
shareholders unless all dividends payable to Series B and Series C preferred
shareholders have been paid or set apart on a pro rata basis. Dividends are not
cumulative and are payable when and if declared by the Board of Directors.
 
     In the event of a liquidation of the Company, the holders of Series B and
Series C preferred stock will receive a liquidation preference of up to $.60 and
$1.08 per share, respectively, over the holders of common or Series A preferred
stock, adjusted for any combinations, consolidations, stock distributions, or
declared but unpaid dividends. Upon satisfaction of the Series B and Series C
preferred stock liquidation preference, distributions will be made to Series A
preferred shareholders in an amount equal to $.102 per share, adjusted for any
combinations, consolidations, stock distributions, or declared but unpaid
dividends. Upon completion of preference distributions to Series A, Series B and
Series C preferred shareholders, any remaining amounts will be distributed among
the holders of Series A, Series B, and Series C preferred stock and common
shareholders on a pro rata basis.
 
COMMON STOCK
 
     As a result of the Amendment, the number of shares of common stock
authorized was increased to 100,000,000 from 70,000,000.
 
CLASS A AND B UNITS
 
     During 1996, conducting business as an LLC, the Company issued 2,000,000
Class A units to its founding members upon incorporation and subsequently sold
4,000,000 Class B units. All units were exchanged for preferred and common stock
during 1997 as part of the re-incorporation.
 
WARRANTS TO PURCHASE SERIES B PREFERRED STOCK
 
     During 1997, the Company issued warrants to purchase up to 785,759 shares
of Series B preferred stock at $.60 per share in conjunction with its bridge
financing. During 1998, the Company issued warrants to purchase up to 125,001
shares of Series B preferred stock at $.60 per share in connection with various
lease and bridge financings. The warrants to purchase Series B preferred stock
automatically convert to warrants to purchase common stock upon the automatic
conversion of the Series B preferred stock into common stock. During 1998, a
warrant holder exercised warrants to purchase 116,666 shares of Series B
preferred stock, resulting in proceeds to the Company of $70,000.
 
                                      F-19

<PAGE>   100
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
Outstanding warrants to purchase shares of Series B preferred stock at December
31, 1998 are as follows (shares in thousands):
 

<TABLE>
<CAPTION>
 YEAR OF     EXERCISE
EXPIRATION    PRICE     SHARES
----------   --------   ------
<S>          <C>        <C>
   2002        $.60      669
   2008        $.60      125
                         ---
                         794
                         ===
</TABLE>

 
     During January of 1999, two warrant holders exercised warrants to purchase
a total of 193,958 shares of Series B preferred stock, resulting in proceeds to
the Company of $116,375.
 
10. STOCK OPTION PLAN:
 
     In March 1998, the Company's Board of Directors adopted the 1998 Stock
Option/Stock Issuance Plan (the "1998 Plan"), which provides for the issuance of
incentive stock options ("ISOs") and non-qualified options to eligible
individuals responsible for the management, growth and financial success of the
Company. The Company has applied the accounting principles discussed below to
stock option commitments made by the Company. Shares of common stock reserved
for the 1998 Plan in March 1998 totaled 4,035,000 and were increased to
5,035,000 in January 1999.
 
     ISOs may be issued only to employees of the Company and have a maximum term
of 10 years from the date of grant. The exercise price for ISOs may not be less
than 100% of the estimated fair market value of the common stock at the time of
the grant. In the case of options granted to holders of more than 10% of the
voting power of the Company, the exercise price may not be less than 110% of the
estimated fair market value of the common stock at the time of grant, and the
term of the option may not exceed five years. Options become exercisable in
whole or in part from time to time as determined by the Board of Directors,
which will administer the Plan. Both ISOs and non-qualified options generally
vest over four years.
 
     The Company has elected to account for stock-based compensation using the
intrinsic value method prescribed in APB 25. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair value of the
Company's stock at the date of grant over the exercise price to be paid to
acquire the stock.
 
     Option activity for 1998 is as follows (there was no activity in 1997 and
for the period from inception (May 1, 1996) to December 31, 1996) (shares in
thousands):
 

<TABLE>
<CAPTION>
                                                                  WEIGHTED
                                                                  AVERAGE
                                                      SHARES   EXERCISE PRICE
                                                      ------   --------------
<S>                                                   <C>      <C>
Granted.............................................  3,412         $.10
Exercised...........................................     --           --
Canceled............................................     --           --
                                                      -----
Balance, December 31, 1998..........................  3,412         $.10
                                                      =====
</TABLE>

 
     Options granted during 1998 include 400,000 non-qualified options granted
to members of the Board of Directors ("Directors' Options") which are
immediately exercisable, and upon exercise, are
 
                                      F-20

<PAGE>   101
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
subject to the terms of restricted stock purchase agreements. The Directors'
Options, or if exercised, the related restricted stock, vest over a period of
four years from the vesting commencement date, as determined by the Board of
Directors.
 
     The following table summarizes information about options outstanding at
December 31, 1998 (shares in thousands):
 

<TABLE>
<CAPTION>
                                                          OPTIONS EXERCISABLE (EXCLUDING
                OPTIONS OUTSTANDING                        OPTIONS WHICH SHARES WOULD BE
----------------------------------------------------      SUBJECT TO THE COMPANY'S RIGHT
                                    WEIGHTED AVERAGE              OF REPURCHASE)
                      NUMBER           REMAINING          -------------------------------
                        OF          CONTRACTUAL LIFE       NUMBER        WEIGHTED AVERAGE
EXERCISE PRICES       SHARES           (IN YEARS)         OF SHARES       EXERCISE PRICE
---------------      ---------      ----------------      ---------      ----------------
<S>                  <C>            <C>                   <C>            <C>
         $.06          1,916              9.49               184               $.06
         $.15          1,496              9.85                --                 --
                       -----                                 ---
  $.06 - $.15          3,412              9.65               184               $.06
                       =====                                 ===
</TABLE>

 
     The Company has adopted the disclosure only provisions of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." Pro forma information regarding the net loss is required by SFAS
No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of options
granted in 1998 was estimated at the date of grant using the minimum value
method allowed for non-public companies assuming no expected dividends and the
following weighted-average assumptions: risk-free interest rate of 6.00%;
volatility of 0%; and an expected life of 6 years.
 
     For purposes of the pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting periods. If the
Company had accounted for compensation expense related to stock options under
the fair value method prescribed by SFAS No. 123, the net loss and the basic and
diluted net loss per share for the year ended December 31, 1998 would have been
approximately $6,985,000 and $2.09, respectively.
 
     During 1998, options to purchase 3,411,749 shares of the Company's common
stock, with a weighted-average exercise price of $.10 per share and a
weighted-average option fair value of $.23 per share, were granted with an
exercise price below the estimated market value at the date of grant.
 
DEFERRED STOCK COMPENSATION
 
     During 1998, the Company issued stock options to certain employees under
the 1998 Plan with exercise prices below the deemed fair value of the Company's
common stock at the date of grant. In accordance with the requirements of APB
25, the Company has recorded deferred stock compensation for the difference
between the exercise price of the stock options and the deemed fair value of the
Company's common stock at the date of grant. This deferred stock compensation is
amortized to expense over the period during which the options become
exercisable, generally four years, using an accelerated method as described in
Financial Accounting Standards Board Interpretation No. 28. As of December 31,
1998, the Company has recorded deferred stock compensation related to these
options in the total amount of $697,830, of which $204,599 has been amortized to
expense during 1998. The weighted average exercise price of the 3,411,749
options to purchase common stock was $.10 and the weighted average fair value
per share was $.31 during 1998.
 
                                      F-21

<PAGE>   102
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
11. EVENTS SUBSEQUENT TO DECEMBER 31, 1998:
 
BRIDGE NOTES PAYABLE
 
     In January 1999, the Company borrowed $1,100,000 from two existing
shareholders as a bridge loan until the completion of the Series C financing.
Interest on these notes was at prime plus 2% and was repaid in full, plus
accrued interest, during February of 1999.
 
PREFERRED STOCK
 
     In February 1999, the Company sold 29,629,630 shares of Series C preferred
stock at a price of $1.08 per share, resulting in gross proceeds of
approximately $32,000,000, prior to deducting issuance costs.
 
DEBT COVENANTS
 
     The bank line of credit agreement requires that the Company provide audited
financial statements prior to March 31 of each year. The December 31, 1998
financial statements were issued subsequent to March 31, 1999 and, accordingly,
resulted in a violation of this covenant. The Company has obtained a waiver for
this violation from the bank.
 
12. EVENTS SUBSEQUENT TO DECEMBER 31, 1998 (UNAUDITED):
 
STOCK OPTIONS
 
     During the six months ended June 30, 1999, the Company granted an
additional 1,468,500 options under the 1998 Plan. During June 1999, the
Company's Board of Directors adopted the 1999 Equity Incentive Plan (the "1999
Plan") which provides for the issuance of ISOs and nonqualified stock options to
eligible individuals responsible for the management, growth and financial
success of the Company. As of June 30, 1999, 6,500,000 shares of common stock
are reserved for the 1999 Plan, of which 2,004,000 options were outstanding. The
terms of the 1999 Plan are the same as the 1998 Plan with respect to ISO
treatment and vesting. During the six months ended June 30, 1999, the Company
granted 3,482,500 options with exercise prices below the deemed fair value of
the Company's common stock and recorded approximately $15,406,000 of deferred
stock compensation related to such options, and amortized approximately
$1,787,000 to expense. The weighted average exercise price per share of the
3,482,500 options to purchase common stock was $2.72 and the weighted average
fair value per share was $7.14 during 1999.
 
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
 
     During July 1999, the Company adopted the 1999 Non-Employee Directors'
Stock Option Plan (the "Director Plan"). The Director Plan provides for the
grant of non-qualified stock options to non-employee directors. A total of
500,000 shares of the Company's common stock have been reserved for issuance
under the Director Plan. Initial grants, which are fully vested as of the date
of the grant, of 40,000 shares of the Company's common stock are to be made
under the Director Plan to all non-employee directors upon the closing of an
initial public offering and, thereafter, to each eligible non-employee director
on the date such person is first elected or appointed as a non-employee
director. On the day after each of the Company's annual shareholder meetings,
starting with the annual
 
                                      F-22

<PAGE>   103
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
meeting in 2000, each non-employee director will automatically be granted a
fully vested and exercisable option for 10,000 shares, provided such person has
been a non-employee director of the Company for at least the prior six months.
The options are exercisable as long as the non-employee director continues to
serve as a director, employee or consultant of the Company or any of its
affiliates.
 
EMPLOYEE STOCK PURCHASE PLAN
 
     During July 1999, the Company adopted the Employee Stock Purchase Plan (the
"ESPP"). The ESPP allows all full-time employees to participate by purchasing
the Company's common stock using a uniform percentage of compensation at a
discount allowed under guidelines issued by the Internal Revenue Service. A
total of 1,500,000 shares of the Company's common stock has been reserved for
issuance under the ESPP. Each year, the number of shares reserved for issuance
under the purchase plan will automatically be increased by 2% of the total
number of shares of common stock then outstanding or, if less, by 1,500,000
shares.
 
COMMON STOCK
 
     During July 1999, the Board of Directors increased the number of authorized
shares of common stock to 300,000,000 shares.
 
OPERATING LEASES
 
     As of June 30, 1999, the Company entered into various operating lease
agreements which increased the total payments that will be paid on
non-cancelable leases over the next five years by approximately $5,205,000 to
approximately $9,300,000.
 
                                      F-23

<PAGE>   104
 
                                [INTERNAP LOGO]

<PAGE>   105
 

 
                                   PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
     The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
 

<TABLE>
<S>                                                           <C>
SEC registration fee........................................  $ 41,700
NASD filing fee.............................................    15,500
Nasdaq National Market listing fee..........................    95,000
Printing and engraving costs................................   125,000
Legal fees and expenses.....................................   375,000
Accounting fees and expenses................................   250,000
Blue Sky fees and expenses..................................     5,000
Transfer Agent and Registrar fees...........................    10,000
Miscellaneous expenses......................................    32,800
                                                              --------
          Total.............................................  $950,000
                                                              ========
</TABLE>

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Sections 23B.08.500 through 23.B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). The directors and officers of InterNAP also may be
indemnified against liability they may incur for serving in that capacity
pursuant to a liability insurance policy maintained by InterNAP for such
purpose.
 
     Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Section 5 of InterNAP's Amended and Restated Articles of
Incorporation, as amended by Articles of Amendment (Exhibit 3.2 hereto) contains
provisions implementing, to the fullest extent permitted by Washington law, such
limitations on a director's liability to InterNAP and its shareholders.
 
     InterNAP has entered into certain indemnification agreements with its
directors and certain of its officers, the form of which is attached as Exhibit
10.1 to this Registration Statement and incorporated herein by reference. The
indemnification agreements provide InterNAP's directors and certain of its
officers with indemnification to the maximum extent permitted by the WBCA.
 
     The Underwriting Agreement, which is attached as Exhibit 1.1 to the
Registration Statement, provides for indemnification by the Underwriters of
InterNAP and its executive officers and directors and by InterNAP of the
Underwriters, for certain liabilities, including liabilities arising under the
Securities Act, in connection with matters specifically provided in writing by
the Underwriters for inclusion in this Registration Statement.
 
                                      II-1

<PAGE>   106
 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
 
     During the past three years, we have issued unregistered securities to a
limited number of persons, as described below. None of these transactions
involved any underwriters, underwriting discounts or commissions, or any public
offering, and we believe that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation
D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under Rule 701. The recipients of
securities in each of these transactions represented their intention to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access to information about us, through their
relationships with us.
 
     Since May 1, 1996 we have issued and sold the following securities:
 
     Pursuant to a Limited Liability Company Agreement of InterNAP Network
Services, L.L.C., dated October 11, 1996, we sold 1,787,180 Class A Units in
InterNAP Network Services, L.L.C. to certain investors, including our officers
Paul E. McBride, Christopher D. Wheeler and Anthony C. Naughtin, for an
aggregate consideration of $1,787.00. InterNAP Network Services, L.L.C. was
dissolved on October 27, 1997. InterNAP was incorporated in the State of
Washington in October 1997. These Class A Units were exchanged for shares of
common stock at an exchange ratio of 1 to 1.667.
 
     In May 1996, we issued 2,000,000 Class B Units in InterNAP Network
Services, L.L.C. to Robert J. Lunday, Jr., in consideration for arranging a
guarantee of certain of our leasehold obligations and an unconditional promise
to contribute $500,000 to our capital on or before October 15, 1996.
Additionally, Lunday Communications loaned us $475,000 in 1996 and we repaid the
principal and interest during 1996. Robert J. Lunday, Jr., one of our directors,
is president of Lunday Communications, Inc. Further, in May 1996, Mr. Lunday
purchased an additional 2,000,000 Class B Units for $500,000. These Class B
Units were exchanged for shares of Series A preferred stock at an exchange ratio
of 1 to 1:667.
 
     On October 29, 1997, December 29, 1997 and February 4, 1998, we sold an
aggregate of 12,862,558 shares of Series B preferred stock to 36 investors,
including H&Q InterNAP Investors, L.P., TI Ventures, LP and Vulcan Ventures
Incorporated, three of our principal shareholders, at an aggregate purchase
price of $7,717,534 or $.60 per share. The investor group included Robert D.
Shurtleff, Jr., one of our directors, who converted a promissory note dated
February 13, 1997 in the amount of $125,000 plus accrued interest for 221,638
shares of Series B preferred stock.
 
     On January 28, 1999 and February 26, 1999, we sold an aggregate of
29,629,630 shares of Series C preferred stock to 44 investors, including Robert
D. Shurtleff, Jr., one of our directors, and H&Q InterNAP Investors, L.P.,
Morgan Stanley Dean Witter Venture Partners, Oak Investment Partners VIII, L.P.,
TI Ventures, LP and Vulcan Ventures Incorporated, five of our principal
shareholders, at an aggregate purchase price of $32,000,000 or $1.08 per share.
 
     From May 1, 1996 to December 1998, we issued warrants to 12 private
investors to purchase an aggregate of 794,092 shares of Series B preferred stock
at a weighted average exercise price of $.60.
 
     In May and September 1998, we issued warrants to First Portland Corporation
and Phoenix Leasing Incorporated, to purchase an aggregate of 116,668 shares of
Series B preferred stock at a weighted average exercise price of $.60.
 
     From July 22, 1998, date of the first issuance of options under our 1998
Stock Option Plan, through June 30, 1999, we granted stock options to purchase
an aggregate of 4,880,249 shares of
 
                                      II-2

<PAGE>   107
 
common stock, with exercise prices ranging from $.06 to $.80 per share, to
employees and directors pursuant to our 1998 Stock Option Plan. Of these
options, options for an aggregate of 695,082 shares have been exercised, options
for an aggregate of 352,160 shares are exercisable, options for an aggregate of
52,545 shares have been cancelled and options for an aggregate of 4,132,622
shares remain outstanding. Pursuant to our 1999 Equity Incentive Plan, as of
June 30, 1999 we have granted stock options to purchase 2,014,000 shares of our
common stock, with exercise prices ranging from $4.00 to $6.00 per share to
employees, consultants and directors.
 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a) EXHIBITS
 

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 1.1*     Form of Underwriting Agreement.
 3.1      Amended and Restated Articles of Incorporation of InterNAP,
          as amended.
 3.2      Form of Amended and Restated Articles of Incorporation to be
          filed upon the closing of the offering made pursuant to this
          Registration Statement.
 3.3      Bylaws of InterNAP, as currently in effect.
 3.4      Form of Amended and Restated Bylaws of InterNAP to be filed
          upon the closing of the offering made pursuant to this
          Registration Statement.
 4.1      Specimen Common Stock Certificate.
 5.1*     Opinion of Cooley Godward LLP.
10.1      Form of Indemnification Agreement between the Registrant and
          each of its directors and certain of its officers.
10.2      1999 Non-Employee Directors' Stock Option Plan.
10.3      Form of 1999 Non-Employee Directors' Stock Option Agreement.
10.4      1999 Employee Stock Purchase Plan.
10.5      1998 Stock Option/Stock Issuance Plan.
10.6      Form of 1998 Stock Option Agreement.
10.7      1999 Equity Incentive Plan.
10.8      Form of 1999 Equity Incentive Plan Stock Option Agreement.
10.9      Lease Agreement, dated June 11, 1998, between Registrant and
          Union Square Limited Partnership, as amended.
10.10     Lease Agreement, dated June 1, 1996, between Registrant and
          Sixth & Virginia Properties.
10.11     Form of Employee Confidentiality, Nonraiding and
          Noncompetition Agreement used between Registrant and its
          Executive Officers.
10.12     Form of Stock Purchase Warrant.
10.13     Preferred Stock Purchase Warrant, dated December 15, 1998,
          between Registrant and Bob Kingsbook.
10.14     Preferred Stock Purchase Warrant, dated September 1, 1998,
          between Registrant and Phoenix Leasing Incorporated.
10.15     Preferred Stock Purchase Warrant, dated May 5, 1998, between
          Registrant and First Portland Corporation.
10.16     Preferred Stock Purchase Warrant, dated December 24, 1998,
          between Registrant and Robert Shurtleff, Jr.
10.17     Amended and Restated Investor Rights Agreement, dated
          January 28, 1999.
10.18     Shareholders Agreement, dated October 1, 1997.
10.19*    Quick Start Loan and Security Agreement, dated November 3,
          1997, between Registrant and Silicon Valley Bank.
23.1      Consent of PricewaterhouseCoopers LLP, Independent
          Accountants.
</TABLE>

 
                                      II-3

<PAGE>   108
 

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
23.2*     Consent of Counsel (included in Exhibit 5.1).
24.1      Power of Attorney (contained on signature page).
27.1      Financial Data Schedule.
</TABLE>

 
-------------------------
* To be filed by amendment.
 

ITEM 17. UNDERTAKINGS
 
     We hereby undertake to provide to the Underwriters at the closing specified
in the Underwriting Agreement certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.
 
     Insofar as indemnification by us for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the provisions referenced in Item 14 of this registration
statement or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by our director, officer, or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered hereunder, we will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
 
     We hereby undertake that:
 
          (1) For purposes of determining any liability under the Securities
     Act, the information omitted from the form of Prospectus filed as part of
     this registration statement in reliance upon Rule 430A and contained in a
     form of Prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h)
     under the Securities Act will be deemed to be part of this registration
     statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act, each post-effective amendment that contains a form of Prospectus shall
     be deemed to be a new registration statement relating to the securities
     offered therein, and the offering of such securities at that time shall be
     deemed to be the initial bona fide offering thereof.
 
                                      II-4

<PAGE>   109
 

                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Act of 1933, as amended,
InterNAP has duly caused this registration statement to be signed on its behalf
by the undersigned, thereinto duly authorized, in the City of Seattle, State of
Washington, on the 29th day of July, 1999.
 
                                          INTERNAP NETWORK SERVICES
                                          CORPORATION
 
                                          By:    /s/ ANTHONY C. NAUGHTIN
                                             -----------------------------------
                                                     Anthony C. Naughtin
                                                 Chief Executive Officer and
                                                          President
 
                               POWER OF ATTORNEY
 
     Each person whose individual signature appears below hereby authorizes and
appoints Anthony C. Naughtin and Paul E. McBride, and each of them, with full
power of substitution and resubstitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this registration statement, including any and all post-effective
amendments and amendments thereto and any registration statement relating to the
same offering as this registration statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
 
     Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated:
 

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                   DATE
                      ---------                                     -----                   ----
<S>                                                    <C>                              <C>
 
               /s/ ANTHONY C. NAUGHTIN                   Chief Executive Officer and    July 29, 1999
-----------------------------------------------------  President (Principal Executive
                 Anthony C. Naughtin                              Officer)
 
                 /s/ PAUL E. MCBRIDE                      Vice President and Chief      July 29, 1999
-----------------------------------------------------   Financial Officer (Principal
                   Paul E. McBride                     Finance and Accounting Officer)
 
                /s/ EUGENE EIDENBERG                        Chairman of the Board       July 29, 1999
-----------------------------------------------------
                  Eugene Eidenberg
</TABLE>

 
                                      II-5

<PAGE>   110
 

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                   DATE
                      ---------                                     -----                   ----
<S>                                                    <C>                              <C>
               /s/ WILLIAM J. HARDING                             Director              July 29, 1999
-----------------------------------------------------
                 William J. Harding
 
               /s/ FREDERIC W. HARMAN                             Director              July 29, 1999
-----------------------------------------------------
                 Frederic W. Harman
 
              /s/ ROBERT J. LUNDAY, JR.                           Director              July 29, 1999
-----------------------------------------------------
                Robert J. Lunday, Jr.
 
                  /s/ KEVIN L. OBER                               Director              July 29, 1999
-----------------------------------------------------
                    Kevin L. Ober
 
            /s/ ROBERT D. SHURTLEFF, JR.                          Director              July 29, 1999
-----------------------------------------------------
              Robert D. Shurtleff, Jr.
</TABLE>

 
                                      II-6

<PAGE>   111
 

                                 EXHIBIT INDEX
 

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
 1.1*     Form of Underwriting Agreement.
 3.1      Amended and Restated Articles of Incorporation of InterNAP,
          as amended.
 3.2      Form of Amended and Restated Articles of Incorporation to be
          filed upon the closing of the offering made pursuant to this
          Registration Statement.
 3.3      Bylaws of InterNAP, as currently in effect.
 3.4      Form of Amended and Restated Bylaws of InterNAP to be filed
          upon the closing of the offering made pursuant to this
          Registration Statement.
 4.1      Specimen Common Stock Certificate.
 5.1*     Opinion of Cooley Godward LLP.
10.1      Form of Indemnification Agreement between the Registrant and
          each of its directors and certain of its officers.
10.2      1999 Non-Employee Directors' Stock Option Plan.
10.3      Form of 1999 Non-Employee Directors' Stock Option Agreement.
10.4      1999 Employee Stock Purchase Plan.
10.5      1998 Stock Option/Stock Issuance Plan.
10.6      Form of 1998 Stock Option Agreement.
10.7      1999 Equity Incentive Plan.
10.8      Form of 1999 Equity Incentive Plan Stock Option Agreement.
10.9      Lease Agreement, dated June 11, 1998, between Registrant and
          Union Square Limited Partnership, as amended.
10.10     Lease Agreement, dated June 1, 1996, between Registrant and
          Sixth & Virginia Properties.
10.11     Form of Employee Confidentiality, Nonraiding and
          Noncompetition Agreement used between Registrant and its
          Executive Officers.
10.12     Form of Stock Purchase Warrant.
10.13     Preferred Stock Purchase Warrant, dated December 15, 1998,
          between Registrant and Bob Kingsbook.
10.14     Preferred Stock Purchase Warrant, dated September 1, 1998,
          between Registrant and Phoenix Leasing Incorporated.
10.15     Preferred Stock Purchase Warrant, dated May 5, 1998, between
          Registrant and First Portland Corporation.
10.16     Preferred Stock Purchase Warrant, dated December 24, 1998,
          between Registrant and Robert Shurtleff, Jr.
10.17     Amended and Restated Investor Rights Agreement, dated
          January 28, 1999.
10.18     Shareholder Agreement, dated October 1, 1997.
10.19*    Quick Start Loan and Security Agreement, dated November 3,
          1997, between Registrant and Silicon Valley Bank.
23.1      Consent of PricewaterhouseCoopers LLP, Independent
          Accountants.
23.2*     Consent of Counsel (included in Exhibit 5.1).
24.1      Power of Attorney (contained on signature page).
27.1      Financial Data Schedule.
</TABLE>

 
-------------------------
* To be filed by amendment.





<PAGE>   1
                                                                     EXHIBIT 3.1

                                                              FILED
                                                       STATE OF WASHINGTON
                                                           JUL 28 1999
                                                           RALPH MUNRO
                                                       SECRETARY OF STATE



                              ARTICLES OF AMENDMENT           


                                     TO THE

                            ARTICLES OF INCORPORATION

                                       OF

                      INTERNAP NETWORK SERVICES CORPORATION


        Pursuant to the provisions of RCW 23B.10 of the Washington Business
Corporation Act, InterNAP Network Services Corporation, a Washington
corporation, (the "Corporation") hereby adopts the following amendment to its
articles of incorporation:

        FIRST: Part A of Article II of the articles of incorporation, setting
forth the authorized capital stock of the Corporation, is amended to read in its
entirety as follows:

        "(A) AUTHORIZED CAPITAL. The Corporation is authorized to issue two
        classes of stock to be designated, respectively, "Common Stock" and
        "Preferred Stock." The total number of shares which the Corporation is
        authorized to issue is Three Hundred Fifty Million Sixty-Nine Thousand
        Six Hundred Fifteen (350,069,615) shares, each with a par value of
        $0.001 per share. Three Hundred Million (300,000,000) shares shall be
        Common Stock and Fifty Million Sixty-Nine Thousand Six Hundred Fifteen
        (50,069,615) shares shall be Preferred Stock."

        SECOND: The amendment does not provide for an exchange, reclassification
or cancellation of any issued
 shares.

        THIRD: The amendment was adopted on July 21, 1999 by the shareholders of
the Corporation in accordance with the provisions of RCW 23B.10.030 and
23B.10.040.

        FOURTH: These Articles of Amendment will become effective upon filing.



             [The remainder of this page intentionally left blank.]


<PAGE>   2

        The undersigned hereby certifies that he is an officer of the
corporation and is authorized to execute these Articles of Amendment on behalf
of the Corporation.


        EXECUTED this 27th day of July, 1999.


                                  INTERNAP NETWORK SERVICES CORPORATION



                                  By:          /s/ Paul E. McBride
                                      ------------------------------------------
                                      Paul E. McBride
                                      Vice President and Chief Financial Officer


<PAGE>   3

                                                                     

                             ARTICLES OF AMENDMENT


                                     TO THE

                            ARTICLES OF INCORPORATION

                                       OF

                      INTERNAP NETWORK SERVICES CORPORATION


        Pursuant to the provisions of RCW 23B.10 of the Washington Business
Corporation Act, InterNAP Network Services Corporation, a Washington
corporation, (the "Corporation") hereby adopts the following articles of
amendment to its articles of incorporation:

        FIRST: Part A of Article II of the articles of incorporation, setting
forth the authorized capital stock of the Corporation, is amended to read in its
entirety as follows:

"(A) AUTHORIZED CAPITAL. The Corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation is authorized to issue is One
Hundred Fifty Million Sixty-Nine Thousand Six Hundred Fifteen (150,069,615)
shares, each with a par value of $0.001 per share. One Hundred Million
(100,000,000) shares shall be Common Stock and Fifty Million Sixty-Nine Thousand
Six Hundred Fifteen (50,069,615) shares shall be Preferred Stock."

        SECOND: Part C of Article II of the articles of incorporation, setting
forth the rights, preferences and restrictions of Preferred Stock, is amended to
read in its entirety as set forth on Exhibit A attached and made a part hereof.

        THIRD: The amendments do not provide for an exchange, reclassification
or cancellation of any issued shares.

        FOURTH: The foregoing amendments of the articles of incorporation were
adopted on January 26, 1999.

        FIFTH: The amendments were duly approved by the shareholders in
accordance with the provisions of RCW 23B.10.030 and 23B.10.040.


                                       1.

<PAGE>   4

        EXECUTED this 26 day of January, 1999.


                                    INTERNAP NETWORK SERVICES CORPORATION



                                    By: /s/ ANTHONY C. NAUGHTIN
                                        ---------------------------------------
                                        Anthony C. Naughtin
                                        President and CEO


                                       2.

<PAGE>   5
                                    Exhibit A

       DECLARATION OF RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF
 SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK AND SERIES C PREFERRED STOCK

        (c)     RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF PREFERRED
STOCK. The first series of Preferred Stock shall be designated "SERIES A
PREFERRED STOCK" and shall consist of six million six hundred sixty-six thousand
six hundred sixty-seven (6,666,667) shares. The second series of Preferred Stock
shall be designated "SERIES B PREFERRED STOCK" and shall consist of thirteen
million seven hundred seventy three thousand three hundred eighteen (13,773,318)
shares. The third series of Preferred Stock shall be designated "SERIES C
PREFERRED STOCK" and shall consist of twenty nine million six hundred
twenty-nine thousand six hundred thirty (29,629,630) shares. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
are as set forth below in this Part C of Article II.

        1.      DIVIDEND PROVISION. The holders of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be entitled
to receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock) on the Common Stock of the Corporation, (i) at the rate of eight
percent (8%) per share per annum of the Original Series A Issue Price (as
defined below) on each share of Series A Preferred Stock, (ii) at the rate of
eight percent (8%) per share per annum of the Original Series B Issue Price
(defined below) on each share of Series B Preferred Stock, and at the rate of
eight percent (8%) per share per annum of the Original Series C Issue Price
(defined below) on each share of Series C Preferred Stock payable when, as and
if declared by the Board of Directors. Dividends to holders of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
payable in preference and priority to any payment of any dividend on Common
Stock of the Corporation. Payments of any dividends to the holders of the Series
B Preferred Stock and Series C Preferred Stock shall be made pro rata, on an
equal priority, pari passu basis, according to their respective dividend rates
as set forth herein. No dividends or distributions shall be made with respect to
the Series A Preferred Stock or Common Stock, other than those payable solely in
Common Stock, until all dividends on the Series B Preferred Stock and Series C
Preferred Stock at the rates specified have been paid or declared and set apart.
No dividends or other distributions shall be made with respect to the Common
Stock, other than dividends payable solely in Common Stock, until all dividends
on the Series A Preferred Stock have been paid or declared and set apart.
Dividends shall not be cumulative and no right to such dividends shall accrue to
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Common Stock unless declared by the Board of Directors.

        2.      LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution, or winding up of the Corporation (whether voluntary or
involuntary), distributions to the stockholders of the Corporation shall be made
in the following manner:

                (a)     The holders of the Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Series A Preferred Stock or Common Stock


                                       1.

<PAGE>   6
by reason of their ownership of such stock, an amount equal to (i) $0.60 per
share (the "Original Series B Issue Price") for each share of Series B Preferred
Stock then held by them, adjusted for any stock dividends, combinations or
splits of such shares plus any declared but unpaid dividends and (ii) $1.08 per
share (the "Original Series C Issue Price") for each share of Series C Preferred
Stock then held by them, adjusted for any stock dividends, combinations or
splits of such shares plus any declared but unpaid dividends. If the assets and
funds thus distributed among the holders of the Series B Preferred Stock and
Series C Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amount, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
among the holders of Series B Preferred Stock and Series C Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive. The right of holders of Series B Preferred Stock and Series C Preferred
Stock to receive a distribution pursuant to this Section 2(a) shall also apply
to an event described in Section 2(d) below if so elected as provided therein,
in which event the distribution to holders of Series B Preferred Stock and
Series C Preferred Stock shall be limited to the amount provided for in this
Section 2.

                (b)     The holders of the Series A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock by
reason of their ownership of such stock, an amount equal to (i) $0.102 per share
(the "Original Series A Issue Price") for each share of Series A Preferred Stock
then held by them, adjusted for any stock dividends, combinations or splits of
such shares plus any declared but unpaid dividends. If the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of the Series
A Preferred Stock in proportion to the preferential amount each such holder is
otherwise entitled to receive.

                (c)     Upon the completion of the distribution required by
Sections 2(a) and (b) above the remaining assets of the Corporation available
for distribution to stockholders shall be distributed among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
the Common Stock pro rata based on the number of shares of Common Stock held by
each (assuming conversion of all such Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock).

                (d)     For purposes of this Section 2, unless otherwise agreed
by the holders of a majority of the Series B Preferred Stock and sixty percent
(60%) of the Series C Preferred Stock (each voting as a separate series), a
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (i) the acquisition of the Corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected for the purpose of changing the domicile of the Corporation)
that results in the transfer of fifty percent (50%) or more of the outstanding
voting power of the Corporation; or (ii) a sale of all or substantially all of
the assets of the Corporation.


                                       2.

<PAGE>   7
                (e)     In any of the events specified in Section 2(d) above, if
the consideration received by the Corporation is other than cash, its value will
be deemed its fair market value. Any securities shall be valued as follows:

                        (i)     Securities not subject to investment letter or
other similar restrictions on free marketability:

                                (A)     If traded on a securities exchange or
the Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing of such acquisition or sale;

                                (B)     If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid prices over the
thirty-day period ending three (3) days prior to the closing of such acquisition
or sale; and

                                (C)     If there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Corporation's Board of Directors.

                        (ii)    The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as determined in good faith by the Corporation's Board of
Directors.

                (f)     The Corporation shall give each holder of record of
Series B Preferred Stock and Series C Preferred Stock written notice of any such
impending acquisition or sale not later than twenty (20) days prior to the
stockholders' meeting called to approve such transaction, or twenty (20) days
prior to the closing of such acquisition or sale, whichever is earlier, and
shall also notify such holders in writing of the final approval of such
acquisition or sale. The first of such notices shall describe the material terms
and conditions of the impending transaction and the provisions of this Section
2, and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided for
herein or sooner than ten (10) days after the Corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Series B Preferred
Stock and Series C Preferred Stock that represent at least a majority of the
voting power of all then outstanding shares of Series B Preferred Stock and
Series C Preferred Stock.

        3.      CONVERSION. The holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):

                (a)     RIGHT TO CONVERT. Subject to Section 3(c)(i), each share
of Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price for the Series A Preferred Stock by the Conversion


                                       3.

<PAGE>   8
Price applicable to the Series A Preferred Stock, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
Subject to Section 3(c)(i), each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Series B Issue Price for
the Series B Preferred Stock by the Conversion Price applicable to the Series B
Preferred Stock, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. Subject to Section 3(c)(i), each
share of Series C Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing the Original Series C Issue Price for the Series C Preferred Stock by
the Conversion Price applicable to the Series C Preferred Stock, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion. The initial Conversion Price per share of Series A Preferred Stock
shall be the Series A Original Issue Price, the initial Conversion Price per
share of Series B Preferred Stock shall be the Series B Original Issue Price,
and the initial Conversion Price per share of Series C Preferred Stock shall be
the Series C Original Issue Price; provided, however, that the Conversion Price
for each series of Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock shall be subject to adjustment as set forth in Section 3(d),
(e) and (g).

                (b)     AUTOMATIC CONVERSION.

                        (i)     Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such shares (A) immediately upon the closing of the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $1.20 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and which results in aggregate cash proceeds to the
Corporation of not less than $7,000,000 (net of underwriting discounts and
commissions), (B) on such date on which fewer than 1,333,333 Shares of Series A
Preferred Stock remain outstanding (subject to adjustment for subsequent stock
dividends, stock splits or recapitalizations) or (C) on such date as is
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.

                        (ii)    Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such shares (A) immediately upon the closing of the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $1.20 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and which results in aggregate cash proceeds to the
Corporation of not less than $7,000,000 (before deduction of underwriting
discounts and commissions), (B) on such date on which fewer than 2,185,609
Shares of Series B Preferred Stock remain outstanding (subject to adjustment for
subsequent stock dividends, stock splits or recapitalizations) or (C) on such
date specified by


                                       4.

<PAGE>   9
written consent or agreement of the holders of sixty-six and two thirds percent
(66 2/3%) of the then outstanding shares of Series B Preferred Stock.

                        (iii)   Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such shares (A) immediately upon the closing of the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $3.00 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and which results in aggregate cash proceeds to the
Corporation of not less than $20,000,000 (before deduction of underwriting
discounts and commissions), or (B) on such date specified by written consent or
agreement of the holders of sixty percent (60%) of the then outstanding shares
of Series C Preferred Stock.

                (c)     MECHANICS OF CONVERSION.

                        (i)     Before any holder of Series A, B or C Preferred
Stock shall be entitled to convert the same into shares of Common Stock pursuant
to Section 3(a), such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series A, B or C Preferred Stock, and shall give written notice to
the Corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Series A, B or C Preferred Stock, or to the nominee or nominees of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A, B or C Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date and any
declared and unpaid dividends on such shares being converted shall be paid
promptly.

                        (ii)    Upon the occurrence of an event specified in
Section 3(b) above, all outstanding shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, as applicable, shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the Corporation shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series A, B or C Preferred Stock are either delivered to the Corporation or its
transfer agent as provided below, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
Upon the occurrence of such automatic conversion of the Series A, B or C
Preferred Stock, as applicable, the holders of such Series A, B or C Preferred
Stock shall surrender the certificates representing such shares at the office of
the Corporation or any transfer agent for such Series A, B or C Preferred Stock.
Thereupon, there


                                       5.

<PAGE>   10
shall be issued and delivered to such holder promptly at such office and in its
name as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series A, B or C Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred, and any declared and unpaid dividends
on such shares being converted shall be paid promptly.

                (d)     CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN DILUTIVE ISSUANCES.

                        (i)     SPECIAL DEFINITIONS. For purposes of this
Section 3(d), the following definitions shall apply:

                                (A)     "ADDITIONAL STOCK" shall mean any shares
of Common Stock issued (or deemed to have been issued pursuant to subsection
3(d)(ii)(F)) by the Corporation after the Purchase Date (as defined below) with
respect to the applicable series) other than

                                        (1)     Common Stock issued pursuant to
a transaction described in subsection 3(e)(i) hereof,

                                        (2)     shares of Common Stock (and/or
options, warrants or other Common Stock purchase rights issued pursuant to such
options, warrants or other rights) issued or to be issued to employees, officers
or directors of, or consultants or advisors to the Company or any subsidiary,
pursuant to stock purchase or stock option plans or other arrangements that are
approved by a majority of the entire Board of Directors;

                                        (3)     Capital stock, or options or
warrants to purchase capital stock, issued to financial institutions or lessors
in connection with commercial credit arrangements, equipment financings, or any
similar transactions approved by a majority of the entire Board of Directors,

                                        (4)     Shares of Common Stock or
Preferred Stock issuable upon exercise of warrants outstanding as of the date of
filing of these Articles of Incorporation,

                                        (5)     Capital stock or warrants or 
options to purchase capital stock issued in connection with bona fide
acquisitions, mergers or similar transactions, the terms of which are approved
by a majority of the entire Board of Directors of the Corporation,

                                        (6)     Shares of Common Stock issued
upon conversion of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, and

                                        (7)     Shares of Common Stock issued in
a public offering prior to or in connection with which all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
will be converted to Common Stock.


                                       6.

<PAGE>   11
                        (ii)    ADJUSTMENT OF CONVERSION PRICE. The Conversion
Price of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be subject to adjustment from time to time as follows:

                                (A)     If the Corporation shall issue, after
the date upon which any shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock were first issued (the "Purchase Date" with
respect to such series), any Additional Stock without consideration or for a
consideration per share less than the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock, the Conversion Price
for such series in effect immediately prior to each such issuance shall
automatically (except as otherwise provided in this clause (ii)) be adjusted to
a price determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
that the aggregate consideration received by the Corporation for such issuance
would purchase at such Conversion Price; and the denominator of which shall be
the number of shares of Common Stock outstanding plus the number of shares of
such Additional Stock; provided that for the purpose of calculating the
respective Conversion Prices for Series A Preferred Stock and Series B Preferred
Stock pursuant to this subsection, all shares of Common Stock issuable upon
exercise of outstanding options and warrants and/or upon conversion of
outstanding convertible securities (including outstanding Preferred Stock),
shall be deemed to be outstanding, and immediately after any Additional Stock is
deemed issued, such Additional Stock shall be deemed to be outstanding; and
provided further that for the purpose of calculating the Conversion Price for
Series C Preferred Stock pursuant to this subsection, all shares of Common Stock
issuable upon conversion of outstanding Preferred Stock, shall be deemed to be
outstanding, and immediately after any Additional Stock is deemed issued, such
Additional Stock shall be deemed to be outstanding.

                                (B)     No adjustment of the Conversion Price
for the Preferred Stock shall be made in an amount less than one cent ($0.01)
per share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to three (3) years from the date
of the event giving rise to the adjustment being carried forward, or shall be
made at the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
subparagraphs (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant
to this subsection 3(d)(ii) shall have the effect of increasing the Conversion
Price above the Conversion Price in effect immediately prior to such adjustment.

                                (C)     In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.

                                (D)     In the case of the issuance of Common
Stock for a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as determined in
good faith by the Board of Directors irrespective of any accounting treatment.


                                       7.

<PAGE>   12
                                (E)     In the case of the issuance (whether
before, on or after the applicable Purchase Date) of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 3(d)(ii) and Section 3(e):

                                        (1)     The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 3(d)(ii)(C) and (d)(ii)(D)), if any, received by the Corporation
upon the issuance of such options or rights plus the minimum exercise price
provided in such options or rights (without taking into account potential
antidilution adjustments) for the Common Stock covered thereby.

                                         (2)     The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Sections 3(d)(ii)(C) and (d)(iii)(D)).

                                         (3)     In the event of any change in 
the number of shares of Common Stock deliverable or in the consideration payable
to the Corporation upon exercise of such options or rights, or upon conversion
of or in exchange for such convertible or exchangeable securities, including,
but not limited to, a change resulting from the antidilution provisions thereof,
the Conversion Price of the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.

                                         (4)     Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock, to the


                                       8.

<PAGE>   13
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.

                                         (5)     The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor pursuant to
subsections 3(d)(ii)(E)(1) and (2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either subsection
3(d)(ii)(E)(3) or (4).

                (e)     CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN SPLITS AND COMBINATIONS. The Conversion Price of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be subject to
adjustment from time to time as follows:

                        (i)     In the event the Corporation should at any time
or from time to time after the respective Purchase Dates of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Preferred Stock shall be increased in proportion to
such increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 3(d)(ii)(E).

                        (ii)    If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for each series of Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.

                (f)     OTHER DISTRIBUTIONS. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 3(e), then, in each
such case for the purpose of this Section 3(f), the holders of Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the Corporation
into which their


                                       9.

<PAGE>   14
shares of Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.

                (g)     RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3) provision shall be made so that the holders of the Preferred
Stock shall thereafter be entitled to receive upon conversion of the Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 3
(including adjustment of the applicable Conversion Price then in effect with
respect to the Preferred Stock and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event and be
as nearly equivalent as practicable.

                (h)     NO IMPAIRMENT. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.

                (i)     NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.

                        (i)     No fractional shares shall be issued upon the
conversion of any share or shares of the Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined in good faith
by the Board of Directors) on the date of conversion.

                        (ii)    Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Preferred Stock pursuant to this Section
3, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for the Preferred Stock at the time in effect, and (C)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of the Preferred Stock.


                                      10.

<PAGE>   15
                (j)     NOTICES OF RECORD DATE. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.

                (k)     RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to these Articles of
Incorporation.

                (l)     NOTICES. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.

        4.      VOTING RIGHTS.

                (a)     The holder of each share of Preferred Stock shall have
the right to one vote for each share of Common Stock into which such Preferred
Stock could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
convened) shall be rounded to the nearest whole number (with one-half being
rounded upward).

                (b)     The holders of Preferred Stock shall have no class
voting rights except as explicitly provided in these Articles of Incorporation
or by applicable law.


                                      11.

<PAGE>   16
        5.      PROTECTIVE PROVISIONS.

                (a)     So long as at least 1,333,333 shares of Series A
Preferred Stock are outstanding (subject to adjustment for subsequent stock
dividends, stock splits or recapitalizations), the Corporation shall not without
first obtaining the approval of the holders of a majority of the then
outstanding shares of Series A Preferred Stock amend or repeal a provision of,
or add any provision to, the Corporation's Articles of Incorporation or Bylaws
if such action would alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock so as to affect such shares adversely.

                (b)     So long as at least 2,185,609 shares of Series B
Preferred Stock are outstanding (subject to adjustment for subsequent stock
dividends, stock splits or recapitalizations), the Corporation shall not without
first obtaining the approval of the holders of a majority of the then
outstanding shares of Series B Preferred Stock:

                        (i)     amend or repeal a provision of, or add any
provision to, the Corporation's Articles of Incorporation or Bylaws if such
action would alter or change the rights, preferences or privileges of the shares
of Series B Preferred Stock so as to affect such shares adversely;

                        (ii)    take any other action that would alter or change
the rights, preferences or privileges of the shares of Series B Preferred Stock
so as to affect such shares adversely;

                        (iii)   authorize or issue capital stock that is, or
reclassify any series of stock to be, senior to or on parity with the Series B
Preferred Stock;

                        (iv)    increase or decrease the authorized number of
shares of Series B Preferred Stock;

                        (v)     take any action that results in the redemption
or repurchase of any shares of Common Stock or Preferred Stock (other than
pursuant to equity incentive agreements with employees, consultants and service
providers giving the Corporation the right to repurchase shares upon termination
of services);

                        (vi)    sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Corporation is
disposed of, provided that this Section 5(b)(vi) shall not apply to a merger
effected exclusively for the purpose of changing the domicile of the
Corporation; or

                        (vii)   change the principal business of the
Corporation.

                (c)     So long as at least 1,000,000 shares of Series C
Preferred Stock are outstanding (subject to adjustment for subsequent stock
dividends, stock splits or recapitalizations), the Corporation shall not without
first obtaining the approval of the holders of a sixty percent (60%) of the then
outstanding shares of Series C Preferred Stock:


                                      12.

<PAGE>   17
                        (i)     amend or repeal a provision of, or add any
provision to, the Corporation's Articles of Incorporation or Bylaws if such
action would alter or change the rights, preferences or privileges of the shares
of Series C Preferred Stock so as to affect such shares adversely;

                        (ii)    take any other action that would alter or change
the rights, preferences or privileges of the shares of Series C Preferred Stock
so as to affect such shares adversely;

                        (iii)   authorize or issue capital stock that is, or
reclassify any series of stock to be, senior to or on parity with the Series C
Preferred Stock;

                        (iv)    increase or decrease the authorized number of
shares of Series C Preferred Stock;

                        (v)     increase the number of directors on the Board of
Directors to more than seven (7);

                        (vi)    take any action that results in the redemption
or repurchase of any shares of Common Stock or Preferred Stock (other than
pursuant to equity incentive agreements with employees, consultants and service
providers giving the Corporation the right to repurchase shares upon termination
of services);

                        (vii)   sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Corporation is
disposed of, provided that this Section 5(b)(vi) shall not apply to a merger
effected exclusively for the purpose of changing the domicile of the
Corporation; or

                        (viii)  change the principal business of the
Corporation.

        6.      STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
converted pursuant to Section 4 hereof, the shares so converted shall be
canceled and shall not be issuable by the Corporation.


                                      13.

<PAGE>   18
                                                                    FILED
                                                             STATE OF WASHINGTON

                                                                 DEC 31 1997

                                                                 RALPH MUNRO
                                                              SECRETARY OF STATE



                             ARTICLES OF AMENDMENT


                                     TO THE

                           ARTICLES OF INCORPORATION

                                       OF

                     INTERNAP NETWORK SERVICES CORPORATION

     
     Pursuant to the provisions of RCW 23B.10 of the Washington Business
Corporation Act, InterNAP Network Services Corporation, a Washington
corporation, hereby adopts the following articles of amendment to its articles
of incorporation:

     FIRST:  The name of the corporation is:

                     InterNAP Network Services Corporation

     SECOND:  The first paragraph of Part C of Article II is hereby amended to
read in its entirety as follows:

          (C)  RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK.  The
     first series of Preferred Stock shall be designated "SERIES A PREFERRED
     STOCK" and shall consist of six million six hundred sixty-six thousand six
     hundred sixty-seven (6,666,667) shares. The second series of Preferred
     Stock shall be designated "SERIES B PREFERRED STOCK" and shall consist of
     thirteen million five-hundred thousand (13,500,000) shares. The rights,
     preferences, privileges, and restrictions granted to and imposed on the
     Series A Preferred Stock and the Series B Preferred Stock are as set forth
     in this Part C of Article II.

     THIRD:  The amendments do not provide for an exchange, reclassification or
cancellation of any issued shares.

     FOURTH:  The foregoing amendment of the articles of incorporation were
adopted on December 29, 1997.


                                      -1-





<PAGE>   19
     FIFTH:  The amendments were duly approved by the shareholders in
accordance with the provisions of RCW 23B.10.030 and 23B.10.040.

     EXECUTED this 29th day of December, 1997.

                    
                                   INTERNAP NETWORK SERVICES CORPORATION



                                   By /s/ ANTHONY C. NAUGHTIN
                                      ---------------------------
                                      Anthony C. Naughtin
                                      President







                                      -2-

<PAGE>   20
                                                                    FILED
                                                             STATE OF WASHINGTON

                                                                 OCT 28 1997

                                                                 RALPH MUNRO
                                                              SECRETARY OF STATE





                             ARTICLES OF AMENDMENT

                                        
                                     TO THE
                                        
                           ARTICLES OF INCORPORATION
                                        
                                       OF
                                        
                              INTERNAP CORPORATION


     Pursuant to the provisions of RCW 23B.10 of the Washington Business
Corporation Act, InterNAP Corporation, a Washington corporation, hereby adopts
the following articles of amendment to its articles of incorporation:

     FIRST: The name of the corporation is:

                              InterNAP Corporation


     SECOND: Article I of the articles of incorporation is amended to read in
its entirety as follows:


                                   ARTICLE I

     "The name of the corporation is InterNAP NETWORK SERVICES CORPORATION (the
     "Corporation").


     THIRD: Part C of Article II of the articles of incorporation, setting
forth the rights, preferences and restrictions of Preferred Stock, is amended
to read in its entirety as set forth on Exhibit A and made a part hereof.


     FOURTH: The amendments do not provide for an exchange, reclassification or
cancellation of any issued shares.


     FIFTH: The foregoing amendments of the articles of incorporation were
adopted on October 27, 1997.

                                      -1-

<PAGE>   21

     SIXTH: The amendments were duly approved by the shareholders in accordance
with the provisions of RCW 23B.10.030 and 23B.10.040.

     EXECUTED this 27th day of October, 1997.

                                        INTERNAP CORPORATION




                                        By /s/ ANTHONY C. NAUGHTIN
                                           -------------------------------------
                                           Anthony C. Naughtin
                                           President


                                      -2-

<PAGE>   22

                                   EXHIBIT A

             DECLARATION OF RIGHTS, PREFERENCES AND RESTRICTIONS OF
             SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK


     (C)  RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The first
series of Preferred Stock shall be designated "SERIES A PREFERRED STOCK" and
shall consist of six million six hundred sixty-six thousand six hundred
sixty-seven (6,666,667) shares. The second series of Preferred Stock shall be
designated "SERIES B PREFERRED STOCK" and shall consist of ten million nine
hundred twenty-eight thousand forty-seven (10,928,047) shares. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series
A Preferred Stock and the Series B Preferred Stock are as set forth below in
this Part C of Article II.

          1.   DIVIDEND PROVISION. The holders of shares of Series A Preferred
Stock and Series B Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of the
Corporation) on the Common Stock of the Corporation, at the rate of eight
percent (8%) per share per annum of the Original Series A Issue Price (as
defined below) on each share of Series A Preferred Stock, and at the rate of
eight percent (8%) per share per annum of the Original Series B Issue Price
(defined below) on each share of Series B Preferred Stock, payable when, as and
if declared by the Board of Directors. Dividends to holders of Series A
Preferred Stock and Series B Preferred Stock shall be payable in preference and
priority to any payment of any dividend on Common Stock of the Corporation. No
dividends or distributions shall be made with respect to the Series A Preferred
Stock or Common Stock, other than those payable solely in Common Stock, until
all declared dividends on the Series B Preferred Stock have been paid or set
apart. No dividends or other distributions shall be made with respect to the
Common Stock, other than dividends payable solely in Common Stock, until all
declared dividends on the Series A Preferred Stock have been paid or set apart.
Dividends shall not be cumulative and no right to such dividends shall accrue to
holders of Series A Preferred Stock, Series B Preferred Stock or Common Stock
unless declared by the Board of Directors.

          2.   LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution, or winding up of the Corporation (whether voluntary or
involuntary), distributions to the stockholders of the Corporation shall be
made in the following manner:

               a.   The holders of the Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Series A
Preferred Stock or Common Stock by reason of their ownership of such stock, an
amount equal to (i) $0.60 per share (the "Original Series B Issue Price") for
each share of Series B Preferred Stock then held by them, adjusted for any
combinations, consolidations, or stock distributions or declared but unpaid
dividends on such shares. If the assets and funds thus distributed among the
holders of the Series B Preferred Stock shall be insufficient to permit the
payments to such holders of the full aforesaid preferential 


                                      A-1

<PAGE>   23

amount, then the entire assets and funds of the Corporation legally available
for distribution shall be distributed among the holders of Series B Preferred
Stock in proportion to the preferential amount each such holder is otherwise
entitled to receive. The right of holders of Series B Preferred Stock to
receive a distribution pursuant to this Section 2(a) shall also apply to an
event described in Section 2(d) below if so elected as provided therein, in
which event the distribution to holders of Series B Preferred Stock shall be
limited to the amount provided for in this paragraph (a).

               (b)  Upon completion of the distribution required by Section
2(a) above, the holders of the Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock by reason
of their ownership of such stock, an amount equal to (i) $0.102 per share (the
"ORIGINAL SERIES A ISSUE PRICE") for each share of Series A Preferred Stock
then held by them, adjusted for any combinations, consolidations, or stock
distributions or declared but unpaid dividends on such shares. If the assets
and funds thus distributed among the holders of the Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire remaining assets and funds of
the Corporation legally available for distribution shall be distributed among
the holders of Series A Preferred Stock in proportion to the preferential
amount each such holder is otherwise entitled to receive.

               (c)  Upon the completion of the distribution required by
Sections 2(a) and (b) above the remaining assets of the Corporation available
for distribution to stockholders shall be distributed among the holders of the
Series A Preferred Stock, Series B Preferred Stock and the Common Stock pro
rata based on the number of shares of Common Stock held by each (assuming
conversion of all such Series A Preferred Stock and Series B Preferred Stock).

               (d)  For purposes of this Section 2, unless otherwise agreed by
the holders of a majority of the Series B Preferred Stock (voting as a single
class), a liquidation, dissolution or winding up of the Corporation shall be
deemed to be occasioned by, or to include, (i) the acquisition of the
Corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation, but excluding any merger effected primarily for the purpose of
changing the domicile of the Corporation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of the Corporation; or
(ii) a sale of all or substantially all of the assets of the Corporation,
unless the Corporation's stockholders of record as constituted immediately
prior to such acquisition or sale will, immediately after such acquisition or
sale (by virtue of securities issued as consideration for the Corporation's
acquisition or sale or otherwise) hold at least 50% of the voting power of the
surviving or acquiring entity.

               (e)  In any of the events specified in Section 2(d) above, if
the consideration received by the Corporation is other than cash, its value
will be deemed its fair market value. Any securities shall be valued as follows:

                    (i)  Securities not subject to investment letter or other
similar restrictions on free marketability;


                                      A-2

<PAGE>   24
                         (A)  If traded on a securities exchange or the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing of such acquisition or sale;

                         (B)  If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three (3) days prior to the
closing of such acquisition or sale; and

                              If there is no active public market, the value
shall be the fair market value thereof, as determined by the Corporation's Board
of Directors.

                    (ii)       The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from
the market value determined as above in (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as determined by the Corporation's Board
of Directors.

                    (iii)     The Corporation shall give each holder of record
of Series B Preferred Stock written notice of any such impending acquisition or
sale not later than twenty (20) days prior to the stockholders' meeting called
to approve such transaction, or twenty (20) days prior to the closing of such
acquisition or sale, whichever is earlier, and shall also notify such holders
in writing of the final approval of such acquisition or sale. The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 2, and the Corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place sooner than twenty (20) days after the
Corporation has given the first notice provided for herein or sooner than ten
(10) days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of Series B Preferred Stock that represent
at least a majority of the voting power of all then outstanding shares of
Series B Preferred Stock.

     3.   CONVERSION. The holders of Series A Preferred Stock and Series B
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):

          (a)  RIGHT TO CONVERT. Subject to Section 3(c)(i), each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
the Original Series A Issue Price for the Series A Preferred Stock by the
Conversion Price applicable to the Series A Preferred Stock, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion. Subject to Section 3(c)(i), each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and

                                      A-3


  

<PAGE>   25
nonassessable shares of Common Stock as determined by dividing the Original
Series B Issue Price for the Series B Preferred Stock by the Conversion Price
applicable to the Series B Preferred Stock, determined as hereafter provided,
in effect on the date the certificate is surrendered for conversion. The
initial Conversion Price per share of Series A Preferred Stock shall be the
Series A Original Issue Price and the initial Conversion Price per share of
Series B Preferred Stock shall be the Series B Original Issue Price; provided,
however, that the Conversion Price for each series of Series A Preferred Stock
and Series B Preferred Stock shall be subject to adjustment as set forth in
Section 3(d), (e) and (g).

          (b)  AUTOMATIC CONVERSION. 

               (i)       Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such shares (A) immediately upon the closing of the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $1.20 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and which results in aggregate cash proceeds to the
Corporation of not less than $7,000,000 (net of underwriting discounts and
commissions), (B) on such date on which fewer than 1,333,333 Shares of Series A
Preferred Stock remain outstanding (subject to adjustment for subsequent stock
dividends, stock splits or recapitalizations) or (C) on such date as is
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.


               (ii)      Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such shares (A) immediately upon the closing of the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $1.20 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and which results in aggregate cash proceeds to the
Corporation of not less than $7,000,000 (net of underwriting discounts and
commissions), (B) on such date on which fewer than 2,185,609 Shares of Series B
Preferred Stock remain outstanding (subject to adjustment for subsequent stock
dividends, stock splits or recapitalizations) or (C) on such date specified by
written consent or agreement of the holders of sixty-six and two thirds percent
(66 2/3%) of the then outstanding shares of Series B Preferred Stock.

                         (c)  MECHANICS OF CONVERSION.

                              (i)  Before any holder of Preferred Stock shall
be entitled to convert the same into shares of Common Stock pursuant to Section
3(a), such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares
of Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at

                                      A-4

   

   

<PAGE>   26
such office to such holder of Preferred Stock, or to the nominee or nominees of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date and any
declared and unpaid dividends on such shares being converted shall be paid
promptly.

                   (ii) Upon the occurrence of an event specified in Section
3(b) above, all outstanding shares of Series A Preferred Stock or Series B
Preferred Stock, as applicable, shall be converted automatically without any
further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Preferred Stock
are either delivered to the Company or its transfer agent as provided below, or
the holder notifies the Company or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Company to indemnity the Company from any loss incurred by it in connection
with such certificates. Upon the occurrence of such automatic conversion of
the Series A Preferred Stock or Series B Preferred Stock, as applicable, the
holders of such Preferred Stock shall surrender the certificates representing
such shares at the office of the Company or any transfer agent for such
Preferred Stock. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Common Stock into which the shares of Preferred Stock surrendered
were convertible on the date on which such automatic conversion occurred, and
any declared and unpaid dividends on such shares being converted shall be paid
promptly.

               (d)  CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES.

                    (i)  Special Definitions. For purposes of this Section
3(d), the following definitions shall apply:

                         (A)  "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
3(d)(ii)(E)) by the Corporation after the Purchase Date) other than

                              (1)  Common Stock issued pursuant to a
transaction described in subsection 3(e)(i) hereof,

                              (2)  Shares of Common Stock issuable or issued to
employees, consultants, officers or directors of the Corporation directly or
pursuant to a stock option plan or restricted stock plan approved by the Board
of Directors of the Corporation,



                                      A-5

<PAGE>   27
                              (3)  Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions approved by the Board of Directors of the Corporation,

                              (4)  Shares of Common Stock or Preferred Stock
issuable upon exercise of warrants outstanding as of the date of filing of
these Articles of Amendment to Articles of Incorporation,

                              (5)  Capital stock or warrants or options to
purchase capital stock issued in connection with bona fide acquisitions,
mergers or similar transactions, the terms of which are approved by the Board
of Directors of the Corporation,

                              (6)  Shares of Common Stock issued upon
conversion of the Series A Preferred Stock or Series B Preferred Stock, and

                              (7)  Shares of Common Stock issued in a public
offering prior to or in connection with which all outstanding shares of Series
A Preferred Stock and Series B Preferred Stock will be converted to Common
Stock.

                  (ii)  Adjustment of Conversion Price. The Conversion Price of
the Series A Preferred Stock and Series B Preferred Stock shall be subject to
adjustment from time to time as follows:

                         (A)  If the Corporation shall issued, after the date
upon which any shares of Series A Preferred Stock or Series B Preferred Stock
were first issued (the "Purchase Date" with respect to such series), any
Additional Stock without consideration or for a consideration per share less
than the Conversion Price for such series in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such series in
effect immediately prior to each such issuance shall automatically (except as
otherwise provided in this clause (ii)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock that the aggregate
consideration received by the Corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding plus the number of shares of such Additional
Stock; provided that for the purposes of this subsection, all shares of Common
Stock issuable upon exercise of outstanding options and warrants and/or upon
conversion of outstanding convertible securities (including outstanding
Preferred Stock), shall be deemed to be outstanding, and immediately after any
Additional Stock is deemed issued, such Additional Stock shall be deemed to be
outstanding.

                         (B)  No adjustment of the Conversion Price for the
Preferred Stock shall be made in an amount less than one cent ($0.01) per
share, provided that any adjustments which are not required to be made by
reason of this sentence shall be carried forward and shall be either taken into
account in any subsequent adjustment made prior to three (3) years from the
date of the event giving rise to the adjustment being carried forward, or shall 



                                      A-6

<PAGE>   28

be made at the end of three (3) years from the date of the event giving rise to
the adjustment being carried forward. Except to the limited extent provided for
in subparagraphs (E)(3) and (E)(4), no adjustment of such Conversion Price
pursuant to this subsection 3(d)(ii) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.

                        (C)   In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.

                        (D)   In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.

                        (E)   In the case of the issuance (whether before, on
or after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 3(d)(ii) and Section 3(e):

                              (1)   The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in the manner
provided in subsections 3(d)(ii)(C) and (d)(ii)(D)), if any, received by the
Corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered thereby.

                              (2)   The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the Corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related



                                      A-7

<PAGE>   29
options or rights (the consideration in each cash to be determined in the
manner provided in Sections 3(d)(ii)(C) and (d)(iii)(D)).

               (3)  In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation
upon exercise of such options or rights, or upon conversion of or in exchange
for such convertible or exchangeable securities, including, but not limited to,
a change resulting from the antidilution provisions thereof, the Conversion
Price of the Series A Preferred Stock and the Series B Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.

               (4)  Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series A Preferred Stock and the Series B Preferred
Stock, to the extent in any way affected by or computed using such options,
rights or securities or options or rights related to such securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities which remain in effect) actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.

               (5)  The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to subsections 3(d)(ii)(E)(1) and
(2) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection 3(d)(ii)(E)(3) or (4).

          (e)  CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
SPLITS AND COMBINATIONS. The Conversion Price of the Series A Preferred Stock
and Series B Preferred Stock shall be subject to adjustment from time to time
as follows:

               (i)  In the event the Corporation should at any time or from
time to time after the respective Purchase Dates of the Series A Preferred
Stock and Series B Preferred Stock fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
 by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of each series of Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion
of each share of Preferred Stock shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with



                                      A-8

<PAGE>   30
respect to such Common Stock Equivalents with the number of shares issuable
with respect to Common Stock Equivalents determined from time to time in the
manner provided for deemed issuances in Section 3(d)(ii)(E).

               (ii) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Conversion Price for each series of Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of each share of such series shall be decreased in proportion to such decrease
in outstanding shares.

          (f)  OTHER DISTRIBUTIONS. In the event the Corporation shall declare
a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 3(e), then, in each
such case for the purpose of this Section 3(f), the holders of Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the Corporation
into which their shares of Preferred Stock are convertible as of the record
date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.

          (g)  RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3) provision shall be made so that the holders of the Preferred
Stock shall thereafter be entitled to receive upon conversion of the Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of the Preferred Stock
after the recapitalization to the end that the provisions of this Section 3
(including adjustment of the applicable Conversion Price then in effect with
respect to the Preferred Stock and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event and be
as nearly equivalent as practicable.

          (h)  NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of Preferred Stock against impairment.

          (i)  NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.

               (i)  No fractional shares shall be issued upon the conversion of
any share or shares of the Preferred Stock. All shares of Common Stock
(including fractions



                                      A-9

<PAGE>   31
thereof) issuable upon conversion of more than one share of Preferred Stock by
a holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of any
fractional share, the Corporation shall, in lieu of issuing any fractional
share, pay cash equal to the product of such fraction multiplied by the Common
Stock's fair market value (as determined by the Board of Directors) on the date
of conversion.

               (ii)  Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Preferred Stock pursuant to this Section 3, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for the Preferred Stock at the time in effect, and (C)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of the Preferred Stock.

          (j)  NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution
or right, and the amount and character of such dividend, distribution or right.

          (k)  RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to these Articles of
Incorporation.

          (l)  NOTICES. Any notice required by the provisions of this Section 3
to be given to the holders of shares of Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at such holder's address appearing on the books of the
Corporation.



                                      A-10

<PAGE>   32
     4.   VOTING RIGHTS.

          (a)  The holder of each share of Preferred Stock shall have the right
to one vote for each share of Common Stock into which such Preferred Stock
could then be converted, and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A Preferred Stock held by each holder
could be convened) shall be rounded to the nearest whole number (with one-half
being rounded upward).

          (b)  The holders of Preferred Stock shall have no class voting rights
except as explicitly provided in these Articles of Incorporation.

     5.   PROTECTIVE PROVISIONS.

          (a)  So long as at least 1,333,333 shares of Series A Preferred Stock
are outstanding (subject to adjustment for subsequent stock dividends, stock
splits or recapitalizations), the Corporation shall not without first obtaining
the approval of the holders of a majority of the then outstanding shares of
Series A Preferred Stock amend or repeal a provision of, or add any provision
to, the Corporation's Articles of Incorporation or Bylaws if such action would
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock so as to affect such shares adversely.

          (b)  So long as at least 2,185,609 shares of Series B Preferred Stock
are outstanding (subject to adjustment for subsequent stock dividends, stock
splits or recapitalizations), the Corporation shall not without first obtaining
the approval of the holders of a majority of the then outstanding shares of
Series B Preferred Stock:

               (i)   amend or repeal a provision of, or add any provision to,
the Corporation's Articles of Incorporation or Bylaws if such action would
alter or change the rights, preferences or privileges of the shares of Series B
Preferred Stock so as to affect such shares adversely;

               (ii)  take any other action that would alter or change the
rights, preferences or privileges of the shares of Series B Preferred Stock so
as to affect such shares adversely;

               (iii) authorize or issue capital stock that is, or reclassify
and series of stock to be, senior to or on parity with the Series B Preferred
Stock;

               (iv)  increase or decrease the authorized number of shares of
Series B Preferred Stock;



                                      A-11


<PAGE>   33
               (v)   take any action that results in the redemption or
repurchase of any shares of Common Stock or Preferred Stock (other than
pursuant to equity incentive agreements with employees, consultants and service
providers giving the Corporation the right to repurchase shares upon
termination of services);

               (vi)  sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is disposed of,
provided that this Section 5(b)(vi) shall not apply to a merger effected
exclusively for the purpose of changing the domicile of the Corporation; or

               (vii) change the principal business of the Corporation.

     6.   STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock or Series B Preferred Stock shall be converted pursuant to
Section 4 hereof, the shares so converted shall be canceled and shall not be
issuable by the Corporation.








                                      A-12


<PAGE>   34

                           ARTICLES OF INCORPORATION

                                       OF

                              INTERNAP CORPORATION

                                                                    FILED
                                                             STATE OF WASHINGTON
                                                                  SEP 04 1997
                                                                  RALPH MUNRO
                                                              SECRETARY OF STATE

     Anthony C. Naughtin hereby executes these Articles of Incorporation for
the purpose of forming a corporation under Title 23B of the Revised Code of
Washington, the Washington Business Corporation Act (the "Act").

                                   ARTICLE I

     The name of the corporation is INTERNAP Corporation (the "Corporation").

                                   ARTICLE II

     (A)  AUTHORIZED CAPITAL. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is One Hundred Million (100,000,000) shares, each with a par value of $0.001
per share. Seventy Million (70,000,000) shares shall be Common Stock and Thirty
Million (30,000,000) shares shall be Preferred Stock.

     (B)  RIGHTS OF CLASSES GENERALLY. Except to the extent such rights are
granted to Preferred Stock or one or more series thereof, Common Stock has
unlimited voting rights and is entitled to receive the net assets of the
Corporation upon dissolution. Except as provided in Part C of Article II, the
preferences, limitations and relative rights of Preferred Stock are
undesignated. Subject to the provisions of Part C, the Board of Directors may
designate one or more additional series of Preferred Stock, and the designation
and number of shares within each such series, and shall determine the
preferences, limitations, and relative rights of any shares of Preferred Stock
or any series of Preferred Stock, before issuance of any shares of that class
or series. Shares of one class or series may be issued as a share dividend in
respect to shares of another class or series.

     (C)  RIGHTS, PREFERENCES AND RESTRICTIONS OF SERIES A PREFERRED STOCK. The
first series of Preferred Stock shall be designated "SERIES A PREFERRED STOCK"
and shall consist of six million six hundred sixty-six thousand six hundred
sixty-seven (6,666,667) shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock are as set
forth below in this Part C of Article II.

          1.  DIVIDEND PROVISION. The holders of shares of Series A Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of
any dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly


                                      -1-

<PAGE>   35
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at the rate of eight percent (8%) per share per
annum of the Original Series A Issue Price (as defined below) on each share of
Series A Preferred Stock payable when, as and if declared by the Board of
Directors. Dividends to holders of Series A Preferred Stock shall be payable in
preference and priority to any payment of any dividend on Common Stock of the
Corporation. No dividends or other distributions shall be made with respect to
the Common Stock, other than dividends payable solely in Common Stock, until all
declared dividends on the Series A Preferred Stock have been paid or set apart.
Dividends shall not be cumulative and no right to such dividends shall accrue
to holders of Series A Preferred Stock or Common Stock unless declared by the
Board of Directors.

      2.    LIQUIDATION PREFERENCE.  In the event of any liquidation,
dissolution, or winding up of the Corporation (whether voluntary or
involuntary), distributions to the stockholders of the Corporation shall be made
in the following manner:

            (a)   The holders of the Series A Preferred Stock shall be entitled
to receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock by reason of
their ownership of such stock, an amount equal to (i) $0.102 per share (the
"Original Series A Issue Price") for each share of Series A Preferred Stock then
held by them, adjusted for any combinations, consolidations, or stock
distributions or declared but unpaid dividends on such shares. If the assets and
funds thus distributed among the holders of the Series A Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of the Series
A Preferred Stock in proportion to the preferential amount each such holder is
otherwise entitled to receive.

            (b)   Upon the completion of the distribution required by Section
2(a) above the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of the Series A Preferred
Stock and the Common Stock pro rata based on the number of shares of Common
Stock held by each (assuming conversion of all such Series A Preferred Stock).

      3.    CONVERSION. The holders of Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):

            (a)   RIGHT TO CONVERT. Subject to Section 3(c), each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Original Series A Issue Price for the Series A Preferred Stock by the Conversion
Price applicable to the Series A Preferred Stock, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
The initial Conversion Price per share of Series A Preferred Stock shall be the
Series A Original Issue Price; provided, however, that the Conversion Price for
each series of Series A Preferred Stock shall be subject to adjustment as set
forth in Section 3(d), (e) and (g).




                                      -2-


<PAGE>   36
               (b)  AUTOMATIC CONVERSION.  Each share of Series A Preferred
Stock shall automatically be converted into shares of Common Stock at the
Conversion Price at the time in effect for such shares immediately upon the
earlier of (i) except as provided below in Section 3(c), the Corporation's sale
of its Common Stock in a firm commitment underwritten public offering pursuant
to a registration statement under the Securities Act of 1933, as amended, the
public offering price of which is not less than $1.00 per share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization) and which
results in aggregate cash proceeds to the Corporation of not less than
$7,000,000 (net of underwriting discounts and commissions) or (ii) the date
specified by written consent or agreement of the holders of at least fifty
percent (50%) of the then outstanding shares of Series A Preferred Stock.

               (c)  MECHANICS OF CONVERSION.  Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
the Series A Preferred Stock, and shall give written notice to the Corporation
at its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date; provided, however, in
the event of an automatic conversion pursuant to Section 3(b), the conversion
shall be deemed to have occurred on the date of the event giving rise to such
conversion. If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Series A Preferred Stock for
conversion, be conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive Common Stock upon conversion of such Series A Preferred Stock shall not
be deemed to have converted such Series A Preferred Stock until immediately
prior to the closing of such sale of securities.

               (d)  CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES.

                    (i)  Special Definitions.  For purposes of this Section
3(d), the following definitions shall apply:

                         (A)  "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
3(d)(ii)(E)) by the Corporation after the Purchase Date) other than

                              (1)  Common Stock issued pursuant to a
transaction described in subsection 3(e)(i) hereof, 


                                      -3-

<PAGE>   37
               (2)  Shares of Common Stock issuable or issued to employees,
consultants, officers or directors of the Corporation directly or pursuant to a
stock option plan or restricted stock plan approved by the Board of Directors of
the Corporation,

               (3)  Capital stock, or options or warrants to purchase capital
stock, issued to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings or similar transactions,

               (4)  Shares of Common stock or Preferred Stock issuable upon
exercise of warrants outstanding as of the date of filing of these Articles of
Incorporation,

               (5)  Capital stock or warrants or options to purchase capital
stock issued in connection with bona fide acquisitions, mergers or similar
transactions, the terms of which are approved by the Board of Directors of the
Corporation,

               (6)  Shares of Common Stock issued upon conversion of the Series
A Preferred Stock, and

               (7)  Shares of Common Stock issued in a public offering prior to
or in connection with which all outstanding shares of Series A Preferred Stock
will be converted to Common Stock.

     (ii)  Adjustment of Conversion Price. The Conversion Price of the Series A
Preferred Stock shall be subject to adjustment from time to time as follows:

           (A)  If the Corporation shall issue, after the date upon which any
shares of Series A Preferred Stock were first issued (the "Purchase Date"), any
Additional Stock without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to the issuance of such
Additional Stock, the Conversion Price in effect immediately prior to each such
issuance shall automatically (except as otherwise provided in this clause (ii))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the Corporation for
such issuance would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding plus the number
of shares of such Additional Stock; provided that for the purposes of this
subsection, all shares of Common Stock issuable upon exercise of outstanding
options and warrants and/or upon conversion of outstanding convertible
securities (including outstanding Preferred Stock), shall be deemed to be
outstanding, and immediately after any Additional Stock is deemed issued, such
Additional Stock shall be deemed to be outstanding.

           (B)  No adjustment of the Conversion Price for the Series A Preferred
Stock shall be made in an amount less than one cent ($0.01) per share, provided
that any adjustments which are not required to be made by reason of this
sentence shall be carried forward and shall be either taken into account in any
subsequent adjustment made prior


                                      -4-

<PAGE>   38
to three (3) years from the date of the event giving rise to the adjustment
being carried forward, or shall be made at the end of three (3) years from the
date of the event giving rise to the adjustment being carried forward. Except
to the limited extent provided for in subparagraphs (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to this subsection 3(d)(ii) shall
have the effect of increasing the Conversion Price above the Conversion Price
in effect immediately prior to such adjustment.

                    (C)  In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.

                    (D)  In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.

                    (E)  In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 3(d)(ii) and Section 3(e):

                         (1)  The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
3(d)(ii)(C) and (d)(ii)(D)), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.

                         (2)  The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related 




                                      -5-

<PAGE>   39

options or rights (the consideration in each case to be determined in the
manner provided in Sections 3(d)(ii)(C) and (d)(iii)(D)).

                         (3)  In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights, or upon conversion of or
in exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of
such securities.

                         (4)  Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, to the extent
in any way affected by or computed using such options, rights or securities
or options or rights related to such securities, shall be recomputed to reflect
the issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.

                         (5)  The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
3(d)(ii)(E)(1) and (2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subsection
3(d)(ii)(E)(3) or (4).

          (e)  CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
SPLITS AND COMBINATIONS. The Conversion Price of the Series A Preferred Stock
shall be subject to adjustment from time to time as follows:

               (i)  In the event the Corporation should at any time or from
time to time after the respective Purchase Dates of the Series A Preferred
Stock fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock



                                      -6-

<PAGE>   40
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 3(d)(i)(E).

               (ii) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion
of each share of such series shall be decreased in proportion to such decrease
in outstanding shares.

          (f)  OTHER DISTRIBUTIONS. In the event the Corporation shall declare
a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 3(e), then, in each
such case for the purpose of this Section 3(f), the holders of Series A
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A Preferred Stock
are convertible as of the record date fixed for the determination of the
holders of Common Stock of the Corporation entitled to receive such
distribution.

          (g)  RECAPITALIZATIONS. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3) provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section 3 with respect to the rights of the holders of
the Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 3 (including adjustment of the applicable Conversion
Price then in effect with respect to the Series A Preferred Stock and the
number of shares purchasable upon conversion of the Series A Preferred Stock)
shall be applicable after that event and be as nearly equivalent as practicable.

          (h)  NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of Series A Preferred Stock against impairment.



                                      -7-

<PAGE>   41

            (i)   NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.

                  (i)   No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. All shares of Common Stock (including fractions thereof) issuable
upon conversion of more than one share of Series A Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
of cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).

                  (ii)  Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock pursuant to this Section 3,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustments or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price for the Series A
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of the Series A Preferred Stock.

            (j)   NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.

            (k)   RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of shares of the Series A Preferred Stock, such number of it shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Series A Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purposes, including, without
limitation, engaging in best


                                      -8-

<PAGE>   42
efforts to obtain the requisite stockholder approval of any necessary amendment
to these Articles of Incorporation.

                  (l)   NOTICES. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Series A Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.

            4.    VOTING RIGHTS.

                  (a)   The holder of each share of Series A Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
Series A Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series A
Preferred Stock held by each holder could be convened) shall be rounded to the
nearest whole number (with one-half being rounded upward).

                  (b)   Preferred Stock shall have no class voting except as
explicitly provided in these Articles of Incorporation or by applicable law.

            5.    PROTECTIVE PROVISIONS. So long as at least 2,000,000 shares of
Series A Preferred Stock are outstanding (subject to adjustment for subsequent
stock dividends, stock splits or recapitalization), the Corporation shall not
without first obtaining the approval of the holders of at least fifty percent
(50%) of the then outstanding shares of Series A Preferred Stock amend or repeal
a provision of, or add any provision to, the Corporation's Articles of
Incorporation or Bylaws if such action would alter or change the rights,
preferences or privileges of the shares of Series A Preferred Stock so as to
affect such shares adversely.

            6.    STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and shall not be issuable by the Corporation.


                                  ARTICLE III

      (A)   NO PREEMPTIVE RIGHTS. The stockholders of the Corporation shall
have no preemptive rights to acquire additional shares of the Corporation.

      (B)   NO CUMULATIVE VOTING. The stockholders of the Corporation shall not
be entitled to cumulative voting at any election of directors.




                                      -9-




<PAGE>   43
     (C)  ACTION BY CONSENT. Any action which may be authorized or approved by
a vote of the stockholders at a meeting thereof may be taken with the written
consent of stockholders holding that number of shares as could authorize or
approve the action at a meeting of all stockholders entitled to vote on such
action. Except as provided by statute, a notice describing the action taken and
the effective date of such action shall be provided to each nonconsenting
stockholder no later than ten (10) days prior to the effective date of any
action approved pursuant to the preceding sentence.

     (D)  APPROVAL BY MAJORITY VOTE. Unless these Articles of Incorporation
provide for a greater voting requirement for any voting group of shareholders,
any action which would otherwise require the approval of two-thirds of all the
votes entitled to be cast, including without limitation the amendment of the
Articles of Incorporation, the approval of a plan of merger or share exchange,
the sale, lease, exchange or other disposition of all, or substantially all of
the Corporation's property otherwise than in the usual and regular course of
business, and the dissolution of the Corporation, shall be authorized if
approved by each voting group entitled to vote thereon by a simple majority of
all the votes entitled to be case by that voting group.


                                   ARTICLE IV

     The initial board of directors shall consist of one director. The name and
address of the person who is to serve as the initial director is:

               Anthony C. Naughtin
               2001 Sixth Avenue
               Suite 800
               Seattle, Washington 98121

     Except with respect to the initial board of directors, the number of
directors constituting the board of directors shall be determined in the manner
specified in the Bylaws. In the absence of such a provision in the Bylaws, the
board shall consist of the number of directors constituting the initial board
of directors.


                                   ARTICLE V

     A director of this Corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for conduct as a director,
except for liability of the director (i) for acts or omission that involve
intentional misconduct by the director or a knowing violation of law by the
director, (ii) for conduct violating RCW 23B.08.310 of the Act, or (iii) for
any transaction from which the director will personally receive a benefit in
money, property or services to which the director is not legally entitled. If
the Washington Business Corporation Act is amended in the future to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of this Corporation shall be
eliminated or limited to the full extent permitted by the Washington Business
Corporation Act, as so amended, without any requirement of further action by
the stockholders.



                                      -10-

<PAGE>   44
                                   ARTICLE VI

     The Corporation shall indemnify any individual made a party to a proceeding
because that individual is or was a director of the Corporation and shall
advance or reimburse the reasonable expenses incurred by such individual in
advance of final disposition of the proceeding, without regard to the
limitations in RCW 23B.08.510 through 23B.08.550 of the Act, or any other
limitation which may hereafter be enacted to the extent such limitation may be
disregarded if authorized by the Articles of Incorporation, to the full extent
and under all circumstances permitted by applicable law.
     
     Any repeal or modification of this Article by the stockholders of this
Corporation shall not adversely affect any right of any individual who is or
was a director of the Corporation which existed at the time of such repeal or
modification.


                                  ARTICLE VII

     The name and address of the Incorporator is as follows:

               Anthony C. Naughtin
               2001 Sixth Avenue
               Suite 800
               Seattle, Washington 98121


                                  ARTICLE VIII

     The name and address of the Corporation's registered agent is:

               RSC Corporation
               1201 Third Ave., Suite 3400
               Seattle, WA 98101


                                     *  *  *


     Executed at Seattle, Washington, on the 3rd day of September, 1997.





                                        /s/ ANTHONY C. NAUGHTIN
                                        ----------------------------------------
                                        Anthony C. Naughtin, Incorporator



                                      -11-

<PAGE>   45
                      CONSENT TO SERVE AS REGISTERED AGENT


     RSC Corporation hereby consents to serve as Registered Agent in the State
of Washington for InterNAP CORPORATION. It understands that as agent for the
corporation, it will be its responsibility to receive service of process in the
name of the corporation; to forward all mail to the corporation; and to
immediately notify the office of the Secretary of State in the event of its
resignation, or of any changes in the registered office address of the
corporation for which it is agent.


     DATED: September 3, 1997.



                                        RSC CORPORATION



                                        By        /s/ PHILIP M. ROBERTS
                                          --------------------------------------
                                          Philip M. Roberts, President


                                        Address:

                                        1201 Third Avenue, Suite 3400
                                        Seattle, Washington 98101-3034



<PAGE>   1
                                                                     EXHIBIT 3.2


                 AMENDED AND RESTATED ARTICLES OF INCORPORATION
                                       OF
                      INTERNAP NETWORK SERVICES CORPORATION

                                       I.

                                      NAME

        The name of this Corporation (hereinafter called the "Corporation") is
INTERNAP NETWORK SERVICES CORPORATION.

                                       II.

                                AUTHORIZED SHARES

        2.1 This Corporation is authorized to issue [510,000,000] shares of
stock in the aggregate. Such shares shall be divided into two classes as
follows:

               (a) [500,000,000] shares of common stock ("Common Stock").

               (b) 10,000,000 shares of preferred stock ("Preferred Stock").
Holders of Common Stock are entitled to one vote per share on any matter on
which holders of Common Stock are entitled to vote. On dissolution of the
Corporation, after any preferential amount with respect to the Preferred Stock
has been paid or set aside, the holders of Common Stock and the holders of any
series of Preferred Stock entitled to participate further in the distribution of
assets are entitled to receive the net assets of the Corporation.

        2.2 The Board of Directors is authorized, subject to limitations
prescribed by the Washington Business Corporation Act (the "Act") and by the
provisions of this Article II, to provide for the issuance of shares of
Preferred Stock in series, to establish from time to time
 the number of shares
to be included in each series and to determine the designations, relative
rights, preferences and limitations of the shares of each series. The authority
of the Board of Directors with respect to each series includes determination of
the following:

                2.2.1 The number of shares in and the distinguishing designation
        of that series;

               2.2.2 Whether shares of that series shall have full, special,
        conditional, limited or no voting rights, except to the extent otherwise
        provided by the Act;

               2.2.3 Whether shares of that series shall be convertible and the
        terms and conditions of the conversion, including provision for
        adjustment of the conversion rate in circumstances determined by the
        Board of Directors;

               2.2.4 Whether shares of that series shall be redeemable and the
        terms and conditions of redemption, including the date or dates upon or
        after which they shall be redeemable and the amount per share payable in
        case of redemption, which amount may vary under different conditions or
        at different redemption dates;





                                        1

<PAGE>   2

               2.2.5 The dividend rate, if any, on shares of that series, the
        manner of calculating any dividends and the preference of any dividends;

               2.2.6 The rights of shares of that series in the event of
        voluntary or involuntary dissolution of the Corporation and the rights
        of priority of that series relative to the Common Stock and any other
        series of Preferred Stock on the distribution of assets on dissolution;
        and

               2.2.7 Any other rights, preferences and limitations of that
        series that are permitted by the Act.

        Within any limits stated in these Articles or in the resolution of the
Board of Directors establishing a series, the Board of Directors, after the
issuance of shares of a series, may amend the resolution establishing the series
to decrease (but not below the number of shares of such series then outstanding)
the number of shares of that series, and the number of shares constituting the
decrease shall thereafter constitute authorized but undesignated shares, and the
Board of Directors may amend the rights and preferences of the shares of any
series that has been established but is wholly unissued.

        The authority herein granted to the Board of Directors to determine the
relative rights and preferences of the Preferred Stock shall be limited to
unissued shares, and no power shall exist to alter or change the rights and
preferences of any shares that have been issued.

        2.3 The Board of Directors shall have the authority to issue shares of
the capital stock of this Corporation and the certificates therefor subject to
such transfer restrictions and other limitations as it may deem necessary to
promote compliance with applicable federal and state securities laws, and to
regulate the transfer thereof in such manner as may be calculated to promote
such compliance or to further any other reasonable purpose.

        2.4 At any time when the Corporation is subject to the reporting
requirements of Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended, special meetings of the shareholders for any purpose or
purposes may be called only by the Board of Directors or the Chairman of the
Board (if one be appointed) or the Chief Executive Officer.

                                      III.

                                    DIRECTORS

        3.1 The number of directors of the Corporation and the manner in which
such directors are to be elected shall be as set forth in the Bylaws.

        3.2 Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the directors
shall be divided into three classes designated as Class I, Class II and Class
III, respectively. Directors shall be assigned to each class in accordance with
a resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of shareholders following the adoption and filing of these
Articles of Incorporation, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years. At
the second annual meeting of shareholders following the



                                       2

<PAGE>   3

adoption and filing of these Amended and Restated Articles of Incorporation, the
term of office of the Class II directors shall expire and Class II directors
shall be elected for a full term of three years. At the third annual meeting of
shareholders following the adoption and filing of these Amended and Restated
Articles of Incorporation, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of shareholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.

               Notwithstanding the foregoing provisions of this section, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. Neither the Board of Directors nor any
individual director may be removed without cause. Subject to any limitation
imposed by law, any individual director or directors may be removed with cause
by the holders of a majority of the voting power of the corporation entitled to
vote at an election of directors. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

        3.3 In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the power to make, adopt, amend or
repeal the Bylaws, or adopt new Bylaws for this Corporation, by a resolution
adopted by a majority of the directors.

        3.4 Vacancies in the Board of Directors may be filled by a majority of
the remaining directors, though less than a quorum, or by a sole remaining
director. The shareholders may elect a director at any time to fill any vacancy
not filled by the directors.

                                       IV.

                               SHAREHOLDER RIGHTS

        4.1 No shareholder of this Corporation shall have, solely by reason of
being a shareholder, any preemptive or preferential right or subscription right
to any stock of this Corporation or to any obligations convertible into stock of
this Corporation, or to any warrant or option for the purchase thereof, except
to the extent provided by resolution or resolutions of the Board of Directors
establishing a series of Preferred Stock or by written agreement with this
Corporation.

        4.2 In any election for directors of the Corporation, a holder of shares
of any class or series of stock then entitled to vote has the right to vote in
person or by proxy the number of shares of stock held thereby for as many
persons as there are directors to be elected. No cumulative voting for directors
shall be permitted.

        4.3 The approval of any plan of merger, plan of share exchange, sale,
lease, exchange or other disposition of all, or substantially all, of the
Corporation's property otherwise than in the usual and regular course of
business, or proposal to dissolve, shall require the affirmative vote of the
holders of not less than a majority of all outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors of
the Corporation. At any time when the corporation is subject to the reporting
requirements of Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended, pursuant to the authority granted under RCW



                                       3

<PAGE>   4

23B.10.030, RCW 23B.11.030, RCW 23B.12.020, and RCW 23B.14.020, the vote of
shareholders of this Corporation required in order to approve amendments to the
Articles of Incorporation, a plan of merger or share exchange, the sale, lease,
exchange, or other disposition of all or substantially all of the property of
the Corporation not in the usual and regular course of business, or dissolution
of the Corporation shall be a majority of all of the votes entitled to be cast
by each voting group, regardless of whether or not the corporation is a "public
company," as that term is defined in Section 23B.01.400 of the Act.

                                       V.

             INDEMNIFICATION AND LIABILITY OF OFFICERS AND DIRECTORS

        5.1 The Corporation may indemnify, in the manner and to the full extent
permitted by law, any person (or the estate of any person) who was or is a party
to, or is threatened to be made a party to any threatened, pending or complete
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise. The Corporation may, to the full extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person. To the full
extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses may be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit the
right of the Corporation to indemnify any other person for any such expenses to
the full extent permitted by law, nor shall it be deemed exclusive of any other
rights to which any person seeking indemnification from the Corporation may be
entitled under any agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.

        5.2 No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for his conduct as a
director, except for (i) acts or omissions that involve intentional misconduct
or a knowing violation of law by the director, (ii) approval of distributions or
loans in violation of RCW 23B.08.310, or (iii) any transaction from which the
director will personally receive a benefit in money, property or services to
which the director is not legally entitled. If the Act is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Act, as so
amended. Any amendment to or repeal of this Article shall not adversely affect
any right or protection of a director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal.





                                       4

<PAGE>   5

                                       VI.

                                  OTHER MATTERS

        6.1 Except as otherwise provided in these Articles, as amended from time
to time, the Corporation reserves the right to amend, alter, change or repeal
any provisions contained in these Articles in any manner now or hereafter
prescribed or permitted by statute.

        6.2 The Corporation shall have authority to correct clerical errors in
any documents filed with the Secretary of State of Washington, including these
Articles or any amendments hereto, without the necessity of special shareholder
approval of such corrections.

        The undersigned has signed these Amended and Restated Articles of
Incorporation on _______ ___, 1999.

                                    INTERNAP NETWORK SERVICES CORPORATION



                                    ------------------------------------------
                                    Paul E. McBride
                                    Secretary





                                       5

<PAGE>   6
                                   CERTIFICATE


        The undersigned, as Secretary of InterNAP Network Services Corporation,
hereby certifies that the accompanying Amended and Restated Articles of
Incorporation were adopted by the Board of Directors on July 22, 1999 and by the
shareholders on _______ ___, 1999.


Dated:  _______ ___, 1999

                                    INTERNAP NETWORK SERVICES CORPORATION



                                    ------------------------------------------
                                    Paul E. McBride
                                    Secretary





<PAGE>   1

                                                                     EXHIBIT 3.3






                                     BYLAWS

                                       OF

                      INTERNAP NETWORK SERVICES CORPORATION










Originally adopted on October 27, 1997.
Amended January 19, 1999
Amendments are listed on page i



<PAGE>   2
                                     BYLAWS

                                       OF

                      INTERNAP NETWORK SERVICES CORPORATION

                                    ARTICLE I

                                     OFFICES

        The principal office and place of business of the corporation in the
state of Washington shall be located at 2001 Sixth Avenue, Suite 800, Seattle,
Washington 98121.

        The corporation may have such other offices within or without the state
of Washington as the board of directors may designate or the business of the
corporation may require from time to time.

                                   ARTICLE II

                               NUMBER OF DIRECTORS

        The board of directors of this corporation shall consist of seven (7)
directors, or such other number as shall be set from time to time by resolution
of the Board of Directors.

                                   ARTICLE III

                                  SHAREHOLDERS

        SECTION 3.1 ANNUAL MEETING. The annual meeting of the shareholders shall
be held on the second Tuesday in the month of February in each year, beginning
with the year 1997, at 10:00 a.m., or at such other date or time as may be
determined by the board of directors, for the purpose of electing directors and
for the transaction of such other business as may come before the meeting. If
the day fixed for the
 annual meeting shall be a legal holiday in the state of
Washington, the meeting shall be held on the next succeeding business day. If
the election of directors is not held on the day designated herein for any
annual meeting of the shareholders or at any adjournment thereof, the board of
directors shall cause the election to be held at a meeting of the shareholders
as soon thereafter as may be convenient.

        SECTION 3.2 SPECIAL MEETINGS. Special meetings of the shareholders for
any purpose or purposes unless otherwise prescribed by statute may be called by
the president, by the board of directors, or by the written request of any
director or holders of at least ten percent (10%) of the votes entitled to be
cast on each issue to be considered at the special meeting.

        SECTION 3.3 PLACE OF MEETINGS. Meetings of the shareholders shall be
held at either the principal office of the corporation or at such other place
within or without the state of Washington as the board of directors or the
president may designate.



<PAGE>   3
        SECTION 3.4 FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors may fix in advance a date as the record
date for any such determination of shareholders, which date in any case shall
not be more than seventy (70) days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend or distribution, the day before the first notice of a meeting is
dispatched to shareholders or the date on which the resolution of the board of
directors authorizing such dividend or distribution is adopted, as the case may
be, shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof unless the board of directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
one hundred twenty (120) days after the date fixed for the original meeting.

        SECTION 3.5 VOTING LISTS. At least ten (10) days before each meeting of
the shareholders, the officer or agent having charge of the stock transfer books
for shares of the corporation shall prepare an alphabetical list of all its
shareholders on the record date who are entitled to vote at the meeting or any
adjournment thereof, arranged by voting group, and within each voting group by
class or series of shares, with the address of and the number of shares held by
each, which record for a period of ten (10) days prior to the meeting shall be
kept on file at the principal office of the corporation or at a place identified
in the meeting notice in the city where the meeting will be held. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder, shareholder's agent or
shareholder's attorney at any time during the meeting or any adjournment
thereof. Failure to comply with the requirements of this bylaw shall not affect
the validity of any action taken at the meeting.

        SECTION 3.6 NOTICE OF MEETINGS. Written or printed notice stating the
date, time and place of a meeting of shareholders and, in the case of a special
meeting of shareholders, the purpose or purposes for which the meeting is
called, shall be given by or at the direction of the president, the secretary,
or the officer or persons calling the meeting to each shareholder of record
entitled to vote at such meeting (unless required by law to send notice to all
shareholders regardless of whether or not such shareholders are entitled to
vote), not less than ten (10) days and not more than sixty (60) days before the
meeting, except that notice of a meeting to act on an amendment to the articles
of incorporation, a plan of merger or share exchange, a proposed sale, lease,
exchange or other disposition of all or substantially all of the assets of the
corporation other than in the usual course of business, or the dissolution of
the corporation shall be given not less than twenty (20) days and not more than
sixty (60) days before the meeting. Written notice may be transmitted by: Mail,
private carrier or personal delivery; telegraph or teletype; or telephone, wire
or wireless equipment which transmits a facsimile of the notice. Such notice
shall be effective upon dispatch if sent to the shareholder's address, telephone
number, or other number appearing on the records of the corporation.


                                       2.

<PAGE>   4
        If an annual or special shareholders' meeting is adjourned to a
different date, time or place, notice need not be given of the new date, time or
place if the new date, time or place is announced at the meeting before
adjournment unless a new record date is or must be fixed. If a new record date
for the adjourned meeting is or must be fixed, however, notice of the adjourned
meeting must be given to persons who are shareholders as of the new record date.

        SECTION 3.7 WAIVER OF NOTICE. A shareholder may waive any notice
required to be given under the provisions of these bylaws, the articles of
incorporation or by applicable law, whether before or after the date and time
stated therein. A valid waiver is created by any of the following three methods:
(a) in writing signed by the shareholder entitled to the notice and delivered to
the corporation for inclusion in its corporate records; (b) by attendance at the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or (c) by failure to
object at the time of presentation of a matter not within the purpose or
purposes described in the meeting notice.

        SECTION 3.8 MANNER OF ACTING; PROXIES. A shareholder may vote either in
person or by proxy. A shareholder may vote by proxy by means of a proxy
appointment form which is executed in writing by the shareholder, his agent, or
by his duly authorized attorney-in-fact. All proxy appointment forms shall be
filed with the secretary of the corporation before or at the commencement of
meetings. No unrevoked proxy appointment form shall be valid after eleven (11)
months from the date of its execution unless otherwise expressly provided in the
appointment form. No proxy appointment may be effectively revoked until notice
in writing of such revocation has been given to the secretary of the corporation
by the shareholder appointing the proxy.

        SECTION 3.9 PARTICIPATION BY CONFERENCE TELEPHONE. At the discretion of
the board of directors, shareholders or proxies may participate in a meeting of
the shareholders by any means of communication by which all persons
participating in the meeting can hear each other during the meeting, and
participation by such means shall constitute presence in person at the meeting.

        SECTION 3.10 QUORUM. At any meeting of the shareholders, a majority in
interest of all the shares entitled to vote on a matter, represented by
shareholders of record, shall constitute a quorum of that voting group for
action on that matter. Once a share is represented at a meeting, other than to
object to holding the meeting or transacting business, it is deemed to be
present for purposes of a quorum for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be fixed for the
adjourned meeting. At such reconvened meeting, any business may be transacted
which might have been transacted at the adjourned meeting. If a quorum exists,
action on a matter is approved by a voting group if the votes cast within the
voting group favoring the action exceed the votes cast within the voting group
opposing the action, unless the question is one upon which a different vote is
required by express provision of law or of the articles of incorporation or of
these bylaws.

        SECTION 3.11 VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except as may be otherwise provided in the articles of
incorporation.


                                       3.

<PAGE>   5
        SECTION 3.12 VOTING FOR DIRECTORS. Unless otherwise provided in the
articles of incorporation, shareholders entitled to vote at any election of
directors are entitled to cumulate votes by multiplying the number of votes they
are entitled to cast by the number of directors for whom they are entitled to
vote and to cast the product for a single candidate or distribute the product
among two or more candidates. Unless otherwise provided in the articles of
incorporation, in any election of directors the candidates elected are those
receiving the largest numbers of votes cast by the shares entitled to vote in
the election, up to the number of directors to be elected by such shares.

        SECTION 3.13  VOTING OF SHARES BY CERTAIN HOLDERS.

                3.13.1 Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as the board
of directors of such corporation may determine. A certified copy of a resolution
adopted by such directors shall be conclusive as to their determination.

                3.13.2 Shares held by a personal representative, administrator,
executor, guardian or conservator may be voted by such administrator, executor,
guardian or conservator, without a transfer of such shares into the name of such
personal representative, administrator, executor, guardian or conservator.
Shares standing in the name of a trustee may be voted by such trustee, but no
trustee shall be entitled to vote shares held in trust without a transfer of
such shares into the name of the trustee.

                3.13.3 Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by the receiver without the transfer thereof into his name if authority so
to do is contained in an appropriate order of the court by which such receiver
was appointed.

                3.13.4 If shares are held jointly by three or more fiduciaries,
the will of the majority of the fiduciaries shall control the manner of voting
or appointment of a proxy, unless the instrument or order appointing such
fiduciaries otherwise directs.

                3.13.5 Unless the pledge agreement expressly provides otherwise,
a shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.

                3.13.6 Shares held by another corporation shall not be voted at
any meeting or counted in determining the total number of outstanding shares
entitled to vote at any given time if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
corporation.

                3.13.7 On and after the date on which written notice of
redemption of redeemable shares has been dispatched to the holders thereof and a
sum sufficient to redeem such shares has been deposited with a bank or trust
company with irrevocable instruction and authority to pay the redemption price
to the holders thereof upon surrender of certificates therefor, such shares
shall not be entitled to vote on any matter and shall be deemed to be not
outstanding shares.


                                       4.

<PAGE>   6
        SECTION 3.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action which
may or is required to be taken at a meeting of the shareholders may be taken
without a meeting if one or more written consents setting forth the action so
taken shall be signed, either before or after the action taken, by all the
shareholders entitled to vote with respect to the subject matter thereof. Action
taken by written consent of the shareholders is effective when all consents are
in possession of the corporation, unless the consent specifies a later effective
date. Whenever any notice is required to be given to any shareholder of the
corporation pursuant to applicable law, a waiver thereof in writing, signed by
the person or persons entitled to notice, shall be deemed equivalent to the
giving of notice.

                                   ARTICLE IV

                               BOARD OF DIRECTORS

        SECTION 4.1 GENERAL POWERS. The business and affairs of the corporation
shall be managed by its board of directors.

        SECTION 4.2 NUMBER, TENURE AND QUALIFICATION. The number of directors
set forth in Article II of these bylaws may be increased or decreased from time
to time by amendment to or in the manner provided in these bylaws. No decrease,
however, shall have the effect of shortening the term of any incumbent director
unless such director resigns or is removed in accordance with the provisions of
these bylaws. Except as classification of directors may be specified by the
articles of incorporation and unless removed in accordance with these bylaws,
each director shall hold office until the next annual meeting of the
shareholders and until a successor shall have been elected and qualified.
Directors need not be residents of the state of Washington or shareholders of
the corporation.

        SECTION 4.3 ANNUAL AND OTHER REGULAR MEETINGS. An annual meeting of the
board of directors shall be held without other notice than this bylaw,
immediately after and at the same place as the annual meeting of shareholders.
The board of directors may specify by resolution the time and place, either
within or without the state of Washington, for holding any other regular
meetings of the board of directors.

        SECTION 4.4 SPECIAL MEETINGS. Special meetings of the board of directors
may be called by the board of directors, the chairman of the board, the
president, the secretary or any director. Notice of special meetings of the
board of directors stating the date, time and place thereof shall be given at
least two (2) days prior to the date set for such meeting by the person or
persons authorized to call such meeting, or by the secretary at the direction of
the person or persons authorized to call such meeting. The notice may be oral or
written. Oral notice may be communicated in person or by telephone, wire or
wireless equipment, which does not transmit a facsimile of the notice. Oral
notice is effective when communicated. Written notice may be transmitted by
mail, private carrier, or personal delivery; telegraph or teletype; or
telephone, wire, or wireless equipment which transmits a facsimile of the
notice. Written notice is effective upon dispatch if such notice is sent to the
director's address, telephone number, or other number appearing on the records
of the corporation. If no place for such meeting is designated in the notice
thereof, the meeting shall be held at the principal office of the corporation.
Any director may waive notice of any meeting at any time. Whenever any notice is
required to be given to


                                       5.

<PAGE>   7
any director of the corporation pursuant to applicable law, a waiver thereof in
writing signed by the director, entitled to notice, shall be deemed equivalent
to the giving of notice. The attendance of a director at a meeting shall
constitute a waiver of notice of the meeting except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully convened. Unless otherwise required by law,
neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.

        SECTION 4.5 QUORUM. A majority of the number of directors specified in
or fixed in accordance with these bylaws shall constitute a quorum for the
transaction of any business at any meeting of directors. If less than a majority
shall attend a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice, and a quorum present at such
adjourned meeting may transact business.

        SECTION 4.6 MANNER OF ACTING. If a quorum is present when a vote is
taken, the affirmative vote of a majority of directors present is the act of the
board of directors.

        SECTION 4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Directors may
participate in a regular or special meeting of the board by, or conduct the
meeting through the use of, any means of communication by which all directors
participating can hear each other during the meeting and participation by such
means shall constitute presence in person at the meeting.

        SECTION 4.8 PRESUMPTION OF ASSENT. A director who is present at a
meeting of the board of directors at which action is taken shall be presumed to
have assented to the action taken unless such director's dissent shall be
entered in the minutes of the meeting or unless such director shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the corporation immediately after
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.

        SECTION 4.9 ACTION BY BOARD WITHOUT A MEETING. Any action permitted or
required to be taken at a meeting of the board of directors may be taken without
a meeting if one or more written consents setting forth the action so taken,
shall be signed, either before or after the action taken, by all the directors.
Action taken by written consent is effective when the last director signs the
consent, unless the consent specifies a later effective date.

        SECTION 4.10 BOARD COMMITTEES. The board of directors may by resolution
designate from among its members an executive committee and one or more other
committees, each of which must have two (2) or more members and shall be
governed by the same rules regarding meetings, action without meetings, notice,
waiver of notice, and quorum and voting requirements as applied to the board of
directors. To the extent provided in such resolutions, each such committee shall
have and may exercise the authority of the board of directors, except as limited
by applicable law. The designation of any such committee and the delegation
thereto of authority shall not relieve the board of directors, or any members
thereof, of any responsibility imposed by law.


                                       6.

<PAGE>   8
        SECTION 4.11 RESIGNATION. Any director may resign at any time by
delivering written notice to the chairman of the board, the president, the
secretary, or the registered office of the corporation, or by giving oral notice
at any meeting of the directors or shareholders. Any such resignation shall take
effect at any subsequent time specified therein, or if the time is not
specified, upon delivery thereof and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.

        SECTION 4.12 REMOVAL. At a meeting of the shareholders called expressly
for that purpose, any director or the entire board of directors may be removed
from office, with or without cause (unless the articles of incorporation provide
that directors may be removed only for cause) by a vote of the holders of a
majority of the shares then entitled to vote at an election of the director or
directors whose removal is sought. If shareholders have the right to cumulate
votes in the election of directors and if less than the entire board is to be
removed, no one of the directors may be removed if the votes cast against his
removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board or the class of directors of which he is a part. If
the board of directors or any one or more directors is so removed, new directors
may be elected at this same meeting.

        SECTION 4.13 VACANCIES. A vacancy on the board of directors may occur by
the resignation, removal or death of an existing director, or by reason of
increasing the number of directors on the board of directors as provided in
these bylaws. Except as may be limited by the articles of incorporation, any
vacancy occurring in the board of directors may be filled by the affirmative
vote of a majority of the remaining directors though less than a quorum. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, except that a vacancy to be filled by reason of an
increase in the number of directors shall be filled by the board of directors
for a term of office continuing only until the next election of directors by
shareholders.

        If the vacant office was held by a director elected by holders of one or
more authorized classes or series of shares, only the holders of those classes
or series of shares are entitled to vote to fill the vacancy.

        SECTION 4.14 COMPENSATION. By resolution of the board of directors, the
directors may be paid a fixed sum plus their expenses, if any, for attendance at
meetings of the board of directors or committee thereof, or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.

                                    ARTICLE V

                                    OFFICERS

        SECTION 5.1 NUMBER. The corporation shall have a president, and may have
one or more vice-presidents, a secretary and a treasurer, each of whom shall be
appointed by the board of directors. Such other officers and assistant officers,
including a chairman of the board, as may be deemed necessary or appropriate may
be appointed by the board of directors. By resolution, the board of directors
may designate any officer as chief executive officer, chief operating


                                       7.

<PAGE>   9
officer, chief financial officer, or any similar designation. Any two or more
offices may be held by the same person.

        SECTION 5.2 APPOINTMENT AND TERM OF OFFICE. The officers of the
corporation shall be appointed by the board of directors for such term as the
board may deem advisable or may be appointed to serve for an indefinite term at
the pleasure of the board. Each officer shall hold office until a successor
shall have been appointed regardless of such officer's term of office, except in
the event of such officer's termination of an indefinite term at the pleasure of
the board or such officer's removal in the manner herein provided.

        SECTION 5.3 RESIGNATION. Any officer may resign at any time by
delivering written notice to the chairman of the board, the president, a
vice-president, the secretary or the board of directors, or by giving oral
notice at any meeting of the board. Any such resignation shall take effect at
any subsequent time specified therein, or if the time is not specified, upon
delivery thereof and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

        SECTION 5.4 REMOVAL. Any officer appointed by the board of directors may
be removed by the board of directors with or without cause. The removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.

        SECTION 5.5 CHAIRMAN AND VICE-CHAIRMEN OF THE BOARD. The chairman of the
board, if there be such an office, shall, if present, preside at all meetings of
the board of directors, and exercise and perform such other powers and duties as
may be determined from time to time by resolution of the board of directors. The
vice-chairman of the board, if there be such an office, or in the event there
shall be more than one vice-chairman, the one designated most senior at the time
of election, shall perform the duties of the chairman of the board in the
chairman's absence, or in the event of the chairman's death, disability or
refusal to act. The vice-chairman of the board shall exercise and perform such
other powers and duties as may be determined from time to time by resolution of
the board of directors.

        SECTION 5.6 PRESIDENT. The president shall be the principal executive
officer of the corporation and, subject to the control of the board of
directors, shall generally supervise and control the business and affairs of the
corporation. When present the president shall preside at all meetings of the
shareholders and in the absence of the chairman or vice-chairman of the board,
or if there be none, at all meetings of the board of directors. The president
may sign with the secretary or any other proper officer of the corporation
thereunto authorized by law, certificates for shares of the corporation, and may
sign deeds, mortgages, bonds, contracts, or other instruments which the board of
directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors or by
these bylaws to some other officer or agent of the corporation or shall be
required by law to be otherwise signed or executed. In general, the president
shall perform all duties incident to office of and such other duties as may be
prescribed by resolution of the board of directors from time to time.


                                       8.

<PAGE>   10
        SECTION 5.7 VICE-PRESIDENTS. In the absence of the president or in the
event of his death, disability or refusal to act, the vice-president, or in the
event there shall be more than one vice-president, the vice-presidents in the
order designated at the time of their election, or in the absence of any
designation then in the order of their election, if any, shall perform the
duties of the president. When so acting the vice-president shall have all the
powers of and be subject to all the restrictions upon the president and shall
perform such other duties as from time to time may be assigned to the
vice-president by resolution of the board of directors.

        SECTION 5.8 SECRETARY. The secretary shall keep the minutes of the
proceedings of the shareholders and board of directors, shall give notices in
accordance with the provisions of these bylaws and as required by law, shall be
custodian of the corporate records of the corporation, shall keep a record of
the names and addresses of all shareholders and the number and class of shares
held by each, have general charge of the stock transfer books of the
corporation, may sign with the president, or a vice-president, certificates for
shares of the corporation, deeds, mortgages, bonds, contracts, or other
instruments which shall have been authorized by resolution of the board of
directors, and in general shall perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to the
secretary by resolution of the board of directors.

        SECTION 5.9 TREASURER. If required by the board of directors, the
treasurer shall give a bond for the faithful discharge of his duties, in such
sum and with such surety or sureties as the board of directors shall determine.
The treasurer shall have charge and custody of and be responsible for keeping
correct and complete books and records of account, for all funds and securities
of the corporation, receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, deposit all such moneys in the name of
the corporation in the banks, trust companies or other depositories as shall be
selected in accordance with the provisions of these bylaws, and in general
perform all of the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to the treasurer by resolution of
the board of directors.

        SECTION 5.10 ASSISTANT OFFICERS. The assistant officers in general shall
perform such duties as are customary or as shall be assigned to them by
resolution of the board of directors. If required by the board of directors, the
assistant treasurers shall respectively give bonds for the faithful discharge of
their duties in such sums and with such sureties as the board of directors shall
determine.

        SECTION 5.11 COMPENSATION OF OFFICERS AND EMPLOYEES. The board of
directors shall fix compensation of officers and may fix compensation of other
employees from time to time. No officer shall be prevented from receiving a
salary by reason of the fact that such officer is also a director of the
corporation. In the event any salary payment, or portion thereof, to an officer
or other employee is not allowable as a deduction for employee compensation
under Section 162(a)(1) of the Internal Revenue Code of 1986, as may be amended
from time to time, on the grounds such payment was unreasonable in amount, then
such officer or employee shall promptly repay the amount disallowed as a
deduction to the corporation.


                                       9.

<PAGE>   11
                                   ARTICLE VI

                       CONTRACTS, LOANS, CHECKS, DEPOSITS

        SECTION 6.1 CONTRACTS. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and that
authority may be general or confined to specific instances.

        SECTION 6.2 LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors, which authority may be
general.

        SECTION 6.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by the officer or officers, or agent or
agents, of the corporation and in the manner as shall from time to time be
prescribed by resolution of the board of directors.

        SECTION 6.4 DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in the banks, trust companies or other depositories as the board of directors
may select.

        SECTION 6.5 CONTRACTS WITH OR LOANS TO DIRECTORS AND OFFICERS. The
corporation may enter into contracts and otherwise transact business as vendor,
purchaser, or otherwise, with its directors, officers, and shareholders and with
corporations, associations, firms, and entities in which they are or may become
interested as directors, officers, shareholders, members, or otherwise, as
freely as though such interest did not exist, as permitted by applicable law. In
the absence of fraud the fact that any director, officer, shareholder, or any
corporation, association, firm or other entity of which any director, officer,
or shareholder is interested, is in any way interested in any transaction or
contract shall not make the transaction or contract void or voidable, or require
the director, officer, or shareholder to account to this corporation for any
profits therefrom if the transaction or contract is or shall be authorized,
ratified, or approved by (a) vote of a majority of a quorum of the board of
directors excluding any interested director or directors, (b) the written
consent of the holders of a majority of the shares entitled to vote, or (c) a
general resolution approving the acts of the directors and officers adopted at a
shareholders meeting by vote of the holders of the majority of the shares
entitled to vote. Nothing herein contained shall create or imply any liability
in the circumstances above described or prevent the authorization, ratification
or approval of such transactions or contracts in any other manner.

                                   ARTICLE VII

                                     SHARES

        SECTION 7.1 CERTIFICATES FOR SHARES. The shares of the corporation may
be represented by certificates in such form as prescribed by the board of
directors. Signatures of the corporate officers on the certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent,
or registered by a registrar, other than the corporation itself or an


                                      10.

<PAGE>   12
employee of the corporation. All certificates shall be consecutively numbered or
otherwise identified. All certificates shall bear such legend or legends as
prescribed by the board of directors or these bylaws.

        SECTION 7.2 ISSUANCE OF SHARES. Shares of the corporation shall be
issued only when authorized by the board of directors, which authorization shall
include the consideration to be received for each share.

        SECTION 7.3 BENEFICIAL OWNERSHIP. Except as otherwise permitted by these
bylaws, the person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes. The
board of directors may adopt by resolution a procedure whereby a shareholder of
the corporation may certify in writing to the corporation that all or a portion
of the shares registered in the name of such shareholder are held for the
account of a specified person or persons. Upon receipt by the corporation of a
certification complying with such procedure, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the shareholder making the certification.

        SECTION 7.4 TRANSFER OF SHARES. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the secretary of the corporation,
on surrender for cancellation of the certificate for the shares. All
certificates surrendered to the corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled.

        SECTION 7.5 LOST OR DESTROYED CERTIFICATES. In the case of a lost,
destroyed or mutilated certificate, a new certificate may be issued therefor
upon such terms and indemnity to the corporation as the board of directors may
prescribe.

        SECTION 7.6 RESTRICTIONS ON TRANSFER. Except to the extent that the
corporation has obtained an opinion of counsel acceptable to the corporation
that transfer restrictions are not required under applicable securities laws,
all certificates representing shares of the corporation shall bear a legend on
the face of the certificate or on the reverse of the certificate if a reference
to the legend is contained on the face, to the effect as follows:

        These securities are not registered under state or federal securities
laws and may not be offered, sold, pledged or otherwise transferred, nor may
these securities be transferred on the books of the company, without an opinion
of counsel or other assurance satisfactory to the company that no violation of
such registration provisions would result therefrom.

        SECTION 7.7 STOCK TRANSFER RECORDS. The stock transfer books shall be
kept at the principal office of the corporation or at the office of the
corporation's transfer agent or registrar. The name and address of the person to
whom the shares represented by any certificate, together with the class, number
of shares and date of issue, shall be entered on the stock transfer books of the
corporation. Except as provided in these bylaws, the person in whose name shares
stand on


                                      11.

<PAGE>   13
the books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.

                                  ARTICLE VIII

                                      SEAL

        This corporation need not have a corporate seal. If the directors adopt
a corporate seal, the seal of the corporation shall be circular in form and
consist of the name of the corporation, the state and year of incorporation, and
the words "Corporate Seal."

                                   ARTICLE IX

          INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS

        SECTION 9.1 POWER TO INDEMNIFY. The corporation shall have the following
powers:

                9.1.1 POWER TO INDEMNIFY. The corporation may indemnify and hold
harmless to the full extent permitted by applicable law each person who was or
is made a party to or is threatened to be made a party to or is involved
(including, without limitation, as a witness) in any actual or threatened
action, suit or other proceeding, whether civil, criminal, administrative or
investigative, by reason of that fact that he or she is or was a director,
officer, employee or agent of the corporation or, being or having been such a
director, officer, employee or agent, he or she is or was serving at the request
of the corporation as a director, officer, employee, agent, trustee, or in any
other capacity of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action or omission in an
official capacity or in any other capacity while serving as a director, officer,
employee, agent, trustee or in any other capacity, against all expense,
liability and loss (including, without limitation, attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts to be paid in settlement)
actually or reasonably incurred or suffered by such person in connection
therewith. Such indemnification may continue as to a person who has ceased to be
a director, officer, employee or agent of the corporation and shall inure to the
benefit of his or her heirs and personal representatives.

                9.1.2 POWER TO PAY EXPENSES IN ADVANCE OF FINAL DISPOSITION. The
corporation may pay expenses incurred in defending any such proceeding in
advance of the final disposition of any such proceeding; provided, however, that
the payment of such expenses in advance of the final disposition of a proceeding
shall be made to or on behalf of a director, officer, employee or agent only
upon delivery to the corporation of an undertaking, by or on behalf of such
director, officer, employee or agent, to repay all amounts so advanced if it
shall ultimately be determined that such director, officer, employee or agent is
not entitled to be indemnified under this Article or otherwise, which
undertaking may be unsecured and may be accepted without reference to financial
ability to make repayment.

                9.1.3 POWER TO ENTER INTO CONTRACTS. The corporation may enter
into contracts with any person who is or was a director, officer, employee and
agent of the corporation in furtherance of the provisions of this Article and
may create a trust fund, grant a


                                      12.

<PAGE>   14
security interest in property of the corporation, or use other means (including,
without limitation, a letter of credit) to ensure the payment of such amounts as
may be necessary to effect indemnification as provided in this Article.

               9.1.4 EXPANSION OF POWERS. If the Washington Business Corporation
Act is amended in the future to expand or increase the power of the corporation
to indemnify, to pay expenses in advance of final disposition, to enter into
contracts, or to expand or increase any similar or related power, then, without
any further requirement of action by the shareholders or directors of this
corporation, the powers described in this Article shall be expanded and
increased to the fullest extent permitted by the Washington Business Corporation
Act, as so amended.

               9.1.5 LIMITATION ON POWERS. No indemnification shall be provided
under this Article to any such person if the corporation is prohibited by the
nonexclusive provisions of the Washington Business Corporation Act or other
applicable law as then in effect from paying such indemnification. For example,
no indemnification shall be provided to any director in respect of any
proceeding, whether or not involving action in his or her official capacity, in
which he or she shall have been finally adjudged to be liable on the basis of
intentional misconduct or knowing violation of law by the director, or from
conduct of the director in violation of RCW 23B.08.310, or that the director
personally received a benefit in money, property or services to which the
director was not legally entitled.

        SECTION 9.2 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS.

               9.2.1 DIRECTORS. The corporation shall indemnify and hold
harmless any person who is or was a director of this corporation, and pay
expenses in advance of final disposition of a proceeding, to the full extent to
which the corporation is empowered.

               9.2.2 OFFICERS, EMPLOYEES, AND AGENTS. The corporation may, by
action of its Board of Directors from time to time, indemnify and hold harmless
any person who is or was an officer, employee or agent of the corporation, and
pay expenses in advance of final disposition of a proceeding, to the full extent
to which the corporation is empowered, or to any lesser extent which the Board
of Directors may determine.

               9.2.3 CHARACTER OF RIGHTS. The rights to indemnification and
payment of expenses in advance of final disposition of a proceeding conferred by
or pursuant to this Article shall be contract rights.

               9.2.4 ENFORCEMENT. A director, officer, employee or agent
("claimant") shall be presumed to be entitled to indemnification and/or payment
of expenses under this Article upon submission of a written claim (and, in an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the undertaking in
subsection 9.1.2 above has been delivered to the corporation) and thereafter the
corporation shall have the burden of proof to overcome the presumption that the
claimant is so entitled.

        If a claim under this Article is not paid in full by the corporation
within sixty (60) days after a written claim has been received by the
corporation, except in the case of a claim for expenses incurred in defending a
proceeding in advance of its final disposition, in which case the applicable
period shall be twenty (20) days, the claimant may at any time thereafter bring
suit


                                      13.

<PAGE>   15
against the corporation to recover the unpaid amount of the claim and, to the
extent successful in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such claim. Neither the failure of the
corporation (including its board of directors, its shareholders or independent
legal counsel) to have made a determination prior to the commencement of such
action that indemnification of or reimbursement or advancement of expenses to
the claimant is proper in the circumstances nor an actual determination by the
corporation (including its board of directors, its shareholders or independent
legal counsel) that the claimant is not entitled to indemnification or to the
reimbursement or advancement of expenses shall be a defense to the action or
create a presumption that the claimant is not so entitled.

                9.2.5 RIGHTS NOT EXCLUSIVE. The right to indemnification and
payment of expenses in advance of final disposition of a proceeding conferred in
this Article shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the articles of
incorporation, bylaws, agreement, vote of shareholders or disinterested
directors or otherwise.

        SECTION 9.3 INSURANCE. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer,
employee, agent or trustee of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the
Washington Business Corporation Act.

        SECTION 9.4 SURVIVAL OF BENEFITS. Any repeal or modification of this
Article shall not adversely affect any right of any person existing at the time
of such repeal or modification.

        SECTION 9.5 SEVERABILITY. If any provision of this Article or any
application thereof shall be invalid, unenforceable or contrary to applicable
law, the remainder of this Article, or the application of such provision to
persons or circumstances other than those as to which it is held invalid,
unenforceable or contrary to applicable law, shall not be affected thereby and
shall continue in full force and effect.

        SECTION 9.6 APPLICABLE LAW. For purposes of this Article, "applicable
law" shall at all times be construed as the applicable law in effect at the date
indemnification may be sought, or the law in effect at the date of the action,
omission or other event giving rise to the situation for which indemnification
may be sought, whichever is selected by the person seeking indemnification. As
of the date hereof, applicable law shall include RCW 23B.08.500 through .600, as
amended.

                                    ARTICLE X

                                BOOKS AND RECORDS

        The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and the board of directors and such other records as may be necessary or
advisable.


                                      14.

<PAGE>   16
                                   ARTICLE XI

                                   FISCAL YEAR

        The fiscal year of the corporation shall be determined by resolution
adopted by the board of directors. In the absence of such a resolution, the
fiscal year shall be the calendar year.

                                   ARTICLE XII

                     VOTING OF SHARES OF ANOTHER CORPORATION

        Shares of another corporation held by this corporation may be voted by
the president or vice-president, or by proxy appointment form executed by either
of them, unless the directors by resolution shall designate some other person to
vote the shares.

                                  ARTICLE XIII

                              AMENDMENTS TO BYLAWS

        These bylaws may be altered, amended or repealed, and new bylaws may be
adopted, by the board of directors or by the shareholders.

        The undersigned, being the secretary of the corporation, hereby
certifies that these bylaws are the bylaws of InterNAP Network Services
Corporation, adopted by resolution of the directors on October 27, 1997 and
amended on January 19, 1999.

DATED this 19th day of January, 1999.



                                         /s/ PAUL E. McBRIDE
                                         ---------------------------------------
                                         Paul E. McBride
                                         Secretary


                                      15.

<PAGE>   17
                                   AMENDMENTS



<TABLE>
<CAPTION>
ARTICLE/SECTION                    EFFECT OF AMENDMENT          DATE OF AMENDMENT
---------------                    -------------------          -----------------
<S>                                <C>                          <C> 
XIV, Right of First Refusal        Deleted in its entirety      January 19, 1999
</TABLE>



                                       i.

<PAGE>   18
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                            PAGE
<S>                                                                                         <C>

ARTICLE I         OFFICES....................................................................1

ARTICLE II        NUMBER OF DIRECTORS........................................................1

ARTICLE III       SHAREHOLDERS...............................................................1

        Section 3.1   Annual Meeting.........................................................1

        Section 3.2   Special Meetings.......................................................1

        Section 3.3   Place of Meetings......................................................1

        Section 3.4   Fixing of Record Date..................................................2

        Section 3.5   Voting Lists...........................................................2

        Section 3.6   Notice of Meetings.....................................................2

        Section 3.7   Waiver of Notice.......................................................3

        Section 3.8   Manner of Acting; Proxies..............................................3

        Section 3.9   Participation by Conference Telephone..................................3

        Section 3.10  Quorum.................................................................3

        Section 3.11  Voting of Shares.......................................................3

        Section 3.12  Voting for Directors...................................................4

        Section 3.13  Voting of Shares by Certain Holders....................................4

        Section 3.14  Action by Shareholders Without a Meeting...............................5

ARTICLE IV        BOARD OF DIRECTORS.........................................................5

        Section 4.1   General Powers.........................................................5

        Section 4.2   Number, Tenure and Qualification.......................................5

        Section 4.3   Annual and Other Regular Meetings......................................5

        Section 4.4   Special Meetings.......................................................5

        Section 4.5   Quorum.................................................................6

        Section 4.6   Manner of Acting.......................................................6

        Section 4.7   Participation by Conference Telephone..................................6

        Section 4.8   Presumption of Assent..................................................6

        Section 4.9   Action by Board Without a Meeting......................................6

        Section 4.10  Board Committees.......................................................6

        Section 4.11  Resignation............................................................7

        Section 4.12  Removal................................................................7
</TABLE>



                                      ii.

<PAGE>   19

                               TABLE OF CONTENTS
                                  (CONTINUED)


<TABLE>
<CAPTION>
                                                                                            PAGE
<S>                                                                                         <C>
        Section 4.13  Vacancies..............................................................7

        Section 4.14  Compensation...........................................................7

ARTICLE V         OFFICERS...................................................................7

        Section 5.1   Number.................................................................7

        Section 5.2   Appointment and Term of Office.........................................8

        Section 5.3   Resignation............................................................8

        Section 5.4   Removal................................................................8

        Section 5.5   Chairman and Vice-Chairmen of the Board................................8

        Section 5.6   President..............................................................8

        Section 5.7   Vice-Presidents........................................................9

        Section 5.8   Secretary..............................................................9

        Section 5.9   Treasurer..............................................................9

        Section 5.10  Assistant Officers.....................................................9

        Section 5.11  Compensation of Officers and Employees.................................9

ARTICLE VI        CONTRACTS, LOANS, CHECKS, DEPOSITS........................................10

        Section 6.1   Contracts.............................................................10

        Section 6.2   Loans.................................................................10

        Section 6.3   Checks, Drafts, Etc...................................................10

        Section 6.4   Deposits..............................................................10

        Section 6.5   Contracts with or Loans to Directors and Officers.....................10

ARTICLE VII       SHARES....................................................................10

        Section 7.1   Certificates for Shares...............................................10

        Section 7.2   Issuance of Shares....................................................11

        Section 7.3   Beneficial Ownership..................................................11

        Section 7.4   Transfer of Shares....................................................11

        Section 7.5   Lost or Destroyed Certificates........................................11

        Section 7.6   Restrictions on Transfer..............................................11

        Section 7.7   Stock Transfer Records................................................11

ARTICLE VIII      SEAL......................................................................12
</TABLE>



                                      iii.

<PAGE>   20

                               TABLE OF CONTENTS
                                  (CONTINUED)


<TABLE>
<CAPTION>
                                                                                            PAGE
<S>                                                                                         <C>
ARTICLE IX        INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS..............12

        Section 9.1   Power to Indemnify....................................................12

        Section 9.2   Indemnification of Directors, Officers, Employees and Agents..........13

        Section 9.3   Insurance.............................................................14

        Section 9.4   Survival of Benefits..................................................14

        Section 9.5   Severability..........................................................14

        Section 9.6   Applicable Law........................................................14

ARTICLE X         BOOKS AND RECORDS.........................................................14

ARTICLE XI        FISCAL YEAR...............................................................15

ARTICLE XII       VOTING OF SHARES OF ANOTHER CORPORATION...................................15

ARTICLE XIII      AMENDMENTS TO BYLAWS......................................................15
</TABLE>



                                      iv.



<PAGE>   1

                                                                     EXHIBIT 3.4

                         AMENDED AND RESTATED BYLAWS OF

                      INTERNAP NETWORK SERVICES CORPORATION






<PAGE>   2

<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>            <C>                                                                          <C>
ARTICLE 1      OFFICES.......................................................................1

        1.1    Principal Office..............................................................1

        1.2    Registered Office and Registered Agent........................................1

        1.3    Other Offices.................................................................1

ARTICLE 2      SHAREHOLDERS..................................................................1

        2.1    Annual Meeting................................................................1

        2.2    Special Meetings..............................................................2

        2.3    Notice of Meetings............................................................2

               (a)    Notice of Special Meeting..............................................3

               (b)    Proposed Articles of Amendment or Dissolution..........................3

               (c)    Proposed Merger, Consolidation, Exchange, Sale, Lease or
                      Disposition............................................................3

               (d)    Declaration of Mailing.................................................3

               (e)    Waiver of Notice.......................................................3

        2.4    Quorum........................................................................3

        2.5    Voting of Shares..............................................................4

        2.6    Adjourned Meetings............................................................4

        2.7    Record Date...................................................................4

        2.8    Record of Shareholders Entitled to Vote.......................................4

        2.9    Telephonic Meetings...........................................................5

        2.10   Proxies.......................................................................5

        2.11   Organization..................................................................5

ARTICLE 3      BOARD OF DIRECTORS............................................................6

        3.1    Management Responsibility.....................................................6

        3.2    Number of Directors, Qualification............................................6

        3.3    Election......................................................................6

        3.4    Vacancies.....................................................................6

        3.5    Removal.......................................................................6

        3.6    Resignation...................................................................6
</TABLE>


                                       i.


<PAGE>   3
                               TABLE OF CONTENTS
                                  (CONTINUED)



<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>            <C>                                                                          <C>
        3.7    Annual Meeting................................................................7

        3.8    Regular Meetings..............................................................7

        3.9    Special Meetings..............................................................7

        3.10   Notice of Meeting.............................................................7

        3.11   Quorum of Directors...........................................................8

        3.12   Presumption of Assent.........................................................8

        3.13   Action by Directors Without a Meeting.........................................8

        3.14   Telephonic Meetings...........................................................8

        3.15   Compensation..................................................................8

        3.16   Committees....................................................................8

ARTICLE 4      OFFICERS......................................................................9

        4.1    Appointment...................................................................9

        4.2    Qualification.................................................................9


        4.3    Officers Designated...........................................................9

               (a)    Chief Executive Officer...............................................10

               (b)    President.............................................................10

               (c)    Vice Presidents.......................................................10

               (d)    Secretary.............................................................10

               (e)    Chief Financial Officer...............................................11

               (f)    Treasurer.............................................................11

        4.4    Delegation...................................................................11

        4.5    Resignation..................................................................11

        4.6    Removal......................................................................11

        4.7    Vacancies....................................................................11

        4.8    Compensation.................................................................12

ARTICLE 5      EXECUTION OF CORPORATION INSTRUMENTS AND VOTING OF SECURITIES OWNED
               BY THE CORPORATION...........................................................12

        5.1    Execution of Corporate Instruments...........................................12

        5.2    Voting of Securities Owned by the Corporation................................12
</TABLE>


                                      ii.


<PAGE>   4
                               TABLE OF CONTENTS
                                  (CONTINUED)



<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>            <C>                                                                          <C>
ARTICLE 6      STOCK........................................................................12

        6.1    Form and Execution of Certificates...........................................12

        6.2    Lost Certificates............................................................13

        6.3    Transfers....................................................................13

        6.4    Registered Shareholders......................................................13

        6.5    Execution of Other Securities................................................14

ARTICLE 7      BOOKS AND RECORDS............................................................14

        7.1    Books of Accounts, Minutes and Share Register................................14

        7.2    Copies of Resolutions........................................................15

ARTICLE 8      FISCAL YEAR..................................................................15

ARTICLE 9      CORPORATE SEAL...............................................................15

ARTICLE 10     INDEMNIFICATION..............................................................15

        10.1   Right to Indemnification.....................................................15

        10.2   Right of Indemnitee to Bring Suit............................................16

        10.3   Nonexclusivity of Rights.....................................................16

        10.4   Insurance, Contracts and Funding.............................................17

        10.5   Indemnification of Employees and Agents of the Corporation...................17

        10.6   Persons Serving Other Entities...............................................17

ARTICLE 11     AMENDMENT OF BYLAWS..........................................................17
</TABLE>


                                      iii.


<PAGE>   5

                         AMENDED AND RESTATED BYLAWS OF

                      INTERNAP NETWORK SERVICES CORPORATION


        These AMENDED AND RESTATED BYLAWS are promulgated pursuant to the
Washington Business Corporation Act, as set forth in Title 23B of the Revised
Code of Washington. 

                                    ARTICLE 1

                                     OFFICES

        1.1 PRINCIPAL OFFICE. The principal office of the Corporation shall be
located at the principal place of business or such other place as the Board of
Directors may designate.

        1.2 REGISTERED OFFICE AND REGISTERED AGENT. The registered office of the
Corporation shall be located in the State of Washington at such place as may be
fixed from time to time by the Board of Directors upon filing of such notices as
may be required by law, and the registered agent shall have a business office
identical with such registered office. Any change in the registered agent or
registered office shall be effective upon filing such change with the office of
the Secretary of State of the State of Washington.

        1.3 OTHER OFFICES. The Corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Washington, as the Board of Directors may from time to time
determine or the business of the Corporation may require.

                                    ARTICLE 2

                                  SHAREHOLDERS

        2.1    ANNUAL MEETING

               (a) The annual meeting of the shareholders of the Corporation for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on a date and at a time
and place to be set by the Board of Directors.

               (b) At an annual meeting of the shareholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (iii) otherwise properly
brought before the meeting by a shareholder. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be



                                       1.

<PAGE>   6

delivered to or mailed and received at the principal executive offices of the
Corporation not later than the close of business on the ninetieth (90th) day nor
earlier than the close of business on the one hundred twentieth (120th) day
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that no annual meeting was held in the previous year
or the date of the annual meeting has been changed by more than thirty (30) days
from the date contemplated at the time of the previous year's proxy statement,
notice by the shareholder to be timely must be so received not earlier than the
close of business on the ninetieth (90th) day prior to such annual meeting and
not later than the close of business on the later of the sixtieth (60th) day
prior to such annual meeting or, in the event public announcement of the date of
such annual meeting is first made by the Corporation fewer than seventy (70)
days prior to the date of such annual meeting, the close of business on the
tenth (10th) day following the day on which public announcement of the date of
such meeting is first made by the Corporation. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting: (A) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (B) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, (C) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder, (D) any material interest of the shareholder in such business and
(E) any other information that is required to be provided by the shareholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), in his capacity as a proponent to a shareholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
shareholder proposal in the proxy statement and form of proxy for a
shareholders' meeting, shareholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.

        2.2 SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes may be called at any time by a majority of the Board of
Directors or by the Chairperson of the Board (if one be elected) or by the Chief
Executive Officer. The Board of Directors may designate any place as the place
of any special meeting called by the Chairperson, the Chief Executive Officer or
the Board.

        2.3 NOTICE OF MEETINGS. Except as otherwise provided in Subsections
2.3(b) and 2.3(c) below, the Secretary, Assistant Secretary, or any transfer
agent of the Corporation shall deliver, either personally or by mail, private
carrier, telegraph or teletype, or telephone, wire or wireless equipment which
transmits a facsimile of the notice, not less than ten (10) nor more than sixty
(60) days before the date of any meeting of shareholders, written notice stating
the place, day, and time of the meeting to each shareholder of record entitled
to vote at such meeting. If mailed in the United States, such notice shall be
deemed to be delivered when deposited in the United States mail, with
first-class postage thereon prepaid, addressed to the shareholder at his



                                       2.

<PAGE>   7

address as it appears on the Corporation's record of shareholders. If mailed
outside the United States, such notice shall be deemed to be delivered five (5)
days after being deposited in the mail, with first-class airmail postage
thereon, return receipt requested, addressed to the shareholder at the
shareholder's address as it appears on the Corporation's record of shareholders.

               (a) NOTICE OF SPECIAL MEETING. In the case of a special meeting,
the written notice shall also state with reasonable clarity the purpose or
purposes for which the meeting is called and the actions sought to be approved
at the meeting. No business other than that specified in the notice may be
transacted at a special meeting.

               (b) PROPOSED ARTICLES OF AMENDMENT OR DISSOLUTION. If the
business to be conducted at any meeting includes any proposed amendment to the
Articles of Incorporation or the proposed voluntary dissolution of the
Corporation, then the written notice shall be given not less than twenty (20)
nor more than sixty (60) days before the meeting date and shall state that the
purpose or one of the purposes is to consider the advisability thereof, and, in
the case of a proposed amendment, shall be accompanied by a copy of the
amendment.

               (c) PROPOSED MERGER, CONSOLIDATION, EXCHANGE, SALE, LEASE OR
DISPOSITION. If the business to be conducted at any meeting includes any
proposed plan of merger or share exchange, or any sale, lease, exchange, or
other disposition of all or substantially all of the Corporation's property
otherwise than in the usual or regular course of its business, then the written
notice shall state that the purpose or one of the purposes is to consider the
proposed plan of merger or share exchange, sale, lease, or disposition, as the
case may be, shall describe the proposed action with reasonable clarity, and, if
required by law, shall be accompanied by a copy or a detailed summary thereof;
and written notice shall be given to each shareholder of record, whether or not
entitled to vote at such meeting, not less than twenty (20) nor more than sixty
(60) days before such meeting, in the manner provided in Section 2.3 above.

               (d) DECLARATION OF MAILING. A declaration of the mailing or other
means of giving any notice of any shareholders' meeting, executed by the
Secretary, Assistant Secretary, or any transfer agent of the Corporation giving
the notice, shall be prima facie evidence of the giving of such notice.

               (e) WAIVER OF NOTICE. Notice of any shareholders' meeting may be
waived in writing by any shareholder at any time, either before or after the
meeting. Except as provided below, the waiver must be signed by the shareholder
entitled to the notice, and be delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. A shareholder's attendance at a
meeting waives objection to lack of notice, or defective notice, unless the
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting.

        2.4 QUORUM. A quorum shall exist at any meeting of shareholders if a
majority of the shares entitled to vote is represented in person or by proxy.
Shares entitled to vote as a separate voting group may take action on a matter
at a meeting only if a quorum of those shares exists with respect to that
matter. The shareholders present at a duly organized meeting may continue to
transact business at such meeting and at any adjournment of such meeting (unless
a



                                       3.

<PAGE>   8

new record date is or must be set for the adjourned meeting), notwithstanding
the withdrawal of enough shareholders from either meeting to leave less than a
quorum. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business at the meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or must be set
for the adjourned meeting.

        2.5 VOTING OF SHARES. Except as otherwise provided in the Articles of
Incorporation or these Bylaws, every shareholder of record shall have the right
at every shareholders' meeting to one vote for every share standing in his name
on the books of the Corporation. If a quorum exists, action on a matter, other
than the election of directors, is approved by a voting group if the votes cast
within the voting group favoring the action exceed the votes cast within the
voting group opposing the action, unless a greater number is required by the
Articles of Incorporation or the Washington Business Corporation Act.

        2.6 ADJOURNED MEETINGS. A majority of the shares represented at a
meeting, even if less than a quorum, may adjourn the meeting from time to time
without further notice. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. However, if a
new record date for the adjourned meeting is or must be fixed in accordance with
the Washington Business Corporation Act, notice of the adjourned meeting must be
given to persons who are shareholders as of the new record date. At any
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting.

        2.7 RECORD DATE. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders, or any adjournment thereof,
or entitled to receive payment of any dividend, the Board of Directors may fix
in advance a record date for any such determination of shareholders, such date
to be not more than seventy (70) days and, in the case of a meeting of
shareholders, not less than ten (10) days prior to the meeting or action
requiring such determination of shareholders. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the day
before the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date, which it must do if the meeting is adjourned
more than one hundred twenty (120) days after the date is fixed for the original
meeting.

        2.8 RECORD OF SHAREHOLDERS ENTITLED TO VOTE. After fixing a record date
for a shareholders' meeting, the Corporation shall prepare an alphabetical list
of the names of all shareholders on the record date who are entitled to notice
of the shareholders' meeting. The list shall be arranged by voting group, and
within each voting group by class or series of shares, and show the address of
and number of shares held by each shareholder. A shareholder,



                                       4.

<PAGE>   9

shareholder's agent, or a shareholder's attorney may inspect the shareholders
list, beginning ten days prior to the shareholders' meeting and continuing
through the meeting, at the Corporation's principal office or at a place
identified in the meeting notice in the city where the meeting will be held
during regular business hours and at the shareholder's expense. The shareholders
list shall be kept open for inspection during such meeting or any adjournment.
Failure to comply with the requirements of this section shall not affect the
validity of any action taken at such meeting.

        2.9 TELEPHONIC MEETINGS. Shareholders may participate in a meeting by
means of a conference telephone or other communications equipment by which all
persons participating in the meeting can hear each other during the meeting, and
participation by such means shall constitute presence in person at a meeting.

        2.10 PROXIES. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the secretary of the Corporation before
or at the time of the meeting. No proxy shall be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the proxy.

        2.11   ORGANIZATION

               (a) At every meeting of shareholders, the Chairperson of the
Board of Directors, or, if a Chairperson has not been appointed or is absent,
the Chief Executive Officer, or, if the Chief Executive Officer is absent, a
chairman of the meeting chosen by a majority in interest of the shareholders
entitled to vote, present in person or by proxy, shall act as chairman. The
Secretary, or, in his absence, an Assistant Secretary directed to do so by the
Chief Executive Officer, shall act as secretary of the meeting.

               (b) The Board of Directors of the Corporation shall be entitled
to make such rules or regulations for the conduct of meetings of shareholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to shareholders of
record of the Corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of shareholders shall not be required to
be held in accordance with rules of parliamentary procedure.





                                       5.

<PAGE>   10

                                    ARTICLE 3

                               BOARD OF DIRECTORS

        3.1 MANAGEMENT RESPONSIBILITY. All corporate powers shall be exercised
by or under the authority of, and the business and affairs of the Corporation
shall be managed under the direction of, the Board of Directors, except as may
be otherwise provided in the Articles of Incorporation or the Washington
Business Corporation Act.

        3.2 NUMBER OF DIRECTORS, QUALIFICATION. The authorized number of
directors of the Corporation shall be not less than five (5) nor more than nine
(9), the specific number to be set by resolution of the Board of Directors.
Directors need not be shareholders. No reduction of the authorized number of
directors shall have the effect of removing any director before that director's
term of office expires.

        3.3 ELECTION. At the first annual meeting of shareholders and at each
annual meeting thereafter, the shareholders shall elect directors to hold office
at the annual meeting. If, for any reason, the directors shall not have been
elected at an annual meeting, they may be elected at a special meeting of
shareholders called for that purpose in accordance with these Bylaws. Despite
the expiration of a director's term, the director continues to serve until the
director's successor shall have been elected and qualified or until there is a
decrease in the number of directors.

        3.4 VACANCIES. Any vacancy occurring in the Board of Directors (whether
caused by resignation, death, an increase in the number of directors, or
otherwise) may be filled the Board of Directors or the shareholders if not
filled by the Board. If the directors in office constitute fewer than a quorum
of the Board, they may fill the vacancy by the affirmative vote of a majority of
all the directors in office. A director elected to fill any vacancy shall hold
office until the next shareholders meeting at which directors are elected.

        3.5 REMOVAL. One or more members of the Board of Directors (including
the entire Board) may be removed, with cause, at a meeting of shareholders
called expressly for that purpose. A director may be removed only if the number
of votes cast to remove the director exceeds the number of votes cast not to
remove the director. Neither the Board of Directors nor any individual director
may be removed without cause.

        3.6 RESIGNATION. Any director may resign at any time by delivering his
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.





                                       6.

<PAGE>   11

        3.7 ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be known as the annual meeting thereof and shall be held without
notice immediately after the annual shareholders' meeting or any special
shareholders' meeting at which a Board is elected. Said meeting shall be held at
the same place as such shareholders' meeting unless some other place shall be
specified by resolution of the Board of Directors.

        3.8 REGULAR MEETINGS. Regular meetings of the Board of Directors or of
any committee designated by the Board may be held at such place and such day and
hour as shall from time to time be fixed by resolution of the Board or
committee, without other notice than the delivery of such resolution as provided
in Section 3.10 below.

        3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors or any
committee designated by the Board may be called by the Chief Executive Officer
or the Chairperson of the Board (if one be elected) or any director or committee
member, to be held at such place and such day and hour as specified by the
person or persons calling the meeting.

        3.10 NOTICE OF MEETING. Notice of the date, time, and place of all
special meetings of the Board of Directors or any committee designated by the
Board shall be given by the Secretary, or by the person calling the meeting, by
mail, private carrier, telegram, facsimile transmission, or personal
communication over the telephone or otherwise, provided such notice is received
at least two (2) days prior to the day upon which the meeting is to be held.

        No notice of any regular meeting need be given if the time and place
thereof shall have been fixed by resolution of the Board of Directors or any
committee designated by the Board and a copy of such resolution has been
delivered by mail, private carrier, telegram or facsimile transmission to every
director or committee member and is received at least two (2) days before the
first meeting held in pursuance thereof.

        Notice of any meeting of the Board of Directors or any committee
designated by the Board need not be given to any director or committee member if
it is waived in a writing signed by the director entitled to the notice, whether
before or after such meeting is held.

        A director's attendance at or participation in a meeting waives any
required notice to the director of the meeting unless the director at the
beginning of the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors or any committee designated by the Board need be
specified in the notice or waiver of notice of such meeting unless required by
the Articles of Incorporation or these Bylaws.

        Any meeting of the Board of Directors or any committee designated by the
Board shall be a legal meeting without any notice thereof having been given if
all of the directors or committee members have received valid notice thereof,
are present without objecting, or waive notice thereof in a writing signed by
the director and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records, or any combination thereof.




                                       7.

<PAGE>   12

        3.11 QUORUM OF DIRECTORS. A majority of the number of directors fixed by
or in the manner provided by these Bylaws shall constitute a quorum for the
transaction of business. If a quorum is present when a vote is taken, the
affirmative vote of a majority of directors present is the act of the Board of
Directors unless the Articles of Incorporation or these Bylaws require the vote
of a greater number of directors.

               A majority of the directors present, whether or not constituting
a quorum, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than forty-eight (48) hours, then notice of the time and
place of the adjourned meeting shall be given before the adjourned meeting takes
place, in the manner specified in Section 3.10 of these Bylaws, to the directors
who were not present at the time of the adjournment.

        3.12 PRESUMPTION OF ASSENT. Any director who is present at any meeting
of the Board of Directors at which action on any corporate matter is taken shall
be presumed to have assented to the action taken unless (a) the director objects
at the beginning of the meeting, or promptly upon the director's arrival, to
holding the meeting or transacting business at the meeting; (b) the director's
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) the director delivers written notice of dissent or abstention to
the presiding officer of the meeting before the adjournment thereof or to the
Corporation within a reasonable time after adjournment of the meeting. Such
right to dissent or abstain shall not be available to any director who voted in
favor of such action.

        3.13 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required by law
to be taken or which may be taken at a meeting of the Board of Directors or of a
committee thereof may be taken without a meeting if one or more written
consents, setting forth the action so taken, shall be signed by all of the
directors or all of the members of the committee, as the case may be, either
before or after the action taken and delivered to the Corporation for inclusion
in the minutes or filing with the corporate records. Such consent shall have the
same effect as a unanimous vote at a meeting duly held upon proper notice on the
date of the last signature thereto, unless the consent specifies a later
effective date.

        3.14 TELEPHONIC MEETINGS. Members of the Board of Directors or any
committee designated by the Board may participate in a meeting of the Board or
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
during the meeting. Participation by such means shall constitute presence in
person at a meeting.

        3.15 COMPENSATION. By resolution of the Board of Directors, the
directors and committee members may be paid their expenses, if any, or a fixed
sum or a stated salary as a director or committee member for attendance at each
meeting of the Board or of such committee as the case may be. No such payment
shall preclude any director or committee member from serving the Corporation in
any other capacity and receiving compensation therefor.

        3.16 COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the full Board, may from time to time designate from among its
members one or more committees, each of which must have two (2) or more members
and, to the extent provided in such resolution,



                                       8.

<PAGE>   13

shall have and may exercise all the authority of the Board of Directors, except
that no such committee shall have the authority to:

               (a) authorize or approve a distribution except according to a
general formula or method prescribed by the Board of Directors;

               (b) approve or propose to shareholders action that the Washington
Business Corporation Act requires to be approved by shareholders;

               (c) fill vacancies on the Board of Directors or on any of its
committees;

               (d) adopt any amendment to the Articles of Incorporation;

               (e) adopt, amend or repeal these Bylaws;

               (f) approve a plan of merger; or

               (g) authorize or approve the issuance or sale or contract for
sale of shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares, except that the Board of
Directors may authorize a committee, or a senior executive officer of the
Corporation, to do so within limits specifically prescribed by the Board of
Directors.

               Meetings of such committees shall be governed by the same
procedures as govern the meetings of the Board of Directors. All committees so
appointed shall keep regular minutes of their meetings and shall cause them to
be recorded in books kept for that purpose at the office of the Corporation.

                                   ARTICLE 4

                                    OFFICERS

        4.1 APPOINTMENT. The officers of the Corporation shall be appointed
annually by the Board of Directors at its annual meeting held after the annual
meeting of the shareholders. If the appointment of officers is not held at such
meeting, such appointment shall be held as soon thereafter as a Board meeting
conveniently may be held. Except in the case of death, resignation or removal,
each officer shall hold office at the pleasure of the Board of Directors until
the next annual meeting of the Board and until his successor is appointed and
qualified.

        4.2 QUALIFICATION. None of the officers of the Corporation need be a
director, except as specified below. Any two or more of the corporate offices
may be held by the same person.

        4.3 OFFICERS DESIGNATED. The officers of the Corporation shall be a
Chief Executive Officer, a President, one or more Vice Presidents (the number
thereof to be determined by the Board of Directors), a Secretary, a Chief
Financial Officer and a Treasurer, each of whom shall be elected by the Board of
Directors. Such other officers and assistant officers as may be deemed necessary
may be appointed by the Board of Directors.





                                       9.

<PAGE>   14

               The Board of Directors may, in its discretion, appoint a
Chairperson of the Board of Directors; and, if a Chairperson has been appointed,
the Chairperson shall, when present, preside at all meetings of the Board of
Directors and the shareholders and shall have such other powers commonly
incident to his office and as the Board may prescribe.

               (a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
the chief executive officer of the corporation and, subject to the direction and
control of the Board, shall supervise and control all of the assets, business,
and affairs of the corporation. The Chief Executive Officer shall vote the
shares owned by the corporation in other corporations, domestic or foreign,
unless otherwise prescribed by resolution of the Board. In general, the Chief
Executive Officer shall perform all duties incident to the office of Chief
Executive Officer and such other duties as may be prescribed by the Board from
time to time.

               The Chief Executive Officer shall, unless a Chairperson of the
Board of Directors has been appointed and is present, preside at all meetings of
the shareholders and the Board of Directors.

               (b) PRESIDENT. The President shall report to the Chief Executive
Officer. In the absence of the Chief Executive Officer or his inability to act,
the President, if any, shall perform all the duties of the Chief Executive
Officer and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the Chief Executive Officer; provided that no such
President shall assume the authority to preside as Chairperson of meetings of
the Board unless such President is a member of the Board. In general, the
President shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board from time to time.

               (c) VICE PRESIDENTS. In the absence of the President or his
inability to act, the Vice Presidents, if any, in order of their rank as fixed
by the Board of Directors or, if not ranked a Vice President designated by the
Board shall perform all the duties of the President and when so acting shall
have all the powers of, and be subject to all the restrictions upon, the
President; provided that no such Vice President shall assume the authority to
preside as Chairperson of meetings of the Board unless such Vice President is a
member of the Board. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be respectively prescribed
for them by the Board, these Bylaws or the President.

               (d) SECRETARY. The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the Corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the shareholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties



                                      10.

<PAGE>   15

commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.

               (e) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or cause to be kept the books of account of the Corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
Corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the
Corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.

               (f) TREASURER. Subject to the direction and control of the Board
of Directors, the Treasurer shall have charge and custody of and be responsible
for all funds and securities of the Corporation; and, at the expiration of his
term of office, he shall turn over to his successor all property of the
Corporation in his possession.

               In the absence of the Treasurer, an Assistant Treasurer may
perform the duties of the Treasurer.

        4.4 DELEGATION. In case of the absence or inability to act of any
officer of the Corporation and of any person herein authorized to act in his
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or director or other person whom it
may select.

        4.5 RESIGNATION. Any officer may resign at any time by delivering
written notice to the Corporation. Any such resignation shall take effect when
the notice is delivered unless the notice specifies a later date. Unless
otherwise specified in the notice, acceptance of such resignation by the
Corporation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.

        4.6 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board at any time with or without cause.
Election or appointment of an officer or agent shall not of itself create
contract rights.

        4.7 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office, or any other cause may be
filled by the Board of Directors for the unexpired portion of the term or for a
new term established by the Board.





                                      11.

<PAGE>   16

        4.8 COMPENSATION. Compensation, if any, for officers and other agents
and employees of the Corporation shall be determined by the Board of Directors,
or by the Chief Executive Officer to the extent such authority may be delegated
to him by the Board. No officer shall be prevented from receiving compensation
in such capacity by reason of the fact that he is also a director of the
Corporation.

                                    ARTICLE 5

                 EXECUTION OF CORPORATION INSTRUMENTS AND VOTING
                     OF SECURITIES OWNED BY THE CORPORATION

        5.1 EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in
its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the Corporation
any corporate instrument or document, or to sign on behalf of the Corporation
the corporate name without limitation, or to enter into contracts on behalf of
the Corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the Corporation.

               All checks and drafts drawn on banks or other depositaries on
funds to the credit of the Corporation or in special accounts of the Corporation
shall be signed by such person or persons as the Board of Directors shall
authorize so to do. Unless authorized or ratified by the Board of Directors or
within the agency power of an officer, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.

        5.2 VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other
securities of other corporations owned or held by the Corporation for itself, or
for other parties in any capacity, shall be voted, and all proxies with respect
thereto shall be executed, by the person authorized so to do by resolution of
the Board of Directors, or, in the absence of such authorization, by the
Chairperson of the Board of Directors, the Chief Executive Officer, the
President or any Vice President.

                                    ARTICLE 6

                                      STOCK

        6.1 FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of
stock of the Corporation shall be in such form as is consistent with the
Articles of Incorporation and applicable law. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by or in the name of
the Corporation by the Chairperson of the Board of Directors, the Chief
Executive Officer, the President or any Vice President and by the Treasurer or
Assistant Treasurer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the Corporation. Any or all of the signatures
on the certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed



                                      12.

<PAGE>   17

upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date of
issue. Each certificate shall state upon the face or back thereof, in full or in
summary, all of the powers, designations, preferences, and rights, and the
limitations or restrictions of the shares authorized to be issued or shall,
except as otherwise required by law, set forth on the face or back a statement
that the Corporation will furnish without charge to each shareholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to this section or otherwise required by law or with
respect to this section a statement that the Corporation will furnish without
charge to each shareholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Except as otherwise expressly provided by law,
the rights and obligations of the holders of certificates representing stock of
the same class and series shall be identical.

        6.2 LOST CERTIFICATES. A new certificate or certificates shall be issued
in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the Corporation in such manner as it shall
require or to give the Corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.

        6.3    TRANSFERS

               (a) Transfers of record of shares of stock of the Corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.

               (b) The corporation shall have power to enter into and perform
any agreement with any number of shareholders of any one or more classes of
stock of the Corporation to restrict the transfer of shares of stock of the
Corporation of any one or more classes owned by such shareholders in any manner
not prohibited by the Act.

        6.4 REGISTERED SHAREHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Washington.





                                      13.

<PAGE>   18

        6.5 EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the Corporation, other than stock certificates (covered
in Section 6.1), may be signed by the Chairperson of the Board of Directors, the
Chief Executive Officer, the President or any Vice President, or such other
person as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested by
the signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; provided, however, that where
any such bond, debenture or other corporate security shall be authenticated by
the manual signature, or where permissible facsimile signature, of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the Corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the Corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the Corporation.

        Except as otherwise specifically provided in these Bylaws, no shares of
stock shall be transferred on the books of the Corporation until the outstanding
certificate therefor has been surrendered to the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled, and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a lost,
destroyed, or mutilated certificate a new one may be issued therefor upon such
terms (including indemnity to the Corporation) as the Board of Directors may
prescribe. 

                                   ARTICLE 7

                                BOOKS AND RECORDS

        7.1 BOOKS OF ACCOUNTS, MINUTES AND SHARE REGISTER. The corporation shall
keep as permanent records minutes of all meetings of its shareholders and Board
of Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee of
the Board of Directors exercising the authority of the Board of Directors on
behalf of the Corporation. The corporation shall maintain appropriate accounting
records. The corporation or its agent shall maintain a record of its
shareholders, in a form that permits preparation of a list of the names and
addresses of all shareholders, in alphabetical order by class of shares showing
the number and class of shares held by each. The corporation shall keep a copy
of the following records at its principal office: the Articles or Restated
Articles of Incorporation and all amendments to them currently in effect; the
Bylaws or Restated Bylaws



                                      14.

<PAGE>   19

and all amendments to them currently in effect; the minutes of all shareholders'
meetings, and records of all actions taken by shareholders without a meeting,
for the past three years; its financial statements for the past three years,
including balance sheets showing in reasonable detail the financial condition of
the Corporation as of the close of each fiscal year, and an income statement
showing the results of its operations during each fiscal year prepared on the
basis of generally accepted accounting principles or, if not, prepared on a
basis explained therein; all written communications to shareholders generally
within the past three years; a list of the names and business addresses of its
current directors and officers; and its most recent annual report delivered to
the Secretary of State of Washington.

        7.2 COPIES OF RESOLUTIONS. Any person dealing with the Corporation may
rely upon a copy of any of the records of the proceedings, resolutions, or votes
of the Board of Directors or shareholders, when certified by the Chief Executive
Officer, the President or Secretary.

                                    ARTICLE 8

                                   FISCAL YEAR

        The fiscal year of the Corporation shall be set by resolution of the
Board of Directors.

                                    ARTICLE 9

                                 CORPORATE SEAL

        The Board of Directors may adopt a corporate seal for the Corporation
which shall have inscribed thereon the name of the Corporation, the year and
state of incorporation and the words "corporate seal".

                                   ARTICLE 10

                                 INDEMNIFICATION

        10.1 RIGHT TO INDEMNIFICATION. Each individual (hereinafter an
"indemnitee") who was or is made a party or is threatened to be made a party to
or is otherwise involved (including, without limitation, as a witness) in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or
officer of the Corporation or that, while serving as a director or officer of
the Corporation, he or she is or was also serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation or of a foreign or domestic partnership,
joint venture, trust, employee benefit plan or other enterprise, whether the
basis of the proceeding is alleged action in an official capacity as such a
director, officer, employee, partner, trustee, or agent or in any other capacity
while serving as such director, officer, employee, partner, trustee, or agent,
shall be indemnified and held harmless by the Corporation to the full extent
permitted by applicable law as then in effect, against all expense, liability
and loss (including, without limitation, attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts to be



                                      15.

<PAGE>   20

paid in settlement) incurred or suffered by such indemnitee in connection
therewith, and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee, partner, trustee, or agent and shall
inure to the benefit of the indemnitee's heirs, executors and administrators;
provided, however, that no indemnification shall be provided to any such
indemnitee if the Corporation is prohibited by the Washington Business
Corporation Act or other applicable law as then in effect from paying such
indemnification; and provided, further, that except as provided in Section 10.2
of this Article with respect to proceedings seeking to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized or ratified by the Board of
Directors. The right to indemnification conferred in this Section 10.1 shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"). Any advancement of
expenses shall be made only upon delivery to the Corporation of a written
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 10.1 and upon delivery to the Corporation of a written affirmation
(hereinafter an "affirmation") by the indemnitee of his or her good faith belief
that such indemnitee has met the standard of conduct necessary for
indemnification by the Corporation pursuant to this Article.

        10.2 RIGHT OF INDEMNITEE TO BRING SUIT. If a written claim for
indemnification under Section 10.1 of this Article is not paid in full by the
Corporation within ninety (90) days after the Corporation's receipt thereof,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful, in whole or in part, in any such suit or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. The indemnitee shall be presumed
to be entitled to indemnification under this Article upon submission of a
written claim (and, in an action brought to enforce a claim for an advancement
of expenses, where the required undertaking and affirmation have been tendered
to the Corporation) and thereafter the Corporation shall have the burden of
proof to overcome the presumption that the indemnitee is so entitled. Neither
the failure of the Corporation (including the Board of Directors, independent
legal counsel or the shareholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances nor an actual determination by the Corporation (including the
Board of Directors, independent legal counsel or the shareholders) that the
indemnitee is not entitled to indemnification shall be a defense to the suit or
create a presumption that the indemnitee is not so entitled.

        10.3 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement of expenses conferred in this Article X shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the Articles of Incorporation or Bylaws of the
Corporation, general or specific action of the Board of Directors, contract or
otherwise.





                                      16.

<PAGE>   21

        10.4 INSURANCE, CONTRACTS AND FUNDING. The corporation may maintain
insurance, at its expense, to protect itself and any individual who is or was a
director, officer, employee or agent of the Corporation or who, while a
director, officer, employee or agent of the Corporation, is or was serving at
the request of the Corporation as a agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any expense, liability or loss asserted against or incurred
by the individual in that capacity or arising from the individual's status as a
director, officer, employee or agent, whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss under
the Washington Business Corporation Act. The corporation may enter into
contracts with any director, officer, employee or agent of the Corporation in
furtherance of the provisions of this Article and may create a trust fund, grant
a security interest or use other means (including, without limitation, a letter
of credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.

        10.5 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
corporation may, by action of the Board of Directors, grant rights to
indemnification and advancement of expenses to employees and agents of the
Corporation with the same scope and effect as the provisions of this Article
with respect to the indemnification and advancement of expenses of directors and
officers of the Corporation or pursuant to rights granted pursuant to, or
provided by, the Washington Business Corporation Act or otherwise.

        10.6 PERSONS SERVING OTHER ENTITIES. Any individual who is or was a
director, officer or employee of the Corporation who, while a director, officer
or employee of the Corporation, is or was serving (a) as a director or officer
of another foreign or domestic corporation of which a majority of the shares
entitled to vote in the election of its directors is held by the Corporation,
(b) as a trustee of an employee benefit plan and the duties of the director or
officer to the Corporation also impose duties on, or otherwise involve services
by, the director or officer to the plan or to participants in or beneficiaries
of the plan or (c) in an executive or management capacity in a foreign or
domestic partnership, joint venture, trust or other enterprise of which the
Corporation or a wholly owned subsidiary of the Corporation is a general partner
or has a majority ownership or interest shall be deemed to be so serving at the
request of the Corporation and entitled to indemnification and advancement of
expenses under this Article.

                                   ARTICLE 11

                               AMENDMENT OF BYLAWS

        11.1 These Bylaws may be altered, amended or repealed and new Bylaws may
be adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the
Board may be amended, repealed, altered or modified by the shareholders.





                                      17.

<PAGE>   22

        The foregoing Amended and Restated Bylaws were read, approved, and duly
adopted by the Board of Directors, of InterNAP Network Services Corporation, on
the 22nd day of July 1999, and the Secretary of the Corporation was empowered to
authenticate such Bylaws by his signature below.





                                    -------------------------------------------
                                    Paul E. McBride
                                    Secretary



                                      18.



<PAGE>   1
                                                                     EXHIBIT 4.1
LOGO 
INTERNAP NETWORK SERVICES CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON

CUSIP 

SEE REVERSE FOR CERTAIN DEFINITIONS


THIS CERTIFIES THAT

is the owner of

FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
INTERNAP NETWORK SERVICES CORPORATION
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to all of the terms and conditions contained in the Amended
and Restated Articles of Incorporation and the Amended and Restated Bylaws of
the Corporation and all amendments thereto to all of which the holder hereof
assents. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.

Dated:

Chief Executive Officer


Secretary and Chief Financial Officer

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE



<PAGE>   2
INTERNAP NETWORK SERVICES CORPORATION

The following abbreviations, when used in the inscription on the face
 of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM -
TEN ENT -
JT TEN -

as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as
tenants in common

UNIF GIFT MIN ACT-          Custodian                     
                                             (Cust)
(Minor)
                                 under Uniform Gifts to Minors
                                 Act                 
(State)

            For Value Received,                                       hereby 
sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE


(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING  ZIP CODE OF ASSIGNEE)

Shares

of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

Attorney


to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated

NOTICE:

THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF 
THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.


Signature(s) Guaranteed:

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH



<PAGE>   3
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.



KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.





<PAGE>   1
                                                                    EXHIBIT 10.1

                     INTERNAP NETWORK SERVICES CORPORATION

                            INDEMNIFICATION AGREEMENT


        This INDEMNIFICATION AGREEMENT (this "Agreement") dated as of
____________, 1999 is made between INTERNAP NETWORK SERVICES CORPORATION, a
Washington corporation (the "Company"), and ________________ ("Indemnitee").

                                    RECITALS

        WHEREAS,  Indemnitee is a director or officer of the Company and in such
capacity is performing valuable services for the Company;

        WHEREAS, the Company and Indemnitee recognize the difficulty in
obtaining directors' and officers' liability insurance and the significant cost
of such insurance;

        WHEREAS, the Company and Indemnitee further recognize the substantial
increase in litigation subjecting directors and officers to expensive litigation
risks at the same time that such liability insurance has been severely limited;

        WHEREAS, the Company has adopted bylaws (the "Bylaws") providing for
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Business Corporation Act of Washington (the
"Statute");

        WHEREAS, the Bylaws and the Statute specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company
 and its directors and officers with respect to
indemnification of such directors and officers; and

        WHEREAS, to induce Indemnitee to serve or continue to serve as a
director or officer of the Company, the Company desires to confirm the contract
indemnification rights provided in the Bylaws and agrees to provide the
Indemnitee with the benefits contemplated by this Agreement.

                                    AGREEMENT

        In consideration of the recitals above, the mutual covenants and
agreements herein contained, and Indemnitee's continued service as a director or
officer, as the case may be, of the Company after the date hereof, the parties
to this Agreement agree as follows:

        1. INDEMNIFICATION OF INDEMNITEE

               1.1 SCOPE. The Company agrees to hold harmless and indemnify
Indemnitee to the full extent provided under the provisions of the Company's
Amended and Restated Articles of Incorporation and the Bylaws, and to the full
extent permitted by law, notwithstanding that the basis for such indemnification
is not specifically enumerated in this Agreement, the Company's Amended and
Restated Articles of Incorporation, the Bylaws, any





                                       1.

<PAGE>   2

statute or otherwise. In the event of any change, after the date of this
Agreement, in any applicable law, statute or rule regarding the right of a
Washington corporation to indemnify a member of its board of directors or an
officer, such change, to the extent that it would expand Indemnitee's rights
hereunder, shall be included within Indemnitee's rights and the Company's
obligations hereunder, and, to the extent that it would narrow Indemnitee's
rights or the Company's obligations hereunder, shall not affect or limit the
scope of this Agreement; provided, however, that in no event shall any part of
this Agreement be construed so as to require indemnification when such
indemnification is not permitted by then applicable law.

               1.2 NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Amended and Restated Articles of Incorporation, the
Bylaws, any agreement, any vote of shareholders or disinterested directors, the
Statute, or otherwise, whether as to action in Indemnitee's official capacity or
otherwise.

               1.3 INCLUDED COVERAGE. If Indemnitee was or is made a party, or
is threatened to be made a party, to or is otherwise involved (including,
without limitation, as a witness) in any Proceeding (as defined below), the
Company shall hold harmless and indemnify Indemnitee from and against any and
all losses, claims, damages (compensatory, exemplary, punitive or otherwise),
liabilities or expenses, including, without limitation, attorneys' fees, costs,
judgments, fines, ERISA excise taxes or penalties, witness fees, amounts paid in
settlement and other expenses incurred in connection with the investigation,
defense, settlement or approval of such Proceeding (collectively, "Damages").

               1.4 DEFINITION OF PROCEEDING. For purposes of this Agreement,
"Proceeding" shall mean any completed, actual, pending or threatened action,
suit, claim, hearing or proceeding, whether civil, criminal, arbitrative,
administrative, investigative or pursuant to any alternative dispute resolution
mechanism (including an action by or in the right of the Company) and whether
formal or informal, in which Indemnitee is, was or becomes involved by reason of
the fact that Indemnitee is or was a director, officer, employee or agent of the
Company or that, being or having been such a director, officer, employee or
agent, Indemnitee is or was serving at the request of the Company as a director,
officer, employee, trustee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise (collectively, a "Related Company"),
including service with respect to an employee benefit plan, whether the basis of
such proceeding is alleged action (or inaction) by Indemnitee in an official
capacity as a director, officer, employee, trustee or agent or in any other
capacity while serving as a director, officer, employee, trustee or agent;
provided, however, that, except with respect to an Enforcement Action (defined
in Section 3.1 below, an action challenging the Company's determination that
Indemnitee is not entitled to indemnification pursuant to Section 1.5, and any
other action to enforce the provisions of this Agreement, "Proceeding" shall not
include any action, suit, claim or proceeding instituted by or at the direction
of Indemnitee unless such action, suit, claim or proceeding is or was authorized
by the Company's Board of Directors.

               1.5 DETERMINATION OF ENTITLEMENT. In the event that a
determination of Indemnitee's entitlement to indemnification is required
pursuant to Section 23B.08.550 of the





                                       2.

<PAGE>   3

Statute or a successor statute or pursuant to other applicable law, the
appropriate decision-maker shall make such determination; provided, however,
that Indemnitee shall initially be presumed in all cases to be entitled to
indemnification, that Indemnitee may establish a conclusive presumption of any
fact necessary to such a determination by delivering to the Company a
declaration made under penalty of perjury that such fact is true and that,
unless the Company shall deliver to Indemnitee written notice of a determination
that Indemnitee is not entitled to indemnification within twenty (20) calendar
days after the Company's receipt of Indemnitee's initial written request for
indemnification, such determination shall conclusively be deemed to have been
made in favor of the Company's provision of indemnification, and that the
Company hereby agrees not to assert otherwise.

               1.6 CONTRIBUTION. If the indemnification provided under Section
1.1 is unavailable by reason of a court decision, based on grounds other than
any of those set forth in paragraphs (b) through (d) of Section 4.1, then, in
respect of any Proceeding in which the Company is jointly liable with Indemnitee
(or would be if joined in such Proceeding), the Company shall contribute to the
amount of Damages (including attorneys' fees) actually and reasonably incurred
and paid or payable by Indemnitee in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
Indemnitee on the other from the transaction from which such Proceeding arose
and (ii) the relative fault of the Company on the one hand and of Indemnitee on
the other in connection with the events that resulted in such Damages as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such Damages. The Company agrees that it would not be just and equitable if
contribution pursuant to this Section 1.6 were determined by pro rata allocation
or any other method of allocation that does not take account of the foregoing
equitable considerations.

               1.7 SURVIVAL. The indemnification and contribution provided under
this Agreement shall apply to any and all Proceedings, notwithstanding that
Indemnitee has ceased to serve the Company or a Related Company and shall
continue so long as Indemnitee shall be subject to any possible Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was a director or officer of the Company or serving in any other capacity
referred to in Section 1.4 of this Agreement.

        2. EXPENSE ADVANCES.

               2.1 GENERALLY. The right to indemnification of Damages conferred
by Section 1 shall include the right to have the Company pay Indemnitee's
expenses in any Proceeding as such expenses are incurred and in advance of such
Proceeding's final disposition (such right, an "Expense Advance").

               2.2 CONDITIONS TO EXPENSE ADVANCE. The Company's obligation to
provide an Expense Advance is subject to the following conditions:





                                       3.

<PAGE>   4

                      2.2.1  UNDERTAKING.    If the Proceeding arose in
connection with Indemnitee's service as a director or an officer of the Company
(and not in any other capacity in which Indemnitee rendered service, including
service to any Related Company), then Indemnitee or Indemnitee's representative
shall have executed and delivered to the Company an undertaking, which need not
be secured and shall be accepted without reference to Indemnitee's financial
ability to make repayment, by or on behalf of Indemnitee to repay all Expense
Advances if it shall ultimately be determined by a final, unappealable decision
rendered by a court having jurisdiction over the parties that Indemnitee is not
entitled to be indemnified under this Agreement or otherwise.

                      2.2.2  COOPERATION.  Indemnitee shall give the Company
such information and cooperation as it may reasonably request and as shall be
within Indemnitee's legal power to so provide.

                      2.2.3  AFFIRMATION.   Indemnitee shall furnish, upon
request by the Company and if required under applicable law, a written
affirmation of Indemnitee's good faith belief that any applicable standards of
conduct have been met by Indemnitee.

        3. PROCEDURES FOR ENFORCEMENT

               3.1 ENFORCEMENT. In the event that any claim for indemnification,
whether an Expense Advance or otherwise, is made hereunder and is not paid in
full within ninety (90) calendar days after written notice of such claim is
delivered to the Company, Indemnitee may, but need not, at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim (an
"Enforcement Action"). It shall be a defense to any action for which a claim for
indemnification is made under Section 1 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 2 hereof, provided that the
required undertaking has been tendered to the Company) that Indemnitee is not
entitled to indemnification because of the limitations set forth in Section 4
hereof.

               3.2 PRESUMPTIONS IN ENFORCEMENT ACTION. In any Enforcement
Action, the following presumptions (and limitation on presumptions) shall apply:

                      (a) The Company  expressly  affirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereunder
to induce Indemnitee to continue as a director or officer, as the case may be,
of the Company;

                      (b) Neither (i) the failure of the Company  (including the
Company's Board of Directors, independent or special legal counsel or the
Company's shareholders) to have made a determination prior to the commencement
of the Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and





                                       4.

<PAGE>   5

                      (c) If  Indemnitee  is or was  serving  as a  director  or
officer of a corporation of which a majority of the shares entitled to vote in
the election of its directors is held by the Company or as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the Company or a wholly owned
subsidiary of the Company is a general partner or has a majority ownership, then
such corporation, partnership, joint venture, trust or other enterprise shall
conclusively be deemed a Related Company and Indemnitee shall conclusively be
deemed to be serving such Related Company at the Company's request.

               3.3 ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION. In the
event Indemnitee is required to bring an Enforcement Action, the Company shall
pay all of Indemnitee's fees and expenses in bringing and pursuing the
Enforcement Action (including attorneys' fees at any stage, including on
appeal); provided, however, that the Company shall not be required to provide
such payment for such attorneys' fees or expenses if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such Enforcement Action was not made in good faith.

        4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT

               4.1 LIMITATION ON INDEMNITY. No indemnity pursuant to this
Agreement shall be provided by the Company:

                      (a) On account of any suit in which a final,  unappealable
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company in violation of
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended;

                      (b) For Damages that have been paid directly to
Indemnitee  by an insurance  carrier  under a policy of insurance  maintained by
the Company;

                      (c) With respect to remuneration  paid to Indemnitee if it
shall be determined by a final  judgment or other final  adjudication  that such
remuneration was in violation of law;

                      (d) On account of Indemnitee's conduct which is finally
adjudged by a court having jurisdiction in the matter to have been intentional
misconduct, a knowing violation of law or the RCW 23B.08.310 or any successor
provision of the Statute, or a transaction from which Indemnitee derived an
improper personal benefit;

                      (e) If a final decision by a court having jurisdiction in
the matter with no further right of appeal shall determine that such
indemnification is not lawful (and, in this respect, both the Company and
Indemnitee have been advised that the Securities and Exchange Commission (the
"SEC") believes that indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore, unenforceable and
that claims for indemnification should be submitted to appropriate courts for
adjudication); or





                                       5.

<PAGE>   6

                      (f) In connection with any proceeding (or part thereof)
initiated by Indemnitee, or any proceeding by Indemnitee against the Company or
its directors, officers, employees or other indemnitees, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the Company, (iii) such indemnification
is provided by the Company, in its sole discretion, pursuant to the powers
vested in the Company under the Statute, or (iv) the proceeding is initiated
pursuant to Section 3.3 hereof.

               4.2 PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Damages in connection with a Proceeding, but not, however, for
the total amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion of such Damages to which Indemnitee is entitled.

               4.3 MUTUAL ACKNOWLEDGMENT. The Company and Indemnitee acknowledge
that, in certain instances, federal law or public policy may override applicable
state law and prohibit the Company from indemnifying Indemnitee under this
Agreement or otherwise. For example, the Company and Indemnitee acknowledge that
the SEC has taken the position that indemnification is not permissible for
liabilities arising under certain federal securities laws, and federal
legislation prohibits indemnification for certain ERISA violations. Furthermore,
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.

        5. NOTIFICATION AND DEFENSE OF CLAIM.

               5.1 NOTIFICATION. Not later than thirty (30) days after receipt
by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall,
if a claim in respect thereof is to be made against the Company under this
Agreement, notify the Company of the commencement thereof; but the omission so
to notify the Company will not, however, relieve the Company from any liability
which it may have to Indemnitee under this Agreement unless and only to the
extent that such omission can be shown to have prejudiced the Company's ability
to defend the Proceeding.

        If, at the time of the receipt of a notice of a claim pursuant to
Section 5.1, the Company has director and officer liability insurance in effect,
the Company shall give prompt notice of the commencement of such proceeding to
the insurers in accordance with the procedures set forth in the respective
policies. The Company shall take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of
such Proceeding in accordance with the terms of such policies.





                                       6.

<PAGE>   7

               5.2 DEFENSE OF CLAIM. With respect to any such Proceeding as to
which Indemnitee notifies the Company of the commencement thereof:

                      (a) The Company may participate therein at its own
expense;

                      (b) The Company, jointly with any other indemnifying
party similarly notified, may assume the defense thereof, with counsel
satisfactory to Indemnitee. After notice from the Company to Indemnitee of its
election so to assume the defense thereof, the Company shall not be liable to
Indemnitee under this Agreement for any legal or other expenses (other than
reasonable costs of investigation) subsequently incurred by Indemnitee in
connection with the defense thereof unless (i) the employment of counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company (or any other person or persons included in the joint defense) and
Indemnitee in the conduct of the defense of such action, (iii) the Company shall
not, in fact, have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel shall be at the Company's
expense, or (iv) the Company is not financially or legally able to perform its
indemnification obligations. The Company shall not be entitled to assume the
defense of any proceeding brought by or on behalf of the Company or as to which
Indemnitee shall have reasonably made the conclusion provided for in (ii) or
(iv) above;

                      (c) The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any
Proceeding effected without its written consent;

                      (d) The Company shall not settle any action or claim in
any manner that would impose any penalty or  limitation  on  Indemnitee  without
Indemnitee's written consent; and

                      (e) Neither the Company nor Indemnitee will unreasonably
withhold its, his or her consent to any proposed settlement.

        6. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or to fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable, as provided
in this Section 6. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.



                                       7.

<PAGE>   8

        7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION.

               (a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Washington.

               (b) This Agreement shall be binding on Indemnitee and on the
Company and its successors and assigns (including any transferee of all or
substantially all its assets and any successor by merger or otherwise by
operation of law), and shall inure to the benefit of Indemnitee and Indemnitee's
heirs, personal representatives and assigns and to the benefit of the Company
and its successors and assigns. The Company shall not effect any merger,
consolidation, sale of all or substantially all of its assets or other
reorganization in which it is not the surviving entity, unless the surviving
entity agrees in writing to assure all of the Company's obligations under this
Agreement.

               (c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both parties
hereto.

        8. ENTIRE AGREEMENT. This Agreement is the entire agreement of the
parties regarding its subject matter and supersedes all prior written or oral
communications or agreements.

        9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.

        10. AMENDMENTS; WAIVERS. Neither this Agreement nor any provision may be
amended except by written agreement signed by the parties. No waiver of any
breach or default shall be considered valid unless in writing, and no such
waiver shall be deemed a waiver of any subsequent breach or default.




                                       8.

<PAGE>   9

        11. NOTICES. All notices, claims and other communications hereunder
shall be in writing and made by hand delivery, registered or certified mail
(postage prepaid, return receipt requested), facsimile or overnight air courier
guaranteeing next-day delivery:

               (a)    If to the Company, to:

                      InterNAP Network Services Corporation
                      601 Union Street, Suite 1000
                      Seattle, WA   98101
                      Attn:  Anthony C. Naughtin

                      with a copy to:

                      Cooley Godward LLP
                      5200 Carillon Point
                      Kirkland, WA  98033
                      Attn: Christopher W. Wright, Esq.

               (b)    If to Indemnitee, to the address specified on the last 
page of this Agreement or to such other address as either party may from time to
time furnish to the other party by a notice given in accordance with the
provisions of this Section 11. All such notices, claims and communications shall
be deemed to have been duly given if (i) personally delivered, at the time
delivered, (ii) mailed, five days after dispatched, (iii) sent by facsimile
transmission, upon confirmation of receipt, and (iv) sent by any other means,
upon receipt.

        12. DIRECTORS' AND OFFICERS' INSURANCE.

               (a) The Company hereby covenants and agrees that, subject to the
provisions of Section 12(c) hereof, the Company shall, from a date no later than
the closing date of the Company's first registered public offering of the
Company's Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, maintain directors' and officers' insurance
in full force and effect so long as Indemnitee continues to serve as a director
or officer of the Company and thereafter so long as Indemnitee shall be subject
to any possible Proceeding.

               (b) In all policies of directors' and officers' insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits, subject to the same limitations, as are
accorded to the Company's directors or officers most favorably insured by such
policy.

               (c) Notwithstanding the foregoing provisions of this Section 12,
the Company shall have no obligation to maintain directors' and officers'
insurance if the Company determines in good faith that such insurance is not
reasonably available, the premium costs for such insurance are disproportionate
to the amount of coverage provided, or the coverage provided by such insurance
is limited by exclusions so as to provide an insufficient benefit.



                                       9.

<PAGE>   10

        13. SPECIFIC PERFORMANCE. The Company and Indemnitee agree herein that a
monetary remedy for breach of this Agreement, at some later date, will be
inadequate, impracticable and difficult of proof, and further agree that such
breach would cause Indemnitee irreparable harm. Accordingly, the Company and
Indemnitee agree that Indemnitee shall be entitled to temporary and permanent
injunctive relief to enforce this Agreement without the necessity of proving
actual damages or irreparable harm. The Company and Indemnitee further agree
that Indemnitee shall be entitled to such injunctive relief, including temporary
restraining orders, preliminary injunctions and permanent injunctions, without
the necessity of posting bond or other undertaking in connection therewith. Any
such requirement of bond or undertaking is hereby waived by the Company, and the
Company acknowledges that in the absence of such a waiver, a bond or undertaking
may be required by the court.

        14. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.

                                [Signature Page Follows]





                                      10.

<PAGE>   11

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.

                                       COMPANY:

                                       INTERNAP NETWORK SERVICES CORPORATION


                                       By:
                                          -------------------------------------
                                       Its:
                                           ------------------------------------


                                       INDEMNITEE:


                                       Print name:
                                                  -----------------------------
                                       Address:
                                                  -----------------------------


                                      11.



<PAGE>   1
                                                                   EXHIBIT 10.2


                      INTERNAP NETWORK SERVICES CORPORATION

                 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                 ADOPTED BY THE BOARD OF DIRECTORS JULY 22, 1999
                 APPROVED BY SHAREHOLDERS ________________, 1999

                          EFFECTIVE DATE: JULY 22, 1999
                         TERMINATION DATE: JULY 21, 2009


1.       PURPOSES.

         (a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.

         (b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.

         (c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.

2.       DEFINITIONS.

         (a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

         (b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria
 pursuant to Subsection 6(b) of the
Plan.

         (c) "ANNUAL MEETING" means the annual meeting of the stockholders of
the Company.

         (d) "BOARD" means the Board of Directors of the Company.

         (e) "CODE" means the Internal Revenue Code of 1986, as amended.

         (f) "COMMON STOCK" means the common stock of the Company.

         (g) "COMPANY" means InterNAP Network Services Corporation, a Washington
corporation.

         (h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for



                                       1.

<PAGE>   2

such services or (ii) who is a member of the Board of Directors of an Affiliate.
However, the term "Consultant" shall not include either Directors of the Company
who are not compensated by the Company for their services as Directors or
Directors of the Company who are merely paid a director's fee by the Company for
their services as Directors.

         (i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.

         (j) "DIRECTOR" means a member of the Board of Directors of the Company.

         (k) "DISABILITY" means the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.

         (l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.

         (m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         (n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

             (i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

             (ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

         (o) "INITIAL GRANT" means an Option granted to a Non-Employee Director
pursuant to Subsection 6(a) of the Plan.



                                       2.

<PAGE>   3

         (p) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.

         (q) "NON-EMPLOYEE DIRECTOR" means a Director who is not employed by the
Company or an Affiliate.

         (r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

         (s) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

         (t) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.

         (u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

         (v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

         (w) "PLAN" means this InterNAP Network Services Corporation 1999
Non-Employee Directors' Stock Option Plan.

         (x) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

         (y) "SECURITIES ACT" means the Securities Act of 1933, as amended.

3.       ADMINISTRATION.

         (a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.

         (b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

             (i) To determine the provisions of each Option to the extent not
specified in the Plan.

             (ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.

             (iii) To amend the Plan or an Option as provided in Section 12.



                                       3.

<PAGE>   4

             (iv) To terminate or suspend the Plan as provided in Section 13.

             (v) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

4.       SHARES SUBJECT TO THE PLAN.

         (a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate five hundred thousand (500,000) shares
of Common Stock.

         (b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert to
and again become available for issuance under the Plan.

         (c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.

5.       ELIGIBILITY.

         Nondiscretionary Options as set forth in Section 6 shall be granted
under the Plan to all Non-Employee Directors.

6.       NON-DISCRETIONARY GRANTS.

         (a) INITIAL GRANTS. On the IPO Date, each person who is then a
Non-Employee Director shall automatically be granted an Initial Grant to
purchase forty thousand (40,000) shares of Common Stock on the terms and
conditions set forth herein. After the IPO Date, each person who is elected or
appointed for the first time to be a Non-Employee Director shall automatically,
upon the date of his or her initial election or appointment to be a Non-Employee
Director by the Board or stockholders of the Company, be granted an Initial
Grant to purchase forty thousand (40,000) shares of Common Stock on the terms
and conditions set forth herein.

         (b) ANNUAL GRANTS. On the day following each Annual Meeting commencing
with the Annual Meeting in 2000, each person who is then a Non-Employee Director
and has been a Non-Employee Director for at least six (6) months automatically
shall be granted an Annual Grant to purchase ten thousand (10,000) shares of
Common Stock on the terms and conditions set forth herein.

7.       OPTION PROVISIONS.

         Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:



                                       4.

<PAGE>   5

         (a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

         (b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

         (c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid in cash or by check at the time the Option is exercised or,
to the extent permitted by the Option Agreement and applicable statutes and
regulations, (i) by delivery to the Company of other Common Stock, (ii)
according to a deferred payment or other arrangement or (iii) by any other form
of legal consideration that may be acceptable to the Board and provided in the
Option Agreement.

         In the case of any deferred payment arrangement (i) interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement and (ii) at any time the Company is
incorporated in Delaware, payment of the Common Stock's par value shall not be
made by deferred payment.

         (d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.

         (e) VESTING. Options shall be fully vested and exercisable upon
receipt.

         (f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option but only within
such period of time ending on the earlier of (i) the date three (3) months
following the termination of the Optionholder's Continuous Service, or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.

         (g) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in Subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous



                                       5.

<PAGE>   6

Service during which the exercise of the Option would not be in violation of
such registration requirements.

         (h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.

         (i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised by the Optionholder's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the Option upon the Optionholder's death, but only within the period
ending on the earlier of (1) the date eighteen (18) months following the date of
death or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.

8.       COVENANTS OF THE COMPANY.

         (a) AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.

         (b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.

9.       USE OF PROCEEDS FROM STOCK.

         Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.

10.      MISCELLANEOUS.

         (a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Option unless and until such Optionholder has satisfied all
requirements for exercise of the Option pursuant to its terms.



                                       6.

<PAGE>   7

         (b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed
or Option granted pursuant thereto shall confer upon any Optionholder any right
to continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

         (c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as
a condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to give
written assurances satisfactory to the Company stating that the Optionholder is
acquiring the stock subject to the Option for the Optionholder's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (A) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act or (B)
as to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.

         (d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock. Notwithstanding the
foregoing, the Company shall not be authorized to withhold shares of Common
Stock at rates in excess of the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes.

11.      ADJUSTMENTS UPON CHANGES IN STOCK.

         (a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and



                                       7.

<PAGE>   8

maximum number of securities subject both to the Plan pursuant to Subsection
4(a) and to the nondiscretionary Options specified in Section 5, and the
outstanding Options will be appropriately adjusted in the class(es) and number
of securities and price per share of stock subject to such outstanding Options.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)

         (b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to such event.

         (c) CHANGE IN CONTROL. In the event of (i) a sale of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation may assume
any Options outstanding under the Plan or may substitute similar Options
(including an option to acquire the same consideration paid to the stockholders
in the transaction described in this Subsection 11(c)) for those outstanding
under the Plan.

12.      AMENDMENT OF THE PLAN AND OPTIONS.

         (a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

         (b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.

         (c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.

         (d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.

13.      TERMINATION OR SUSPENSION OF THE PLAN.

         (a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.



                                       8.

<PAGE>   9

         (b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.

14.      EFFECTIVE DATE OF PLAN.

         The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

15.      CHOICE OF LAW.

         All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Washington, without
regard to such state's conflict of laws rules.






                                       9.



<PAGE>   1

                                                                   EXHIBIT 10.3


                      INTERNAP NETWORK SERVICES CORPORATION
                 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT


Pursuant to the 1999 Non-Employee Directors' Stock Option Plan (the "Plan") and
this Stock Option Agreement, InterNAP Network Services Corporation (the
"Company") has granted you an option under the Plan to purchase
__________________________ (________) shares of the Company's Common Stock at an
exercise price of $___________ per share. Capitalized terms not defined in this
Stock Option Agreement are defined in the Plan.

         The details of your option are as follows:

         1. NUMBER OF SHARES AND EXERCISE PRICE. Pursuant to your option, you
may purchase __________________________ (________) shares of the Company's
Common Stock at an exercise price of $___________ per share subject to the terms
and conditions set forth in this Stock Option Agreement and the Plan. The number
of shares and exercise price subject to you option may be adjusted from time to
time to reflect Capitalization Adjustments, as provided in the Plan.

         2. VESTING. Your option is fully vested.

         3. DATE OF GRANT. Your option has been granted effective
__________________ (the "Date of Grant").

         4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or
 by check or by one or more of the following:

            (a) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, then pursuant
to a program developed under Regulation T as promulgated by the Federal Reserve
Board which, prior to the issuance of Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the sales
proceeds (a "cashless exercise").

            (b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, then by
delivery of already-owned shares of Common Stock (valued at their Fair Market
Value on the date of exercise) if (i) either you have held the already-owned
shares for the period required to avoid a charge to the Company's reported
earnings (generally six months) or you did not acquire the already-owned shares,
directly or indirectly from the Company, and (ii) you own the already-owned
shares free and clear of any liens, claims, encumbrances or security interests.
"Delivery" for these purposes shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, your option may not be exercised by
tender to the Company of Common Stock to the extent such 



                                       1.

<PAGE>   2

tender would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's stock.

         5. WHOLE SHARES. Your option may only be exercised for whole shares.

         6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act. The exercise of your option must also comply with other
applicable laws and regulations governing the option, and the option may not be
exercised if the Company determines that the exercise would not be in material
compliance with such laws and regulations.

         7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:

            (a) three (3) months after the termination of your Continuous
Service for any reason other than death or Disability;

            (b) twelve (12) months after the termination of your Continuous
Service due to Disability;

            (c) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for any reason; or

            (d) the tenth (10th) anniversary of the Date of Grant.

         8. EXERCISE.

            (a) You may exercise your option during its term by delivering a
Notice of Exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.

            (b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of your option
or (2) the disposition of shares acquired upon such exercise.

         9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.



                                       2.

<PAGE>   3

         10. OPTION NOT A SERVICE CONTRACT. Your option is not a service
contract, and nothing in your option shall obligate the Company or an Affiliate,
their respective shareholders, Boards of Directors, officers or employees to
continue any relationship that you might have as a Director.

         11. WITHHOLDING OBLIGATIONS.

             (a) At the time your option is exercised, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option. Notwithstanding the foregoing, the Company shall not be
authorized to withhold shares of Common Stock at rates in excess of the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes.

             (b) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested.

         12. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.

         13. GOVERNING PLAN DOCUMENT. Your option is subject to all applicable
provisions of the Plan, which are hereby made a part of your option, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.




                                       3.



<PAGE>   1

                                                                    EXHIBIT 10.4



                      INTERNAP NETWORK SERVICES CORPORATION
                        1999 EMPLOYEE STOCK PURCHASE PLAN

                 ADOPTED BY THE BOARD OF DIRECTORS JULY 22, 1999
                 APPROVED BY SHAREHOLDERS _______________ , 1999


1.       PURPOSE.

         (a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase shares of the Common Stock of the Company.

         (b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.

         (c) The Company intends that the Rights to purchase shares of the
Common Stock granted under the Plan be considered options issued under an
"employee stock purchase plan," as that term is defined in Section 423(b) of the
Code.

2.       DEFINITIONS.

         (a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.

         (b) "BOARD" means the Board of Directors of the Company.

         (c) "CODE" means the United States Internal Revenue Code of 1986, as
amended.

         (d) "COMMITTEE" means a Committee appointed by the Board
 in accordance
with subparagraph 3(c) of the Plan.

         (e) "COMMON STOCK" means the Common Stock of InterNAP Network Services
Corporation.

         (f) "COMPANY" means InterNAP Network Services Corporation, a Washington
corporation.

         (g) "DIRECTOR" means a member of the Board.

         (h) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements
set forth in the Offering for eligibility to participate in the Offering.

         (i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.



                                       1.

<PAGE>   2

         (j) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.

         (k) "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.

         (l) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable.

         (m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.

         (n) "OFFERING" means the grant of Rights to purchase shares of the
Common Stock under the Plan to Eligible Employees.

         (o) "OFFERING DATE" means a date selected by the Board for an Offering
to commence.

         (p) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

         (q) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.

         (r) "PLAN" means this InterNAP Network Services Corporation 1999
Employee Stock Purchase Plan.



                                       2.

<PAGE>   3

         (s) "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of shares of the Common Stock carried out in accordance with such
Offering.

         (t) "RIGHT" means an option to purchase shares of the Common Stock
granted pursuant to the Plan.

         (u) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.

         (v) "SECURITIES ACT" means the United States Securities Act of 1933, as
amended.

3.       ADMINISTRATION.

         (a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.

         (b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

             (i) To determine when and how Rights to purchase shares of the
Common Stock shall be granted and the provisions of each Offering of such Rights
(which need not be identical).

             (ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.

             (iii) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.

             (iv) To amend the Plan as provided in paragraph 14.

             (v) To terminate or suspend the Plan as provided in paragraph 16.

             (vi) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.

         (c) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a


                                       3.

<PAGE>   4

subcommittee of two (2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.

4.       SHARES SUBJECT TO THE PLAN.

         (a) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities, the shares of the Common Stock that may be sold
pursuant to Rights granted under the Plan shall not exceed in the aggregate one
million five hundred thousand (1,500,000) shares of the Common Stock the
("Reserved Shares"). As of the first nine (9) anniversaries of the Effective
Date of the Plan, the number of Reserved Shares will be automatically increased
by the lesser of (i) two percent (2%) of the total number of shares of Common 
Stock outstanding on such anniversary date or (ii) one million five hundred
thousand (1,500,000) shares. If any Right granted under the Plan shall for any
reason terminate without having been exercised, the shares of the Common Stock
not purchased under such Right shall again become available for the Plan.

         (b) The shares of the Common Stock subject to the Plan may be unissued
shares of the Common Stock or shares of the Common Stock that have been bought
on the open market at prevailing market prices or otherwise.

5.       GRANT OF RIGHTS; OFFERING.

         The Board may from time to time grant or provide for the grant of
Rights to purchase shares of the Common Stock under the Plan to Eligible
Employees in an Offering on an Offering Date or Dates selected by the Board.
Each Offering shall be in such form and shall contain such terms and conditions
as the Board shall deem appropriate, which shall comply with the requirements of
Section 423(b)(5) of the Code that all Employees granted Rights to purchase
shares of the Common Stock under the Plan shall have the same rights and
privileges. The terms and conditions of an Offering shall be incorporated by
reference into the Plan and treated as part of the Plan. The provisions of
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
document comprising the Offering or otherwise) the period during which the
Offering shall be effective, which period shall not exceed twenty-seven (27)
months beginning with the Offering Date, and the substance of the provisions
contained in paragraphs 6 through 9, inclusive.

6.       ELIGIBILITY.

         (a) Rights may be granted only to Employees of the Company or, as the
Board may designated as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the case may
be, for such continuous period preceding such grant as the Board may require,
but in no event shall the required period of continuous employment be equal to
or greater than two (2) years.

         (b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs



                                       4.

<PAGE>   5

thereafter, receive a Right under that Offering, which Right shall thereafter be
deemed to be a part of that Offering. Such Right shall have the same
characteristics as any Rights originally granted under that Offering, as
described herein, except that:

             (i) the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;

             (ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and

             (iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.

         (c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.

         (d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
shares of the Common Stock or any Affiliate to accrue at a rate which exceeds
twenty five thousand dollars ($25,000) of the fair market value of such shares
of the Common Stock (determined at the time such Rights are granted) for each
calendar year in which such Rights are outstanding at any time.

         (e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.

7.       RIGHTS; PURCHASE PRICE.

         (a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of shares of the Common Stock purchasable either:

             (i) with a percentage designated by the Board not exceeding fifteen
percent (15%) of such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering; or

             (ii) with a maximum dollar amount designated by the Board that, as
the Board determines for a particular Offering, (1) shall be withheld, in whole
or in part, from such



                                       5.

<PAGE>   6

Employee's Earnings (as defined by the Board in each Offering) during the period
which begins on the Offering Date (or such later date as the Board determines
for a particular Offering) and ends on the date stated in the Offering, which
date shall be no later than the end of the Offering and/or (2) shall be
contributed, in whole or in part, by such Employee during such period.

         (b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of shares of the Common Stock carried out in accordance with such Offering.

         (c) In connection with each Offering made under the Plan, the Board may
specify a maximum number of shares of the Common Stock that may be purchased by
any Participant as well as a maximum aggregate number of shares of the Common
Stock that may be purchased by all Participants pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase
Date, the Board may specify a maximum aggregate number of shares of the Common
Stock which may be purchased by all Participants on any given Purchase Date
under the Offering. If the aggregate purchase of shares of the Common Stock upon
exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the shares of
the Common Stock available in as nearly a uniform manner as shall be practicable
and as it shall deem to be equitable.

         (d) The purchase price of shares of the Common Stock acquired pursuant
to Rights granted under the Plan shall be not less than the lesser of:

             (i) an amount equal to eighty-five percent (85%) of the fair market
value of the shares of the Common Stock on the Offering Date; or

             (ii) an amount equal to eighty-five percent (85%) of the fair
market value of the shares of the Common Stock on the Purchase Date.

8.       PARTICIPATION; WITHDRAWAL; TERMINATION.

         (a) An Eligible Employee may become a Participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.

         (b) At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a



                                       6.

<PAGE>   7

notice of withdrawal in such form as the Company provides. Such withdrawal may
be elected at any time prior to the end of the Offering except as provided by
the Board in the Offering. Upon such withdrawal from the Offering by a
Participant, the Company shall distribute to such Participant all of his or her
accumulated payroll deductions (reduced to the extent, if any, such deductions
have been used to acquire shares of the Common Stock for the Participant) under
the Offering, without interest unless otherwise specified in the Offering, and
such Participant's interest in that Offering shall be automatically terminated.
A Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.

         (c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's employment
with the Company or a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire shares of the Common Stock for the
terminated Employee) under the Offering, without interest unless otherwise
specified in the Offering. If the accumulated payroll deductions have been
deposited with the Company's general funds, then the distribution shall be made
from the general funds of the Company, without interest. If the accumulated
payroll deductions have been deposited in a separate account with a financial
institution as provided in subparagraph 8(a), then the distribution shall be
made from the separate account, without interest unless otherwise specified in
the Offering.

         (d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.

9.       EXERCISE.

         (a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of shares of the Common Stock up to the maximum
number of shares of the Common Stock permitted pursuant to the terms of the Plan
and the applicable Offering, at the purchase price specified in the Offering. No
fractional shares of the Common Stock shall be issued upon the exercise of
Rights granted under the Plan unless specifically provided for in the Offering.

         (b) Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of shares of the Common Stock that is equal to the amount
required to purchase one or more whole shares of the Common Stock on the final
Purchase Date of the Offering shall be distributed in full to the Participant at
the end of the Offering, without interest. If the accumulated payroll deductions
have been deposited with the Company's general funds, then the distribution
shall be made from the general funds of the Company, without interest. If the
accumulated payroll deductions have been deposited in a separate account with a
financial institution as provided in



                                       7.

<PAGE>   8

subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.

         (c) No Rights granted under the Plan may be exercised to any extent
unless the shares of the Common Stock to be issued upon such exercise under the
Plan (including Rights granted thereunder) are covered by an effective
registration statement pursuant to the Securities Act and the Plan is in
material compliance with all applicable state, foreign and other securities and
other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no Rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If, on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no Rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire Shares) shall be distributed to the
Participants, without interest unless otherwise specified in the Offering. If
the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.

10.      COVENANTS OF THE COMPANY.

         (a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the number of shares of the Common Stock required to satisfy
such Rights are available.

         (b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of the Common Stock upon
exercise of the Rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of shares of the Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell shares of the Common
Stock upon exercise of such Rights unless and until such authority is obtained.

11.      USE OF PROCEEDS FROM SHARES.

         Proceeds from the sale of shares of the Common Stock pursuant to Rights
granted under the Plan shall constitute general funds of the Company.

12.      RIGHTS AS A SHAREHOLDER.

         A Participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, shares of the Common Stock subject to
Rights granted under the Plan



                                       8.

<PAGE>   9

unless and until the Participant's shares of the Common Stock acquired upon
exercise of Rights under the Plan are recorded in the books of the Company.

13.      ADJUSTMENTS UPON CHANGES IN SECURITIES.

         (a) If any change is made in the shares of the Common Stock subject to
the Plan, or subject to any Right, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares of the Common Stock subject to the Plan
pursuant to subparagraph 4(a), and the outstanding Rights will be appropriately
adjusted in the class(es), number of shares of the Common Stock and purchase
limits of such outstanding Rights. The Board shall make such adjustments, and
its determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction that
does not involve the receipt of consideration by the Company.)

         (b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then: (1) any surviving or acquiring corporation may assume Rights
outstanding under the Plan or may substitute similar rights (including a right
to acquire the same consideration paid to the Company's shareholders in the
transaction described in this subparagraph 13(b)) for those outstanding under
the Plan, or (2) in the event any surviving or acquiring corporation does not
assume such Rights or substitute similar rights for those outstanding under the
Plan, then, as determined by the Board in its sole discretion, such Rights may
continue in full force and effect or the Participants' accumulated payroll
deductions (exclusive of any accumulated interest which cannot be applied toward
the purchase of shares of the Common Stock under the terms of the Offering) may
be used to purchase shares of the Common Stock immediately prior to the
transaction described above under the ongoing Offering and the Participants'
Rights under the ongoing Offering thereafter terminated.

14.      AMENDMENT OF THE PLAN.

         (a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
shareholders of the Company to the extent shareholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, shareholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:



                                       9.

<PAGE>   10

             (i) Increase the number of shares of the Common Stock reserved for
Rights under the Plan;

             (ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires shareholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or

             (iii) Modify the Plan in any other way if such modification
requires shareholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.

         (b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.

         (c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.

15.      DESIGNATION OF BENEFICIARY.

         (a) A Participant may file a written designation of a beneficiary who
is to receive any shares of the Common Stock and/or cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to the end of an Offering but prior to delivery to the Participant of
such shares of the Common Stock and cash. In addition, a Participant may file a
written designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's death
during an Offering.

         (b) The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such shares of the
Common Stock and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares of the Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.

16.      TERMINATION OR SUSPENSION OF THE PLAN.

         (a) The Board in its discretion may suspend or terminate the Plan at
any time. Unless sooner terminated, the Plan shall terminate at the time that
all of the shares of the Common Stock subject to the Plan's reserve, as
increased and/or adjusted from time to time, have been issued



                                      10.

<PAGE>   11

under the terms of the Plan. No Rights may be granted under the Plan while the
Plan is suspended or after it is terminated.

         (b) Rights and obligations under any Rights granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
as expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.

17.      EFFECTIVE DATE OF PLAN.

         The Plan shall become effective simultaneously with the effectiveness
of the Company's registration statement under the Securities Act with respect to
the initial public offering of shares of the Company's Common Stock (the
"Effective Date"), but no Rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the shareholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date set.



                                      11.



<PAGE>   1

                                                                    EXHIBIT 10.5


                                                                    Exhibit A to
                                                 Notice of Grant of Stock Option


                        INTERNAP NETWORK SERVICES CORP.

                      1998 STOCK OPTION/STOCK ISSUANCE PLAN


                                    ARTICLE I

                               GENERAL PROVISIONS

        SECTION 1. PURPOSE

                This 1998 Stock Option/Stock Issuance Plan is intended to
promote the interests of InterNAP Network Services Corp. (the "Corporation") by
providing eligible individuals who are responsible for the management, growth
and financial success of the Corporation or who otherwise render valuable
services to the Corporation with the opportunity to acquire a proprietary
interest, or increase their proprietary interest, in the Corporation and thereby
encourage them to remain in the service of the Corporation.

                Capitalized terms used herein shall have the meanings ascribed
to such terms in Section 6 of this Article I.

        SECTION 2. STRUCTURE OF THE PLAN

                The Plan shall be divided into two separate components: the
Option Grant Program specified in Article II and the Stock Issuance Program
specified in Article III. The provisions of Articles I and IV of the Plan shall
apply to both the Option Grant Program and the Stock Issuance Program and shall
accordingly govern the interests of all individuals in the Plan.

        SECTION 3. ADMINISTRATION
 OF THE PLAN

                (a)     The Plan shall be administered by the Board. The Board
at any time may appoint a Committee and delegate to such Committee some or all
of the administrative powers allocated to the Board pursuant to the provisions
of the Plan. Members of the Committee shall serve for such period of time as the
Board may determine and shall be subject to removal by the Board at any time.
The Board at any time may terminate the functions of the Committee and reassume
all powers and authority previously delegated to the Committee.

                (b)     The Plan Administrator (either the Board or the
Committee, to the extent the Committee is at the time responsible for the
administration of the Plan) shall have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for the proper plan administration and to make such determinations
under, and issue such interpretations of, the Plan and any outstanding option
grants or share issuances as it may deem necessary or advisable. Decisions of
the Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any outstanding option or share issuance.



<PAGE>   2
        SECTION 4. OPTION GRANTS AND SHARE ISSUANCES

                (a)     The persons eligible to receive option grants pursuant
to the Option Grant Program (each an "Optionee") and/or share issuances under
the Stock Issuance Program (each a "Participant") are limited to the following:

                        (1)     key employees (including officers and directors)
of the Corporation (or its Parent or Subsidiary corporations, if any) who render
services that contribute to the success and growth of the Corporation (or its
Parent or Subsidiary corporations), or that reasonably may be anticipated to
contribute to the future success and growth of the Corporation (or its Parent or
Subsidiary corporations);

                        (2)     the non-employee members of the Board or the
non-employee members of the board of directors of any Parent or Subsidiary
corporations; and

                        (3)     those consultants or independent contractors who
provide valuable services to the Corporation (or its Parent or Subsidiary
corporations, if any).

                (b)     The Plan Administrator shall have full authority to
determine: (i) with respect to the option grants made under the Plan, which
eligible individuals are to receive option grants, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding, and (ii) with respect to share issuances under
the Stock Issuance Program, the number of shares to be issued to each
Participant, the vesting schedule (if any) to be applicable to the issued
shares, and the consideration to be paid by the individual for such shares.

                (c)     The Plan Administrator shall have the absolute
discretion either to grant options in accordance with Article II of the Plan or
to effect share issuances in accordance with Article III of the Plan.

        SECTION 5. STOCK SUBJECT TO THE PLAN

                (a)     The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired Common Stock (the "Common
Stock"). The maximum number of shares that may be issued over the term of the
Plan shall not exceed four million thirty-five thousand (4,035,000) shares of
Common Stock. The total number of shares issuable under the Plan shall be
subject to adjustment from time to time in accordance with the provisions of
Section 5(c).

                (b)     Shares subject to (i) the portion of one or more
outstanding options that are not exercised or surrendered prior to expiration or
termination and (ii) outstanding options canceled in accordance with the
cancellation-regrant provisions of Section 5 of Article II will be available for
subsequent option grants or stock issuances under the Plan. Shares issued under
either the Option Grant Program or the Stock Issuance Program (whether as vested
or unvested shares) that are repurchased by the Corporation shall not be
available for subsequent option grants or stock issuances under the Plan.


                                       2

<PAGE>   3
                (c)     In the event any change is made to the Common Stock
issuable under the Plan by reason of any stock dividend, stock split,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the aggregate number and/or class
of shares issuable under the Plan and (ii) the aggregate number and/or class of
shares and the option price per share in effect under each outstanding option in
order to prevent the dilution or enlargement of benefits thereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.

                (d)     Common Stock issuable under the Plan, whether under the
Option Grant Program or the Stock Issuance Program, may be subject to such
restrictions on transfer, repurchase rights or other restrictions as may be
determined by the Plan Administrator.

        SECTION 6. DEFINITIONS

                The following definitions shall apply to the respective
capitalized terms used herein:

                Board means the Board of Directors of InterNAP Network Services
Corp.

                Code means the Internal Revenue Code of 1986, as amended.

                Committee means either the Compensation Committee of the Board
or another committee comprised of two or more members thereof and appointed
pursuant to the Plan to function as the Plan Administrator.

                Corporation means InterNAP Network Services Corp., a Washington
corporation.

                Corporate Transaction means one or more of the following
transactions:

                (a)     a merger or consolidation in which the Corporation is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state of the Corporation's incorporation,

                (b)     any reverse merger in which the Corporation is the
surviving entity but in which fifty percent (50%) or more of the Corporation's
outstanding voting stock is transferred to holders different from those who held
the stock immediately prior to such merger, or

                (c)     the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation.

                Employee means an individual who is in the employ of the
Corporation or one or more Parent or Subsidiary corporations. An optionee shall
be considered to be an Employee for so long as such individual remains in the
employ of the Corporation or one or more Parent or Subsidiary corporations,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance.


                                       3

<PAGE>   4
                Exercise Date shall be the date on which written notice of the
exercise of an outstanding option under the Plan is delivered to the
Corporation. Such exercise shall be effected pursuant to a stock purchase
agreement incorporating any repurchase rights or first refusal rights retained
by the Corporation with respect to the Common Stock purchased under the option.

                Fair Market Value of a share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

                (a)     If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for the
Common Stock. If there is no reported sale of Common Stock on such exchange on
the date in question, then the Fair Market Value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.

                (b)     If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the over-the-counter
market, the Fair Market Value shall be the mean between the highest bid and the
lowest asked prices (or if such information is available the closing selling
price) per share of Common Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its NASDAQ National Market System or any successor system. If
there are no reported bid and asked prices (or closing selling price) for the
Common Stock on the date in question, then the mean between the highest bid and
lowest asked prices (or closing selling price) on the last preceding date for
which such quotations exist shall be determinative of Fair Market Value.

                (c)     If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the valuation provisions of
subsections (a) and (b) above will not result in a true and accurate valuation
of the Common Stock, then the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan Administrator
shall deem appropriate under the circumstances.

                Incentive Option means an incentive stock option that satisfies
the requirements of Section 422 of the Code.

                Non-Statutory Option means an option not intended to meet the
statutory requirements prescribed for an Incentive Option.

                Parent corporation means any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each such corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.


                                       4

<PAGE>   5
                Permanent Disability means the inability of an individual to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expect to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.

                Plan means this 1998 Stock Option/Stock Issuance Plan.

                Plan Administrator means the Board or the Committee, to the
extent the Committee is responsible for plan administration in accordance with
Article I, Section 3.

                Service means the performance of services for the Corporation or
one or more Parent or Subsidiary corporations by an individual in the capacity
of an Employee, a non-employee member of the board of directors or an
independent consultant or advisor, unless a different meaning is specified in
the option agreement evidencing the option grant, the purchase agreement
evidencing the purchased option shares or the issuance agreement evidencing any
direct stock issuance. An optionee shall be deemed to remain in Service for so
long as such individual renders services to the Corporation or any Parent or
Subsidiary corporation on a periodic basis in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant or
advisor.

                Subsidiary corporation means each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

                Ten Percent Shareholder means the owner of stock (as determined
under Section 424(d) of the Code) possessing ten percent (10%) or more of the
total combined voting power of all classes of stock of the Corporation or any
Parent or Subsidiary corporation.

                                   ARTICLE II

                              OPTION GRANT PROGRAM

        SECTION 1. TERMS AND CONDITIONS OF OPTIONS

                Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and, at the discretion of the Plan
Administrator, may be either Incentive Options or Non-Statutory Options. Each
granted option shall be evidenced by one or more instruments in the form
approved by the Plan Administrator; provided, that each such instrument shall
comply with and incorporate the terms and conditions specified below. In
addition, each instrument evidencing an Incentive Option shall be subject to the
applicable provisions of Section 2 of this Article II.

                (a)     OPTION PRICE.

                        (1)     The option price per share shall be fixed by the
Plan Administrator.


                                       5

<PAGE>   6
                        (2)     The option price shall become immediately due
upon exercise of the option, and subject to the provisions of Article IV,
Section 2, shall be payable in cash or check drawn to the Corporation's order.
Should the Corporation's outstanding Common Stock be registered under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "1934 Act") at the
time the option is exercised, then the option price may also be paid as follows:

                                (A)     in shares of Common Stock held by the
                optionee for the requisite period necessary to avoid a charge to
                the Corporation's earnings for financial reporting purposes and
                valued at Fair Market Value on the Exercise Date; or

                                (B)     through a special sale and remittance
                procedure pursuant to which the Optionee is to (i) provide
                irrevocable written instructions to a designated brokerage firm
                to effect the immediate sale of the purchased shares and remit
                to the Corporation, out of the sale proceeds, an amount
                sufficient to cover the aggregate option price payable for the
                purchased shares plus all applicable Federal and State income
                and employment taxes required to be withheld by the Corporation
                by reason of such purchase and (ii) concurrently provide written
                directives to the Corporation to deliver the certificates for
                the purchased shares directly to such brokerage firm in order to
                effect the sale transaction.

                (b)     TERM AND EXERCISE OF OPTIONS. Each option granted under
the Plan shall be exercisable at such time or times, during such period, and for
such number of shares as shall be determined by the Plan Administrator and set
forth in the notice of grant and stock option agreement evidencing such option.
No option granted under the Plan, however, shall have a term in excess of ten
(10) years from the grant date. During the lifetime of the Optionee, the option
shall be exercisable only by the Optionee and shall not be assignable or
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution following the Optionee's death.

                (c)     TERMINATION OF SERVICE.

                        (1)     Should the Optionee cease to remain in Service
for any reason (including death or Permanent Disability) while holding one or
more outstanding options under the Plan, then except to the extent otherwise
provided pursuant to Section 6 of this Article II, each such option shall remain
exercisable for the limited period of time (not to exceed twelve (12) months
after the date of such cessation of Service) specified by the Plan Administrator
in the option agreement. In no event, however, shall any such option be
exercisable after the specified expiration date of the option term. During such
limited period of exercisability, the option may not be exercised for more than
that number of shares (if any) for which such option is exercisable on the date
of the Optionee's cessation of Service. Upon the expiration of such period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be exercisable.

                        (2)     Any option granted to an Optionee under the Plan
and exercisable in whole or in part on the date of the Optionee's death may be
subsequently exercised by the


                                       6

<PAGE>   7
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution. The maximum number of shares for
which such option may be exercised shall be limited to the number of shares (if
any) for which the option is exercisable on the date of the Optionee's cessation
of Service. Any such exercise of the option must be effected prior to the
earlier of the first anniversary of the date of the Optionee's death or the
specified expiration date of the option term. Upon the occurrence of either such
event, the option shall terminate and cease to be exercisable.

                        (3)     Notwithstanding subsections (1) and (2) above,
the Plan Administrator shall have discretion, exercisable either at the time the
option is granted or at the time the Optionee ceases Service, to allow one or
more outstanding options held by the Optionee to be exercised, during the
limited period of exercisability following the Optionee's cessation of Service,
not only with respect to the number of shares for which the option is
exercisable at the time of the Optionee's cessation of Service but also with
respect to one or more subsequent installments of purchasable shares for which
the option otherwise would have become exercisable had such cessation of Service
not occurred.

                        (4)     Notwithstanding any provision of this Article II
or any other provision of this Plan to the contrary, any options granted under
this Plan shall terminate as of the date the Optionee ceases to be in the
Service of the Corporation if the Optionee was terminated for "cause" or could
have been terminated for "cause." If the Optionee has an employment or
consulting agreement with the Corporation, the term "cause" shall have the
meaning given that term in such employment or consulting agreement. If the
Optionee does not have an employment or consulting agreement with the
Corporation, or if such agreement does not define the term "cause," the term
"cause" shall mean: (A) misconduct or dishonesty that materially adversely
affects the Corporation, including without limitation (i) an act materially in
conflict with the financial interests of the Corporation, (ii) an act that could
damage the reputation or customer relations of the Corporation, (iii) an act
that could subject the Corporation to liability, (iv) an act constituting sexual
harassment or other violation of the civil rights of coworkers, (v) failure to
obey any lawful instruction of the Board or any officer of the Corporation and
(vi) failure to comply with, or perform any duty required under, the terms of
any confidentiality, inventions or non-competition agreement the Optionee may
have with the Corporation, or (B) acts constituting the unauthorized disclosure
of any of the trade secrets or confidential information of the Corporation,
unfair competition with the Corporation or the inducement of any customer of the
Corporation to breach any contract with the Corporation. The right to exercise
any option shall be suspended automatically during the pendency of any
investigation by the Board or its designee, and/or any negotiations by the Board
or its designee and the Optionee, regarding any actual or alleged act or
omission by the Optionee of the type described in this section.

                (d)     SHAREHOLDER RIGHTS. An Optionee shall have none of the
rights of a shareholder with respect to any shares covered by the option until
such Optionee shall have exercised the option and paid the option price.


                                       7

<PAGE>   8
                (e)     REPURCHASE RIGHTS. The shares of Common Stock issued
under the Plan shall be subject to certain repurchase rights of the Corporation
in accordance with the following provisions:

                        (1)     (A)     The Plan Administrator shall have the
discretion to authorize the issuance of unvested shares of Common Stock under
the Plan. Should the optionee cease Service or should the Corporation consummate
a Corporate Transaction while the optionee is holding such unvested shares, the
Corporation shall have the right to repurchase, at the option price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any portion of those such shares. The terms and conditions upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in an instrument
evidencing such right.

                                (B)     The repurchase right shall be assignable
to any person or entity selected by the Corporation, including one or more of
the Corporation's shareholders. If the selected assignee is other than a Parent
or Subsidiary corporation, however, then the assignee must make a cash payment
to the Corporation, upon the assignment of the repurchase right, in an amount
equal to the amount by which the Fair Market Value of the unvested shares at the
time subject to the assigned right exceeds the aggregate repurchase price
payable for such unvested shares.

                                (C)     Upon the occurrence of a Corporate
Transaction, the Plan Administrator may, at its sole discretion, (i) terminate
all or any outstanding repurchase rights under the Plan and thereby cause the
shares subject to such rights to vest immediately in full, (ii) arrange for all
or any of the repurchase rights to be assigned to the successor corporation (or
parent thereof) in connection with the Corporate Transaction or (iii) exercise
the Corporation's right to repurchase any unvested shares contemporaneously with
the consummation of the Corporate Transaction if such right is provided in the
instrument pursuant to which such unvested shares were issued.

                        (2)     Until such time as the Corporation's outstanding
shares of Common Stock are first registered under Section 12(g) of the 1934 Act,
the Corporation shall have the right of first refusal with respect to any
proposed sale or other disposition by the Optionee (or any successor in interest
by reason of purchase, gift or other mode of transfer) of any shares of Common
Stock issued under the Plan. Such right of first refusal shall be exercisable by
the Corporation (or its assignees) in accordance with the terms and conditions
established by the Plan Administrator and set forth in the instrument evidencing
such right.

        SECTION 2. INCENTIVE OPTIONS

                The terms and conditions specified below shall be applicable to
all Incentive Options granted under the Plan. Incentive Options may be granted
only to individuals who are Employees. Options that are specifically designated
as Non-Statutory Options when issued under the Plan shall not be subject to the
following terms and conditions.


                                       8

<PAGE>   9
                (a)     OPTION PRICE. The option price per share of the Common
Stock subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the grant
date; provided, if the individual to whom the option is granted is at the time a
Ten Percent Shareholder, then the option price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value of the Common Stock on
the grant date.

                (b)     DOLLAR LIMITATION. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or any Parent or Subsidiary corporation) may for
the first time become exercisable as incentive stock options under the Federal
tax laws during any one calendar year shall not exceed the sum of one hundred
thousand dollars ($100,000). To the extent the Employee holds two or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability thereof as Incentive Options
under the Federal tax laws shall be applied on the basis of the order in which
such options are granted.

                (c)     OPTION TERM FOR TEN PERCENT SHAREHOLDER. No option
granted to a Ten Percent Shareholder shall have a term in excess of five (5)
years from the grant date.

                        Except as modified by the preceding provisions of this
Section 2, all the provisions of the Plan shall be applicable to the Incentive
Options granted hereunder.

        SECTION 3. CORPORATE TRANSACTION

                (a)     In connection with any Corporate Transaction, the Plan
Administrator, in its sole discretion, may (i) accelerate each or any
outstanding option under the Plan so that each or any such option, immediately
prior to the specified effective date for such Corporate Transaction, shall
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for all or any
portion of such shares, (ii) arrange for each or any outstanding option either
to be assumed by the successor corporation or parent thereof or to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof, (iii) arrange for the option to be
replaced by a comparable cash incentive program of the successor corporation
based on the option spread (the amount by which the Fair Market Value of the
shares of Common Stock subject at the time to the option exceeds the option
price payable for such shares), or (iv) take none of the actions described in
clauses (i), (ii) or (iii) above and allow the option to terminate as provided
in Section 4(b) below. The determination of comparability under clauses (ii) and
(iii) above shall be made by the Plan Administrator, and such determination
shall be final, binding and conclusive.

                (b)     In the event of any Corporate Transaction, each option
outstanding under the Plan shall terminate upon the consummation of such
Corporate Transaction and cease to be exercisable, unless the Plan Administrator
takes one of the actions set forth in Section 4(a) above.


                                       9

<PAGE>   10
                (c)     If the outstanding options under the Plan are assumed by
the successor corporation (or parent thereof) in the Corporate Transaction or
are otherwise to continue in effect following such Corporate Transaction, then
each such assumed or continuing option, immediately after such Corporate
Transaction, shall be appropriately adjusted to apply and pertain to the number
and class of securities or other property that would have been issuable to the
option holder, in consummation of the Corporate Transaction, had the option been
exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the option price payable per share, provided
the aggregate option price payable for such securities or other property shall
remain the same. In addition, the number and class of securities or other
property available for issuance under the Plan following the consummation of
such Corporate Transaction shall be appropriately adjusted.

                (d)     The exercisability as incentive stock options under the
Federal tax laws of any options accelerated in connection with the Corporate
Transaction shall remain subject to the applicable dollar limitation of
subsection 2(b) of this Article II.

                (e)     The grant of options under this Plan shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

        SECTION 4. CANCELLATION AND NEW GRANT OF OPTIONS

                The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but having, in the case of an Incentive
Option, an option price per share not less than one hundred percent (100%) of
such Fair Market Value per share of Common Stock on the new grant date, or, in
the case of a Ten Percent Shareholder, not less than one hundred and ten percent
(110%) of such Fair Market Value.

        SECTION 5. EXTENSION OF EXERCISE PERIOD

                The Plan Administrator shall have full power and authority to
extend (either at the time the option is granted or at any time that the option
remains outstanding) the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service, from the limited
period set forth in the option agreement, to such greater period of time as the
Plan Administrator may deem appropriate under the circumstances. In no event,
however, shall such option be exercisable after the specified expiration date of
the option term.


                                       10

<PAGE>   11
                                   ARTICLE III

                             STOCK ISSUANCE PROGRAM

        SECTION 1. TERMS AND CONDITIONS OF STOCK ISSUANCES

                Shares of Common Stock shall be issuable under the Stock
Issuance Program through direct and immediate issuances without any intervening
stock option grants. Each such stock issuance shall be evidenced by a Stock
Issuance Agreement ("Issuance Agreement") that complies with the terms and
conditions of this Article III.

                (a)     ISSUE PRICE.

                        (1)     Shares may, in the absolute discretion of the
Plan Administrator, be issued for consideration with a value less than
one-hundred percent (100%) of the Fair Market Value of the issued shares.

                        (2)     Shares shall be issued under the Plan for such
consideration as the Plan Administrator shall from time to time determine,
provided that in no event shall shares be issued for consideration other than:

                                (A)     cash or check payable to the
                                        Corporation,

                                (B)     a promissory note in favor of the
        Corporation, which may be subject to cancellation by the Corporation in
        whole or in part upon such terms and conditions as the Plan
        Administrator shall specify, or

                                (C)     services rendered.

                (b)     VESTING SCHEDULE.

                        (1)     In the discretion of the Plan Administrator, the
interest of a Participant in the shares of Common Stock issued to such
Participant under the Plan may be fully and immediately vested upon issuance or
may vest in one or more installments in accordance with the vesting provisions
of subsection (b)(4) below. Except as otherwise provided in subsection (b)(2),
the Participant may not transfer any issued shares in which such Participant
does not have a vested interest. Accordingly, all unvested shares issued under
the Plan shall bear the restrictive legend specified in Article IV, Section 1,
until such legend is removed in accordance with such section. Regardless of
whether or not a Participant's interest in such shares is vested, such
Participant shall be entitled to exercise all the rights of a shareholder with
respect to the shares of Common Stock issued to Participant hereunder, including
the right to vote such shares and to receive any cash dividends or other
distributions paid or made with respect to such shares. Any new, additional or
different shares of stock or other property (including money paid other than as
a regular cash dividend) that the holder of unvested Common Stock may have the
right to receive with respect to such unvested shares by reason of a stock
dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration therefor shall be issued subject to (i) the same vesting
requirements under subsection (b)(4) applicable to the unvested


                                       11

<PAGE>   12
Common Stock and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.

                        (2)     As used in this Article III, the term "transfer"
shall include (without limitation) any sale, pledge, encumbrance, gift or other
disposition of such shares. A Participant shall have the right to make a gift of
unvested shares acquired under the Stock Issuance Program to Participant's
spouse, parents or issue or to a trust established for such spouse, parents or
issue, provided the donee of such shares delivers to the Corporation, at the
time of such donee's acquisition of the gifted shares, a written agreement to be
bound by all the provisions of the Plan and the Issuance Agreement executed by
the Participant.

                        (3)     Should the Participant cease Service for any
reason while Participant's interest in the Common Stock remains unvested, then
the Corporation shall have the right to repurchase, at the original purchase
price paid by the Participant, all or (at the discretion of the Corporation and
with the consent of the Participant) any portion of the shares in which the
Participant is not at the time vested, and the Participant shall thereafter
cease to have any further shareholder rights with respect to the repurchased
shares.

                        (4)     Any shares of Common Stock issued under the
Stock Issuance Program that are not vested at the time of such issuance shall
vest in one or more installments thereafter. The elements of the vesting
schedule, specifically, the performance or service objectives to be completed or
achieved, the number of installments in which the shares are to vest, the
interval or intervals (if any) that are to lapse between installments and the
effect that death, Permanent Disability or other event designated by the Plan
Administrator is to have upon the vesting schedule, shall be determined by the
Plan Administrator and specified in the Issuance Agreement.

                        (5)     In its discretion, the Plan Administrator may
elect not to exercise, in whole or in part, its repurchase rights with respect
to any unvested Common Stock or other assets that would otherwise at the time be
subject to repurchase pursuant to the provisions of subsection (b)(3) above.
Such an election shall result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the election applies.

                        (6)     No shares of Common Stock or other assets shall
be issued or delivered under this Plan unless and until, in the opinion of
counsel for the Corporation (or its successor in the event of any Corporate
Transaction), there shall have been compliance with all applicable requirements
of the securities exchange on which stock of the same class is then listed and
all other requirements of Federal and state law or of any regulatory bodies
having jurisdiction over such issuance and delivery.

                (c)     RIGHT OF FIRST REFUSAL. The Plan Administrator may also
in its discretion establish as a term and condition of the issuance of one or
more shares of Common Stock under the Stock Issuance Program that the
Corporation shall have a right of first refusal with respect to any proposed
disposition by the Participant (or any successor in interest by reason of
purchase, gift or other mode of transfer) of one or more shares of such Common
Stock. Such right of first refusal shall be exercisable by the Corporation (or
its assignees) in accordance with the terms and conditions specified in the
instrument evidencing such right.


                                       12

<PAGE>   13
        SECTION 2. CORPORATE TRANSACTION

                Upon the occurrence of a Corporate Transaction, the Plan
Administrator, in its discretion, may (i) terminate all or any outstanding
repurchase rights under this Article III of the Plan and thereby cause the
shares subject to such rights to vest immediately in full, (ii) arrange for all
or any of the repurchase rights to be assigned to the successor corporation (or
parent thereof) in connection with the Corporate Transaction or (iii) exercise
the Corporation's right to repurchase any unvested shares contemporaneously with
the consummation of the Corporate Transaction if such right is provided in the
Issuance Agreement pursuant to which such unvested shares were issued.

                                   ARTICLE IV

                                  MISCELLANEOUS

        SECTION 1. STOCK LEGENDS. Each certificate representing shares of Common
Stock (or other securities) issued pursuant to the Plan shall bear restrictive
legends substantially as follows:

        (1)     "The shares represented by this certificate have not been
                registered under the Securities Act of 1933. The shares may not
                be sold, offered for sale, pledged or hypothecated in the
                absence of an effective registration statement for the shares
                under said Act and laws or an opinion of counsel satisfactory to
                the Corporation that such registration is not required with
                respect to such sale or offer."

        (2)     "This certificate and the shares represented hereby may not be
                sold, assigned, transferred, encumbered, or in any manner
                disposed of except in conformity with the terms of written
                agreements between the Company and the registered holder of the
                shares (or the predecessor in interest to the shares). Upon
                written request, the Company will furnish without charge a copy
                of such agreements to the holder hereof."

        SECTION 2. LOANS

                (a)     The Plan Administrator, in its discretion, may assist
any Optionee or Participant (including an Optionee or Participant who is an
officer or director of the Corporation) in the exercise of one or more options
granted to such Optionee under the Article II Option Grant Program or the
purchase of one or more shares issued to such Participant under the Article III
Stock Issuance Program, including the satisfaction of any Federal and State
income and employment tax obligations arising therefrom, by

                        (1)     authorizing the extension of a loan from the
Corporation to such Optionee or Participant, or

                        (2)     permitting the Optionee or Participant to pay
the option price or purchase price for the purchased Common Stock in
installments over a period of years.


                                       13

<PAGE>   14
                (b)     The terms of any loan or installment method of payment
(including the interest rate and terms of repayment applicable thereto) shall be
established by the Plan Administrator. Loans or installment payments may be
granted with or without security or collateral; provided, that any loan made to
a consultant or other non-employee advisor must be secured by property other
than the purchased shares of Common Stock. In all events the maximum credit
available to each Optionee or Participant may not exceed the sum of (i) the
aggregate option price or purchase price payable for the purchased shares (less
the par value of such shares rounded up to the nearest whole cent) plus (ii) any
Federal and State income and employment tax liability incurred by the Optionee
or Participant in connection with such exercise or purchase.

                (c)     The Plan Administrator, in its discretion, may determine
that one or more loans extended under the financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Board deems appropriate.

        SECTION 3. AMENDMENT OF THE PLAN AND AWARDS

                (a)     The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever;
provided, that no such amendment or modification shall adversely affect the
rights and obligations of an Optionee with respect to options at the time
outstanding under the Plan, nor adversely affect the rights of any Participant
with respect to Common Stock issued under the Plan prior to such action, unless
the Optionee or Participant consents to such amendment. In addition, the Board
shall not, without the approval of the Corporation's shareholders, amend the
Plan to (i) materially increase the maximum number of shares issuable under the
Plan (except for permissible adjustments under Article I, Section 5(c)), (ii)
materially increase the benefits accruing to individuals who participate in the
Plan, or (iii) materially modify the eligibility requirements for participation
in the Plan.

                (b)     Options to purchase shares of Common Stock may be
granted under the Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program, which in both instances are in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under the Option Grant Program or the Stock Issuance
Program are held in escrow until the Corporation's shareholders approve an
amendment that sufficiently increases the number of shares of Common Stock
available for issuance under the Plan. If such shareholder approval is not
obtained within twelve (12) months after the date the initial excess stock
option grants or direct stock issuances are made, then any unexercised options
representing such excess shall terminate and cease to be exercisable and the
Corporation shall promptly refund to the Optionees and Participants the option
or purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate)
thereon for the period the shares were held in escrow.

        SECTION 4. EFFECTIVE DATE AND TERM OF PLAN

                (a)     The Plan shall become effective when adopted by the
Board, but no option granted under the Plan shall become exercisable, and no
shares shall be issuable under the Stock Issuance Program, unless and until the
Plan shall have been approved by the Corporation's


                                       14

<PAGE>   15
shareholders. If such shareholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, then all options
previously granted under the Plan shall terminate, and no further options shall
be granted and no shares shall be issued under the Stock Issuance Program.
Subject to such limitation, the Plan Administrator may grant options under the
Plan at any time after the effective date and before the date fixed herein for
termination of the Plan.

                (b)     The Plan shall terminate upon the earlier of (i) ten
years after the adoption of the Plan or (ii) the date on which all shares
available for issuance under the Plan have been issued or canceled pursuant to
the exercise of options granted under Article II or the issuance of shares under
Article III. If the date of termination is determined under clause (i) above,
then no options outstanding on such date under Article II and no shares issued
and outstanding on such date under Article III shall be affected by the
termination of the Plan, and such securities shall thereafter continue to have
force and effect in accordance with the provisions of the stock option
agreements evidencing such Article II options and the stock purchase agreements
evidencing the issuance of such Article III shares.

        SECTION 5. USE OF PROCEEDS

                Any cash proceeds received by the Corporation from the issuance
of shares of Common Stock under the Plan shall be used for general corporate
purposes.

        SECTION 6. WITHHOLDING

                The Corporation's obligation to deliver shares upon the exercise
of any options granted under Article II or upon the purchase of any shares
issued under Article III shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.

        SECTION 7. REGULATORY APPROVALS

                The implementation of the Plan, the granting of any options
under the Option Grant Program, the issuance of any shares under the Stock
Issuance Program, and the issuance of Common Stock upon the exercise of the
option grants made hereunder shall be subject to the Corporation's procurement
of all approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the options granted under it, and the Common Stock
issued pursuant to it.


                                       15



<PAGE>   1

                                                                    EXHIBIT 10.6


                        INTERNAP NETWORK SERVICES CORP.

                             STOCK OPTION AGREEMENT

        Unless the context clearly indicates otherwise, capitalized terms used
in this Agreement shall have the meanings assigned to such terms in Section 21
of this Agreement.

        WHEREAS, the Board of Directors of the Company has adopted the Plan for
the purpose of attracting and retaining the services of selected key employees
(including officers and directors), non-employee members of the Board and
consultants and other independent contractors who contribute to the financial
success of the Company; and

        WHEREAS, Optionee is an individual who is to render valuable services to
the Company, and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company's grant of a
stock option to Optionee;

        NOW, THEREFORE, it is agreed as follows:

        1.      GRANT OF OPTION. Subject to and upon the terms and conditions
set forth in this Agreement and the Plan, the Company hereby grants to Optionee,
as of the Grant Date, a stock option to purchase up to that number of Option
Shares specified in the Grant Notice. The Option Shares shall be purchasable
from time to time during the option term and at the Option
 Price per share
specified in the Grant Notice.

        2.      OPTION TERM. This Option shall expire at the close of business
on the Expiration Date specified in the Grant Notice, unless sooner terminated
in accordance with Section 5, 6 or 18 hereof; provided, in no event shall this
option have a maximum term in excess of ten (10) years measured from the Grant
Date.

        3.      NONTRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following the Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.

        4.      DATES OF EXERCISE. This option may not be exercised in whole or
in part at any time prior to the time the Plan is approved by the Company's
shareholders in accordance with Section 18 hereof. Provided such shareholder
approval is obtained, this option shall thereupon become exercisable for the
Option Shares as specified in the Grant Notice. If the option becomes
exercisable in installments, such installments shall accumulate and the option
shall remain exercisable for such installments until the Expiration Date or the
sooner termination of the option term under Section 5 or 6 of this Agreement.

        5.      ACCELERATED TERMINATION OF OPTION TERM. The option term
specified in Section 2 above shall terminate (and this option shall cease to be
exercisable) prior to the Expiration Date should any of the following provisions
become applicable:

                (a)     Except as otherwise provided in subsection (b) or (c)
below, should Optionee cease to remain in Service while this option is
outstanding, then the period for exercising this option shall be reduced to a
three (3)-month period commencing with the date of



<PAGE>   2
such cessation of Service, but in no event shall this option be exercisable at
any time after the Expiration Date. Upon the expiration of such three (3)-month
period or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.

               (b) Should Optionee die while this option is outstanding, then
the personal representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the law of descent and distribution shall have the right to exercise this
option. Such right shall lapse, and this option shall cease to be exercisable,
upon the earlier of (i) the expiration of the twelve (12) month period measured
from the date of Optionee's death or (ii) the Expiration Date. Upon the
expiration of such twelve (12) month period or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding.

               (c) Should Optionee become Permanently Disabled and cease by
reason thereof to remain in Service while this option is outstanding, then the
Optionee shall have a period of twelve (12) months (commencing with the date of
such cessation of Service) during which to exercise this option, but in no event
shall this option be exercisable at any time after the Expiration Date. Upon the
expiration of such limited period of exercisability or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be outstanding.

               (d) During the limited period of exercisability applicable under
subsections (a), (b) or (c) above, this option may be exercised for any or all
of the Option Shares in which the Optionee, at the time of cessation of Service,
is vested in accordance with the exercise/vesting provisions specified in the
Grant Notice or the special acceleration provisions of Section 6 of this
Agreement.

               (e) Notwithstanding any provision of this Section 5 or any other
provision of this Agreement or the Plan to the contrary, any options granted
under the Plan shall terminate as of the date Optionee ceases to be in the
Service of the Company if Optionee was terminated for "cause" or could have been
terminated for "cause." If Optionee has an employment or consulting agreement
with the Company, the term "cause" shall have the meaning given that term in the
employment or consulting agreement. If Optionee does not have such an agreement
with the Company, or if such agreement does not define the term "cause," the
term "cause" shall mean: (1) misconduct or dishonesty that materially adversely
affects the Company, including without limitation (i) an act materially in
conflict with the financial interests of the Company, (ii) an act that could
damage the reputation or customer relations of the Company, (iii) an act that
could subject the Company to liability, (iv) an act constituting sexual
harassment or other violation of the civil rights of coworkers, (v) failure to
obey any lawful instruction of the Board or any officer of the Company, and (vi)
failure to comply with, or perform any duty required under the terms of any
confidentiality, inventions or non-competition agreement Optionee may have with
the Company, or (2) acts constituting the unauthorized disclosure of any of the
trade secrets or confidential information of the Company, unfair competition
with the Company or the inducement of any customer of the Company to breach any
contract with the Company. The right to exercise any option shall be suspended
automatically during the pendency of any investigation by the Board or its
designee, and/or any negotiations by the Board or its designee and Optionee,
regarding any actual or alleged act or omission by Optionee of the type
described in this subsection.


                                       2.

<PAGE>   3
        6.      CORPORATE TRANSACTION.

                (a)     In connection with any Corporate Transaction, the Plan
Administrator, in its sole discretion, may (i) accelerate this option so that
this option, immediately prior to the specified effective date for such
Corporate Transaction, shall become fully exercisable with respect to all of the
Option Shares and may be exercised for all or any portion of such shares, (ii)
arrange for this option either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof, (iii) arrange
for this option to be replaced by a comparable cash incentive program of the
successor corporation based on the option spread (the amount by which the Fair
Market Value of the shares of Common Stock subject at the time to the option
exceeds the Option Price payable for such shares) or (iv) take none of the
actions described in clauses (i), (ii) or (iii) above and allow this option to
terminate as provided in Section 6(b) below. The determination of comparability
under clauses (ii) and (iii) above shall be made by the Plan Administrator, and
its determination shall be final and conclusive.

                (b)     This option shall terminate upon the consummation of any
Corporate Transaction, unless the Plan Administrator takes one of the actions
set forth in Section 6(a) above.

                (c)     The exercisability of this option as an incentive stock
option under the Federal tax laws (if designated as such in the Grant Notice),
in connection with any such Corporate Transaction, shall be subject to the
applicable dollar limitation of Section 19 below.

                (d)     This Agreement shall not in any way affect the right of
the Company to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

        7.      ADJUSTMENT IN OPTION SHARES.

                (a)     In the event any change is made to the Company's
outstanding Common Stock by reason of any stock split, stock dividend,
combination of shares, exchange of shares, or other change affecting the
outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to the total number of Option Shares
subject to this option and the Option Price payable per share in order to
reflect such change and thereby preclude a dilution or enlargement of benefits
hereunder.

                (b)     If this option is to be assumed or is otherwise to
remain outstanding after a Corporate Transaction, then this option shall be
appropriately adjusted to apply and pertain to the number and class of
securities that would have been issuable to the Optionee in the consummation of
such Corporate Transaction had the option been exercised immediately prior to
such Corporate Transaction, and appropriate adjustments shall also be made to
the Option Price payable per share, provided the aggregate Option Price payable
hereunder shall remain the same.

        8.      PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall
not have any of the rights of a shareholder with respect to the Option Shares
until such individual shall have exercised the option and paid the Option Price.


                                       3.

<PAGE>   4
        9.      MANNER OF EXERCISING OPTION.

                (a)     In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or other person authorized to exercise this option must take the
following actions:

                        (1)     Execute and deliver to the Secretary of the
Company the Purchase Agreement;

                        (2)     Pay the aggregate Option Price for the purchased
shares either by full payment in cash or check, or any other form approved by
the Plan Administrator at the time of exercise in accordance with the provisions
of Section 15.

                        (3)     Furnish to the Company appropriate documentation
that the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.

                (b)     Should the Company's outstanding common stock be
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), at the time the option is exercised, then the Option
Price may also be paid as follows:

                        (1)     in shares of the Common Stock held by the
Optionee for the requisite period necessary to avoid a charge to the Company's
earnings for financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or

                        (2)     through a special sale and remittance procedure
pursuant to which the Optionee (i) is to provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds, an amount
sufficient to cover the aggregate Option Price payable for the purchased shares
plus all applicable Federal and state income and employment taxes required to be
withheld by the Company by reason of such purchase and (ii) concurrently
provides written directives to the Company to deliver the certificates for the
purchased shares directly to such broker-dealer in order to effect the sale
transaction.

                (c)     Except to the extent the special sale and remittance
procedure is utilized to exercise this option, or as otherwise permitted by the
Plan Administrator pursuant to Section 15, payment of the Option Price must
accompany the delivery of the Purchase Agreement. As soon after such payment as
practical, the Company shall mail or deliver to Optionee (or to the other person
or persons exercising this option) a certificate or certificates representing
the shares so purchased and paid for, with the appropriate legends affixed
thereto.

                (d)     In no event may this option be exercised for any
fractional shares.

        10.     RIGHTS OF FIRST REFUSAL/REPURCHASE RIGHTS. THE OPTIONEE HEREBY
AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE
SUBJECT TO CERTAIN RIGHTS OF FIRST REFUSAL OF THE COMPANY AND ITS ASSIGNS IN
CONNECTION WITH ANY PROPOSED TRANSFER OF ANY SUCH SHARES IN ACCORDANCE WITH


                                       4.

<PAGE>   5
THE TERMS AND CONDITIONS SPECIFIED IN THE 1998 STOCK OPTION/STOCK ISSUANCE PLAN
AND THE STOCK PURCHASE AGREEMENT.

                ADDITIONALLY, THE GRANT NOTICE MAY GRANT THE COMPANY THE RIGHT
TO REPURCHASE ANY SHARES ACQUIRED UNDER THIS OPTION, WHICH RIGHT SHALL LAPSE
OVER TIME BASED UPON THE OPTIONEE'S LENGTH OF SERVICE TO THE COMPANY.

        11.     COMPLIANCE WITH LAWS AND REGULATIONS.

                (a)     The exercise of this option and the issuance of Option
Shares upon such exercise shall be subject to compliance by the Company and the
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the Company's
Common Stock may be listed at the time of such exercise and issuance.

                (b)     In connection with the exercise of this option, Optionee
shall execute and deliver to the Company such representations in writing as may
be requested by the Company in order for it to comply with the applicable
requirements of Federal and state securities laws.

        12.     SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Sections 3 and 6 above, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Company.

        13.     LIABILITY OF COMPANY.

                (a)     If the Option Shares covered by this Agreement exceed,
as of the Grant Date, the number of shares of Common Stock that may be issued
under the Plan without shareholder approval, then this option shall be void with
respect to such excess shares, unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the applicable provisions of the Plan.

                (b)     The inability of the Company to obtain approval from any
regulatory body having authority the Company deems necessary to the lawful
issuance and sale of any Common Stock pursuant to this option shall relieve the
Company of any liability with respect to the non-issuance or sale of the Common
Stock as to which such approval shall not have been obtained. The Company shall
use its best efforts to obtain all such approvals.

        14.     NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Company in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice, or at such other address as the Optionee
shall have furnished the Company in writing at least ten (10) days in advance of
its effective date. All notices shall be deemed to have been given or delivered
upon personal delivery or


                                       5.

<PAGE>   6
forty-eight hours after deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.

        15.     LOANS. The Plan Administrator, in its discretion and without any
obligation to do so, may assist the Optionee in the exercise of this option by
authorizing the extension of a loan to the Optionee from the Company or
permitting the Optionee to pay the option price for the purchased Common Stock
in installments over a period of years. The terms of any such loan or
installment method of payment (including the interest rate, the requirements for
collateral and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion.

        16.     CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.

        17.     GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of Washington
without resort to its choice of law rules.

        18.     SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Company's shareholders within twelve (12) months
after the adoption of the Plan by the Board. NOTWITHSTANDING ANY PROVISION OF
THIS AGREEMENT TO THE CONTRARY, THIS OPTION MAY NOT BE EXERCISED IN WHOLE OR IN
PART UNTIL SUCH SHAREHOLDER APPROVAL IS OBTAINED. In the event that such
shareholder approval is not obtained, then this option shall terminate in its
entirety and the Optionee shall have no rights to acquire any Option Shares
hereunder.

        19.     ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:

                (a)     This option shall cease to qualify for favorable tax
treatment as an incentive stock option under the Federal tax laws if (and to the
extent) this option is exercised for one or more Option Shares: (i) more than
three (3) months after the date the Optionee ceases to be an Employee for any
reason other than death or Permanent Disability or (ii) more than one (1) year
after the date the Optionee ceases to be an Employee by reason of Permanent
Disability.

                (b)     In the event this option is designated as immediately
exercisable in the Grant Notice, then except in the event of a Corporate
Transaction, this option shall not become exercisable in the calendar year in
which granted if (and to the extent) the aggregate Fair Market Value (determined
at the Grant Date) of the Common Stock for which this option would otherwise
first become exercisable in such calendar year, when added to the aggregate Fair
Market Value (determined as of the respective date or dates of grant) of the
Common Stock for which one or more other post-1986 incentive stock options
granted to the Optionee prior to the Grant Date (whether under the Plan or any
other option plan of the Company or any Parent or Subsidiary corporations) first
become exercisable during the same calendar year, would exceed one hundred
thousand dollars ($100,000). To the extent the exercisability of this option is


                                       6.

<PAGE>   7
deferred by reason of the foregoing limitation, the deferred portion first will
become exercisable in the first calendar year or years thereafter in which the
one hundred thousand dollar ($100,000) limitation of this Section 19(b) would
not be contravened.

                (c)     In the event this option is designated as an installment
option in the Grant Notice, no installment under this option shall qualify for
favorable tax treatment as an incentive stock option under the Federal tax laws
if (and to the extent) the aggregate Fair Market Value (determined at the Grant
Date) of the Common Stock for which such installment first becomes exercisable
hereunder, when added to the aggregate Fair Market Value (determined as of the
respective date or dates of grant) of the Common Stock for which this option or
one or more other post-1986 incentive stock options granted to the Optionee
prior to the Grant Date (whether under the Plan or any other option plan of the
Company or any Parent or Subsidiary corporations) first become exercisable
during the same calendar year, would exceed one hundred thousand dollars
($100,000).

                (d)     Should the exercisability of this option be accelerated
upon a Corporate Transaction, then this option shall qualify for favorable tax
treatment as an incentive stock option under the Federal tax laws only to the
extent the aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which this option first becomes exercisable in the calendar
year in which the Corporate Transaction occurs does not, when added to the
aggregate Fair Market Value (determined as of the respective date or dates of
grant) of the Common Stock for which this option or one or more other post-1986
incentive stock options granted to the Optionee prior to the Grant Date (whether
under the Plan or any other option plan of the Company or any Parent or
Subsidiary corporations) first become exercisable during the same calendar year,
exceed one hundred thousand dollars ($100,000).

                (e)     To the extent this option should fail to qualify as an
incentive stock option under the Federal tax laws, the Optionee will recognize
compensation income in connection with the acquisition of one or more Option
Shares hereunder, and the Optionee must make appropriate arrangements for the
satisfaction of all Federal, state or local income tax withholding requirements
and Federal social security employee tax requirements applicable to such
compensation income.

        20.     ADDITIONAL TERMS APPLICABLE TO A NON-STATUTORY STOCK OPTION. In
the event this option is designated a non-statutory stock option in the Grant
Notice, Optionee hereby agrees to make appropriate arrangements with the Company
for the satisfaction of all Federal, state or local income tax withholding
requirements and Federal social security employee tax requirements applicable to
the exercise of this option.

        21.     DEFINITIONS. The following definitions shall apply to the
respective capitalized terms used herein:

                BOARD means the Board of Directors of InterNAP Network Services
Corp.

                CODE means the Internal Revenue Code of 1986, as amended.

                COMMON STOCK means the Common Stock of InterNAP Network Services
Corp.


                                       7.

<PAGE>   8
                COMPANY means InterNAP Network Services Corp., a Washington
corporation.

                CORPORATE TRANSACTION means one or more of the following
transactions: (i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation, (ii) the sale, transfer or
other disposition of all or substantially all of the assets of the Company, or
(iii) any reverse merger in which the Company is the surviving entity but in
which fifty percent (50%) or more of the Company's outstanding voting stock is
transferred to holders different from those who held the stock immediately prior
to such merger.

                EMPLOYEE means an individual who is in the employ of the Company
or any Parent or Subsidiary corporation. An optionee shall be considered to be
an Employee for so long as such individual remains in the employ of the Company
or any Parent or Subsidiary corporation, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.

                EXERCISE DATE shall be date on which the executed Purchase
Agreement for one or more Option Shares is delivered to the Company in
accordance with Section 9 of this Agreement.

                EXPIRATION DATE means the date specified in the Grant Notice as
the date on which the option shall terminate (unless sooner terminated under the
Plan or pursuant hereto).

                FAIR MARKET VALUE of a share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

                (a)     If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for the
Common Stock. If there is no reported sale of Common Stock on such exchange on
the date in question, then the Fair Market Value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.

                (b)     If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded in the over-the-counter
market, the Fair Market Value shall be the mean between the highest bid and the
lowest asked prices (or if such information is available the closing selling
price) per share of Common Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its NASDAQ National Market System or any successor system. If
there are no reported bid and asked prices (or closing selling price) for the
Common Stock on the date in question, then the mean between the highest bid and
lowest asked prices (or closing selling price) on the last preceding date for
which such quotations exist shall be determinative of Fair Market Value.

                (c)     If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator otherwise determines that the valuation
provisions of subsections (a) and (b) above will not result in a true and
accurate valuation of the Common Stock, then the Fair Market Value shall be


                                       8.

<PAGE>   9
determined by the Plan Administrator after taking into account such factors as
the Plan Administrator shall deem appropriate under the circumstances.

                GRANT DATE means the date specified in the Grant Notice as the
date on which the option was granted to the Optionee under the Plan.

                GRANT NOTICE means the Notice of Grant of Stock Option which
accompanies this Agreement.

                INCENTIVE STOCK OPTION means an incentive stock option which
satisfies the requirements of Section 422 of the Code.

                NON-STATUTORY STOCK OPTION means an option not intended to meet
the statutory requirements prescribed for an Incentive Stock Option.

                OPTION SHARES means the total number of shares of Common Stock
indicated in the Grant Notice as purchasable under this option.

                OPTIONEE means the individual identified in the Grant Notice as
the person to whom this option has been granted under the Plan.

                OPTION PRICE means the price indicated in the Grant Notice as
the exercise price per share to be paid by the Optionee for the exercise of this
option.

                PARENT corporation means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, provided
each such corporation in the unbroken chain (other than the Company) owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

                PERMANENTLY DISABLED or Permanent Disability means the inability
of an individual to engage in any substantial gainful activity by reason of any
medically-determinable physical or mental impairment that can be expected to
result in death or that has lasted or can be expected to last for a continuous
period of not less than 12 months.

                PLAN means the 1998 Stock Option/Stock Issuance Plan of the
Company, in the form of Exhibit A to the Grant Notice.

                PLAN ADMINISTRATOR means either the Board or a committee of two
or more Board members, to the extent such committee may at the time be
responsible for plan administration.

                PURCHASE AGREEMENT means the stock purchase agreement, in
substantially the form of Exhibit C to the Grant Notice, which is to be executed
in connection with the exercise of this option for one or more Option Shares.

                SERVICE means the performance of services for the Company or any
Parent or Subsidiary corporation by an individual in the capacity of an
Employee, a non-employee member


                                       9.

<PAGE>   10
of the board of directors or an independent consultant or advisor. Accordingly,
the Optionee shall be deemed to remain in Service for so long as such individual
renders services to the Company or any Parent or Subsidiary corporation on a
periodic basis in the capacity of an Employee, a non-employee member of the
board of directors or an independent consultant or advisor.

                SUBSIDIARY corporation means each corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company,
provided each such corporation (other than the last corporation) in the unbroken
chain owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.


                                      10.



<PAGE>   1
      
                                                                    EXHIBIT 10.7


                     INTERNAP NETWORK SERVICES CORPORATION

                           1999 EQUITY INCENTIVE PLAN

                             ADOPTED JUNE 19, 1999
                APPROVED BY SHAREHOLDERS _______________, ______
                     TERMINATION DATE: _______________, 2009


1.      PURPOSES.

        (a)     ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

        (b)     AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.

        (c)     GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock Awards, to
secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.

2.      DEFINITIONS.

        (a)     "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively,
 of the Code.

        (b)     "BOARD" means the Board of Directors of the Company.

        (c)     "CAUSE" shall have such meaning as is defined in the
Optionholder's employment or consulting agreement with the Company. If the
Optionholder does not have an employment or consulting agreement with the
Company, or if such agreement does not define the term "cause," then the term
"cause" shall mean: (i) misconduct or dishonesty that materially adversely
affects the Company, including without limitation (A) an act materially in
conflict with the financial interests of the Corporation, (B) an act that could
damage the reputation or customer relations of the Company, (C) an act that
could subject the Company to liability, (D) an act constituting sexual
harassment or other violation of the civil rights of coworkers, (E) failure to
obey any lawful instruction of the Board or any officer of the Company and (F)
failure to comply with, or perform any duty required under, the terms of any
confidentiality, inventions or non-competition agreement the Optionholder may
have with the Company, or (ii) acts constituting the unauthorized disclosure of
any of the trade secrets or confidential information of the


                                       1.

<PAGE>   2
Company, unfair competition with the Company or the inducement of any customer
of the Company to breach any contract with the Company. The right to exercise
any Option shall be suspended automatically during the pendency of any
investigation by the Board or its designee, and/or any negotiations by the Board
or its designee and the Optionholder, regarding any actual or alleged act or
omission by the Optionholder of the type described in this section.

        (d)     "CODE" means the Internal Revenue Code of 1986, as amended.

        (e)     "COMMITTEE" means a committee of one or more members of the
Board appointed by the Board in accordance with subsection 3(c).

        (f)     "COMMON STOCK" means the common stock of the Company.

        (g)     "COMPANY" means InterNAP Network Services Corporation, a
Washington corporation.

        (h)     "CONSULTANT" means any person, including an advisor, (i) engaged
by the Company or an Affiliate to render consulting or advisory services and who
is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors who are not compensated by the Company for their services as
Directors or Directors who are merely paid a director's fee by the Company for
their services as Directors.

        (i)     "CONTINUOUS SERVICE" means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

        (j)     "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

        (k)     "DIRECTOR" means a member of the Board of Directors of the
Company.

        (l)     "DISABILITY" means (i) before the Listing Date, the inability of
a person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or


                                       2.

<PAGE>   3
injury of the person and (ii) after the Listing Date, the permanent and total
disability of a person within the meaning of Section 22(e)(3) of the Code.

        (m)     "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.

        (n)     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

        (o)     "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:

                (i)     If the Common Stock is listed on any established stock
exchange or traded on the NASDAQ National Market or the NASDAQ SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.

                (ii)    In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.

                (iii)   Prior to the Listing Date, the value of the Common Stock
shall be determined in a manner consistent with Section 260.140.50 of Title 10
of the California Code of Regulations.

        (p)     "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

        (q)     "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.

        (r)     "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a


                                       3.

<PAGE>   4
business relationship as to which disclosure would be required under Item 404(b)
of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.

        (s)     "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

        (t)     "OFFICER" means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing Date,
a person who is an officer of the Company within the meaning of Section 16 of
the Exchange Act and the rules and regulations promulgated thereunder.

        (u)     "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.

        (v)     "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

        (w)     "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.

        (x)     "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

        (y)     "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

        (z)     "PLAN" means this InterNAP Network Services Corporation 1999
Equity Incentive Plan.

        (aa)    "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.

        (bb)    "SECURITIES ACT" means the Securities Act of 1933, as amended.

        (cc)    "STOCK AWARD" means any right granted under the Plan, including
an Option, a stock bonus and a right to acquire restricted stock.


                                       4.

<PAGE>   5
        (dd)    "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

        (ee)    "TEN PERCENT SHAREHOLDER" means a person who owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.

3.      ADMINISTRATION.

        (a)     ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as provided
in subsection 3(c). Any interpretation of the Plan by the Board and any decision
by the Board under the Plan shall be final and binding on all persons.

        (b)     POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

                (i)     To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

                (ii)    To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

                (iii)   To amend the Plan or a Stock Award as provided in
Section 12.

                (iv)    Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.

        (c)     DELEGATION TO COMMITTEE.

                (i)     GENERAL. The Board may delegate administration of the
Plan to a Committee or Committees of one (1) or more members of the Board, and
the term "Committee" shall apply to any person or persons to whom such authority
has been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or


                                       5.

<PAGE>   6
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

                (ii)    COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.

4.      SHARES SUBJECT TO THE PLAN.

        (a)     SHARE RESERVE. Subject to the provisions of Section 11 relating
to adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate six million five
hundred thousand (6,500,000) shares of Common Stock. As of the first nine (9)
anniversaries of the effective date of the Plan, the number of shares of Common
Stock that may be issued pursuant to Stock Awards will automatically be
increased by the lesser of (i) three and one-half percent (3 1/2%) of the total
number of shares of Common Stock outstanding on such anniversary date, or (ii)
six million five hundred thousand (6,500,000) shares.

        (b)     REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.

        (c)     SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or otherwise.

        (d)     SHARE RESERVE LIMITATION. Prior to the Listing Date and to the
extent then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the conditions
and exclusions of Section 260.140.45 of Title 10 of the California Code of
Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made.


                                       6.

<PAGE>   7
5.      ELIGIBILITY.

        (a)     ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options
may be granted only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.

        (b)     TEN PERCENT SHAREHOLDERS.

                (i)     A Ten Percent Shareholder shall not be granted an
Incentive Stock Option unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of the Common Stock at the
date of grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant.

                (ii)    Prior to the Listing Date, a Ten Percent Shareholder
shall not be granted a Nonstatutory Stock Option unless the exercise price of
such Option is at least (i) one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant or (ii) such lower percentage of
the Fair Market Value of the Common Stock at the date of grant as is permitted
by Section 260.140.41 of Title 10 of the California Code of Regulations at the
time of the grant of the Option.

                (iii)   Prior to the Listing Date, a Ten Percent Shareholder
shall not be granted a restricted stock award unless the purchase price of the
restricted stock is at least (i) one hundred percent (100%) of the Fair Market
Value of the Common Stock at the date of grant or (ii) such lower percentage of
the Fair Market Value of the Common Stock at the date of grant as is permitted
by Section 260.140.41 of Title 10 of the California Code of Regulations at the
time of the grant of the Option.

        (c)     SECTION 162(m) LIMITATION. Subject to the provisions of Section
11 relating to adjustments upon changes in the shares of Common Stock, no
Employee shall be eligible to be granted Options covering more than three
million (3,000,000) shares of Common Stock during any calendar year. This
subsection 5(c) shall not apply prior to the Listing Date and, following the
Listing Date, this subsection 5(c) shall not apply until (i) the earliest of:
(1) the first material modification of the Plan (including any increase in the
number of shares of Common Stock reserved for issuance under the Plan in
accordance with Section 4); (2) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or
(4) the first meeting of shareholders at which Directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which occurred the first registration of an equity security under Section 12 of
the Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.

        (d)     CONSULTANTS.

                (i)     Prior to the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, either the
offer or the sale of the Company's securities to such Consultant is not exempt
under Rule 701 of the Securities Act ("Rule 701") because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant


                                       7.

<PAGE>   8
is not a natural person, or as otherwise provided by Rule 701, unless the
Company determines that such grant need not comply with the requirements of Rule
701 and will satisfy another exemption under the Securities Act as well as
comply with the securities laws of all other relevant jurisdictions.

                (ii)    From and after the Listing Date, a Consultant shall not
be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.

6.      OPTION PROVISIONS.

        Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

        (a)     TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Shareholders, no Option granted prior to the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted,
and no Incentive Stock Option granted on or after the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted.

        (b)     EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

        (c)     EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing


                                       8.

<PAGE>   9
Date shall be not less than eighty-five percent (85%) of the Fair Market Value
of the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.

        (d)     CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is exercised
or (ii) at the discretion of the Board at the time of the grant of the Option
(or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to
the Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder (including an arrangement involving a
promissory note issued by the Optionholder) or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.

        In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

        (e)     TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.

        (f)     TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option granted prior to the Listing Date shall not be transferable except
by will or by the laws of descent and distribution and, to the extent provided
in the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or
after the Listing Date shall be transferable to the extent provided in the
Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.

        (g)     VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on


                                       9.

<PAGE>   10
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g) are subject
to any Option provisions governing the minimum number of shares of Common Stock
as to which an Option may be exercised.

        (h)     MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:

                (i)     Options granted prior to the Listing Date to an Employee
who is not an Officer, Director or Consultant shall provide for vesting of the
total number of shares of Common Stock at a rate of at least twenty percent
(20%) per year over five (5) years from the date the Option was granted, subject
to reasonable conditions such as continued employment; and

                (ii)    Options granted prior to the Listing Date to Officers,
Directors or Consultants may be made fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company.

        (i)     TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability or for Cause), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such Option
as of the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the
Optionholder's Continuous Service (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than thirty (30) days for
Options granted prior to the Listing Date unless such termination is for cause),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate. In the event an Optionholder's Continuous Service terminates for
Cause, then his or her Option shall terminate immediately upon such event.

        (j)     EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability or for Cause) would be prohibited at any time
solely because the issuance of shares of Common Stock would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in subsection 6(a) or (ii) the expiration of a period of three (3) months
after the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.

        (k)     DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the


                                      10.

<PAGE>   11
date of termination), but only within such period of time ending on the earlier
of (i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement, which period shall not be less
than six (6) months for Options granted prior to the Listing Date) or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified herein, the Option shall terminate.

        (l)     DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (2) the expiration of the term of
such Option as set forth in the Option Agreement. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate.

        (m)     EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option. Subject to the "Repurchase Limitation" in subsection
10(h), any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.

        (n)     RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.

        (o)     RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided in this subsection
6(o), such right of first refusal shall otherwise comply with any applicable
provisions of the Bylaws of the Company.

        (p)     RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a "Re-Load
Option") in the event the Optionholder exercises the Option evidenced by the
Option Agreement, in whole or in part, by surrendering other shares of


                                      11.

<PAGE>   12
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option shall (i) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (ii) have an expiration
date which is the same as the expiration date of the Option the exercise of
which gave rise to such Re-Load Option; and (iii) have an exercise price which
is equal to one hundred percent (100%) of the Fair Market Value of the Common
Stock subject to the Re-Load Option on the date of exercise of the original
Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the
same exercise price and term provisions heretofore described for Options under
the Plan.

                Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.

7.      PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

        (a)     STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

                (i)     CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.

                (ii)    VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock awarded under the stock bonus agreement
may, but need not, be subject to a share repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by the Board.

                (iii)   TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject
to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.

                (iv)    TRANSFERABILITY. For a stock bonus award made before the
Listing Date, rights to acquire shares of Common Stock under the stock bonus
agreement shall not be


                                      12.

<PAGE>   13
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Participant only by the Participant.
For a stock bonus award made on or after the Listing Date, rights to acquire
shares of Common Stock under the stock bonus agreement shall be transferable by
the Participant only upon such terms and conditions as are set forth in the
stock bonus agreement, as the Board shall determine in its discretion, so long
as Common Stock awarded under the stock bonus agreement remains subject to the
terms of the stock bonus agreement.

        (b)     RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of the restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

                (i)     PURCHASE PRICE. Subject to the provisions of subsection
5(b) regarding Ten Percent Shareholders, the purchase price under each
restricted stock purchase agreement shall be such amount as the Board shall
determine and designate in such restricted stock purchase agreement. For
restricted stock awards made prior to the Listing Date, the purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
For restricted stock awards made on or after the Listing Date, the purchase
price shall not be less than eighty-five percent (85%) of the Common Stock's
Fair Market Value on the date such award is made or at the time the purchase is
consummated.

                (ii)    CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any time
that the Company is incorporated in Delaware, then payment of the Common Stock's
"par value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.

                (iii)   VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.

                (iv)    TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject
to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.


                                      13.

<PAGE>   14
                (v)     TRANSFERABILITY. For a restricted stock award made
before the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall not be transferable except by will or
by the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant. For a restricted stock
award made on or after the Listing Date, rights to acquire shares of Common
Stock under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.

8.      COVENANTS OF THE COMPANY.

        (a)     AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.

        (b)     SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.

9.      USE OF PROCEEDS FROM STOCK.

        Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

10.     MISCELLANEOUS.

        (a)     ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.

        (b)     SHAREHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.


                                      14.

<PAGE>   15
        (c)     NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant any right to continue to serve the Company or an Affiliate
in the capacity in effect at the time the Stock Award was granted or shall
affect the right of the Company or an Affiliate to terminate (i) the employment
of an Employee with or without notice and with or without cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant's agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant to
the Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.

        (d)     INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of grant) of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof which exceed such limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock Options.

        (e)     INVESTMENT ASSURANCES. The Company may require a Participant, as
a condition of exercising or acquiring Common Stock under any Stock Award, (i)
to give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (iii) the issuance of the shares
of Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

        (f)     WITHHOLDING OBLIGATIONS. To the extent provided by the terms of
a Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award in an amount not to exceed
the minimum amount of tax


                                      15.

<PAGE>   16
required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock. Notwithstanding the foregoing, the Company
shall not be authorized to withhold shares of Common Stock at rates in excess of
the minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes.

        (g)     INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.

        (h)     REPURCHASE LIMITATION. The terms of any repurchase option shall
be specified in the Stock Award and may be either at Fair Market Value at the
time of repurchase or at not less than the original purchase price. To the
extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted prior to the Listing Date to a person
who is not an Officer, Director or Consultant shall be upon the terms described
below:

                (i)     FAIR MARKET VALUE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
employment at not less than the Fair Market Value of the shares of Common Stock
to be purchased on the date of termination of Continuous Service, then (i) the
right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.

                (ii)    ORIGINAL PURCHASE PRICE. If the repurchase option gives
the Company the right to repurchase the shares of Common Stock upon termination
of Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares of Common Stock per year over five (5) years
from the date the Stock Award is granted (without respect to the date the Stock
Award was exercised or became exercisable) and (ii) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for
the shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of
Options after such date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by the Company and
the Participant (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code regarding "qualified small business stock").

11.     ADJUSTMENTS UPON CHANGES IN STOCK.


                                      16.

<PAGE>   17
        (a)     CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)

        (b)     DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to such event.

        (c)     CERTAIN CHANGES IN CONTROL. In the event of (i) a sale, lease or
other disposition of all or substantially all of the assets of the Company, (ii)
a merger or consolidation in which the Company is not the surviving corporation
or (iii) a reverse merger in which the Company is the surviving corporation but
the shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise (collectively, a "Change in Control"), then any
surviving corporation or acquiring corporation may assume or continue any Stock
Awards outstanding under the Plan or may substitute similar stock awards
(including an award to acquire the same consideration paid to the shareholders
in the transaction described in this subsection 11(c)) for those outstanding
under the Plan. In the event any surviving corporation or acquiring corporation
refuses to assume or continue such Stock Awards or to substitute similar stock
awards for those outstanding under the Plan, then with respect to Stock Awards
held by Participants whose Continuous Service has not terminated, the vesting of
such Stock Awards (and, if applicable, the time during which such Stock Awards
may be exercised) shall be accelerated in full, and the Stock Awards shall
terminate if not exercised (if applicable) at or prior to such event. With
respect to any other Stock Awards outstanding under the Plan, such Stock Awards
shall terminate if not exercised (if applicable) prior to such event.

        (d)     TERMINATION OF SERVICE FOLLOWING A CHANGE IN CONTROL. Unless
otherwise specified in the applicable Stock Award Agreement, in the event of the
occurrence of a Change in Control and provided that a Participant's Stock Award
remains in effect following such Change in Control or is assumed, continued or
substituted for any similar stock award in connection with the Change in
Control, then, if such Participant's Continuous Service is terminated by the
Company without Cause within thirteen (13) months following the effective date
of the Change in Control, all Stock Awards held by such Participant (or any
substituted stock awards) shall, as of the date of such termination of
Continuous Service, vest in full and become fully exercisable (if applicable) to
the extent not previously vested or exercisable. Such Stock Awards shall remain
exercisable until they expire in accordance with their terms.


                                      17.

<PAGE>   18
        (e)     SECURITIES ACQUISITION. After the Listing Date, in the event of
an acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act, or any comparable successor provisions
(excluding any employee benefit plan, or related trust, sponsored or maintained
by the Company or an Affiliate) of the beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule)
of securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of Directors, then with
respect to Stock Awards held by Participants whose Continuous Service has not
terminated, the vesting of such Stock Awards (and, if applicable, the time
during which such Stock Awards may be exercised) shall be accelerated in full.
Such Stock Awards shall remain exercisable until they expire in accordance with
their terms.

        (f)     PARACHUTE PAYMENTS. If any payment or benefit Optionholder would
receive in connection with a Change in Control from the Company or otherwise
("Payment") would (i) constitute a "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) but for this sentence, be subject to the excise tax imposed by Section 4999
of the Code (the "Excise Tax"), then such Payment shall be reduced to the
Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of
the Payment that would result in no portion of the Payment being subject to the
Excise Tax or (y) the largest portion, up to and including the total, of the
Payment, whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax (all computed
at the highest applicable marginal rate), results in Optionholder's receipt, on
an after-tax basis, of the greater amount of the Payment notwithstanding that
all or some portion of the Payment may be subject to the Excise Tax. If a
reduction in payments or benefits constituting "parachute payments" is necessary
so that the Payment equals the Reduced Amount, reduction shall occur in the
following order unless the Optionholder elects in writing a different order
(provided, however, that such election shall be subject to Company approval if
made on or after the effective date of the Change of Control): reduction of cash
payments; cancellation of accelerated vesting of stock awards; reduction of
employee benefits. In the event that acceleration of vesting of stock award
compensation is to be reduced, such acceleration of vesting shall be cancelled
in the reverse order of the date of grant of the Optionholder's stock awards
unless the Optionholder elects in writing a different order for cancellation.

        The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

        The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and Optionholder within fifteen (15) calendar days after the date on
which Optionholder's right to a Payment arises (if requested at that time by the
Company or Optionholder) or at such other time as requested by


                                      18.

<PAGE>   19
the Company or Optionholder. If the accounting firm determines that no Excise
Tax is payable with respect to a Payment, either before or after the application
of the Reduced Amount, it shall furnish the Company and Optionholder with an
opinion reasonably acceptable to Optionholder that no Excise Tax will be imposed
with respect to such Payment. Any good faith determination of the accounting
firm made hereunder shall be final, binding and conclusive upon the Company and
Optionholder.

12.     AMENDMENT OF THE PLAN AND STOCK AWARDS.

        (a)     AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any NASDAQ or securities exchange listing requirements.

        (b)     SHAREHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for shareholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

        (c)     CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

        (d)     NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.

        (e)     AMENDMENT OF STOCK AWARDS. The Board at any time, and from time
to time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

13.     TERMINATION OR SUSPENSION OF THE PLAN.

        (a)     PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.


                                      19.

<PAGE>   20
        (b)     NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.

14.     EFFECTIVE DATE OF PLAN.

        The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the shareholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.

15.     CHOICE OF LAW.

        The law of the State of Washington shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.


                                      20.



<PAGE>   1
      
                                                                    EXHIBIT 10.8


                     INTERNAP NETWORK SERVICES CORPORATION
                           1999 EQUITY INCENTIVE PLAN

                             STOCK OPTION AGREEMENT
                   (INCENTIVE AND NONSTATUTORY STOCK OPTIONS)


        Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, InterNAP Network Services Corporation (the "Company")
has granted you an option under its 1999 Equity Incentive Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.

        The details of your option are as follows:

        1.      VESTING. Subject to the limitations contained herein, your
option will vest as provided in your Grant Notice, provided that vesting will
cease upon the termination of your Continuous Service.

        2.      NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of
Common Stock subject to your option and your exercise price per share referenced
in your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.

        3.      EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in
your Grant
 Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise"
of your option is permitted) and subject to the provisions of your option, you
may elect at any time that is both (i) during the period of your Continuous
Service and (ii) during the term of your option, to exercise all or part of your
option, including the nonvested portion of your option; provided, however, that:

                (a)     a partial exercise of your option shall be deemed to
cover first vested shares of Common Stock and then the earliest vesting
installment of unvested shares of Common Stock;

                (b)     any shares of Common Stock so purchased from
installments that have not vested as of the date of exercise shall be subject to
the purchase option in favor of the Company as described in the Company's form
of Early Exercise Stock Purchase Agreement; and

                (c)     you shall enter into the Company's form of Early
Exercise Stock Purchase Agreement with a vesting schedule that will result in
the same vesting as if no early exercise had occurred.

        4.      ISO EXERCISE LIMITATION.

                (a)     The aggregate Fair Market Value of the shares of Common
Stock with respect to which you may exercise your option for the first time
during any calendar year, when


                                       1.

<PAGE>   2
added to the aggregate Fair Market Value of the shares of Common Stock subject
to any other options designated as Incentive Stock Options and granted to you
under any stock option plan of the Company or an Affiliate prior to the Date of
Grant with respect to which such options are exercisable for the first time
during the same calendar year, shall not exceed $100,000 (the "ISO Exercise
Limitation") unless applicable law requires that your option be exercisable
sooner.(1)

                (b)     The ISO Exercise Limitation shall terminate, and you may
fully exercise your option, as to all shares of Common Stock subject to your
option for which your option would have been exercisable in the absence of the
ISO Exercise Limitation upon the earlier of the following events:

                        (i)     the date of termination of your Continuous
Service,

                        (ii)    the day immediately prior to the effective date
of a Change in Control (as defined in the Plan) in which your option is not
assumed or substituted for as provided in the Plan, or

                        (iii)   the day that is ten (10) days prior to the
Expiration Date of your option.

Upon such termination of the ISO Exercise Limitation, your option shall be
deemed a Nonstatutory Stock Option to the extent of the number of shares of
Common Stock subject to your option that would otherwise then exceed the ISO
Exercise Limitation.

        5.      METHOD OF PAYMENT. Payment of the exercise price is due in full
upon exercise of all or any part of your option. You may elect to make payment
of the exercise price in cash or by check or in any other manner PERMITTED BY
YOUR GRANT NOTICE, which may include one or more of the following:

                (a)     In the Company's sole discretion at the time your option
is exercised and provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.

                (b)     Provided that at the time of exercise the Common Stock
is publicly traded and quoted regularly in The Wall Street Journal, by delivery
of already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or


--------

(1) For purposes of this provision, your options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted to
you, and the Fair Market Value of shares of Common Stock shall be determined as
of the time the option with respect to such shares of Common Stock is granted.
If Section 422 of the Code is amended to provide for a different limitation from
that set forth in this provision, the ISO Exercise Limitation shall be deemed
amended effective as of the date required or permitted by such amendment to the
Code.


                                       2.

<PAGE>   3
indirectly from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, and that are valued at Fair Market Value on
the date of exercise. "Delivery" for these purposes, in the sole discretion of
the Company at the time you exercise your option, shall include delivery to the
Company of your attestation of ownership of such shares of Common Stock in a
form approved by the Company. Notwithstanding the foregoing, you may not
exercise your option by tender to the Company of Common Stock to the extent such
tender would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock.

        6.      WHOLE SHARES. You may exercise your option only for whole shares
of Common Stock.

        7.      SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, you may not exercise your option unless the shares of
Common Stock issuable upon such exercise are then registered under the
Securities Act or, if such shares of Common Stock are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Securities Act. The exercise of your option
must also comply with other applicable laws and regulations governing your
option, and you may not exercise your option if the Company determines that such
exercise would not be in material compliance with such laws and regulations.

        8.      TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:

                (a)     immediately upon the termination of your Continuous
Service for Cause;

                (b)     three (3) months after the termination of your
Continuous Service for any reason other than Cause, Disability or death,
provided that if during any part of such three- (3-) month period you may not
exercise your option solely because of the condition set forth in the preceding
paragraph relating to "Securities Law Compliance," your option shall not expire
until the earlier of the Expiration Date or until it shall have been exercisable
for an aggregate period of three (3) months after the termination of your
Continuous Service;

                (c)     twelve (12) months after the termination of your
Continuous Service due to your Disability;

                (d)     twelve (12) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates for reason other than Cause;

                (e)     the Expiration Date indicated in your Grant Notice; or

                (f)     the tenth (10th) anniversary of the Date of Grant.

If your option is an incentive stock option, note that, to obtain the federal
income tax advantages associated with an "incentive stock option," the Code
requires that at all times


                                       3.

<PAGE>   4
beginning on the date of grant of your option and ending on the day three (3)
months before the date of your option's exercise, you must be an employee of the
Company or an Affiliate, except in the event of your death or Disability. The
Company has provided for extended exercisability of your option under certain
circumstances for your benefit but cannot guarantee that your option will
necessarily be treated as an "incentive stock option" if you continue to provide
services to the Company or an Affiliate as a Consultant or Director after your
employment terminates or if you otherwise exercise your option more than three
(3) months after the date your employment terminates.

        9.      EXERCISE.

                (a)     You may exercise the vested portion of your option (and
the unvested portion of your option if your Grant Notice so permits) during its
term by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

                (b)     By exercising your option you agree that, as a condition
to any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.

                (c)     If your option is an incentive stock option, by
exercising your option you agree that you will notify the Company in writing
within fifteen (15) days after the date of any disposition of any of the shares
of the Common Stock issued upon exercise of your option that occurs within two
(2) years after the date of your option grant or within one (1) year after such
shares of Common Stock are transferred upon exercise of your option.

                (d)     By exercising your option you agree that the Company (or
a representative of the underwriter(s)) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your shares of
Common Stock until the end of such period.

        10.     TRANSFERABILITY. Your option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company,


                                       4.

<PAGE>   5
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.

        11.     RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire
upon exercise of your option are subject to any right of first refusal that may
be described in the Company's bylaws in effect at such time the Company elects
to exercise its right. The Company's right of first refusal shall expire on the
Listing Date.

        12.     RIGHT OF REPURCHASE. To the extent provided in the Company's
bylaws as amended from time to time, the Company shall have the right to
repurchase all or any part of the shares of Common Stock you acquire pursuant to
the exercise of your option.

        13.     OPTION NOT A SERVICE CONTRACT. Your option is not an employment
or service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

        14.     WITHHOLDING OBLIGATIONS.

                (a)     At the time you exercise your option, in whole or in
part, or at any time thereafter as requested by the Company, you hereby
authorize withholding from payroll and any other amounts payable to you, and
otherwise agree to make adequate provision for (including by means of a
"cashless exercise" pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Company or an Affiliate, if any, which arise in
connection with your option.

                (b)     Upon your request and subject to approval by the
Company, in its sole discretion, and compliance with any applicable conditions
or restrictions of law, the Company may withhold from fully vested shares of
Common Stock otherwise issuable to you upon the exercise of your option a number
of whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.


                                       5.

<PAGE>   6
                (c)     You may not exercise your option unless the tax
withholding obligations of the Company and/or any Affiliate are satisfied.
Accordingly, you may not be able to exercise your option when desired even
though your option is vested, and the Company shall have no obligation to issue
a certificate for such shares of Common Stock or release such shares of Common
Stock from any escrow provided for herein.

        15.     NOTICES. Any notices provided for in your option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by mail by the Company to you, five (5) days
after deposit in the United States mail, postage prepaid, addressed to you at
the last address you provided to the Company.

        16.     GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.


                                       6.



<PAGE>   1
                                                                    EXHIBIT 10.9


                                TWO UNION SQUARE
                              SEATTLE, WASHINGTON

                                  OFFICE LEASE

                               TABLE OF CONTENTS

BASIC LEASE INFORMATION........................................................1
RENT PAYMENT...................................................................2
ANNUAL RENT ADJUSTMENT (OPERATING EXPENSES)....................................4
REAL PROPERTY DESCRIPTION AND TAXES............................................5
POSSESSION.....................................................................5
ACCEPTANCE AND CARE OF PREMISES................................................6
ALTERATIONS....................................................................6
INSPECTION AND REPAIRS.........................................................7
SERVICES BY LESSOR.............................................................7
FIRE OR OTHER CASUALTY.........................................................9
WAIVER OF SUBROGATION.........................................................10
USES..........................................................................10
SIGNS AND ADVERTISING.........................................................10
ACCIDENTS AND INDEMNITY.......................................................11
LIENS AND INSOLVENCY..........................................................12
DEFAULT AND RE-ENTRY..........................................................12
REMOVAL OF PROPERTY AND REPLACEMENT OF NON-STANDARD ITEMS.....................12
NON-WAIVER....................................................................13
COSTS AND ATTORNEYS' FEES.....................................................13
PRIORITY......................................................................13
CONDEMNATION..................................................................13
ASSIGNMENT AND SUBLETTING.....................................................14
RULES, REGULATIONS AND MISCELLANEOUS..........................................16
SUCCESSORS....................................................................19
SHARED TENANT SERVICES........................................................19
AMERICAN DISABILITIES ACT (ADA) COMPLIANCE....................................19
OPTION TO EXTEND..............................................................20
FIRST RIGHT TO LEASE..........................................................22
PARKING.......................................................................23
LESSEE IMPROVEMENT ALLOWANCE..................................................23

                                         INTERNAP NETWORK SERVICES, INC., LESSEE

<PAGE>   2
                                TWO UNION SQUARE

                              SEATTLE, WASHINGTON

                                  OFFICE LEASE

     THIS LEASE, made this June 11, 1998 between: UNION SQUARE LIMITED
PARTNERSHIP, a Washington Limited Partnership, (Lessor) and INTERNAP NETWORK
SERVICES, INC., a Washington corporation (Lessee).

     Lessee, in consideration of this Lease, covenants and agrees with Lessor

as follows:

     1.   BASIC LEASE INFORMATION

     1.1  Leased Premises. Lessee hereby leases from Lessor, Room(s) 1001-1037
(the Leased Premises) as outlined in red on the attached print marked Exhibit A
in the Building at Seattle, Washington, known as Two Union Square (the
Building), and situated on the real property described in Section 4 (the Land).

     1.2  Floor Areas. For purposes of this Lease, the usable area of the
Leased Premises is deemed to be 19,225 square feet. The rentable area of the
Leased Premises is deemed to be 20,675 square feet. The Leased Premises are
deemed to be 1.96132 percent of the rentable area of the Building. In the event
a portion of the Building is damaged or any other event or change occurs which
alters the usable or rentable areas of the Leased Premises or the Building,
Lessor may appropriately adjust the foregoing areas and percent. Usable and
rentable areas shall mean such areas as defined generally by the Building
Owners and Managers Association International in its "Standard Method for
Measuring Floor Area in Office Buildings" (American National Standard ANSIZ
65.1-1996). Whenever areas are herein referred to generally, it shall mean
rentable area. Lessee has undertaken such examination of rentable and usable
areas of the Building as it desires and agrees with the areas set forth above.

     1.3  Term. The lease term shall be five (5) years, commencing August 15,
1998, and ending August 14, 2003, subject to Lessee's rights in Section 27.

     1.4  Rent. The Base Monthly Rent, payable without demand in advance on the
first day of each calendar month, shall be:

          $46,088.00 commencing Sept. 15, 1998 and ending August 31, 2000.
          $48,242.00 commencing Sept., 1, 2000 and ending August 14, 2003.

<PAGE>   3
     1.5   Base Indices

           Consumer Price Index for September 1998.

           Cost of electricity per kilowatt-hour (average) for 12 months ending
           September 30, 1998.

           Janitorial hourly labor rate as of September 30, 1998.

           Operating Cost Adjustment Base: $6.87 per sq. ft., per yr.

           The first rent adjustment pursuant to Section 3 will be January 1,
           2000.

     1.6   Use. The Leased Premises shall be used only for the purposes of a
           business office.

     1.7   Lessee's Address for Notices if Other Than the Leased Premises:

     1.8   Lessor's Address for Notices and Payment of Rent:

           UNICO Properties, Inc.
           Rainier Tower
           1301 5th Avenue, Suite 3500
           Seattle, WA 98101-2647

     1.9   Exhibits and Other Attachments Which are Part of the Lease:

           Exhibit A: Print with Leased Premises outlined in red on standard
                      floor plan.

           Exhibit B: Initial Improvement of Leased Premises.

           Exhibit C: Janitorial Service.

     1.10  Security Deposit: $46,088.00

     2.    RENT PAYMENT

     Lessee shall pay the Base Monthly Rent and other charges provided for in
this Lease, in lawful money of the United States on or before their specified
due dates to Lessor at the address specified in Section 1.8, or to such other
party or at such other place as Lessor may hereafter from time to time
designate in writing. All rent which is five (5) days past due shall bear 
interest at the rate of one percent (1%) per month from the date rent is due
until paid. If the maximum annual rate of interest permitted by applicable law
shall be less than the rate of interest provided


                                       2

<PAGE>   4
for herein, then all past due payments of rent shall bear interest at the
maximum rate permitted by applicable law from due date until paid. Lessee
acknowledges that late payment by Lessee to Lessor of rent will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of such costs
being extremely difficult and economically impractical to ascertain. Therefore,
if any payment of rent due from Lessee is not received by Lessor within 10 days
after the due date, Lessee shall pay to Lessor (in addition to the interest
above provided) a late charge of Fifty Dollars ($50). The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Lessor will incur by reason of late payment by Lessee and is in addition to any
interest charges on past due rent. The term "rent" when used in this Lease
shall include Base Monthly Rent and all other amounts however designated
payable by Lessee to Lessor hereunder.

     3.   ANNUAL RENT ADJUSTMENT (OPERATING EXPENSES)

     3.1  A portion of the initial rental rate shall be adjusted January 1 of
each year during the term of this Lease commencing 2000. Three separate
indicators, each to be factored separately by one-third of the Operating Cost
Adjustment Base, are used to provide a reasonably broad base to determine the
amount of such adjustment. These indicators are the Consumer Price Index, the
cost of electricity and janitorial hourly labor rate.

     3.2  The base indices for the Consumer Price Index, the cost of
electricity and janitorial hourly labor rate, shall be as stated in Section
1.5. Succeeding indices for each of these indices will be calculated annually
thereafter, using the succeeding data for the month of September, 12-month
period ending September 30, and September 30, respectively. The ratio that each
succeeding index bears to its base index shall be reduced by 1.00 and
multiplied by one-third of the Operating Cost Adjustment Base, and by the
rentable area of the Leased Premises. Each January 1, commencing the calendar
year specified in Section 1.5, the Base Monthly Rent otherwise provided for in
this Lease shall be increased by 1/12th the sum of the amounts so determined.
In no event shall the Base Monthly Rent be decreased.

     3.3  The Consumer Price Index to be used shall be the Consumer Price Index
for all urban consumers, U.S. city average, all items, series 1982-84 equals
100 (as published by the U.S. Department of Labor, Bureau of Statistics). If
this index is revised or changed (as, for example, by taking the average index
for different years as the base figure of 100), the base index shall be
adjusted accordingly. If this index is discontinued, the index promulgated by
the Department of Labor, which most closely approximates the above-referenced
index, shall be used and the base index shall be adjusted accordingly.

     3.4  The cost of electricity to be used shall be the average cost to
Lessor per kilowatt-hour of electricity consumed in the Building for the
12-month periods ending the September 30 specified in Section 1.5 and each
September 30 thereafter.

     3.5  The janitorial hourly labor rate to be used shall be the hourly
compensation paid to persons employed as janitors in the Building, including
all applicable taxes and fringe benefits payable by employers.


                                       3

<PAGE>   5
      4.    REAL PROPERTY DESCRIPTION AND TAXES

      4.1   The legal description of the Land is:

      Commencing at the most southwesterly corner of Lot 12, of Block 61,
      Addition to Town of Seattle (commonly known as A.A. Denny's Fifth Addition
      to City of Seattle), according to plat recorded in Volume 1 of Plats, page
      89, in King County, Washington; thence north 30 degrees 37'08" west along
      the westerly line of said block 119.84 feet, to the true point of
      beginning; thence north 59 degrees 20'00" east 105.15 feet; thence north
      30 degrees 40'32" west 38.89 feet; thence north 59 degrees 23'00" east
      14.80 feet; thence north 30 degrees 37'00" west 0.55 feet; thence north 59
      degrees 20'14" east 135.80 feet to the easterly line of said block; thence
      south 30 degrees 35'43" east 116.45 feet to the westerly margin of
      Interstate No. 5; thence north 59 degrees 24'17" east 33.00 feet to the
      centerline of vacated Seventh Avenue; thence north 30 degrees 35'43" west
      along said centerline 311.89 feet to the southerly margin of Union Street
      as created by City of Seattle Ordinance No. 18188; thence south 59 degrees
      22'04" west along said southerly margin 288.79 feet to the easterly margin
      of Sixth Avenue; thence south 30 degrees 37'08" east 234.99 feet to the
      true point of beginning; and Lots 1, 4, 5 and 8 in Block 64, of said
      addition except the portions thereof condemned under King County Superior
      Court Cause Nos. 62589, 570519 and 566654; together with portion of
      vacated alley and Seventh Avenue lying adjacent to and abutting thereon as
      provided by Ordinance Nos. 107299 and 111138, respectively, of the City of
      Seattle, and portion of vacated alley conveyed to Lessor by deed recorded
      under King County Receiving No. 8010090702.

      4.2   Lessor shall pay all real property taxes and assessments which may
be levied against the Building and the Land. If the amount of such real property
taxes and assessment installments payable in any calendar year during the lease
term exceeds the amount thereof payable during the calendar year the lease term
commences, then on April 1 and October 1 of each such year, Lessee shall pay
Lessor an amount equal to one-half of such excess multiplied by the percentage
in Section 1.2. Upon Lessee's request, Lessor shall furnish copies of the real
property tax statement for the year in which the additional payment is requested
and the year the lease term commenced.

      The foregoing charges constitute additional rent, which shall be deemed to
accrue uniformly during the calendar year in which the payment is due. Payment
under the provisions of this Section for the year the lease term ends shall be
prorated, based on reasonable projections of the increase through the
termination of this Lease and shall be due thirty (30) days before such
termination.

      5.  POSSESSION

      5.1   In the event of the inability of Lessor to deliver possession of the
Leased Premises or any portion thereof, at the time of the commencement of the
term of this Lease, Lessor shall not be liable for any damage caused thereby,
nor shall this Lease thereby become void or voidable. Lessee shall not be liable
for payment of any rent until such time as Lessor can deliver possession,


                                       4
 

<PAGE>   6

except as may be otherwise provided in an Exhibit to this Lease. If Lessor
shall deliver possession of the Leased Premises to Lessee prior to the
commencement date of this Lease and Lessee agrees to accept the same at such
time, both Lessor and Lessee agree to be bound by all provisions and
obligations of this Lease during the period of occupancy prior to commencement,
including the payment of rent at the same monthly rate, prorated for the prior
period.

     5.2  Notwithstanding the foregoing, Lessor will proceed diligently and in
good faith to complete all of the tenant improvement work as outlined in
Section 30 and Exhibit B and to deliver the Leased Premises to Lessee in a
substantially completed condition on August 15, 1998 subject to delays caused
by Lessee or its agents; strikes or labor disputes; material shortages; fire or
other casualty; acts of God or other causes beyond Lessor's control for which
rent shall not commence until substantial completion of the tenant improvement
work. In the event of a delay caused by Lessee, the substantial completion date
shall be extended by the number of days of said delay. However, rent shall
commence on August 15, 1998 if such delay is caused by Lessee. In the event
Lessor is unable to deliver the Leased Premises to Lessee by October 1, 1998
(and said delay was not caused by Lessee), then Lessee, upon thirty (30) days
prior notice may cancel the Lease on the date specified in such notice, unless
the Lease Premises are substantially completed by said date.

     6.   ACCEPTANCE AND CARE OF PREMISES

     6.1  Taking of possession of the Leased Premises by Lessee shall be
conclusive evidence the Leased Premises were, on that date, in good, clean and
tenantable condition, except for latent defects and punch list items not yet
completed.

     6.2  Lessee shall keep the Leased Premises neat and clean and in a
sanitary condition and shall at all times preserve them in as good condition
and repair as they now are, or may hereafter be put into, reasonable use and
wear and damage by fire or other unavoidable casualty excepted. All damage or
injury done to the Leased Premises by Lessee or by any persons who may be in or
upon the Leased Premises with the consent of Lessee, including the cracking or
breaking of glass of any windows and doors, shall be paid for by Lessee and
Lessee shall pay for all damage to the Building caused by Lessee's misuse of
the Leased Premises or the appurtenances thereto. Lessee shall not put
any curtains, draperies or other hangings on or beside the windows in the
Leased Premises without first obtaining Lessor's consent. If Lessee shall fail
to keep and preserve the Leased Premises in said condition and state of repair
Lessor may at its option put or cause the same to be put into the condition and
state of repair agreed upon, and in such case Lessee, on demand, shall pay the
cost thereof.

     7.   ALTERATIONS

     Lessee shall design the Tenant Work so they will comply with then
applicable laws at the commencement of the lease term. Lessee shall not make
any alterations, additions or improvements in or to the Leased Premises, or
make changes to locks on doors, or add, disturb or in any way change any
plumbing or wiring therein, without the prior written consent of Lessor, which
shall not be unreasonably withheld. Lessor may require that any such work be
performed 


                                       5

<PAGE>   7

by Lessor's employees or contractor(s) employed by Lessor. Lessor, at its
option, may at its own expense make any repairs, alterations or improvements
which Lessor may deem necessary or advisable for the preservation, safety or
improvement of the Leased Premises or the Building, provided only that Lessee
shall at all times have reasonable access and use of the Leased Premises.
Lessee shall, at its own expense, make any alterations, additions or
improvements to the Leased Premises, which are required by law during the term
of this Lease. Lessor's approval concerning the initial improvement or any
subsequent alteration, addition or improvement of the Leased Premises is for
Lessor's benefit only and shall not create any responsibility or liability on
the part of Lessor for design sufficiency or compliance with applicable laws.

     8.   INSPECTION AND REPAIRS

     Lessor shall have the right with reasonable notice, except in emergencies
to inspect the Leased Premises at all reasonable times and the right to enter
the same for the purpose of cleaning, repairing, altering or improving the
same, or the Building, but nothing contained in this Lease shall be construed
so as to impose any obligation on Lessor to make any repairs, alterations or
improvements except as expressly provided in Section 9.

     9.   SERVICES BY LESSOR

     Lessor will, at its expense, provided Lessee is not in default, furnish
Lessee with the following services and utilities:

     (a)  Elevator service during normal business hours of the Building (8:00
a.m. to 6:00 p.m. -- Monday through Friday and 9:00 a.m. to 1:00 p.m. --
Saturday, except legal holidays generally observed in the State of Washington)
and the service of at least one elevator during all other hours.

     (b)  Heating and air cooling to maintain a temperature condition which in
Lessor's reasonable judgment provides for comfortable occupancy of the Leased
Premises during normal business hours of the Building, under normal business
operations, provided Lessee complies with Lessor's instructions regarding use
of drapes and thermostats and Lessee does not utilize heat generating machines
or equipment other than normal office equipment in normal quantities, such as
Desktop PC's, printers, and fax machines, which affect the temperature
otherwise maintained by the air cooling system. Upon request Lessor shall make
available at Lessee's expense after hours heat or air cooling. The minimum use
of after hours heat or air cooling and the cost thereof shall be determined by
Lessor and confirmed in writing to Lessee, as the same may change from time to
time. In addition to any and all other rights and remedies which Lessor may
invoke for a violation or breach of this Lease, Lessor may discontinue said
heating and air cooling service without any abatement of rent whatsoever.

     (c)  Water for drinking, lavatory and toilet purposes.

     (d)  Electricity for building standard lighting and operation of low power
usage office machines in quantities usually furnished by Lessor to tenants in
the Building for general office use.


                                       6


<PAGE>   8
Low power usage machines are typewriters, desk top calculators, desk top
computer terminals and similar equipment with similar power requirements which
operate on 110 volt circuits.

     (e)  Janitorial service and window washing. This service includes vacuum
cleaning of carpets and cleaning of Building standard vinyl composition tile,
but no other services with respect to carpets or non-standard floor coverings.
Shampoo or similar cleaning of carpets and repair and replacement of carpets
shall be Lessee's responsibility and at Lessee's expense.

     (f)  Maintain the exterior window blinds or draperies, windows, doors,
floors, walls, ceilings, plumbing and plumbing fixtures, and electrical
distribution system and lighting fixtures in good condition and repair, except
for damage caused by Lessee, its employees, agents, invitees or visitors, and
except that such service will not be provided as to any of the foregoing items
that are not standard for the Building. Lessor shall maintain, repair, replace
and keep in a first-class condition comparable to other first-class or Class A
office buildings in the downtown Seattle, Washington area, the Common Areas
(including, without limitation, the lobbies, elevators, stairs, parking areas,
grounds, loading areas and corridors), the roofs, foundations, load-bearing
elements, conduits and structural walls and other structural elements of the
Building, the underground utility and sewer pipes of the Building, all base
building mechanical, electrical, plumbing, HVAC system, access control system
and the sprinkler system and other fire and life-safety systems, as well as
window blinds and draperies. All repairs and maintenance required of Lessor
pursuant to this Section or elsewhere in the Lease shall be performed in
accordance with standards applicable to comparable first-class office buildings
in the downtown Seattle, Washington area, and performed in a timely and diligent
fashion. Lessor agrees to diligently attend to any routine repairs or
maintenance needs brought to its attention by Lessee as soon as reasonably
practicable. Lessor shall coordinate all maintenance and repair work with
respect to the Leased Premises with Lessee and shall perform the same in a
manner to minimize to the extend possible any disruption of Lessee's business
activities.

     (g)  Replacement of burned out fluorescent tubes in light fixtures which
are standard for the Building. Burned out bulbs, tubes or other light sources
in fixtures which are not standard for the Building will be replaced by Lessor
at Lessee's expense.

     9.2  Lessor shall use reasonable diligence to remedy an interruption in
the furnishing of such services and utilities. If, however, any governmental
authority imposes regulations, controls or other restrictions upon Lessor or
the Building which would require a change in the services provided by Lessor
under this Lease, Lessor may comply with such regulations, controls or other
restrictions, including without limitation, curtailment, rationing or
restrictions on the use of electricity or any other form of energy serving the
Leased Premises. Lessee will cooperate and do such things as are reasonably
necessary to enable Lessor to comply with such regulations, controls or other
restrictions.

     9.3  Whenever heat generating machines or equipment other than low power
usage machines, or lighting other than building standard lights are used in the
Leased Premises by Lessee which affect the temperature otherwise maintained by
the air cooling system, Lessor shall have the right to install supplementary
air cooling units in the Leased Premises, and the cost




                                       7

<PAGE>   9
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Lessee to Lessor upon billing by Lessor.
Lessor may impose a reasonable charge for utilities and services, including
without limitation, air cooling, electric current and water, required to be
provided the Leased Premises by reason of, (a) any substantial recurrent use of
the Leased Premises at any time other than the hours of 8:00 a.m. to 6:00 p.m.,
Monday through Friday, (b) any use beyond what Lessor agrees to furnish as
described above, (c) electricity used by equipment designated by Lessor as
high power usage equipment or (d) the installation, maintenance, repair,
replacement or operation of supplementary air cooling equipment, additional
electrical systems or other equipment required by reason of special electrical,
heating, cooling or ventilating requirements of equipment used by Lessee at the
Leased Premises. High power usage equipment includes without limitation, data
processing machines, punch card machines, computers and machines which operate
on 220 volt circuits. Lessee shall not install or operate high power usage
equipment on the Leased Premises without Lessor's prior written consent, which
may be refused unless Lessee confirms in writing its obligation to pay the
additional charges necessitated by such equipment. At Lessor's option, separate
meters for such utilities and services may be installed for the Leased Premises
and Lessee upon demand therefor, shall immediately pay Lessor for the
installation, maintenance, repair and replacement of such meters.

     9.4  Lessor does not warrant that any of the services and utilities
referred to above will be free from interruption. Interruption of services and
utilities shall not be deemed an eviction or disturbance of Lessee's use and
possession of the Leased Premises or any part thereof or render Lessor liable
to Lessee for damages, or relieve Lessee from performance of Lessee's
obligations under this Lease. In the event there is an interruption in heating,
cooling, electricity, water or elevator services to the Leased Premises which
materially disrupts Lessee's ability to conduct business within the Leased
Premises and such interruption was not caused by Lessee, Lessor shall
diligently pursue the remedy of such interruption and in the event said
interruption is in excess of five (5) days and is not caused by Lessee, then on
the sixth (6th) day following such interruption, all rent shall be abated until
such services are restored. In the event such interruption cannot be remedied
within thirty (30) days of such interruption and such interruption was not
caused by Lessee, then, upon five (5) days written notice to Lessor, Lessee may
cancel the Lease unless within such five (5) day period Lessor remedies the
interruption.

     10.  FIRE OR OTHER CASUALTY

     In the event the Building or the Leased Premises shall be destroyed or
rendered untenantable, either wholly or in part, by fire or other casualty,
Lessor may, at its option, restore the Building or Leased Premises to as near
their previous condition as is reasonably possible, and in the meantime the
rent shall be abated in the same proportion as the untenantable portion of the
Leased Premises bears to the whole thereof; but unless Lessor, within sixty
(60) days after the happening of any such casualty, shall notify Lessee of its
election to so restore, this Lease shall thereupon terminate and end. Such
restoration by Lessor shall not include replacement of furniture, equipment or
other items that do not become part of the Building or any improvements to the
Leased Premises in excess of those provided for in the allowance for building
standard items.



                                       8

<PAGE>   10
     11.  WAIVER OF SUBROGATION

     Anything in this Lease to the contrary notwithstanding, Lessor and Lessee
each hereby waives any and all claims against the other, its agents, officers,
directors, shareholders or employees, for loss or damage to the Leased Premises
or the Building, or any personal property of such party therein, that is caused
by or results from fire and other perils insured against under (a) the normal
fire with extended coverage property insurance policies, or (b) the standard
business interruption insurance policies, carried by the parties and in force
at the time of damage or loss. Each party shall cause each such insurance policy
obtained by it to provide that the insurance company waives all right to
recovery by way of subrogation against the other party in connection with any
such damage or loss.

     12.  USES

     The Leased Premises are to be used only for the uses specified in Section
1.6 hereof, and for no other business or purpose without the prior written
consent of Lessor. Lessee shall comply with all applicable laws, ordinances,
rules and regulations in its use and occupancy of the Leased Premises,
including those related to the use and disposal of hazardous substances and
materials, and shall indemnify and hold Lessor harmless from any loss or damage
resulting therefrom. Lessee shall not allow anything to be done in the Leased
Premises which will increase the existing rate of insurance on the Building,
and will immediately reimburse Lessor for any such resulting increase. Lessee
shall not commit or allow to be committed any waste upon the Leased Premises,
or any public or private nuisance or other act or thing which disturbs the
quiet enjoyment of any other tenant in the Building. Lessee shall not, without
the prior written consent of Lessor, use any apparatus, machinery or device in
or about the Leased Premises which will cause any substantial noise or
vibration. If any of Lessee's office machines and equipment should disturb the
quiet enjoyment of any other tenant in the Building, then Lessee shall provide
adequate insulation, or take such other action as may be necessary to eliminate
the disturbance. Lessee shall comply with all laws relating to its use of the
Leased Premises.

     13.  SIGNS AND ADVERTISING

     Except for Lessee's signage in the elevator lobby of the 10th floor, or in
its reception area, Lessee shall not inscribe any inscription or post, place,
or in any manner display any sign, notice, picture, placard or poster, or any
advertising matter whatsoever, anywhere in or about the Leased Premises or the
Building at places visible (either directly or indirectly as an outline or
shadow on a glass pane) from anywhere outside the Leased Premises without first
obtaining Lessor's written consent thereto. Any such consent by Lessor shall be
upon the understanding and condition that Lessee will remove the same at the
expiration or sooner termination of this Lease and Lessee shall pay Lessor the
cost to repair any damage to the Leased Premises or the Building caused
thereby. Lessor shall have the right to prohibit any advertising by Lessee
which, in its opinion, tends to impair the reputation of the Building as a
first-class shopping, business or professional area.




                                       9

<PAGE>   11
     14.  ACCIDENTS AND INDEMNITY

     14.1 Lessee shall protect, defend, indemnify and hold Lessor harmless from
all loss, damage, liability or expense, including attorneys' fees, resulting
from any injury to any person or any loss of or damage to any property caused
by or resulting from any act, omission or negligence of Lessee or any officer,
employee, agent, contractor, invitee, or visitor of Lessee in or about the
Leased Premises or the Building, but the foregoing provision shall not be
construed to make Lessee responsible for loss, damage, liability or expense
resulting from injuries to third parties caused by any act, omission or
negligence of Lessor, or of any officer, employee, agent, contractor, invitee
or visitor of Lessor. Lessor shall not be liable for any loss or damage to
person or property sustained by Lessee, or other persons, which may be caused by
the Building or the Leased Premises, or any appurtenances thereto, being out of
repair, or by the bursting or leakage of any water, gas, sewer or steam pipe,
or by theft, or by any act of neglect of any tenant or occupant of the
Building, or of any other person, or by any other cause of whatsoever nature
except for Lessor's gross negligence.

     14.2 Subject to the provisions of Section 11 above, Lessor shall protect,
defend, indemnify and hold Lessee harmless from all loss, damage, liability or
expense, including reasonable attorneys' fees, resulting from any injury to any
person or any loss of or damage to any property caused by or resulting from any
act, omission or gross negligence of Lessor or any officer, employee, agent,
contractor, customers or visitors of Lessor in the Building, but the foregoing
provision shall not be construed to make Lessor responsible for loss, damage,
liability or expense resulting from injuries to third parties caused by an act,
omission or negligence of Lessee, or of any officer, employee, agent,
contractor, customers or visitors of Lessee.

     14.3 Liability Insurance. Lessee shall, throughout the term of this Lease
and any renewal hereof, at its own expense, keep and maintain in full force and
effect, a policy of commercial general liability insurance including a
contractural liability endorsement covering Lessee's obligations under this
Lease, insuring Lessee's activities upon, in or about the Leased Premises or
the Building against claims of bodily injury or death or property damage or
loss with a limit of not less than One Million Dollars ($1,000,000) combined
single limit.

     14.4 Property Insurance. Lessee shall, throughout the term of this Lease
and any renewal hereof, at its own expense, keep and maintain in full force and
effect, what is commonly referred to as "all risk" coverage insurance (but
excluding earthquake and flood) on Lessee's leasehold improvements and personal
property and equipment in the Leased Premises in an amount not less than the
current One Hundred Percent (100%) replacement value thereof.

     14.5 Insurance Policy Requirements. All insurance under this Section 14
shall be with companies satisfactory to Lessor and authorized to do business in
Washington, and Lessor shall be named as an additional insured on all such
policies of Lessee. No insurance policy required hereunder shall be cancelled
or reduced in coverage and each insurance policy shall provide that it is not
subject to cancellation or a reduction in coverage except after thirty (30)
days prior written notice to Lessor. Lessee shall deliver to Lessor prior to
commencement of the lease term and from time to time thereafter, copies of
policies of such insurance or certificates evidencing the



                                       10

<PAGE>   12
existence and amounts of same and naming Lessor as an additional insured
thereunder. In no event shall the limits of any insurance policy required
hereunder be considered as limiting the liability of Lessee under this Lease.

      15.   LIENS AND INSOLVENCY

      Lessee shall keep the Leased Premises and the Building free from any liens
arising out of any work performed, materials ordered or obligations incurred by
Lessee. If Lessee becomes insolvent, voluntarily or involuntarily bankrupt, or
if a receiver, or assignee or other liquidating officer is appointed for the
business of Lessee, then Lessor, at its option, may immediately or any time
thereafter terminate Lessee's right of possession under this Lease.

      16.   DEFAULT AND RE-ENTRY

      Lessee covenants as a material part of the consideration for this Lease
to keep and perform each and all of said terms, covenants and conditions by
Lessee to be kept and performed and that this Lease is made upon the condition
of such performance. Except for a default under the preceding Section 15 for
which immediate right of termination is given to Lessor, if Lessee fails to pay
any installment of rent within three (3) days after written notice, or to
perform any other covenant under this Lease within thirty (30) days after
written notice from Lessor stating the nature of the default, Lessor may
terminate this Lease and re-enter and take possession of the Leased Premises
using such force as may be necessary; provided that if the nature of such
default other than for non-payment of rent is such that the same cannot
reasonably be cured within such thirty-day period, Lessee shall not be deemed to
be in default if Lessee shall within such period commence such cure and
thereafter diligently prosecute the same to completion. If Lessor elects to
terminate this Lease, Lessor may declare all rent owing for the remainder of the
Term immediately due and payable, less the amount Lessee proves could reasonably
be collected during such period. Notwithstanding such retaking of possession by
Lessor and/or termination of this Lease, Lessee's liability for the rent
provided herein shall not be extinguished for the balance of the term of this
Lease, and Lessee shall make good to Lessor any deficiency arising from a
reletting of the Leased Premises at a lesser rental, plus the reasonable costs
and expenses of renovating or altering the Leased Premises and the reasonable
costs and expenses of reletting the Leased Premises, including but not limited
to, lease commissions, tenant improvements, etc. Lessee shall pay any such
deficiency each month as the amount thereof is ascertained by Lessor. If Lessor
retakes possession, Lessor shall have the right to let any other available space
in the Building before reletting or attempting to relet the Leased Premises, and
such action shall not relieve Lessee of any of its obligations hereunder. All
remedies provided herein are cumulative and are in addition to those provided by
law.

      17.   REMOVAL OF PROPERTY AND REPLACEMENT OF NON-STANDARD ITEMS

      Upon the expiration or termination of the lease term, Lessee shall at its
expense remove Lessee's goods and effects and those of all persons claiming
under Lessee. Lessee shall also be required to remove all data and
telecommunications cabling installed for use by Lessee in or


                                       11

<PAGE>   13
around the Leased Premises (including Building telecommunication closets and
risers). Any property left in the Leased Premises after the expiration or
termination of the lease term shall be deemed to have been abandoned and the
property of Lessor to dispose of as Lessor deems expedient at Lessee's expense.

     18.  NON-WAIVER

     Failure of Lessor to insist, in any one or more instances, upon strict
performance of any term, covenant or condition of this Lease, or to exercise
any option herein contained, shall not be construed as a waiver, or a
relinquishment for the future, of such term, covenant, condition or option, but
the same shall continue and remain in full force and effect. The receipt by
Lessor of rents with knowledge of a breach of any of the terms, covenants or
conditions of this Lease to be kept or performed by Lessee shall not be deemed
a waiver of such breach, and Lessor shall not be deemed to have waived any
provision of this Lease unless expressed in writing and signed by Lessor.

     19.  COSTS AND ATTORNEYS' FEES

     To the extent permitted by law, in any action or proceeding brought by
either party against the other under this Lease, the substantially prevailing
party shall be entitled to recover from the other party its actual professional
fees (such as appraisers', accountants' and attorneys' fees), investigation
costs, and other legal expenses and court costs incurred by the prevailing
party in such action or proceeding, in such amounts as the presiding court
deems reasonable.

     20.  PRIORITY

     Lessee agrees that this Lease shall be subordinate to any first mortgages
or deeds of trust that may hereafter be placed upon the Leased Premises or the
Building containing the same, and to any and all advances to be made
thereunder, and to the interest thereon, and all renewals, replacement and
extensions thereof provided that such mortgagee agrees not to disturb Lessee's
possession of the Leased Premises (except in the event of a default by Lessee
beyond applicable cure periods). Within fifteen (15) days after written request
from Lessor, Lessee shall execute any documents that may be reasonably
necessary or desirable to effectuate the subordination of this Lease to any
such mortgages or deeds of trust and shall execute estoppel certificates as
requested by Lessor from time to time in the standard form of any such
mortgagee or beneficiary.

     21.  CONDEMNATION

     If all of the Leased Premises or such portions of the Building as may be
required for the reasonable use of the Leased Premises, are taken by eminent
domain, this Lease shall automatically terminate as of the date Lessee is
required to vacate the Leased Premises and all rent shall be paid to that date.
In case of a taking of a part of the Leased Premises, or a portion of the
Building not required for the reasonable use of the Leased Premises, then this
Lease shall continue in full force and effect and the rent shall be equitably
reduced based on the proportion by which the floor area of the Leased Premises
is reduced, such rent reduction to be effective as of


                                       12

<PAGE>   14
the date possession of such portion is delivered to the condemning authority.
Lessor reserves all rights to damages to the Leased Premises for any taking by
eminent domain, and Lessee hereby assigns to Lessor any right Lessee may have
to such damages or award, and Lessee shall make no claim against Lessor for
damages for termination of the leasehold interest or interference with Lessee's
business. Lessee shall have the right, however, to claim and recover from the
condemning authority compensation for any loss to which Lessee may be put for
Lessee's moving expenses and for the interruption of or damage to Lessee's
business, provided, that such damages may be claimed only if they are awarded
separately in the eminent domain proceeding and not as part of the damages
recoverable by Lessor.

     22.   ASSIGNMENT AND SUBLETTING

     22.1  Lessee shall not, without the prior written consent of Lessor which
shall not be unreasonably withheld, assign this Lease or any interest therein,
or sublet the Leased Premises or any part thereof, or permit the use of the
Leased Premises by any party other than Lessee or mortgage or otherwise
transfer this Lease (collectively "transfer"). Such consent shall be entirely
discretionary with Lessor, except as otherwise provided in Section 22.5.
Consent to one such transfer shall not destroy or waive this provision, and all
subsequent transfers shall likewise be made only upon obtaining prior written
consent of Lessor. Sublessees or assignees shall become directly liable to
Lessor for all obligations of Lessee hereunder, without relieving Lessee of any
liability.

      22.2  If Lessee wishes to assign this Lease or sublet the Leased Premises
or any part thereof, Lessee shall first given written notice ("Lessee's Notice")
to Lessor of its intention to do so, which notice shall contain the name of the
proposed assignee or subtenant (collectively "transferee"), the nature of the
proposed transferee's business to be carried on in the Leased Premises and the
terms and provisions of the proposed assignment or sublease. Lessee shall also
provide Lessor with a copy of the proposed assignment or sublease when it is
available and such financial and other information with respect to the proposed
transferee and transfer that Lessor may reasonably require.

      At any time within thirty (30) days after Lessor's receipt of Lessee's
Notice, Lessor may by written notice ("Lessor's Notice") to Lessee elect to,
(a) recapture the affected space by terminating this Lease as to the portion of
the Leased Premises covered by the proposed sublease or assignment effective
upon a date specified in Lessor's Notice, which date shall not be earlier than
thirty (30) days nor later than sixty (60) days after Lessor's Notice, with a
proportionate reduction of all rights and obligations of Lessee hereunder that
are based on the area of the Leased Premises, (b) consent to the proposed
sublease or assignment, or (c) disapprove the proposed sublease or assignment.
If Lessor's Notice states Lessor elects to exercise the recapture option
described above, Lessee shall have the option for a period of ten (10) days
after receipt of Lessor's Notice, by written notice to Lessor within such
period, to withdraw Lessee's Notice of proposed transfer and not proceed with
the proposed sublease or assignment.

      22.3  Whether or not Lessor consents to a proposed transfer, Lessee shall
reimburse Lessor on demand for any and all reasonable costs that may be
incurred by Lessor in connection



                                       13

<PAGE>   15
with any proposed transfer including, without limitation, the reasonable cost
of investigating the acceptability of the proposed transferee and attorneys'
fees incurred in connection with each proposed transfer not to exceed Five
Hundred and 00/100 dollars ($500.00) per occurrence.

      22.4  If Lessor consents to any proposed assignment or sublease, (a)
Lessee may enter into same, but only upon the specific terms and conditions set
forth in Lessee's Notice, (b) any sublease or assignment shall be subject to,
and in full compliance with, all of the terms and provisions of this Lease, (c)
the consent by Lessor to any assignment of sublease shall not relieve Lessee of
any obligation under this Lease, (d) each transferee shall assume all
obligations of Lessee under this Lease and shall be and remain jointly and
severally liable with Lessee for the payment of rent, and the performance of
all of the terms, covenants, conditions and agreements herein contained on
Lessee's part to be performed, (e) no assignment shall be binding on Lessor
unless Lessee and the transferee shall deliver to Lessor a counterpart of the
assignment that contains a covenant of assumption by the transferee
satisfactory to Lessor and is otherwise satisfactory in form and substance to
Lessor, and (f) any rent or other consideration accruing to Lessee as the result
of such assignment of sublease which is in excess of the rent then being paid
by Lessee for the portion of the Leased Premises affected by the assignment or
sublease, shall be paid by Lessee to Lessor monthly as additional rent.

      22.5  Notwithstanding the foregoing, in the event of a proposed
assignment or sublease, if Lessor does not exercise its option to recapture
under Section 22.3, then Lessor will not unreasonably withhold its consent
thereto if (a) Lessee is not then in default hereunder, (b) the proposed
transferee will continuously occupy and use the Leased Premises for the term of
the transfer, (c) the use by the proposed transferee will be a business office
consistent in quality to and otherwise compatible with the other tenants in the
Building, (d) the proposed transferee is reputable and of sound financial
condition, and (e) the use by the proposed transferee will not violate any
rights of exclusivity granted to other tenants or any other restrictions on use
to which Lessor is subject.

      22.6  Notwithstanding anything to the contrary in this Lease, so long as
such transfer is not effectuated as part of a transaction or series of
transfers orchestrated in order to effect a transfer of this Lease (or Lessee's
interest herein) in isolation to Lessee's other leasehold interests and assets,
Lessor's written consent shall not be required for any sublease, assignment or
other transfer of this Lease to any other entity which (i) controls, is
controlled by or is under common control with Lessee, or (ii) is controlled by
Lessee's parent company, or (iii) which purchases all or substantially all of
the assets of Lessee, or (iv) which purchases all or substantially all of the
stock of Lessee, provided, however, that in such event Lessee shall continue to
remain fully liable under the Lease on a joint and several basis with the
assignee or acquiror of such assets or stock. Lessee shall be required to give
Lessor at least thirty (30) days written notice in advance of any such sublease
or assignment, except with respect to transfers by operation of law occasioned
through a sale of publicly traded shares in Lessee. Sales of publicly traded
stock in Lessee shall not constitute a transfer for purposes of this Lease.

      22.7  Any option(s) granted to Lessee in this Lease or any option(s)
granted to Lessee in any amendments to this Lease, to the extent that said
option(s) have not been exercised, shall



                                       14

<PAGE>   16
terminate and be voided in the event this Lease or any portion thereof is
assigned, or any part of the Leased Premises are sublet, or all or any portion
of Lessee's interest in the Leased Premises are otherwise transferred.

     22.8 Lessor understands that Lessee desires to sublease a portion of the
Leased Premises and therefore not withstanding anything contrary contained
herein, Lessee shall have the rights to sublease the space set forth in Exhibit
D attached hereto during the Lease Term without Lessor's right to recapture as
set forth in Section 22.2(a).

     23.  RULES, REGULATIONS AND MISCELLANEOUS

     23.1 Lessee shall use the Leased Premises and the public areas in the
Building in accordance with such reasonable rules and regulations as may from
time to time be adopted by Lessor for the general safety, care and cleanliness
of the Leased Premises or the Building, and the preservation of good order
therein, and shall cause Lessee's employees, agents, invitees and visitors to
abide by such rules and regulations; provided that such rules and regulations
do not unreasonably interfere with the Lessee's use of the Leased Premises and
Building.

     23.2 Lessee shall not place any boxes, cartons, or other rubbish in the
corridors or other public areas of the Building.

     23.3 Lessor does not guarantee the continued present status of light or
air over any premises adjoining or in the vicinity of the Building. Any
diminution or shutting off of light, air or view by any structure which may be
erected on lands near or adjacent to the Building shall in no way affect this
Lease or impose any liability on Lessor.

     23.4 Lessee shall conserve heat, air-conditioning, water and electricity
and shall use due care in the use of the Leased Premises and of the public
areas in the Building, and without qualifying the foregoing, shall not neglect
or misuse water fixtures, electric lights and heating and air-conditioning
apparatus.

     23.5 Lessor shall not other than during normal business hours admit to the
Leased Premises the Lessee or any of the Lessee's agents or employees or other
persons claiming the right of admittance.

     23.6 Lessee shall peaceably and quietly enjoy the Leased Premises so long
as it pays the rent payable by it hereunder and is not in default in performing
all the provisions of this Lease.

     23.7 The titles to sections of this Lease are for convenience only and
shall have no effect upon the construction or interpretation of any part
thereof. This Lease shall be governed by the laws of the State of Washington.

     23.8 All notices under this Lease shall be in writing and delivered in
person or sent by registered or certified mail to Lessor at the same place rent
payments are made, and to Lessee at the Leased Premises, or such addresses as
may hereafter be designated by either party in writing.

                                       15


 



<PAGE>   17
Notices mailed as aforesaid shall be deemed given on the date of actual receipt
or rejection of the notice.

     23.9  The rent herein is exclusive of any sales, business and occupation,
gross receipts or other tax based on rents or tax upon this Lease or tax upon
or measured by the number of employees of Lessee or the area of the Leased
Premises or any similar tax or charge. If any such tax or charge be hereafter
enacted, Lessee shall reimburse to Lessor the amount thereof together with each
Base Monthly Rent payment. If it shall not be lawful for Lessee so to reimburse
Lessor, the Base Monthly Rent payable to Lessor under this Lease shall be
revised to net Lessor the same net rental after imposition of any such tax or
charge upon Lessor as would have been payable to Lessor prior to the imposition
of such tax or charge. Lessee shall not be liable to reimburse Lessor for any
federal income tax.

     23.10 Lessee shall not place any plants, sculptures or other items so as
to be located wholly or partially in the public corridor portions of the
Building without Lessor's prior written approval.

     23.11 All improvements, alterations or additions which may be made by
either of the parties hereto upon the Leased Premises, except movable office
furnishings, shall become part of the Building when made, and shall remain upon
and be surrendered with the Leased Premises as a part thereof. The maintenance
and care of such improvements shall be the responsibility of Lessee, except as
otherwise provided in Section 9. For example, Lessor shall vacuum, but Lessee
shall shampoo, repair and replace carpets. Wall paneling, partitions, closets,
built-in cabinets, sinks, doors, however attached, floor coverings and other
built-in units of all kinds are a partial listing of improvements that become
property of Lessor as aforesaid. Wall hung office furniture, refrigerator/sink
units and other electrical appliances may be removed by Lessee provided the
reasonably estimated amount to cap plumbing and repair screw holes or other
damage is paid by Lessee to Lessor prior to such removal and such removal does
not cause any material damage to the property.

     23.12 The freight elevator shall not be used by Lessee or others to move
furniture, supplies or other items to or from the Leased Premises unless Lessee
prior to such use has scheduled and coordinated such use with Lessor's Service
Department. Lessee shall not permit passenger elevators to be used to move
furniture, supplies or other items to or from the Lease Premises. Lessee shall
cause its suppliers and other providers to comply with the foregoing provisions.

     23.13 The name of the Building may at any time be changed by Lessor.

     23.14 This Lease is the final and complete expression of the parties'
agreement and no representations, promises or agreements, oral or otherwise,
between the parties not embodied herein shall be of any force and effect.
Neither this Lease nor any provision hereof may be changed, waived, discharged
or terminated orally, but only by instrument in writing executed by Lessor and
Lessee.



                                       16


<PAGE>   18
     23.15 UNICO Properties, Inc. (UNICO) is Lessor's manager and rental agent
in all matters concerning this Lease and the Leased Premises, and the Lessee,
until notified in writing to the contrary by either the Lessor or UNICO or the
Assignee of Lessor's interest under this Lease, shall recognize such agency and
pay all rental, furnish all statements, and give any notice which the Lessee
may be under the duty of giving hereunder, or may elect to give hereunder, to
UNICO at its office in the City of Seattle, King County, Washington, instead of
to the Lessor. As long as such agency shall exist, the rights and options
extended to Lessor shall be deemed extended to UNICO, and each and every other
term and provision of this Lease which is in any way beneficial to the Lessor,
including especially every stipulation against liability, or limiting
liability, shall inure to the benefit of UNICO and its agents and shall be
applicable to UNICO and its agents in the same manner and as fully and with the
same effect as to Lessor. Whenever Lessor's consent is required, Lessee shall
request such consent from UNICO. The consent of UNICO shall be deemed the
consent of UNICO and Lessor.

     23.16 Lessee agrees to look only to the equity of Lessor in the Building
and the Land and not to Lessor personally with respect to any obligations or
payments due or which may become due from lessor hereunder, and no other
property or assets of Lessor or any partner, joint venturer, member, officer,
director, shareholder, agent, or employee of Lessor, disclosed or undisclosed,
shall be subject for the satisfaction of Lessee's claims under or with respect
to this Lease, and no partner, member, officer, director, agent or employee of
Lessor shall be personally liable in any manner or to any extent in connection
with this Lease. If at any time the holder of Lessor's interests hereunder is a
partnership, limited liability company or joint venture, a deficit in the
capital account of any partner, member or joint venturer shall not be
considered an asset of such partnership, limited liability company or joint
venture. In the event of a sale or conveyance by Lessor of the Building, the
same shall operate to release Lessor from any and all obligations and
liabilities on the part of Lessor accruing from and after the effective date of
the sale or conveyance as long as the Transferee receives the entire security
deposit and expressly assumes all future obligations of Lessor hereunder.

     23.17 Broker Commission Lessee shall defend, indemnify and hold Lessor
harmless from all claims and liabilities or expenses arising from agreements or
other arrangements made by or on behalf of Lessee with any brokers, finders or
other persons, except for a commission of Three and 50/100 dollars ($3.50) per
rentable square feet, which will be paid to Grubb & Ellis by Lessor, one-half
upon signing of the Lease and one-half upon the occupancy of the Leased
Premises by Lessee.

     23.19 Security Deposit Lessee has deposited the sum specified in Section
1.10 with Lessor. Lessor shall pay the remaining balance thereof to Lessee,
inclusive of one-half of the interest accrued, within thirty (30) days after
the expiration or prior termination of the lease term, or any extension
thereof, if Lessee has fully performed all of its obligations under this Lease.
Lessor may withdraw from the deposit the amount of any unpaid rent or
additional rent or other charges not paid to Lessee when due, and Lessee shall
immediately redeposit an amount equal to that so withdrawn.



                                       17


<PAGE>   19
     23.20  Holdover If Lessee remains in possession of all or part of the
Leased Premises after the expiration of the term of this Lease, with or without
Lessor's written consent, for each month or partial month of such possession,
Lessee shall pay Lessor an amount equal to one hundred fifty percent of the
Base Monthly Rent payable hereunder immediately prior to the expiration of the
term. Such holdover by Lessee shall not be deemed an extension of the term or
the grant by Lessor to Lessee of a month to month tenancy. Lessee shall also
indemnify and hold Lessor harmless from all loss, cost, liability and expense
incurred by Lessor if Lessee remains in such possession of all or part of the
Leased Premises without Lessor's prior written consent.

     23.21  Recording  Neither Lessor nor Lessee shall record this Lease or any
memorandum thereof.

     23.22  Directory Board  Lessor shall, throughout the term of this Lease,
maintain a directory board in the main lobby of the Building which shall list
Lessee, and up to ten (10) of Lessee's employees. The cost of said designations
shall be at Lessor's expense for the initial ten (10) designations and at
Lessee's expense thereafter.

     23.23  Authority  Each individual executing this Lease on behalf of Lessee
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of Lessee and that this Lease is binding on Lessee
in accordance with its terms.

     24.   SUCCESSORS

     All the covenants, agreements, terms and conditions contained in this
Lease shall apply to and be binding upon Lessor and Lessee and their respective
heirs, executors, administrators, successors and assigns.

     25.   SHARED TENANT SERVICES

     Lessee acknowledges that any provision of telecommunications and office
automation services and equipment ("Shared Tenant Services") by a third party
provider, including but not limited to Shared Technologies Inc., its agents,
affiliates and successors (collectively the "Provider") is entirely separate
and distinct from this Lease agreement and that Lessor has no duty of
performance concerning the provision of Shared Tenant Services. Lessee hereby
agrees to look solely to the provider for any failure in the provision of
Shared Tenant Services.

     26.   AMERICANS WITH DISABILITIES ACT (ADA) COMPLIANCE

     Lessor and Lessee acknowledge that, in accordance with the provisions of
the Americans with Disabilities Act (the "ADA"), responsibility for compliance
with the terms and conditions of Title III of the ADA may be allocated as
between Lessor and Lessee. Notwithstanding anything to the contrary contained in
the Lease, Lessor and Lessee agree that the responsibility for compliance with
the ADA (including, without limitation, the removal of architectural and
communications barriers and the provision of auxiliary aids and services to the
extent required) shall be allocated as follows: (i) Lessee shall be responsible
for compliance with the provisions of 


                                       18

<PAGE>   20
Title III of the ADA for any construction, renovations, alterations and repairs
made within the Leased Premises if such construction, renovations, alterations
and repairs are made by Lessee, at its expense without the assistance of the
Lessor; (ii) Lessee shall be responsible for compliance with the provisions of
Title III of the ADA for all construction, renovations, alterations and repairs
Lessor makes within the Leased Premises, whether at Lessor's or Lessee's
expense; and (iii) Lessor shall be responsible for compliance with the
provisions of Title III of the ADA for all exterior and interior areas of the
Building including the elevator lobby and restrooms located on the 10th floor
not included within the Leased Premises. Lessor agrees to indemnify and hold
Lessee harmless from and against any claims, damages, costs and liabilities
arising out of Lessor's failure, or alleged failure, as the case may be, to
comply with Title III of the ADA, which indemnification obligation shall
survive the expiration or termination of this Lease. Lessee agrees to indemnify
and hold Lessor harmless from and against any claims, damages, costs and
liabilities arising out of Lessee's failure, or alleged failure, as the case
may be, to comply with Title III of the ADA, which indemnification obligation
shall survive the expiration or termination of this Lease. Lessor and Lessee
each agree that the allocation of responsibility for ADA compliance shall not
require Lessor or Lessee to supervise, monitor or otherwise review the
compliance activities of the other with respect to its assumed responsibilities
for ADA compliance as set forth in this Section. The allocation of
responsibility for ADA compliance between Lessor and Lessee, and the
obligations of Lessor and Lessee established by such allocations, shall
supersede any other provisions of the Lease that may contradict or otherwise
differ from the requirements of this Section.

     27.  OPTION TO EXTEND

     27.1 Lessee may extend the term of this lease for one (1) additional
term(s) of five (5) years provided Lessee fully satisfies the conditions
hereafter stated. If so extended, this lease shall continue as though the
extended term were part of the original term except the base monthly rent
pursuant to Section 1.4 shall be the Market Rate for like space in like
buildings.

Lessee's right to extend the lease as above stated is subject to the following
conditions:

     (a)  Lessee shall give lessor six (6) months prior written notice pursuant
          to this section of the Lease. Lessor shall, within thirty (30) days
          thereafter, provide notification of the proposed rental rate for the
          extended term.

     (b)  Lessee shall not be in default under the Lease when said notice is
          given.  

     (c)  This Lease shall be in full force and effect when said notice is
          given.

     (d)  Lessee shall have confirmed in writing Lessee's obligation to pay the
          base monthly rent required by Lessor for the extended term within
          thirty (30) days of notification by Lessor of said rental rate.

     (e)  Upon receipt of Lessee's acknowledgement, Lessor shall prepare an
          amendment modifying the lease.

                                       19



     

<PAGE>   21
MARKET RATE

     27.2 As used in this lease, the term "Market Rate" at any point in time
shall mean the annual rate of base monthly rent per rentable square foot being
quoted by owners to renewing tenants (and being accepted by such renewing
tenants) at such points in time

     (i)  for space in the Building and for space in other office buildings in
            the downtown Seattle Central Business District that are comparable
            to the Building in age, class and quality, which space is comparable
            in size, location, configuration, view (to the extent relevant) and
            degree of existing leasehold improvements paid for by Lessor in the
            space in the Building to be leased by Lessee with respect to which
            such rate is to apply; and  

     (ii) for a lease term of substantially the same duration and commencement
            date as the Extended Term.

For purposes of this lease, Market Rate (determined without reduction for
concessions) shall not be reduced by reason of any concessions which are related
to costs that would be incurred if Lessee were then first moving into the Leased
Premises instead of renewing its existing lease. For example, Market Rate shall
not be reduced for concessions related to leasehold improvements to the extent
such concessions would be used to improve the leased space (virgin or otherwise)
for tenant improvements then in place in the leased premises, for broker fees,
or for other costs or concessions typically incurred by landlords for new
tenants but not for renewal tenants. Market Rate (determined without reduction
for concessions) may be reduced by reason of concessions then being granted to
renewing tenants such as rent abatements or refurbishment allowances, with the
amount of such concessions spread over the full term of the extended term.
Should Lessee not agree with Lessor's quoted rate it shall provide said
rejection in writing to Lessor and Lessor and Lessee shall attempt to agree on a
single arbitrator within fifteen (15) days thereafter as described below and
subject to the rights granted to Lessor under Section 27 outlined herein.

     27.3 Should Lessor and Lessee be unable to agree on the base monthly rent
for the extended term within thirty (30) days of notification from Lessor of
the rental rate, and if Lessor does not elect within fifteen (15) days
thereafter to have the Market Rate determined by arbitration, then Lessee may
rescind its exercise of this option to extend by written notice to Lessor
within thirty (30) days thereafter. Should Lessor elect within fifteen (15)
days thereafter to have Market Rate determined by arbitration, Lessee may
within three (3) days of such election rescind its option to extend. Such
arbitration shall be before one (1) disinterested and experienced arbitrator if
one can be agreed upon, otherwise before three (3) disinterested and
experienced arbitrators, one named by Lessor, one by Lessee, and one by the
two thus chosen; provided, that if said two arbitrators cannot agree upon a
third arbitrator within fifteen (15) days after they have been named, then a
third arbitrator shall be appointed by the presiding judge of the King County
Washington Superior Court upon motion of either Lessor or Lessee. A
"disinterested and experienced arbitrator" shall be a person (a) who shall not
have a direct or indirect financial interest in the decisions to be made by
the arbitrator(s); (b) who shall not be an officer, director, employee, or
agent of Lessor or Lessee, and (c) who shall have at least five (5) years
    

                                       20

<PAGE>   22
professional or business experience in the Seattle market with respect to the
management and leasing of commercial real estate as a property manager, broker
or other capacity. The arbitrator(s) shall determine the Market Rate for the
extended term. Except as may be otherwise provided in this Lease, the
arbitrator(s) shall conduct the arbitration proceedings in accordance with the
then currently published rules of the American Arbitration Association
applicable to commercial arbitration's. Except as may be otherwise provided in
this lease, the arbitrator(s) designated and acting under this lease shall make
his or their award in strict conformity with such rules and shall have no power
to depart from or change any of the provisions thereof. All arbitration's
proceedings hereunder shall be conducted in Seattle, Washington. The
appointment or arbitrators shall be signified in writing by each party to the
other. If Lessor or Lessee shall fail to so appoint an arbitrator for a period
of fifteen (15) days after written notice from the other party to make such
appointment, then the arbitrator appointed by the party not in default
hereunder shall appoint a second arbitrator, and the two so appointed shall
appoint a third arbitrator. The arbitrator(s), after being duly sworn to
perform his or their duties with impartiality and fidelity shall proceed to
determine the Market Rate for the extended term. The arbitration hearing shall
be conducted and the decision of the arbitrator(s) shall be rendered within
sixty (60) days after their appointment, and such decision shall be in writing
and in duplicate, one counterpart thereof to be delivered to each of the
parties hereto. The decision of the arbitrator(s) shall be binding, final and
conclusive on the parties. Fees of the arbitrator(s) and the expenses incident
to the proceeding shall be borne equally between Lessor and Lessee if a single
arbitrator is used. If three arbitrators are used, each party shall pay the fees
and costs of the arbitrator selected by it and the parties shall share equally
in the fees and costs of the third arbitrator. Fees of the respective counsel
engaged by the parties, and fees of expert witnesses or other witnesses called
by parties shall be paid by the respective party engaging such counsel or
calling or engaging such witness.

     28.  FIRST RIGHT TO LEASE

     Lessee shall have the first right to lease as additional space any
available vacant space on the 9th and 11th floors, subject to rights
previously granted to existing tenants (the FRL Space). If Lessor desires to
lease the space in question to a third party or take it off the market for any
reason whatsoever, Lessor shall notify Lessee of its intent along with the
economic terms by which Lessee may acquire the FRL space. Lessee shall have ten
(10) days after receipt of each such notice to advise Lessor in writing whether
or not it will add additional space to the leased premises. Failure to do so
shall be deemed an election not to add any FRL Space. If Lessee does not elect
to add any FRL space, then Lessor may lease the FRL Space in question to a
third party or take it off the market for any reason whatsoever. Lessee's right
under this Section 28 shall apply at any time that Lessor desires to lease the
space in question to a third party or to take the space off the market during
the Lease term. When FRL Space has been added to the leased premises, Lessee
shall pay base monthly rent and additional rent under Section 3 and 4 for the
added space under market terms and conditions. Within three (3) days after
receipt of Lessee's election or notice to lease FRL Space, Lessor will give
Lessee written notice of the base monthly rent required for the additional
space in a form which may be signed by Lessee confirming Lessee's obligation to
pay said base monthly rent for the FRL Space added to the leased premises. Upon
the execution of a lease for the additional space, Lessor and Lessee shall
diligently commence and pursue the completion of tenant improvement drawings for
the additional space so that the tenant improvement work can be priced and
commenced within forty-five (45) days after Lessee exercises the option to
acquire additional space.


                                       21

<PAGE>   23

Lessee's right to lease the FRL Space is subject to the following additional
conditions:

     (a)  Lessee shall not be in default under the Lease when said notice is
given.

     (b)  This Lease shall be in full force and effect when said notice is
given.

     (c)  Prior to occupancy of the FRL Space, Lessee shall have confirmed in
          writing Lessee's obligation to pay the base monthly rent for the FRL 
          Space.

     (d)  This lease has not been assigned or all or part of the leased
premises sublet, except as permitted under Section 22.6.

     (e)  Subject to rights granted to third parties, prior to the execution of
the Lease.

     29.  PARKING

     Lessor shall make available ten (10) monthly parking permits three (3) of
which must be designated carpool parking, which will be located in the Union
Square Garage during the lease term. The charges for such parking shall be at
the prevailing monthly rates during the term of this lease and paid by Lessee
to the operator of the garage wherein such parking is provided. The rates are
subject to change during the lease term.

     30.  TENANT IMPROVEMENT ALLOWANCE

     Lessor shall provide Lessee with a tenant improvement allowance of Ten
and 00/100 dollars ($10.00) per usable square foot for tenant improvements,
architectural and engineering fees. Lessor shall provide all of the tenant
improvement work and shall bid out such work to at least three (3)
subcontractors in each trade. Lessor's overhead and profit shall be limited to
five percent (5%) of the total project cost.


                                       22

 

<PAGE>   24

     IN WITNESS WHEREOF, this Lease has been executed by Lessor and Lessee as
of the day and year first above set forth.

LESSEE:                                   LESSOR:

InterNAP NETWORK SERVICES, INC.,          UNION SQUARE LIMITED
a Washington corporation                  PARTNERSHIP, a Washington Limited
                                          Partnership          

                                          By UNICO PROPERTIES, INC.
                                          (Manager and authorized rental agent 
                                          for Union Square Limited Partnership)
By /s/ PAUL E. McBRIDE
   ----------------------------------

Its VP Finance & Administration
    ---------------------------------

                                          By /s/ JOHN SCHOETTLER
                                             ----------------------------------
                                             John Schoettler, Vice President


                                       23

<PAGE>   25

                            LESSOR'S ACKNOWLEDGEMENT


STATE OF WASHINGTON   )      
                      )     ss.
COUNTY OF KING        )


     On this 18th day of June, 1998, before me personally appeared John
Schoettler, to me known to be the Vice President of UNICO PROPERTIES, INC., the
corporation that executed the within and foregoing instrument, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation and UNION SQUARE LIMITED PARTNERSHIP, for the uses and purposes
therein mentioned, and on oath stated that he (she) was authorized to execute
the said instrument and that the seal affixed (if any) is the corporate seal of
said corporation.

     IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.


[NOTARY SEAL]                           /s/ SHEILAH C. SABALZA
                                        ---------------------------------------
                                        Sheilah C. Sabalza
                                        Notary Public in and for the State of
                                        Washington, residing at Seattle.
                                        My commission expires: 4-02-2002.

<PAGE>   26


                       LESSEE'S CORPORATE ACKNOWLEDGEMENT


STATE OF WASHINGTON   )      
                      )     ss.
COUNTY OF KING        )


     On this 17th day of June, 1998, before me personally appeared Paul McBride
to me known to be the CFO of InterNAP NETWORK SERVICES INC., the corporation
that executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that they (he or she)
were authorized to execute the said instrument and that the seal affixed (if
any) is the corporate seal of said corporation.

     IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.


[NOTARY SEAL]                           /s/ KAZUMI TAKEUCHI
                                        ---------------------------------------
                                        (Print name) Kazumi Takeuchi
                                        Notary Public in and for the State of
                                        Washington, residing at Seattle.
                                        My commission expires: 3-12-00.

<PAGE>   27
                         [TWO UNION SQUARE FLOOR PLAN]














                                                 InterNAP NETWORK SERVICES, INC.
                                                                        FLOOR 37
                                                                       EXHIBIT A


<PAGE>   28
                                   EXHIBIT B


                        IMPROVEMENTS OF LEASED PREMISES


LESSOR:        UNION SQUARE LIMITED PARTNERSHIP

LESSEE:        InterNAP NETWORK SERVICES, INC.

PREMISES:      ROOMS 1001-1037 ONE UNION SQUARE

     Lessor at its expense has provided the shell and core of the Building and
certain improvements on the floors on which the Leased Premises are located,
all as more fully set forth in Section 1 of this Exhibit. Lessor is to also
provide an allowance as provided in Section 3 of this Exhibit and Section 30 of
the Lease for improvements to the Leased Premises, which are in addition to
those provided by Lessor pursuant to Section 1 of this Exhibit, all as more
fully set forth in this Exhibit. The allowance amount for Section 3 and Section
30 and the dates for submission of plans and documents to Lessor pursuant to
Section 4.3 are as follows:

     The Section 3 allowance amount is Ten and 00/100 dollars and 00/100
dollars ($10.00) per usable square foot of Leased Premises (19,225 S.F.) for a
total allowance of One Hundred Ninety-Two Thousand Two Hundred Fifty and 00/100
dollars ($192,250.00).

     The Section 4.3 delivery dates are:

     A.) Schematic Plans -                  
                                             ------------------------------
     B.) Final Preliminary Plans -
                                             ------------------------------
     
     C.) Final Contract Documents -          June 19, 1998

     1.    Basic Building Improvements (Shell and Core).

     Lessor has at its expense furnished and installed the following
improvements in accordance with plans and specifications for the Building on
the floors upon which the Leased Premises are located:

       (a)  Finished elevator lobby to match building standard specifications
       including carpeting. The typical elevator lobby has painted walls,
       carpeted floors, painted elevator doors and jambs, and wall sconce
       lighting fixtures.

       (b)  All items which are standard for the Building and located within the
       core area of the Building finished to the specifications for the
       Building, including but not limited to core walls, electrical
       distribution equipment and conduits, heating and air conditioning
       equipment and ducting, a women's lavatory, a men's lavatory, drinking
       fountain, and fire and life safety equipment.



                                       1

<PAGE>   29
          (c)  Exterior walls and exterior windows for the Building. The
          interior of such exterior walls, the exterior of the core walls and
          all structural elements within the Leased Premises (except cross-
          bracing on Floors 35, 36 and 37) shall be ready to receive Lessee
          specified finishes.

          (d)  The rigid ducting and standard size variable air volume air
          terminal units for interior and exterior zone heating and air cooling
          in accordance with the Building standard layout for the floor upon
          which the Leased Premises are located. The standard number of such
          air terminal units is twelve (12) units for the entire Fourth Floor
          and twenty (20) units for each other entire floor. Such improvements
          by the Lessor include the individually controlled central fan unit
          located in each floor's mechanical room allowing for separate
          floor-by-floor air conditioning control and operation but do not
          include the round low pressure run out ducting, flexible ducting and
          diffusers.

          (e)  Electric service to the electrical room located within the core
          of the building and sufficient capacity to meet Lessee's
          requirements, not to exceed 4.5 watts per usable square foot
          (including lighting) and any limits imposed by applicable codes, laws
          and regulations. Two electrical power loops are provided on each
          floor of the Building. One loop is for building standard 277/480 volt
          lighting and the other loop is available for tenant 110 volt power or
          special power requirements.

          (f)  Telephone service to the telephone closet located within the
          core area of the Building.

          (g)  Concrete floor ready to receive carpet. The floors typically
          will have a partition load capacity of 20 pounds per square foot. The
          live load capacity is 80 pounds per square foot for a zone extending
          approximately 24 feet out from the core and 50 pounds per square foot
          on the remainder of the floor, all as more fully specified by
          Lessor's Architect.

          (h)  Basic sprinkler distribution grid in accordance with Building
          standard layout for the floor.

          (i)  A vertical condenser water loop to provide water for
          supplementary air cooling equipment (if any) installed in the Leased
          Premises. The hook-up to said loop and reasonable charge for said
          water shall be at Lessee's expense.

     If Lessee, with Lessor's consent, changes surface finishes from those
specified for the Building, requires changes to the heating and cooling and
electrical systems which are standard for the Building, or makes any other
departure from the specifications or standards for the Building with respect to
any of the foregoing items, the additional cost of such change or other
departure shall be at the Lessee's expense as a charge to Tenant Work pursuant
to Section 2 of this Exhibit. Throughout the Exhibit, items which are not
Building Standard items are sometimes referred to as special items or special
improvements.

     2.   Additional Improvements (Tenant Work).

     Improvements or modifications to the Leased Premises which are in addition
to those existing improvements or as provided for in Section 1 of this Exhibit
are herein sometimes described as Tenant Work. Tenant Work shall be at Lessee's
expense but shall be paid for by Lessor to the extent of the



                                       2


<PAGE>   30
allowance provided for in Section 3 of this Exhibit. The same procedure shall
pertain to any matters referred to in this Exhibit as being at Lessee's expense
or a charge to Tenant Work. If the costs for Tenant Work and expenses or
charges to Tenant Work exceed said allowance, the excess shall be paid by
Lessee. Tenant Work and costs charged to Tenant Work if applicable shall
include without limitation:

     (a)  All partitioning within the Leased Premises, and the walls separating
     the Leased Premises from the public corridor.

     (b)  Paint or other wall coverings approved by Lessor. Painted walls shall
     receive at least one prime coat and one semi-gloss finish coat. Lessee
     shall use a brand of paint specified by Lessor as standard for the
     Building or an equivalent brand approved in advance by Lessor.

     (c)  Doors and door hardware.

     (d)  Finish ceiling, including suspension system and hangers.

     (e)  Cabinetry, millwork or other built-ins.

     (f)  Carpeting or other floor covering.

     (g)  Blinds for exterior windows as designated by Lessor.

     (h)  Lighting fixtures, including Building standard fixtures and all other
     fixtures, and all switching, all in accordance with applicable Seattle
     codes.

     (i)  Electrical receptacles, wiring from junction boxes located above
     suspended ceiling to light fixtures and any other electrical items which
     are in addition to those furnished by Lessor pursuant to Section 1 of this
     Exhibit.

     (j)  Telephone and data outlets and any other communication equipment not
     furnished by Lessor pursuant to Section 1.

     (k)  Air terminal units in excess of the standard number for the Leased
     Premises. The standard number for an entire floor is 12 on the Fourth
     Floor and 20 on all other floors. All related ducting, round low pressure
     run out ducting, flexible ducting, diffusers and any other items for
     heating or air cooling which are not furnished by the Lessor pursuant to
     Section 1 of this Exhibit.

     (l)  Modifications to sprinkler distribution system identified in Section
     1 and installation of sprinkler heads, emergency speakers, fire
     extinguishers and cabinets within the Leased Premises, including any
     specialized fire suppression system such as halon.

     (m)  Interfloor stairs within the Leased Premises.

     (n)  Vertical lifts for books, files, mail distribution, etc.



                                       3


<PAGE>   31
      (o)   Plumbing and fixtures including private toilets, showers,
      lavatories, sinks and lunchroom or kitchen equipment.

      (p)   Emergency power equipment for Lessee's equipment.

      (q)   All demolition and removal of debris for any item of work installed
      pursuant to Section 1 or Section 2 of this Exhibit which Lessee with
      Lessor's consent, subsequently requests Lessor to remove.

      (r)   Any structural modification to the Building.

      (s)   The fees of architects, engineers, consultants and contractors,
      including Lessor's Architect and Lessor's contractor, for services with
      respect to the Leased Premises.

      (t)   All applicable Washington State sales tax.

      (u)   Fees and expenses for all permits, including building, special
      energy and structural modification permits and other governmental fees.

      (v)   Any other costs referred to in this Exhibit as being at Lessee's
      expense or a charge to Tenant Work.

      Whether, and the extent to which, any of Lessee's requirements exceed the
improvements to be provided by Lessor pursuant to Section 1 shall be determined
by Lessor's Architect, which determination shall be conclusive.

      3.    Tenant Improvement Allowance.

      Lessor shall provide an allowance for Tenant Work in the Leased Premises
equal to the amount specified at page 1 of this Exhibit. The allowance shall be
used to pay costs for Tenant Work, by crediting or paying the amount of the
allowance against amounts due for the Tenant Work, all in accordance with
Section 5.2 of this Exhibit. Any unused allowance shall be retained by Lessor.

      4.    Design of Tenant Improvements.

      4.1   Lessor's Architect. Lessor has engaged the services of an
architect, mechanical engineer and electrical engineer (herein collectively
"Lessor's Architect") to provide certain professional services required for the
improvement of the Leased Premises and other portions of the Building. Lessor's
Architect shall provide all mechanical and electrical engineering services
required to prepare the engineering plans described in Section 4.3.C. of this
Exhibit and the services described in Section 4.6 of this Exhibit. All
structural engineering services required with respect to the Leased Premises
shall be provided by Lessor's structural engineer as provided in subsection
(10) of Section 4.3.C.

      4.2   Lessee's Architect. At Lessee's expense as a charge to Tenant Work,
Lessee may retain the services of a qualified architect/office planner
(Lessee's Architect), licensed to practice architecture in the State of
Washington, and approved by Lessor, to provide all architectural services
related to the tenant improvements, except for those services which by the
express provisions of this Exhibit are to be provided by Lessor's Architect or
Lessor's structural engineer. Lessee's Architect shall timely prepare all plans
and specifications described in Section 4.3 of this Exhibit (except the



                                       4

<PAGE>   32
engineering drawings described in Sections 4.3.C. (3), (4) and (10)). Lessee's
Architect shall timely provide Lessor's Architect or Lessor's structural
engineer, as the case may be, with all information, plans or specifications
which are necessary to prepare the engineering drawings described in Sections
4.3.C. (3), (4) and (10) of this Exhibit.

      4.3   Plans for Tenant Work. The Schematic Plans, Final Preliminary Plans
and Final Contract Documents shall be subject to Lessor's and Lessee's
approval. Such plans shall be compatible with the basic plans and
specifications for the Building and when submitted to Lessor for its approval
shall clearly show any proposed modifications to the plans and specifications
for the Building. Lessee shall (a) provide timely and adequate information,
direction and approval of plans and specifications to Lessor's Architect and
(b) work with Lessor's Architect and submit the following plans or documents to
Lessor for Lessor's approval on or before the respective dates specified at
page 1 of this Exhibit:

      A.    Schematic Plans.

      The Schematic Plan(s) shall generally describe all areas within the
Leased Premises. Rooms or areas shall be identified by name or function with
special furniture or equipment shown or described. Special features including
without limitations relights, lunch rooms, coffee bars, computer rooms, shall
also be noted on the Schematic Plans. These plans are to be the basis for the
Final Preliminary Plans.

      B.    Final Preliminary Plans.

      The Final Preliminary Plans submitted for interim approval shall show all
partition layout indicating partition type and identifying each room and its
function. The floor plan must also clearly identify and locate equipment and
fixtures requiring plumbing or other special mechanical systems, area(s)
subject to above normal floor loads, special openings in the floor, special
electrical requirements and any other major or special features, including an
outline specification of special finishes. These plans are to be the basis for
the Final Contract Documents.

      On or before the later of the 10th day of June, 1998, the Lessee's
Architect shall prepare the Final Preliminary Plans and submit the same to
Lessor for approval. Within three (3) days following Lessor's receipt of the
Final Preliminary Plans, Lessor or Lessor's Architect shall provide Lessee and
Lessee's Architect with (i) a list of its objections, modifications, deletions
or qualifications to the same (but Lessor agrees that it shall not unreasonably
withhold, condition or delay its consent to any improvements which do not
adversely affect any base building systems) and (ii) a schedule of items
constituting "long-lead" items (as defined below). For purposes hereof, the
term "long-lead" items shall mean any items or material element thereof which
Lessor's Architect reasonably believes, due to long-lead time for fabrication
or delivery, will not be available at the Premises in time to be completed or
installed prior to the originally scheduled Commencement Date.

      C.    Final Contract Documents.

      Lessee and Lessee's Architect shall have nine (9) days from receipt of
Lessor's list of objections, modifications, deletions, or qualifications to (a)
substitute materials to eliminate any long-lead items and (b) cause the
architect and the engineer to prepare and deliver to Lessor and Lessor's
Architect the Final Contract Documents, which shall be based on the final
Preliminary Plans but shall conform to Lessor's objections, modifications,
deletions, or qualifications. No plans and specifications shall



                                       5

<PAGE>   33

constitute the Final Contract Documents hereunder unless and until the same
have been approved in writing by both Lessor and Lessee.

      The Final Contract Documents shall be prepared in accordance with the
standards adopted by Lessor including scale, common symbols, legends and
abbreviations together with information required to obtain permits. The
drawings shall be prepared using the "pin bar" system for compatibility with
other building drawings. The Final Contract Documents shall be approved and
signed by the Lessee and Lessor's Architect prior to submittal to Lessor and
approved and signed by Lessor prior to submittal to Lessor's contractor for
pricing, and shall include:

      (1)   Architectural Floor Plan(s): A plan, fully dimensioned, showing
      partition layout and type, identifying each room with a number and each
      door with a number, and the location, nature and extent of floor
      finishes, casework, relights, etc. Plumbing locations and requirements
      shall be shown on this plan.

      (2)   Reflected Ceiling Plan(s): A plan showing all building standard
      and/or special ceiling conditions and materials. This plan shall also
      include the location and type of all building standard and special light
      fixtures including switching together with a legend indicating fixture
      type, quantity of fixtures, connected wattage of each fixture as
      necessary for compliance with the lighting power budget of Seattle's
      codes and any other applicable laws and regulations.

      (3)   Electrical and Telephone Outlet Plan(s): A plan locating all power
      and telephone requirements dimensioned to give exact location of outlet
      and height above concrete slabs if locations are critical. This plan
      shall identify all dedicated circuits and identify all power outlets
      greater than 120 volts. For equipment used in outlets which require
      dedicated circuits and/or which require greater than 120 volts, identify
      the type of equipment, the manufacturer's name and manufacturer's model
      number and provide power requirements and other technical specifications.
      The plan shall also show modifications to basic system, circuit
      identification, conduit size, the number and size of wires, all in
      compliance with applicable Seattle codes or other applicable laws and
      regulations.

      (4)   Mechanical Plan(s), HVAC, and Plumbing: A plan which clearly shows
      the basic HVAC system, modifications to the basic system if required, any
      special cooling or stand-alone systems, all supply air diffusers,
      thermostats and return air grills. All plumbing information shall be
      complete for final installation, including the fixture schedule and
      specifications.

      (5)   Furniture Layout: Basic layout showing furniture locations.

      (6)   Millwork Details: Complete elevations and details of all special
      millwork including but not limited to cabinets, paneling, trim, bookcases
      and special doors and jambs.

      (7)   Hardware and Keying Schedules: Complete specifications for all
      special hardware shall be provided. (Note: Key ways in special locks must
      be compatible with building master key system.) The keying schedule must
      indicate which doors are locked and which keys open each lock, together
      with a symbol indicating which side of the door is to be locked to
      prohibit entry.


                                       6

<PAGE>   34
     (8)  Room Finish and Color Schedule: Provide on the drawings complete
     information showing location and specification for all finishes including
     wall, floor covering, base, ceiling and special conditions.

     (9)  Construction Note and Specifications: Provide all required special
     notes and complete specifications, including instruction for bidders,
     special conditions incorporating the AIA standard form of general
     conditions or such modifications thereof as are designated or approved by
     Lessor and technical specifications for all special improvements.

     (10) Structural Modifications: If Lessee's tenant improvements include
     interfloor stairways, increased floor loading or any other items which
     require structural modifications, Lessor's structural engineer for the
     Building shall be engaged to perform all required structural engineering
     services. The cost of such services shall be a charge to Tenant Work. A
     drawing shall be prepared showing the extent of structural modification
     necessary and a separate building permit shall be obtained for this phase
     of work.

     4.4  Contract Administration. Lessor's Architect shall provide
construction administration during the execution of Tenant Work on the Leased
Premises and will observe progress of such work, attend necessary contractor
coordination meetings, advise Lessee and Lessor on status and progress payments,
prepare a punchlist for any construction deficiencies at completion and certify
the Leased Premises ready for occupancy. Lessee's architect may also provide
construction administration services to Lessee and shall coordinate its
activities with Lessor's architect.

     4.5  Delays. Lessee shall be responsible for delays and additional costs
in completion of Tenant Work and any damages or other costs incurred by Lessor
which are caused by (a) Lessee's failure to provide adequate information and
direction to Lessee's Architect or failure to timely perform its obligations in
order to meet the plan delivery dates set forth in Section 4.3 of this Exhibit,
(b) Lessee's failure to timely authorize Lessor to proceed with the Tenant
Work, (c) changes made to any of Lessee's Plans after the specified Delivery
Date for Final Contract Documents, (d) delays in delivery of special materials
or (e) delays requested by Lessee. The costs of any such delay or damage shall
be a charge to Tenant Work. Lessee shall further be responsible for such delays
as provided in Section 5.6 of this Exhibit.

     4.6  Additional Services by Lessor's Architect. Certain services with
respect to Tenant Work shall be provided by Lessor's Architect and charged to
Tenant Work in addition to those provided for in Section 4.1. Lessor's
Architect shall:

       (a)  Provide Lessee's Architect with information about the Building and
       background drawings for execution of the Tenant Work as reasonably
       requested by Lessee's Architect.

       (b)  Provide mechanical engineering and required engineering drawings for
       (1) sizing of feeder ducts and placement of diffusers and thermostats,
       (2) computer rooms or areas which are supplied HVAC service only off the
       basic HVAC system for the Building, and (3) specifications for sinks and
       related plumbing such as service to coffee machines, sinks, dishwashers
       and hot water tanks.

       (c)  Provide electrical engineering and required engineering drawings for
       building standard items and typical desk top office equipment and
       copiers.


                                       7

<PAGE>   35
      (d)   Review all plans and specifications required under Section 3.3 and
      assist Lessee's Architect regarding compliance with the requirements of
      Building systems and codes related to Tenant Work. Notwithstanding such
      review and assistance, Lessee's Architect is responsible for compliance
      with such requirements and codes.

      (e)   Provide coordination with the Lessor, and/or Lessee's Architect and
      Lessor's contractor, as applicable, throughout the design, pricing and
      construction of the Tenant Work, transmit shop drawings and submittals
      pertaining to special items to Lessee's Architect as requested, and
      provide contract administration as provided in Section 3.4, such
      administration to be coordinated with Lessee's Architect.

      (f)   Obtain the blanket building permit for tenant improvement
      construction in the office portions of the Building and transmit the Final
      Contract Documents to the Department of Construction and Land Use
      ("DCLU") for review and approval. Lessee's Architect shall be
      responsible for all changes required as a result of such review by DCLU.
      All other permits, including without limitation electrical, mechanical,
      plumbing, energy code and structural permits shall be obtained by
      subcontractors or Lessee's Architect.

The foregoing architectural services by Lessor's Architect are included as a
charge to Tenant Work.

Additional mechanical and electrical engineering services, if required, shall be
provided by Lessor's Architect and the reasonable charges for same shall be in
addition to the foregoing charge and at Lessee's expense as a charge to Tenant
Work. Examples of such additional services include mechanical engineering
services for food service kitchens, private toilet facilities, exercise rooms,
computer rooms or areas that are cooled utilizing the vertical chilled water
loop for the Building, stand alone cooling systems, special exhaust systems and
special fire suppression systems, and electrical engineering services for
integrated lighting controls, computer wiring or networking, computer room
design, lighting design beyond building standard, control circuitry, and sound
and/or paging systems.

      5.    Construction of Tenant Improvements.

      5.1   Authorization to Proceed. Lessor shall engage a general contractor
licensed in the State of Washington to perform all Tenant Work pursuant to a
standard AIA "cost plus" contract, pursuant to which such contractor shall
receive a fee equal to five percent (5%) of the hard costs of construction
billed by all subcontractors for such general contractor's profit, overhead and
general conditions. Lessor shall cause the general contractor to construct the
Tenant Work (i) strictly in accordance with the Final Contract Documents, (ii)
using new materials, (iii) in good and workmanlike manner and (iv) in compliance
with all applicable laws, ordinances, rules and regulations. Lessor's general
contractor shall, in all events, warrant all Tenant Work against defects for a
period of one year. If any subcontractor warranty extends beyond one (1) year,
Lessee shall benefit by such warranty. Notwithstanding the foregoing, at
Lessor's election some or all of the Tenant Work may be (a) priced and
subcontracts with respect thereto awarded on the basis of unit price
arrangements or similar arrangements negotiated by Lessor's contractor with
respect to such work in the Building, or (b) performed by Lessor or an affiliate
or agent of Lessor provided the price is not above market for similar work and
which is subject to Lessee's reasonable approval. Any other subcontract work
will be competitively bid. Subcontract work which is to be competitively bid
shall be submitted to at least three (3) subcontractors selected and approved by
Lessor, Lessee and Lessor's contractor and may be



                                       8


<PAGE>   36
bid independently or together with similar work for other tenants in the
Building. Such subcontractors shall only employ and use union labor in and about
the Building and Land. After they have been completed, the Final Contract
Documents shall be promptly submitted to such subcontractors for bids. Bids will
be reviewed by Lessor, Lessee and Lessor's contractor and subcontracts awarded
as they mutually agree. The bidding process shall be "open book", in which,
prior to commencing work and awarding any subcontracts, Lessor's contractor
shall submit a list of detailed prices (itemized to set forth all pertinent
information with respect to each bid, such as profit, overhead, general
conditions, contingencies, etc.) for Lessee's approval sufficient to allow for
Lessee's review and comment and subsequent modification. If the price of Tenant
Work exceeds the allowance in Section 3 of this Exhibit, Lessee may in such
authorization delete any or all items of extra cost; provided however, if
Lessor, acting reasonably, deems these changes to be extensive, Lessor may
refuse to accept the authorization to proceed until all changes have been
incorporated in revised Final Contract Documents signed by Lessee, approved and
signed by Lessor, priced by Lessor, and written acceptance of the revised
price has been received by Lessor from Lessee. In the absence of written
authorization to proceed, Lessor shall not be obligated to commence work on the
Leased Premises.

     5.2  Payments. Lessor's contractor shall complete the improvements to the
Leased Premises (Tenant Work) in accordance with the approved Final Contract
Documents. Lessor shall pay for the cost of Tenant Work up to the amount of the
allowance described in Section 3. Lessor shall submit monthly progress billings
to Lessee for costs which exceed or are not included in said allowance, which
shall be payable within ten (10) days after receipt. Final billing shall be
rendered and payable within ten (10) days after acceptance of the Leased
Premises by Lessee in accordance with the terms of the Lease.

     5.3  Final Plans and Modifications.  If Lessee shall request any change
from the approved Final Contract Documents, Lessee shall request such change in
writing to Lessor and such request shall be accompanied by all plans and
specifications necessary to show and explain changes from the approved Final
Contract Documents. After receiving this information, Lessor shall give Lessee
a written price for the cost to incorporate the changes in Lessee's Final
Contract Documents. If Lessee approves such price in writing, Lessor shall have
such Final Contract Documents changes made and the cost thereof shall be a
charge to Tenant Work. Within a reasonabl