<PAGE>   1
 
   
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 1999
    
   
                                                      REGISTRATION NO. 333-84035
    
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
   
                                AMENDMENT NO. 1
    
   
                                       TO
    
 
                                    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.
               DOUGLAS H. HAEUBER, ESQ.                                 VICTOR H. SIM, ESQ.
                  COOLEY GODWARD LLP                                   MAILE Y.C. YANG, ESQ.
                 5200 CARILLON POINT                                  MORRISON & FOERSTER LLP
               KIRKLAND, WA 98033-7355                                   755 PAGE MILL ROAD
                    (425) 893-7700                                    PALO ALTO, CA 94304-1018
                                                                           (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>                  <C>                  <C>
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
                                                               PROPOSED MAXIMUM     PROPOSED MAXIMUM
   TITLE OF EACH CLASS OF SECURITIES        AMOUNT TO BE      OFFERING PRICE PER   AGGREGATE OFFERING        AMOUNT OF
           TO BE REGISTERED                 REGISTERED(1)          SHARE(2)             PRICE(2)         REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per
  share................................      10,005,000             $15.00            $150,075,000          $41,721(3)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

    
 
   
(1) Includes 1,305,000 shares which the underwriters have the option to purchase
    to cover over-allotments, if any.
    
 
   
(2) Estimated solely for the purpose of calculating the amount of the
    registration fee in accordance with Rule 457(g) under the Securities Act of
    1933, as amended.
    
 
   
(3) $41,700 of this amount has been previously paid.
    
 
                            ------------------------
 
    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 September 7, 1999
    
 
   
                                8,700,000 Shares
    
 
                                [INTERNAP LOGO]
 
                                  COMMON STOCK
 
                           -------------------------
 
   
INTERNAP NETWORK SERVICES CORPORATION IS OFFERING 8,700,000 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 $13 AND $15 PER SHARE.
    
 
                           -------------------------
 
   
WE HAVE APPLIED TO LIST OUR COMMON STOCK 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
1,305,000 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


The current Internet architecture was not designed for today's level of traffic
flows resulting in slow and unreliable Internet performance.

A cause of slow performance on the Internet results from data getting lost as it
travels from one network to another. This causes slow and unreliable performance
that can frustrate Internet users.

Internet data loss

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







<PAGE>   4

InterNAP provides high performance Internet connectivity service that is faster
and more reliable than conventional service.

Delivering network quality without peer.(TM)

Our Private-Network Access Point, or P-NAP, routes data over the Internet in a
way that reduces data loss, resulting in better Internet performance and quality
of service for Internet users.

Direct delivery routing minimizes data loss

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




<PAGE>   5
                                                             (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>   6
 
                               TABLE OF CONTENTS
 
   

<TABLE>
<CAPTION>
                                      PAGE
                                      ----
<S>                                   <C>
Prospectus Summary..................    3
Risk Factors........................    7
Use of Proceeds.....................   19
Dividend Policy.....................   19
Capitalization......................   20
Dilution............................   21
Selected Financial Data.............   22
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.....................   23
Business............................   34
</TABLE>

    
 
   

<TABLE>
<CAPTION>
                                      PAGE
                                      ----
<S>                                   <C>
Management..........................   46
Certain Transactions................   57
Principal Shareholders..............   60
Description of Capital Stock........   63
Shares Eligible for Future Sale.....   66
Underwriters........................   68
Legal Matters.......................   70
Experts.............................   70
Where You Can Find More
  Information.......................   70
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.

<PAGE>   7
 

                               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, risks affecting our company 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, which are our patented
network routing infrastructures coupled with our proprietary ASsimilator routing
technology, have their data optimally routed to and from destinations on the
Internet in a manner that minimizes data loss resulting in better performance.
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 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 120 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 the way Internet backbone networks
exchange data, 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. In addition,
widespread adoption of applications that rely on network quality require
consistent, high speed data transfer. 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.
    
 
OUR SOLUTION
 
   
     We provide high performance Internet connectivity services through the
deployment of P-NAPs. 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. Our technology platform optimally routes our
customers' data through these multiple backbone networks, generally bypassing
Internet traffic congestion and reducing data loss that frequently occurs at
Internet data exchange points known as public network access points and private
peering points. We currently operate eight P-NAPs which are located in the
Atlanta, Boston, Chicago, Los Angeles, New York, San Jose, Seattle and
Washington, D.C. metropolitan areas, and expect to complete the deployment of
four additional P-NAPs in the Dallas, Miami, New York and Philadelphia
metropolitan areas by the end of 1999.
    
                                        3

<PAGE>   8
 
   
     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,
       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 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.
    
 
   
     - 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 over the public Internet 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.
    
 
   
     - Continue to provide superior customer service and support.
    
 
   
     - Expand our geographic coverage in key markets.
    
 
   
     - Continue to build our brand awareness.
    
 
   
     - Continue to target strategic markets.
    
 
   
     - Maintain backbone provider neutrality.
    
 
                            ------------------------
 
   
     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.
    
                                        4

<PAGE>   9
 
                                  THE OFFERING
 
   
Common stock offered....................      8,700,000 shares
    
 
   
Common stock to be outstanding after the
offering................................     62,201,228 shares
    
 
   
Use of proceeds.........................     We intend to use the net proceeds
                                             from the offering for capital
                                             expenditures and general corporate
                                             purposes. See "Use of Proceeds."
    
 
   
Proposed 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>   10
 
                             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 8,700,000 shares of common stock at an assumed initial public offering price
of $14.00 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       $125,470
Total assets................................................   30,830        143,004
Capital lease obligations, less current portion.............    6,776          6,776
Total shareholders' equity..................................   17,274        129,448
</TABLE>

    
 
   
    
                                        6

<PAGE>   11
 

                                  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 for at least 24 months, and we may
never become profitable.
    
 
     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. 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.
    
 
   
     NEGATIVE MOVEMENTS IN OUR QUARTERLY OPERATING RESULTS MAY DISAPPOINT
     ANALYSTS' EXPECTATIONS, WHICH COULD HAVE A NEGATIVE IMPACT ON OUR STOCK
     PRICE
    
 
   
     Should our results of operations from quarter to quarter fail to meet the
expectations of public market analysts and investors, our stock price could
suffer. Any significant unanticipated shortfall of revenues or increase in
expenses could negatively impact our expected quarterly results of operations
should we be unable to make timely adjustments to compensate for them.
Furthermore, a failure on our part to estimate accurately the timing or
magnitude of particular anticipated revenues or expenses could also negatively
impact our quarterly results of operations.
    
 
   
     Because our quarterly results of operations have fluctuated in the past and
will continue to fluctuate in the future, you should not rely on the results of
any past quarter or quarters as an indication of future performance in our
business operations or stock price. Fluctuations in our quarterly operating
results depend on a number of factors. Some of these factors are industry risks
over which we have no control including the introduction of new services by our
competitors, fluctuations in the demand and sales cycle for our services,
fluctuations in the market for qualified sales and other personnel, changes in
the prices for Internet connectivity we pay backbone providers and our ability
to obtain local loop connections to our P-NAPs at favorable prices.
    
 
   
     Other factors that may cause fluctuations in our quarterly operating
results arise from strategic decisions we have made or will make with respect to
the timing and magnitude of capital expenditures such as those associated with
the deployment of additional P-NAPS and the terms of our Internet connectivity
purchases. For example, our practice is to purchase Internet connectivity from
backbone providers at new P-NAPs before customers are secured. We also have
agreed to
    
 
                                        7

<PAGE>   12
 
   
purchase Internet connectivity from some providers without regard to the amount
we resell to our customers.
    
 
   
     IF WE ARE UNABLE TO MANAGE COMPLICATIONS THAT ARISE DURING DEPLOYMENT OF
     NEW P-NAPS, WE MAY NOT SUCCEED IN OUR EXPANSION PLANS
    
 
   
     Any delay in the opening of new P-NAPs would significantly harm our plans
to expand our business. In our effort to deploy new P-NAPs, we face various
risks 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 and all of which could delay the deployment of a new
P-NAP facility. The deployment of new P-NAPs, each of which takes approximately
four to six months to complete, is a key element of our business strategy. In
addition to our eight 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, we do not enter into service
contracts with customers prior to building a new P-NAP.
    
 
   
     WE MAY BE UNABLE TO EFFECTIVELY INTEGRATE NEW P-NAPS INTO OUR EXISTING
     NETWORK, WHICH COULD DISRUPT OUR SERVICE
    
 
     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.
 
   
     BECAUSE OUR REVENUES DEPEND HEAVILY ON A FEW SIGNIFICANT CUSTOMERS, A LOSS
     OF MORE THAN ONE OF THESE SIGNIFICANT CUSTOMERS COULD ADVERSELY AFFECT OUR
     REVENUES
    
 
   
     We currently derive a substantial portion of our total revenues from a
limited number of customers, and the revenues from these customers may not
continue. 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. 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, may not continue. If such revenues do
continue, they may not 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 these customers may not renew their contracts with us.
    
 
                                        8

<PAGE>   13
 
   
     IF WE ARE UNABLE TO CONTINUE TO RECEIVE COST-EFFECTIVE SERVICE FROM OUR
     BACKBONE PROVIDERS, WE MAY NOT BE ABLE TO PROVIDE OUR INTERNET CONNECTIVITY
     SERVICES ON PROFITABLE TERMS AND WE CANNOT BE CERTAIN THAT THESE BACKBONE
     PROVIDERS WILL CONTINUE TO PROVIDE SERVICE TO US
    
 
   
     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. 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.
    
 
   
     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 may be unable to maintain relationships with, or obtain
necessary additional capacity from, these backbone providers. Furthermore, we
may be unable 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.
    
 
   
     COMPETITION FROM MORE ESTABLISHED COMPETITORS WHO HAVE GREATER REVENUES
     COULD RESULT IN PRICE REDUCTIONS, REDUCED PROFITABILITY AND LOSS OF MARKET
     SHARE
    
 
   
     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, and we may not have the financial resources, technical
expertise, sales and marketing abilities or support capabilities to compete
successfully in our market. Many of our existing competitors 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;
 
                                        9

<PAGE>   14
 
     - 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 these
potential 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 ENCOUNTER PRICING PRESSURE THAT COULD DECREASE OUR MARKET SHARE OR
     REVENUES
    
 
   
     Increased price competition or other competitive pressures could erode our
market share. We currently charge, and expect to continue to charge, more for
our Internet connectivity services than our competitors. For example, our
current standard pricing is approximately 4% more than UUNET's current standard
pricing and approximately 18% more than Sprint's current standard pricing. By
bundling their services and reducing the overall cost of their solutions,
telecommunications companies that compete with us may be able to provide
customers with reduced communications costs in connection with their Internet
connectivity services or private network services, thereby significantly
increasing the pressure on us to decrease our prices. 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. In addition, we believe that the Internet connectivity industry is
likely to encounter consolidation in the future. Consolidation could result in
increased pressure on us to decrease our prices.
    
 
   
     A FAILURE IN OUR NETWORK OPERATIONS CENTER, P-NAPS OR COMPUTER SYSTEMS
     WOULD CAUSE A SIGNIFICANT DISRUPTION IN THE PROVISION OF OUR INTERNET
     CONNECTIVITY SERVICES
    
 
   
     Although we have taken precautions against systems failure, interruptions
could result from natural disasters as well as power loss, telecommunications
failure and similar events. 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 eight P-NAPs
which are located in the Atlanta, 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.
    
 
   
     OUR BRAND IS NOT WELL-KNOWN AND FAILURE TO DEVELOP BRAND RECOGNITION COULD
     HURT OUR ABILITY TO COMPETE EFFECTIVELY
    
 
   
     To successfully execute our strategy, we must strengthen our brand
awareness. If we do not build our brand awareness, our ability to realize our
strategic and financial objectives could be hurt. Many
    
 
                                       10

<PAGE>   15
 
   
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 Atlanta, 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 may not succeed as planned.
    
 
   
     WE DEPEND UPON KEY PERSONNEL AND MAY BE UNABLE TO HIRE AND RETAIN
     SUFFICIENT NUMBERS OF QUALIFIED PERSONNEL, WHICH WOULD MAKE DIFFICULT THE
     IMPLEMENTATION OF OUR BUSINESS STRATEGY
    
 
   
     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, 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 impede our ability to implement our business strategy.
    
 
   
     IF WE ARE NOT ABLE TO SUPPORT OUR RAPID GROWTH EFFECTIVELY, OUR EXPANSION
     PLANS MAY BE FRUSTRATED OR MAY FAIL
    
 
   
     Our inability to manage growth effectively would seriously harm our plans
to expand our Internet connectivity services into new markets. 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. For example, as of December 31, 1996
we had one operational P-NAP and nine employees compared to seven operational
P-NAPs and 221 full-time employees as of June 30, 1999. In addition, we had
$44,000 in revenues for the period from May 1, 1996 to December 31, 1996
compared to $3.4 million in revenues for the six months ended June 30, 1999. 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 plans to rapidly deploy
additional P-NAPs could place a significant strain on our management's time and
resources.
    
 
     WE FACE RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
 
   
     Although we currently operate in eight 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 to general risks associated with international business expansion,
we face the following specific risks in our international business expansion
plans:
    
 
   
     - difficulties in establishing and maintaining relationships with foreign
       backbone providers and local vendors, including co-location and local
       loop providers; and
    
                                       11

<PAGE>   16
 
   
     - difficulties in locating, building and deploying P-NAPs in foreign
       countries and managing P-NAPs and network operations centers across
       disparate geographic areas.
    
 
   
     We may be unsuccessful in our efforts to address the risks associated with
our currently proposed international operations and our international sales
growth may therefore be limited.
    
 
   
     OUR FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY
     AFFECT OUR ABILITY TO COMPETE
    
 
   
     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 may not provide significant proprietary protection or
commercial advantage to us. It is possible that:
    
 
   
     - 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; and
    
 
   
     - effective patent protection may not be available in every country in
       which we intend to do business.
    
 
   
     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.
    
 
   
     WE MAY FACE LITIGATION AND LIABILITY DUE TO CLAIMS OF INFRINGEMENT OF THIRD
     PARTY INTELLECTUAL PROPERTY RIGHTS
    
 
   
     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, 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. If a claim against us were to be
successful and we were not able to obtain a license to the relevant or a
substitute technology on
    
 
                                       12

<PAGE>   17
 
   
acceptable terms or redesign our products to avoid infringement, our ability to
compete successfully in our competitive market would be impaired.
    
 
     WE ARE DEPENDENT ON THIRD PARTY SUPPLIERS FOR KEY COMPONENTS OF OUR NETWORK
     INFRASTRUCTURE
 
   
     Any failure to obtain required products or services from third party
suppliers on a timely basis and at an acceptable cost would affect our ability
to provide our Internet connectivity services on a competitive and timely basis.
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.
Additional sources of these products may not be available in the future 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.
We have in the past experienced delays in receiving shipments of equipment
purchased. To date, these delays have neither been material nor have adversely
affected us, but these delays could affect our ability to deploy P-NAPs in the
future on a timely basis. If Cisco Systems does not provide us with its routers,
or if our limited source suppliers fail to provide products or services that
comply with evolving Internet and telecommunications standards or that
interoperate with other products or services we use in our network
infrastructure, we may be unable to meet our customer service commitments.
    
 
   
     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 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.
    
 
                                       13

<PAGE>   18
 
RISKS RELATED TO OUR INDUSTRY
 
   
     OUR BUSINESS IS DEPENDENT ON THE CONTINUED GROWTH IN USE AND IMPROVEMENT OF
     THE INTERNET, AND IF THIS GROWTH DOES NOT OCCUR, OUR BUSINESS WILL SUFFER
    
 
   
     Critical issues concerning the commercial use of the Internet remain
unresolved and may hinder the growth of Internet use, especially in the business
market we target. 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 or
unreliable 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 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, if left unresolved, 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 an 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 revenues to grow more slowly than anticipated and reduce the
demand for our services.
    
 
     OUR SUCCESS DEPENDS ON THE ACCEPTANCE OF OUR SERVICES IN AN EMERGING AND
     UNCERTAIN INTERNET CONNECTIVITY MARKET
 
   
     We face the risk that the market for high performance Internet connectivity
services might fail to develop, or develop more slowly than expected, or that
our services may not achieve widespread market acceptance. 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. Furthermore, we may be unable to market and sell our services
successfully and cost-effectively 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. Finally, 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 loss addressed
by our Internet connectivity services could be largely resolved and our core
business rendered obsolete.
    
 
   
     WE MAY BE UNABLE TO RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID
     TECHNOLOGICAL CHANGE, CAUSING OUR BUSINESS TO 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. We may be unable to 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. Furthermore, new technologies or
enhancements that we use or develop may not gain market acceptance. Our pursuit
of necessary technological advances may require substantial time and expense,
and we may be unable to successfully adapt our network and services to alternate
access devices and technologies.
    
 
                                       14

<PAGE>   19
 
     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 COULD DISPLACE OUR SERVICES OR RENDER THEM OBSOLETE
    
 
   
     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 set of protocols, services and applications for linking
computers known as Transmission Control Protocol/Internetwork Protocol, or
TCP/IP. Alternative sets of protocols, services and applications for linking
computers 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 telephone and facsimile capabilities, private
networks, multimedia document distribution and transmission of audio and video
feeds, requiring broadband access to the Internet, but we cannot assure you that
such technologies will create opportunities for us.
    
 
   
     SERVICE INTERRUPTIONS CAUSED BY SYSTEM FAILURES AND CAPACITY CONSTRAINTS
     COULD HARM CUSTOMER RELATIONS, EXPOSE US TO LIABILITY AND INCREASE OUR
     CAPITAL COSTS
    
 
     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.
 
   
     Although we have built redundancy into our network and hosting facilities,
we do not have a formal disaster recovery plan and 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.
    
 
   
     Furthermore, failure of the backbone providers and other Internet
infrastructure companies to continue to grow in an orderly manner could result
in service interruptions. Although the national telecommunications networks and
Internet infrastructures have historically developed in an orderly manner, there
is no guarantee that this orderly growth 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.
    
 
   
     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.
    
 
                                       15

<PAGE>   20
 
     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.
 
     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 ARE UNPREDICTABLE AND COULD HARM 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 an active trading market for our common stock may not 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
 
                                       16

<PAGE>   21
 
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
     60% OF OUR COMMON STOCK AFTER THIS OFFERING, AND THEIR CONTROL MAY LIMIT
     YOUR ABILITY TO INFLUENCE THE OUTCOME OF MATTERS REQUIRING SHAREHOLDER
     APPROVAL
    
 
   
     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 14.9%, 11.3%, 9.6%, 7.9% and 9.3%, respectively, of our
outstanding common stock. See "Principal Shareholders" and "Underwriters". In
addition, our executive officers and directors may be deemed to beneficially own
in the aggregate approximately 59.8% of our outstanding common stock, including
shares of our common stock 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 shareholder 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 limit
your ability to influence the outcome of matters requiring shareholder approval.
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
62,319,663 shares of common stock outstanding, assuming no exercise of
outstanding options or warrants after August 31, 1999. 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 own discretion, at any
time and in most cases without notice, release all or any portion of the shares
subject to lock-up agreements. 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 $14.00 per share, if you purchase our common stock in
this offering, you will incur immediate dilution of approximately $11.92 per
share. If additional shares are sold by the underwriters following exercise of
their over-allotment
    
 
                                       17

<PAGE>   22
 
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 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 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.
 
                                       18

<PAGE>   23
 

                                USE OF PROCEEDS
 
   
     The net proceeds to be received by us from the sale of 8,700,000 shares of
common stock in this offering are estimated to be $112.2 million ($129.2 million
if the underwriters exercise their over-allotment option in full), at an assumed
initial public offering price of $14.00 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.
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.
 
                                       19

<PAGE>   24
 

                                 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 8,700,000 shares
       of the common stock offered in this offering at an assumed initial public
       offering price of $14.00 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, 62,201,228 shares issued and
     outstanding, pro forma as adjusted...............         4            54             62
  Additional paid-in capital..........................    57,023        57,023        169,189
  Deferred stock compensation.........................   (14,113)      (14,113)       (14,113)
  Accumulated deficit.................................   (25,690)      (25,690)       (25,690)
                                                        --------      --------       --------
     Total shareholders' equity.......................    17,274        17,274        129,448
                                                        --------      --------       --------
          Total capitalization........................  $ 24,050      $ 24,050       $136,224
                                                        ========      ========       ========
</TABLE>

    
 
   
     This capitalization table excludes the following shares as of June 30,
1999:
    
 
   
     - 6,136,622 shares subject to options 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."
 
                                       20

<PAGE>   25
 
                                    DILUTION
 
   
     Our pro forma net tangible book value as of June 30, 1999 was approximately
$17.2 million, or approximately $.32 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 8,700,000 shares of common
stock in this offering at an assumed initial public offering price of $14.00 per
share, and our receipt of the estimated net proceeds therefrom, our pro forma as
adjusted net tangible book value as of June 30, 1999 would have been
approximately $129.3 million, or $2.08 per share. This represents an immediate
increase in net tangible book value of $1.76 per share to existing shareholders
and an immediate dilution of $11.92 per share to new investors. The following
table illustrates this per share dilution:
    
 
   

<TABLE>
    <S>                                                           <C>     <C>
    Assumed initial public offering price per share.............          $14.00
      Pro forma net tangible book value per share as of June 30,
         1999...................................................  $ .32
      Increase per share attributable to new investors..........   1.76
                                                                  -----
    Pro forma as adjusted net tangible book value per share
      after this offering.......................................            2.08
                                                                          ------
    Dilution per share to new investors.........................          $11.92
                                                                          ======
</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 $14.00 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       86%     $ 40,948,275       25%      $  .77
New investors..................   8,700,000       14       121,800,000       75        14.00
                                 ----------      ---      ------------      ---
          Total................  62,201,228      100%     $162,748,275      100%
                                 ==========      ===      ============      ===
</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.
 
                                       21

<PAGE>   26
 
                            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.
 
                                       22

<PAGE>   27
 

                    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 network access
points 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 120 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. We began selling services from our eighth P-NAP in Atlanta
in August 1999. In addition, we expect to complete the deployment of four
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-
 
                                       23

<PAGE>   28
 
location, web hosting and server management services, and installation services
at fixed rate or usage 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 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.
 
                                       24

<PAGE>   29
 
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)
                                                     ======     ======     =======    =======    =======    ========
Basic and diluted net loss per share..............   $(0.18)    $(0.26)    $ (0.54)   $ (1.11)   $ (1.58)   $  (3.18)
                                                     ======     ======     =======    =======    =======    ========
Weighted average shares used in computing basic
  and diluted net loss per share..................    3,335      3,337       3,337      3,337      3,337       3,420
                                                     ======     ======     =======    =======    =======    ========
</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>

 
                                       25

<PAGE>   30
 
   
     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 -- Negative Movements in Our Quarterly Operating Results May Disappoint
Analysts' Expectations, Which Could Have a Negative Impact on Our Stock Price."
    
 
   
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>

    
 
     SIX MONTHS ENDED JUNE 30, 1998 AND 1999
 
   
     Revenues. Revenues increased 369% 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 690% 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, comprising 53%
of the increase, and to a lesser extent, additional compensation costs
comprising 17% of the increase, and depreciation expense related to the
equipment at newly deployed P-NAPs comprising 10% of the increase. The increase
in compensation costs is primarily attributable to headcount changes including
10 additional personnel at our network operations center, 24 additional
personnel in our customer installation department and 21 additional personnel in
our P-NAP deployment department. 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
    
 
                                       26

<PAGE>   31
 
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 346% 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
compensation costs related to the addition of 29 personnel, comprising 45% of
the increase, and outside consulting fees, comprising 35% of the increase. We
expect product development costs to increase in absolute dollars for the
foreseeable future.
    
 
   
     Sales and Marketing. Sales and marketing costs increased 1,563% 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 compensation costs related to the addition of 84 personnel,
comprising 71% of the increase, and to a lesser extent, facility 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 the second half of 1998
and the first half of 1999.
    
 
   
     General and Administrative. General and administrative costs increased 387%
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 compensation costs related to the addition of 26 personnel,
comprising 39% of the change, increased depreciation and amortization costs due
to the addition of corporate office space during the third quarter of 1998,
comprising 13% of the increase, and professional services costs, comprising 10%
of the increase. 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 256% 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.
    
 
   
     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 2,273% increase of $1.0 million in 1997, as compared to the period
ended December 31, 1996, and the 100% increase of $1.0 million in 1998, as
compared to 1997, were primarily due to increased Internet connectivity
revenues, comprising 75% of the 1997 increase and 76% of the 1998 increase,
other ancillary service revenues, comprising 15% of the 1997 increase and 12% of
the 1998 increase and, to a lesser extent, customer installation fees,
comprising 10% of the 1997 increase and 12% of the 1998 increase. 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, or 240%, in 1997, as
compared to the period ended December 31, 1996, and by $2.1 million, or 191%, 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, comprising 70% of the 1997 increase and 40% of the 1998 increase,
and depreciation expense related to the equipment at newly
    
 
                                       27

<PAGE>   32
 
   
deployed P-NAPs, comprising 21% of the 1997 increase and 17% of the 1998
increase. In addition, the increase in costs of network and customer support
from 1997 to 1998 also included compensation costs, comprising 22% of the
increase, related to 6 additional personnel at our network operations center, 7
additional personnel in our customer installation department and 7 additional
personnel in our P-NAP deployment department.
    
 
   
     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, or
111%, in 1997, as compared to the period ended December 31, 1996, and by
$365,000, or 94%, in 1998, as compared to 1997. These increases were primarily
due to compensation costs, comprising 99% of the 1997 increase and 67% of the
1998 increase, and increased travel costs related to developing systems at new
P-NAPs comprising 20% of the 1998 increase. The increased compensation costs
were related to the addition of 4 personnel during the latter half of 1996, 2
personnel during 1997, and 4 personnel during 1998.
    
 
   
     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, or
235%, in 1997, as compared to the period ended December 31, 1996 and by $2.5
million, or 958%, in 1998, as compared to 1997. These increases were primarily
due to compensation costs comprising 57% of the 1997 increase and 74% of the
1998 increase, travel and entertainment costs comprising 10% of the increase in
1997 and 1998, and marketing costs related to the creation of the marketing
department, comprising 31% of the 1997 increase. The increased compensation
costs were related to the addition of 2 personnel in the latter half of 1996, 1
person during 1997, and 40 personnel during 1998.
    
 
   
     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, or 89% in 1997, as compared to the period ended 1996 and
by $1.2 million, or 168%, in 1998, as compared to 1997. These increases were
primarily due to increased compensation costs, comprising 47% of the 1997
increase and 11% of the 1998 increase, depreciation and amortization, comprising
16% of the 1997 increase and 6% of the 1998 increase, facility costs, comprising
25% of the 1997 increase and 38% of the 1998 increase, outside consulting fees,
comprising 13% of the 1998 increase, travel costs related to the deployment of
new P-NAPs, comprising 13% of the 1998 increase, and bad debt expense in 1998
and the subsequent bankruptcy of a significant customer, comprising 9% of the
1998 increase. The increased compensation costs were related to the addition of
4 personnel in the latter half of 1996, and 13 personnel during the second half
of 1998.
    
 
   
     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, or
374%, 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, or 88%, 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.
    
 
                                       28

<PAGE>   33
 
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 with Silicon Valley Bank
under which we are allowed to borrow 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. The line of credit requires interest
only payments at prime plus 1% and matured in May 1999. During July 1999, we
amended our existing line of credit and established a new line of credit with
the same financial institution. The new line of credit allows us to borrow up to
$3,000,000, as limited by certain borrowing base requirements which include
maintaining certain levels of monthly revenues and customer turnover ratios. The
new line of credit requires monthly payments of interest only at prime plus 1%
and matures on June 30, 2000. We borrowed an additional $900,000 on the new line
of credit during July 1999.
    
 
   
     On August 23, 1999, we entered into an equipment financing arrangement with
Finova Capital Corporation allowing us to borrow up to $5,000,000 for the
purchase of property and equipment. During August 1999, we borrowed
approximately $1,900,000 pursuant to this arrangement.
    
 
   
     On August 31, 1999, we entered into a standby loan facility commitment
letter with 7 shareholders, including a director of ours who will also act as
the administrative agent for the proposed facility. Upon completion of a
definitive agreement, the facility will allow us to draw up to $10,000,000 prior
to December 31, 1999. The facility will bear interest at prime plus 2% with
principal and interest due on the earlier of six months from the first draw or a
public or private sale of stock. Additionally, upon completion of the definitive
agreement, we will issue warrants to purchase 100,000 shares of common stock
with an exercise price equal to our initial public offering share price or at a
price determined in a private sale of our stock. Further, at our option, the
facility can be extended for an additional six month term in consideration for
the issuance of warrants to purchase an additional 100,000 shares of our common
stock.
    
 
   
     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.
    
 
                                       29

<PAGE>   34
 
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 the next 12 months. Depending on our rate of growth and cash
requirements, we may require additional equity or debt financing to meet future
working capital needs, which may have a dilutive effect on our then current
shareholders. We cannot assure you that such additional financing will be
available or, if available, that such financing can be obtained on satisfactory
terms. 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.
 
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
 
                                       30

<PAGE>   35
 
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 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.
 
                                       31

<PAGE>   36
 
     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.
 
   
     Business Relationships. As part of our Year 2000 plan, we are in the
process of reviewing third-party suppliers of components used in the delivery of
our services, including AT&T, Cable and Wireless USA, Cisco Systems, Intermedia,
GTE, Sprint, PSINet, Netcom, UUNET and Verio, to identify and, to the extent
possible, resolve issues involving the Year 2000 problem. Additionally, we are
in the process of reviewing significant customers, including U.S.
Electrodynamics and Go2Net, 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 and customers. 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 business relationships
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;
    
 
   
     - 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; and
    
 
   
     - one or more of our backbone or other telecommunication providers may
       encounter difficulties related to the Year 2000 and, as a result, may not
       be able to send data to or receive data from one or more of our P-NAPs.
    
 
                                       32

<PAGE>   37
 
     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 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.
 
                                       33

<PAGE>   38
 

 
                                   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 network access points 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 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 120
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 patented
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. We currently operate
eight P-NAPs which are located in the Atlanta, Boston, Chicago, Los Angeles, New
York, San Jose, Seattle and Washington, D.C. metropolitan areas. We expect to
complete the deployment of an additional four P-NAPs in the Dallas, Miami, New
York and Philadelphia metropolitan areas 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 using the Internet to make telephone calls or send
facsimiles, create private networks, distribute multimedia documents and send
and receive audio and video feeds.
    
 
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, private networks, telephone and facsimile capabilities,
supply chain management, customer service and project coordination. To improve
the effectiveness of
    
 
                                       34

<PAGE>   39
 
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 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 network access points.
    
 
   
     Five major public network access points 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 network access points are not centrally managed and no
single entity has the economic incentive or ability to facilitate problem
resolution, to optimize peering within the public network access points 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 loss at the public network
access points, 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 loss is a fundamental cause of the slowness and unreliability that are
characteristic of the Internet today. Data 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 loss most frequently occurs at
Internet exchange points, such as public network access points and private
peering points. We believe that packet loss at the public network access points
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
    
 
                                       35

<PAGE>   40
 
   
source, downloading a file from a web site under conditions with 1% data loss
can take up to twice as long as doing so when there is no data loss.
    
 
   
     Due to the Internet's lack of central management, there is no organized
mechanism to route traffic to avoid congestion at the public network access
points and private peering points. The individual backbone providers only
control the routing of data 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 network access point or a private peering point
typically involves no economic settlement, a backbone provider will often route
the data 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
ordinarily passes through multiple networks and peering points without regard to
congestion or other factors that inhibit performance. Further, once data 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, 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 on page 36 depicting an example of routing over the Internet]
    
 
   
The Inefficiencies of the Internet Today:
A. Backbone A passes off the ISP Customer request for data at the nearest public
   or private with Backbone B, regardless of congestion or performance problems
   occurring at the exchange.
   Free private peering provides no economic settlement between 2 networks,
   thereby resulting in "best effort" delivery with no guarantees or
   accountability for poor performance or lost data.
B. Using an asymmetric return route, Backbone B passes off the ISP Customer
   request at a public peering exchange forcing the data to transit across yet
   another potentially congested network infrastructure.
    
 
                                   [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
                                       36

<PAGE>   41
 
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 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 eight P-NAPs
across the United States. Our P-NAP network model is depicted below:
    
 
   
[Graphic on page 37 depicting P-NAP routing method]
The InterNAP Solution:
A. The P-NAP intelligently routes data transmissions between the ISP customer
   and the P-NAP customer Web Site, bypassing congested and unreliable public
   NAPs and private peering relationships.
B. The P-NAP intelligently routes data transmissions between the Web Site and
   the P-NAP ISP Customer, bypassing congested and unreliable public and private
   peering relationships.
C. For ISPs and Web Sites that are customers of the same P-NAP, data
   transmissions occur within the local P-NAP infrastructure, bypassing the
   Internet entirely.
    
 
                                   [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 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 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 network access points and private
peering points, reduces data
    
 
                                       37

<PAGE>   42
 
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.
 
     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 on page 38 depicting the InterNAP virtual backbone]
    
 
                                   [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.
                                       38

<PAGE>   43
 
     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
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 telephone and facsimile capabilities, private networks,
multimedia document distribution and audio and video feeds.
    
 
     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 eight 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,
    
 
                                       39

<PAGE>   44
 
   
we expect to complete the deployment of four additional P-NAPs in the United
States by the end of 1999.
    
 
     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 120 customers. The
following is a list of selected customers whose monthly bill was between $5,000
and $94,000 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.
 
                                       40

<PAGE>   45
 
   
     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. Since inception, we have
identified six customers who chose not to renew their service with us.
    
 
SERVICES
 
   
     We offer Internet connectivity services to our customers over T-1, DS-3 and
OC-3 telecommunication 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 reliable and
scalable network access point. Multiple routers and multiple backbone
connections provide back-ups in case of the failure of any single P-NAP circuit
or device.
    
 
   
     The P-NAP architecture is designed to grow as our customers' traffic
demands grow and as we add new customers. Our P-NAP model provides for the
addition of significant backbone providers as necessary.
    
 
   
     InterNAP only deploys 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.
    
 
                                       41

<PAGE>   46
 
   
     ASsimilator Routing Technology. ASsimilator technology is a software based
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, software
programs, 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 routes data to its intended
destination backbone in normal instances as well as in failure scenarios. A
verification system also allows ASsimilator to monitor the routing of data, 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 monitoring 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. This system provides our network operations center with proactive trouble
notification, allowing for instantaneous identification and handling of
problems, frequently before our customers become aware of network problems. This
system also captures and provides bandwidth usage reports for billing and
customer reports. Data provided by the system is an integral part of our
capacity planning and provisioning process, helping us to forecast and plan
upgrades before capacity becomes strained.
    
 
   
     Product Development Costs. Our product development costs include research
and development costs, which were approximately $184,000 for the period from
inception May 1, 1996 to December 31, 1996, $389,000 for the year ended December
31, 1997, $708,000 for the year ended December 31, 1998 and $903,000 for the six
month period ended June 30, 1999. We expect our product development costs to
increase as we hire additional engineers and technical personnel to develop new
products and services and upgrade existing ones.
    
 
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 developers, cable companies, DSL service providers, consulting companies
and Internet service providers.
 
                                       42

<PAGE>   47
 
     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 bandwidth intensive
applications such as telephone and facsimile transmissions over the Internet,
private networks, multimedia document distribution, audio and video feeds and
other emerging technologies are introduced.
    
 
COMPETITION
 
   
     The Internet-based connectivity services market is extremely competitive
and there are few substantial barriers to entry. We expect that competition will
intensify in the future, and we may not have the financial resources, technical
expertise, sales and marketing abilities or support capabilities to compete
successfully in our market. Many of our existing 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 infrastructures that are
highly dependent on traditional public and private peering exchanges. Each
                                       43

<PAGE>   48
 
   
backbone provider tries to offer high quality service within its own network but
is unable to guarantee service quality once data 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 -- Competition
from More Established Competitors Who Have Greater Revenues Could Result in
Price Reductions, Reduced Profitability and Loss of Market Share."
    
 
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
trademarks of InterNAP which are registered in the United States. To date, we
have made two patent applications in the United States. The United States Patent
and Trademark Office has recently notified us that it has allowed four of the
claims in our initial patent application. When the initial patent issues, it
will be enforceable for a duration of twenty years from the date of filing, or
until September 3, 2017. Additional claims that were included by amendment in
that application have now been included in our second patent application. All of
the patents and patent applications relate to our P-NAP technology. In addition,
we have filed a corresponding 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.
 
                                       44

<PAGE>   49
 
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.
 
                                       45

<PAGE>   50
 

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

<TABLE>
<CAPTION>
                  NAME                     AGE                   POSITION
                  ----                     ---                   --------
<S>                                        <C>   <C>
Anthony C. Naughtin......................  43    Chief Executive Officer 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
Mike N. Joseph...........................  51    Vice President of Operations and Field
                                                   Engineering
Richard Perez............................  46    Vice President of Deployment
Eugene Eidenberg.........................  59    Chairman of the Board
William J. Harding(1)....................  51    Director
Fredric 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 since May 1996. Mr. Naughtin has also served as our President from May
1996 to August 1999 and 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
    
 
                                       46

<PAGE>   51
 
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.
 
   
     Mike N. Joseph has served as our Vice President of Operations and Field
Engineering since August 1999. He has served as our Vice President of Operations
since June 1999 and as our Director of Corporate Engineering Operations from
September 1998 to June 1999. Prior to joining InterNAP, Mr. Joseph served as
Director, and later Vice President of Technical Services of Cellular Technical
Services, a manufacturer of clone detection products, from July 1996 to June
1998. Prior to that, Mr. Joseph was Director of Operational System Support for
AT&T Wireless, a wireless services provider, from August 1995 to May 1996. From
July 1994 to August 1995, Mr. Joseph was Manager of Global Engineering at Cable
& Wireless, a global voice and Internet connectivity company. Mr. Joseph
attended the University of Houston.
    
 
   
     Richard Perez has served as our Vice President of Deployment since August
1999 and as our Vice President of Deployment, Field Engineering and Provisioning
from December 1998 to August 1999. 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.
 
                                       47

<PAGE>   52
 
   
     Fredric 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.
 
     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 Fredric 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.
    
 
                                       48

<PAGE>   53
 
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, Fredric
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.
 
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.
 
                                       49

<PAGE>   54
 

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.
 
             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.
 
                                       50

<PAGE>   55
 
                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.
 
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 these outstanding options are exercised or terminated.
    
 
   
     The 1998 Plan provides for grants of incentive stock options that qualify
under Section 422 of the Internal Revenue Code of 1986, 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. This
committee 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
equal to at least 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.
    
 
                                       51

<PAGE>   56
 
   
     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 the 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 specific corporate transactions, the board of directors
may, in its sole discretion,
    
 
   
     - accelerate the vesting of outstanding options under the 1998 Plan,
    
 
   
     - arrange for outstanding options to be assumed or substituted for similar
       options by a successor corporation,
    
 
   
     - arrange for outstanding options to be replaced by a comparable cash
       incentive program of the successor corporation or
    
 
   
     - take no action with respect to outstanding options, in which case such
       options will terminate upon the completion of the corporate transaction.
    
 
   
     The 1998 Plan will terminate on the earlier of ten years from its adoption
by the board or the date all shares have been issued.
    
 
   
     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 Incentive Plan. As of June 30, 1999, options to purchase an aggregate
of 2,004,000 shares were outstanding under the Incentive Plan and 4,496,000
shares were currently available for future grant of stock awards under the
Incentive Plan.
    
 
   
     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. The board or committee 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 Incentive 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 at least equal to 110% of the fair market
value. The exercise price of nonstatutory stock options is set by the
administrator of the Incentive Plan, but can be no less than 85% of the fair
market value. The maximum term of options granted under the Incentive 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 this cessation, or such other period of time as determined by the
administrator, unless these 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
    
 
                                       52

<PAGE>   57
 
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.
 
   
     A change in control of Internap is defined in the Incentive Plan as the
sale of substantially all of our assets or merger with or into another
corporation. If a change in control occurs, 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. In this situation, if options are not assumed, continued
or substituted, these options will become fully exercisable, including shares as
to which they would not otherwise be exercisable, and restricted stock will
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 or if 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.
    
 
   
     Upon the first nine anniversaries of the adoption date of the Incentive
Plan, an additional number of shares will automatically be added to the number
of shares already reserved for issuance under the Incentive Plan. The additional
number of shares will not be more than the lesser of
    
 
   
     - 3 1/2% of the number of shares of our common stock issued and outstanding
       on the anniversary date or
    
 
   
     - 6,500,000 shares.
    
 
   
     When we become subject to Section 162(m) of the Internal Revenue Code,
which denies a deduction to publicly held corporations for 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 Incentive Plan
covering more than 3,000,000 shares of common stock in any calendar year.
    
 
   
     Restricted stock purchase awards are granted under the Incentive Plan in
accordance with a vesting schedule determined by the board or a committee
appointed by the board. These restricted stock purchase awards are subject to a
right of repurchase by us. The price of a restricted stock purchase award under
the Incentive 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 for past
services without a purchase 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 as long as the stock
awarded pursuant to an agreement remains subject to the agreement.
    
 
   
     Subject to shareholder approval, as necessary, our board of directors may
amend the Incentive 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. Upon the first nine anniversaries of the adoption date
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 offering rights to eligible employees. Under the purchase plan, we 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
    
 
                                       53

<PAGE>   58
 
   
on the effective date of this offering and terminate on June 30, 2001. Purchase
dates will occur each December 31 and June 30 after the initial offering.
    
 
   
     Employees who participate in an offering under the purchase plan may have
up to 15% of their earnings withheld. 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 the
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 the rights
are granted, the employee will have voting power over 5% or more of our
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 an employee's rights to purchase our stock to accrue at a
rate which exceeds $25,000 of fair market value of our stock for each calendar
year in which our 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
    
 
   
     - an equivalent right substituted by the successor corporation or
    
 
   
     - all sums collected by payroll deductions to be applied to purchase stock
       immediately prior to the change in control. The board of directors has
       the authority to amend or terminate the purchase plan, but 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. The directors' plan provides 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.
    
 
   
     An aggregate of 500,000 shares of common stock may be issued pursuant to
options granted under the directors' plan. The terms of the directors' plan
provides that each of our directors who is not an employee of ours 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 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 ours 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 more than
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 us or any of our affiliates ceases for
any reason other than death or permanent and total
    
 
                                       54

<PAGE>   59
 
   
disability may exercise vested options in the three-month period following the
cessation unless the 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 specific 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 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 to the 401(k) Plan by our employees or by us, and income earned 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, 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.
 
   
     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, 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.
 
                                       55

<PAGE>   60
 
     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, if specific corporate
transactions occur, including the sale of substantially all of our assets or a
merger with or into another corporation, the plan administrator may, in its sole
discretion,
    
 
   
     - accelerate the vesting of outstanding options under the 1998 Plan,
    
 
   
     - arrange for outstanding options to be assumed or substituted for similar
       options by a successor corporation,
    
 
   
     - arrange for outstanding options to be replaced by a comparable cash
       incentive program of the successor corporation or
    
 
   
     - take no action with respect to outstanding options, in which case the
       options will terminate upon the completion of the corporate transaction.
    
 
   
     Under the 1999 Equity Incentive Plan, if a change in control occurs,
including the sale of substantially all of our assets or a merger with or into
another corporation, any outstanding options held by persons then performing
services for us as an employee, director or consultant may,
    
 
   
     - either be assumed or continued,
    
 
   
     - an equivalent award may be substituted by the surviving entity, or,
    
 
   
     - if the options are not assumed, continued or substituted, the options
       will become fully exercisable, including shares as to which they would
       not otherwise be exercisable, and restricted stock will become fully
       vested.
    
 
   
     Options also become fully exercisable upon the occurrence of a securities
acquisition representing 50% or more of the combined voting power of our
securities, or if 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.
    
   
    
 
                                       56

<PAGE>   61
 

                              CERTAIN TRANSACTIONS
 
   
     Since our inception in May 1996, we have issued and sold securities to the
persons listed in the following table who are our executive officers, directors
or principal shareholders. You may find more details about shares held by these
purchasers in the "Principal Shareholders" section.
    
 
   
     The per share purchase prices for our Series A, Series B and Series C
preferred stock were $.102, $.60 and $1.08, respectively. Upon the closing of
this offering, each outstanding share of our Series A, Series B and Series C
preferred stock will convert into one share of common stock on a one-for-one
basis. Warrants are exercisable for our Series B preferred stock at a per share
exercise price of $.60.
    
 
   

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

    
 
-------------------------
   
(1) 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.
    
 
   
(2) 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.
    
 
   
(3) 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.
    
 
   
(4) Mr. Eidenberg, one of our directors, is a principal of Hambrecht & Quist
    Venture Associates.
    
 
   
(5) 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 Stanley Dean Witter Venture Partners Funds is a
    wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., the parent of
    Morgan Stanley & Co. Incorporated.
    
 
   
(6) 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.
    
 
                                       57

<PAGE>   62
 
   
(7) 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.
    
 
   
(8) 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.
 
     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
 
                                       58

<PAGE>   63
 
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.
    
 
   
     On August 31, 1999, we entered into a standby loan facility commitment
letter with 7 shareholders, including a director of ours who will also act as
the administrative agent for the proposed facility. Upon completion of a
definitive agreement, the facility will allow us to draw up to $10,000,000 prior
to December 31, 1999. The facility will bear interest at prime plus 2% with
principal and interest due on the earlier of six months from the first draw or a
public or private sale of stock. Additionally, upon completion of the definitive
agreement, we will issue warrants to purchase 100,000 shares of common stock
with an exercise price equal to our initial public offering share price or at a
price determined in a private sale of our stock. Further, at our option, the
facility can be extended for an additional six month term in consideration for
the issuance of warrants to purchase an additional 100,000 shares of our common
stock.
    
 
   
     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.
    
 
                                       59

<PAGE>   64
 
                             PRINCIPAL SHAREHOLDERS
 
   
     The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of August 31, 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 53,619,663 shares of common stock outstanding on an
as-converted basis as of August 31, 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 10,005,000 shares of
common stock and up to 63,624,663 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 August 31, 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%       14.9%
     c/o Morgan Stanley Dean Witter Venture Partners
     1221 Avenue of the Americas
     New York, NY, 10020
William J. Harding(1)....................................    9,259,259       17.3        14.9
H&Q InterNAP Investors, L.P.(2)..........................    7,090,134       13.2        11.3
     c/o Hambrecht & Quist LLC
     One Bush Street
     San Francisco, CA 94104
TI Ventures, LP(2).......................................    7,090,134       13.2        11.3
     c/o Hambrecht & Quist LLC
     One Bush Street
     San Francisco, CA 94104
Eugene Eidenberg(2)......................................    7,090,134       13.2        11.3
</TABLE>

    
 
                                       60

<PAGE>   65
 
   

<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)....................    5,958,334       11.1%        9.6%
535 University Avenue, Suite 1300
Palo Alto, CA, 94301
Fredric W. Harman(3).....................................    5,958,334       11.1         9.6
Robert J. Lunday, Jr.(4) ................................    5,822,387       10.9         9.3
Vulcan Ventures Incorporated(5)..........................    4,936,071        9.2         7.9
110 100th Avenue Northwest, Suite 550
Bellevue, WA, 98004
Kevin L. Ober(5).........................................    4,936,071        9.2         7.9
Fidelity Investors II Limited Partnership(6).............    2,777,778        5.2         4.5
82 Devonshire Street, R25D
Boston, MA, 02110-2106
FTT Ventures Limited(6)..................................    2,777,778        5.2         4.5
82 Devonshire Street, R25D
Boston, MA, 02110-2106
Paul E. McBride(7).......................................    2,689,804        4.9         4.3
Anthony C. Naughtin(8)...................................    2,292,380        4.2         3.7
Christopher D. Wheeler(9)................................    2,292,380        4.2         3.7
Robert D. Shurtleff, Jr.(10).............................      894,398        1.7         1.4
Charles M. Ortega(11)....................................      135,000          *           *
All directors and executive officers as a group
  (10 persons)(12).......................................   37,243,863       69.0        59.8
</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, 91,666 shares issuable upon
     exercise of vested options that are held by Mr. Eugene Eidenberg and
     108,334 shares issuable upon exercise of options held by Mr. Eidenberg that
     are exercisable within 60 days of August 31, 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.
    
 
                                       61

<PAGE>   66
 
   
 (3) Consists of 5,845,126 shares held by Oak Investment Partners VIII, L.P. and
     113,208 shares held by Oak VIII Affiliates Fund L.P. Mr. Fredric 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, 91,666
     shares held by Mr. Kevin L. Ober and 108,334 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 August 31, 1999.
    
 
   
(11) Includes 30,000 shares issuable upon exercise of options exercisable within
     60 days of August 31, 1999.
    
 
   
(12) Includes 545,600 shares subject to options and warrants which are
     exercisable within 60 days of August 31, 1999.
    
 
                                       62

<PAGE>   67
 

                          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 to purchase Series B preferred stock will become exercisable for common
stock at the rate of one share of common stock for each share of preferred stock
underlying the warrants.
    
 
                                       63

<PAGE>   68
 
   
REGISTRATION RIGHTS
    
 
   
     After this offering, the holders of 52,965,499 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 21,186,199 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
 
                                       64

<PAGE>   69
 
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.
 
                                       65

<PAGE>   70
 
                        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 62,319,663
shares of common stock, assuming the issuance of 8,700,000 shares of common
stock offered in this prospectus, conversion of all shares of preferred stock
and no exercise of options or warrants after August 31, 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 53,619,663 shares of common stock,
assuming conversion of all shares of preferred stock, held by existing
shareholders as of August 31, 1999 in reliance on exemptions from the
registration requirements of the Securities Act. Of these shares, 53,008,758
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, 23,579,557 shares will become eligible for
sale, subject in most cases to the limitations of Rule 144.
    
 
   

<TABLE>
<CAPTION>
   DAYS AFTER DATE OF     SHARES ELIGIBLE
    THIS PROSPECTUS          FOR SALE                              COMMENT
   ------------------     ---------------                          -------
<S>                       <C>               <C>
Upon effectiveness......     8,700,000      Shares sold in the offering
90 days.................       410,476      Shares saleable under Rule 144 that are not subject to
                                            the lock-up
180 days................    23,579,557      Lock-up released: shares saleable under Rules 144 and
                                            701
</TABLE>

    
 
   
     In addition, holders of stock options and warrants could exercise their
options and warrants and sell the shares issued upon exercise as described
below. As of August 31, 1999 there were a total of 596,874 shares of common
stock that could be issued upon exercise of outstanding warrants. 596,091 of
these shares are subject to lock-up agreements. As of August 31, 1999, there
were a total of 6,748,549 shares of common stock subject to outstanding options
under our stock plans, 358,399 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 1,371,097 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.
 
                                       66

<PAGE>   71
 
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 623,197 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.
 
   
REGISTRATION RIGHTS
    
 
   
     In addition, following this offering, the holders of 52,809,408 shares of
common stock and of warrants exercisable for 156,091 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.
 
                                       67

<PAGE>   72
 
                                  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 8,700,000 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 1,305,000 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 $140,070,000, the total underwriters'
discounts and commissions would be $9,804,900 and the total proceeds to us would
be $129,165,100.
    
 
     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.
 
                                       68

<PAGE>   73
 
   
     We have applied for approval of our common stock for quotation 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 14.9% of the common
stock on an as-converted basis (14.6% 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.
    
 
                                       69

<PAGE>   74
 
     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.
 
   
                      WHERE YOU CAN FIND MORE 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 by this prospectus. 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 included in the registration statement. For further
information pertaining to us and the common stock offered by this prospectus,
reference is made to the registration statement and its exhibits and schedules.
Statements contained in this prospectus regarding the contents or provisions of
any contract or other document referred to in this prospectus 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,
with each statement being qualified in all respects by the reference to a
document or contract. 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 these 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 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 and amendments to the registration statement, was filed with the SEC
through EDGAR.
    
 
                                       70

<PAGE>   75
 
                     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>   76
 

                       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>   77
 
                     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>   78
 
                     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>   79
 
                     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>   80
 
                     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>   81
 
                     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>   82
                     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 a significant customer representing 18.1% of
revenues and 28.1% of accounts receivable at December 31, 1997. In addition, a
significant customer which represented 20.8% of 1997 revenues and 35.5% of
accounts receivable at December 13, 1997, declared bankruptcy during 1998.
Consequently, the Company did not recognize significant revenue from this
customer during 1998 and the accounts receivable balance at December 31, 1997,
for which a reserve was provided for in the allowance for doubtful accounts, was
written off during 1998 when it was determined that the Company would not be
able to recover the balance. 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
 
                                       F-8

<PAGE>   83
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
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.
 
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
 
                                       F-9

<PAGE>   84
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
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 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. Research and development costs are
expensed as incurred. Included in product development costs are research and
development costs
    
 
                                      F-10

<PAGE>   85
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
which 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 approximately $184,000, $389,000, $708,000, $318,000
(unaudited) and $903,000 (unaudited), respectively.
    
 
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>   86
                     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>   87
                     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>   88
                     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 of
the Company. A material adverse change is defined as a material impairment in
the perfection or priority of the bank's collateral or a material impairment of
the prospect of repayment of the Line. As of December 31, 1998 and 1997, the
Company had $650,000 and $0, respectively, outstanding on the Line.
    
 
                                      F-14

<PAGE>   89
                     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>   90
                     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>   91
                     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>   92
                     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>   93
                     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 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>   94
                     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>   95
                     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 or common stock
subject to repurchase vest, 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
    
 
                                      F-21

<PAGE>   96
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
the 3,411,749 options to purchase common stock was $.10 and the weighted average
fair value per share was $.31 during 1998.
 
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):
 
   
FINANCING ARRANGEMENTS
    
 
   
     Line of Credit: During July 1999, the Company amended its existing line of
credit and established a new line of credit (the "New Line") with the same
financial institution. The New Line allows the Company to borrow up to
$3,000,000, as limited by certain borrowing base requirements which include
maintaining certain levels of monthly revenues and customer turnover ratios. The
New Line requires monthly payments of interest only at prime plus 1% and matures
on June 30, 2000. Events of default for the New Line include failure to maintain
certain financial covenants or a material adverse change in the financial
position of the Company. A material adverse change is defined as a material
impairment in the perfection or priority of the bank's collateral or a material
impairment of the prospect of repayment of the New Line. The Company borrowed an
additional $900,000 on the New Line during July 1999.
    
 
   
     Equipment Financing: During August 1999, the Company entered into an
equipment financing arrangement with a finance company which allows the Company
to borrow up to $5,000,000 for the purchase of property and equipment. During
August 1999, the Company borrowed approximately $1,900,000 pursuant to this
arrangement. Amounts borrowed are collateralized by the property and equipment
purchased and require monthly payments of principle and interest.
    
 
   
     Standby Credit Facility. On August 31, 1999, the Company signed a financing
commitment letter with 7 shareholders, including a director of the Company who
will also act as the administrative agent for the proposed facility. Upon
completion of a definitive agreement, the facility will allow the Company to
draw up to $10,000,000 prior to December 31, 1999. The facility will bear
interest at
    
 
                                      F-22

<PAGE>   97
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
prime plus 2% with principal and interest due on the earlier of six months from
the first draw or a public or private sale of stock. Additionally, upon
completion of the definitive agreement, the Company will issue warrants to
purchase 100,000 shares of common stock with an exercise price equal to the
Company's initial public offering share price or a price determined in a private
sale of stock. Further, at the Company's option, the facility can be extended
for an additional six month term in consideration for the issuance of warrants
to purchase an additional 100,000 shares of common stock.
    
 
   
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. Subsequent to June 30, 1999, the
Company granted 760,000 options to purchase shares of common stock to certain
employees with exercise prices below the deemed fair value of the Company's
common stock and will record approximately $4,600,000 of deferred compensation
related to such options.
    
 
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 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
 
                                      F-23

<PAGE>   98
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
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-24

<PAGE>   99
 
                                [INTERNAP LOGO]

<PAGE>   100
 

 
                                   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........................................  $   41,721
NASD filing fee.............................................      15,508
Nasdaq National Market listing fee..........................      95,000
Printing and engraving costs................................     200,000
Legal fees and expenses.....................................     425,000
Accounting fees and expenses................................     250,000
Blue Sky fees and expenses..................................       5,000
Transfer Agent and Registrar fees...........................      10,000
Miscellaneous expenses......................................      57,771
                                                              ----------
          Total.............................................  $1,100,000
                                                              ==========
</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>   101
 

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. 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 August 31, 1999, we granted stock options to purchase
an aggregate of 4,880,249 shares of 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 810,255 shares
    
 
                                      II-2

<PAGE>   102
 
   
have been exercised, options for an aggregate of 358,399 shares are exercisable,
options for an aggregate of 80,445 shares have been cancelled and options for an
aggregate of 3,989,549 shares remain outstanding. Pursuant to our 1999 Equity
Incentive Plan, as of August 31, 1999 we have granted stock options to purchase
2,774,000 shares of our common stock, with exercise prices ranging from $4.00 to
$8.00 per share to employees, consultants and directors of which 15,000 have
been cancelled and options for an aggregate of 2,759,000 remain outstanding.
    
 

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     Amended and Restated Loan and Security Agreement, dated June
          30, 1999, between Registrant and Silicon Valley Bank.
10.20     Master Agreement To Lease Equipment, dated January 20, 1998
          between Registrant and Cisco Systems Capital Corporation.
</TABLE>

    
 
                                      II-3

<PAGE>   103
 
   

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
10.21     Employment Agreement, dated April 10, 1996, between
          Registrant and Christopher D. Wheeler.
10.22     Employment Agreement, dated May 16, 1996, between Registrant
          and Anthony C. Naughtin.
10.23     Employee Confidentiality, Nonraiding and Noncompetition
          Agreement, dated May 16, 1996 between Registrant and Paul E.
          McBride.
10.24     Employment Agreement, dated March 18, 1998, between
          Registrant and Michael Ortega.
10.25     Standby Loan Facility Commitment Letter, dated August 31,
          1999, between Registrant and David Cornfield, Dan Newell,
          Richard Saada, Paul Canniff, Robert Lunday, Todd Warren,
          Robert D. Shurtleff, Jr. and S.L. Partners, Inc.
10.26     Master Loan and Security Agreement, dated August 23, 1999
          between Registrant and Finova Capital Corporation.
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>

    
 
-------------------------
   
+ Previously filed.
    
 
   

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>   104
 

                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act of 1933, as amended,
InterNAP has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereinto duly authorized, in the
City of Seattle, State of Washington, on the 7th day of September, 1999.
    
 
                                          INTERNAP NETWORK SERVICES
                                          CORPORATION
 
                                          By:                  *
                                             -----------------------------------
                                                     Anthony C. Naughtin
                                                 Chief Executive Officer and
                                                          President
 
   
     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 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>
                          *                             Chief Executive Officer    September 7, 1999
-----------------------------------------------------   and President (Principal
                 Anthony C. Naughtin                       Executive Officer)
 
                 /s/ PAUL E. MCBRIDE                    Vice President and Chief   September 7, 1999
-----------------------------------------------------      Financial Officer
                   Paul E. McBride                       (Principal Finance and
                                                          Accounting Officer)
 
                          *                              Chairman of the Board     September 7, 1999
-----------------------------------------------------
                  Eugene Eidenberg
 
                          *                                     Director           September 7, 1999
-----------------------------------------------------
                 William J. Harding
 
                          *                                     Director           September 7, 1999
-----------------------------------------------------
                 Frederic W. Harman
 
                          *                                     Director           September 7, 1999
-----------------------------------------------------
                Robert J. Lunday, Jr.
 
                          *                                     Director           September 7, 1999
-----------------------------------------------------
                    Kevin L. Ober
</TABLE>

    
 
                                      II-5

<PAGE>   105
 
   

<TABLE>
<CAPTION>
                      SIGNATURE                                  TITLE                   DATE
                      ---------                                  -----                   ----
<S>                                                    <C>                         <C>
                          *                                     Director           September 7, 1999
-----------------------------------------------------
              Robert D. Shurtleff, Jr.
 
               By: /s/ PAUL E. MCBRIDE
  -------------------------------------------------
                   Paul E. McBride
                 (Attorney-in-Fact)
</TABLE>

    
 
                                      II-6

<PAGE>   106

                      Report of Independent Accountants on
                         Financial Statement Schedule


To the Board of Directors and Shareholders
InterNAP Network Services Corporation

Our audits of the financial statements referred to in our report dated
April 2, 1999 appearing in the Registration Statement on Form S-1 also included
an audit of the financial statement schedule listed in Item 16 of this
Form S-1. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements.


PricewaterhouseCoopers LLP


Seattle, Washington
April 2, 1999



                                      S-1


<PAGE>   107

Valuation and qualifying accounts and reserves (in thousands)


<TABLE>
<CAPTION>

                                          Balance at      Charges to    Charges to                    Balance at
                                         beginning of      costs &         other                         end of
Description                              fiscal period     expenses      accounts     Deductions     fiscal period
------------------------------------     -------------    ----------    ----------    ----------     -------------
<S>                                      <C>              <C>           <C>           <C>            <C>
Year Ended December 31, 1997
     Allowance for doubtful accounts                              27                                            27
     Tax valuation allowance                                                   114                             114

Year Ended December 31, 1998
     Allowance for doubtful accounts                27           140                         102                65
     Tax valuation allowance                       114                       2,532                           2,646

</TABLE>


<PAGE>   108
 

                                 EXHIBIT INDEX
 
   

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
 1.1      Form of Underwriting Agreement.
 3.1+     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     Amended and Restated Loan and Security Agreement, dated June
          30, 1999, between Registrant and Silicon Valley Bank.
10.20     Master Agreement To Lease Equipment, dated January 20, 1998
          between Registrant and Cisco Systems Capital Corporation.
10.21     Employment Agreement, dated April 10, 1996, between
          Registrant and Christopher D. Wheeler.
10.22     Employment Agreement, dated May 16, 1996, between Registrant
          and Anthony C. Naughtin.
10.23     Employee Confidentiality, Nonraiding and Noncompetition
          Agreement, dated May 16, 1996 between Registrant and Paul E.
          McBride.
10.24     Employment Agreement, dated March 18, 1998, between
          Registrant and Michael Ortega.
</TABLE>

    

<PAGE>   109
 
   

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>       <C>
10.25     Standby Loan Facility Commitment Letter, dated August 31,
          1999, between Registrant and David Cornfield, Dan Newell,
          Richard Saada, Paul Canniff, Robert Lunday, Todd Warren,
          Robert D. Shurtleff, Jr. and S.L. Partners, Inc.
10.26     Master Loan and Security Agreement, dated August 23, 1999
          between Registrant and Finova Capital Corporation.
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>

    
 
-------------------------
   
+ Previously filed.
    
   
    





<PAGE>   1

                                                                     EXHIBIT 1.1

                                                              September __, 1999

Morgan Stanley & Co. Incorporated
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
Hambrecht & Quist
c/o     Morgan Stanley & Co. Incorporated
        1585 Broadway
        New York, New York 10036

Dear Sirs and Mesdames:

        InterNAP Network Services Corporation, a Washington corporation (the
"COMPANY"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "UNDERWRITERS") ________ shares of its Common Stock,
$0.001 par value per share (the "FIRM SHARES"). The Company also proposes to
issue and sell to the several Underwriters not more than an additional ______
shares of its Common Stock, $0.001 par value per share (the "ADDITIONAL
SHARES"), if and to the extent that you, as Managers of the offering, shall have
determined to exercise, on behalf of the Underwriters, the right to purchase
such shares of common stock granted to the Underwriters in Section 2 hereof. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "SHARES." The shares of Common Stock, $0.001 par value per share, of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "COMMON STOCK."

        The Company has filed with the Securities and Exchange
 Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.

        As part of the offering contemplated by this Agreement, Morgan Sanley &
Co. Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares set
forth opposite its name on Schedule I to this Agreement, up to ___________
shares, for sale to the Company's employees, officers and directors and other
parties associated with the Company (collectively, "PARTICIPANTS"), as set forth
in the Prospectus under the heading "Underwriting" (the "DIRECTED SHARE
PROGRAM"). The Shares to be sold by Morgan Stanley pursuant to the Directed
Share Program (the "DIRECTED SHARES") will be sold by Morgan Stanley pursuant to
this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any 



                                       1

<PAGE>   2
Participants by the end of the first business day after the date on which this
Agreement is executed will be offered to the public by Morgan Stanley as set
forth in the Prospectus.

        1.      Representations and Warranties. The Company represents and
warrants to and agrees with each of the Underwriters that:

                (a)     The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.

                (b)     (i) The Registration Statement, when it became
effective, did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply and,
as amended or supplemented, if applicable, will comply in all material respects
with the Securities Act and the applicable rules and regulations of the
Commission thereunder (the "RULES") and (iii) the Prospectus does not contain
and, as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.

                (c)     The Company has been duly organized, is validly existing
as a corporation under the laws of the State of Washington, has the corporate
power and authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company.

                (d)     The Company does not have any subsidiaries as defined in
Rule 1.02 of the Regulation S-X of the Security Act.

                (e)     This Agreement has been duly authorized, executed and
delivered by the Company.

                (f)     The authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the Prospectus.

                (g)     The shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable.

                (h)     The Shares have been duly authorized and, when issued
and delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will not
be subject to any preemptive or similar rights.



                                       2

<PAGE>   3

                (i)     The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the articles of incorporation, as
amended, or bylaws, as amended, of the Company or any agreement or other
instrument binding upon the Company that is material to the Company, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares and the clearance of such
offering with the National Association of Securities Dealers, Inc.

                (j)     There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus.

                (k)     Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, (1) the
Company has not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary course
of business; (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, short-term debt or
long-term debt of the Company, except as described in the Prospectus.

                (l)     The Company has good and marketable title in fee simple
to all real property and good and marketable title to all personal property
owned by it which is material to the business of the Company, free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not materially interfere with the use made and
proposed to be made of such property and buildings by the Company, except as
described in the Prospectus.

                (m)     The Company owns or possesses, or can acquire on
reasonable terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names necessary to conduct its business in
the manner currently employed by it and as described in the Prospectus. The
Company has not received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, could
reasonably be expected to result in a material adverse affect on the Company.



                                       3

<PAGE>   4

                (n)     No material labor dispute with the employees of the
Company exists, except as described in the Prospectus, or to the knowledge of
the Company, is imminent; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that could have a material
adverse effect on the Company.

                (o)     The Company is insured by the insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the business in which the Company is engaged; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the Company,
except as described in the Prospectus.

                (p)     The Company possesses all certificates, authorizations
and permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business, and the Company has not received
any notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the Company, except as described in the Prospectus.

                (q)     The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specific authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (3) access to assets is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

                (r)     The accountants who have expressed their opinions with
respect to the financial statements and schedules included in the Registration
Statement are independent accountants as required by the Securities Act.

                (s)     The financial statements and schedules of the Company
included in the Registration Statement, including the notes thereto, present
fairly the financial position of the Company as of the respective dates of such
financial statements, and the results of operations and cash flows of the
Company for the respective periods covered thereby, and have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the financial
information set forth in the Prospectus under the captions "Summary Financial
Data" and "Selected Financial Data" presents fairly on the basis stated in the
Prospectus, the information set forth therein.

                (t)     The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or otherwise,
in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.



                                       4

<PAGE>   5

                (u)     There is no material document of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required.

                (v)     All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times exempt from the registration
requirements of the Securities Act and were duly registered with or the subject
of an available exemption from the registration requirements of the applicable
state or province securities laws.

                (w)     The Company has filed all necessary foreign, federal and
state income, franchise, value-added, sales and use and similar tax returns and
has paid or is contesting in good faith all taxes shown as due thereon, and
there is no tax deficiency that has been, or to be knowledge of the Company
might be, asserted against the Company or any of its properties or assets that
would or could be expected to have a material adverse effect.

                (x)     The Shares have been approved for listing on the Nasdaq
National Market, subject to notice of issuance or sale of the Shares, as the
case may be.

                (y)     There has not occurred any material adverse change, or
any development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or operations of
the Company from that set forth in the Prospectus (exclusive of any amendments
or supplements thereto subsequent to the date of this Agreement).

                (z)     There are no legal or governmental proceedings pending
or, to the knowledge of the Company, threatened to which the Company is a party
or to which any of the properties of the Company is subject that are required to
be described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
filed as required.

                (aa)    Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Securities Act, complied when so filed
in all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.

                (bb)    The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.

                (cc)    The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii)
has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business, and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or 



                                       5

<PAGE>   6

failure to comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a material adverse effect
on the Company.

                (dd)    There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on the
Company.

                (ee)    There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration Statement
other than those that have been waived prior to the date hereof.

                (ff)    The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.

                (gg)    The Company has reviewed its operations and the
disclosures and surveys of any third parties with which the Company has a
material relationship to evaluate the extent to which the business or operations
of the Company will be affected by the Year 2000 Problem. As a result of such
review, the Company has no reason to believe, and does not believe, that the
Year 2000 Problem will have a material adverse effect on the Company. The "Year
2000 Problem" as used herein means any significant risk that the computer
hardware or software used in the receipt, transmission, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.

        Furthermore, the Company represents and warrants to Morgan Stanley that
(i) the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered

        Moreover, the Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.



                                       6

<PAGE>   7

        2.      Agreements to Sell and Purchase. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $_______ a share (the "PURCHASE PRICE").

        On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to __________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.

                The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it
will not, during the period ending 180 days after the date of the Prospectus,
(i) 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 (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder, (B) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof of
which the Underwriters have been advised in writing or (C) any securities
issued, granted or exercised under the Company's employee benefit plans.

        3.      Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$__________ a share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of
$________ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of $________ a
share, to any Underwriter or to certain other dealers.



                                       7

<PAGE>   8

        4.      Payment and Delivery. Payment for the Firm Shares shall be made
to the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York city time, on September ___, 1999, or at
such other time on the same or such other date, not later than September ___,
1999, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE".

        Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than ___________, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE".

        Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.

        5.      Conditions to the Underwriters' Obligations. The obligations of
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date and
the Option Closing Date, as the case may be, are subject to the condition that
the Registration Statement shall have become effective not later than [________]
(New York City time) on the date hereof.

        The several obligations of the Underwriters are subject to the following
further conditions:

                (a)     Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date and the Option Closing Date, as the case
may be:

                        (i)     there shall not have occurred any downgrading,
        nor shall any notice have been given of any intended or potential
        downgrading or of any review for a possible change that does not
        indicate the direction of the possible change, in the rating accorded
        any of the Company's securities by any "nationally recognized
        statistical rating organization," as such term is defined for purposes
        of Rule 436(g)(2) under the Securities Act; and

                        (ii)    there shall not have occurred any change, or any
        development involving a prospective change, in the condition, financial
        or otherwise, or in the earnings, business or operations of the Company
        from that set forth in the Prospectus (exclusive of any amendments or
        supplements thereto subsequent to the date of this Agreement) that, in
        your judgment, is material and adverse and that makes it, in your



                                       8

<PAGE>   9

        judgment, impracticable to market the Shares on the terms and in the
        manner contemplated in the Prospectus.

                (b)     The Underwriters shall have received on the Closing Date
and the Option Closing Date, as the case may be, a certificate, dated the
Closing Date or the Option Closing Date, as the case may be, and signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect set forth in Section 5(a)(i) above and to the effect that:

                        (i)     the representations and warranties of the
        Company contained in this Agreement are true and correct as of the
        Closing Date and the Option Closing Date, as the case may be, and that
        the Company has complied with all of the agreements and satisfied all of
        the conditions on its part to be performed or satisfied hereunder on or
        before the Closing Date and the Option Closing Date, as the case may be;

        The officers signing and delivering such certificate may rely upon the
best of their knowledge as to proceedings threatened.

                (c)     The Underwriters shall have received on the Closing Date
and the Option Closing Date, as the case may be, an opinion of Cooley Godward
LLP, outside counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, to the effect that:

                        (i)     the Company has been duly organized, is validly
        existing as a corporation under the laws of the State of Washington, has
        the corporate power and authority to own its property and to conduct its
        business as described in the Prospectus and is duly qualified to
        transact business and is in good standing in each jurisdiction in which
        the conduct of its business or its ownership or leasing of property
        requires such qualification, except to the extent that the failure to be
        so qualified or be in good standing would not have a material adverse
        effect on the Company;

                        (ii)    the Company has no subsidiaries;

                        (iii)   the authorized capital stock of the Company
        conforms as to legal matters to the description thereof contained in the
        Prospectus;

                        (iv)    the authorized, issued and outstanding capital
        stock of the Company is as set forth in the Prospectus under the caption
        "Capitalization" as of the dates stated therein, the issued and
        outstanding shares of capital stock of the Company have been duly and
        validly issued and are fully paid and nonassessable, and unless
        otherwise described in the Prospectus, will not have been issued in
        violation of or subject to any preemptive right or, to such counsel's
        knowledge, any co-sale right, registration right, right of first refusal
        or other similar right;

                        (v)     the Shares have been duly authorized and, when
        issued and delivered in accordance with the terms of this Agreement,
        will be validly issued, fully 



                                       9

<PAGE>   10

        paid and non-assessable, and the issuance of such Shares will not be
        subject to any preemptive or, to such counsel's knowledge, any similar
        rights;

                        (vi)    this Agreement has been duly authorized,
        executed and delivered by the Company;

                        (vii)   the execution and delivery by the Company of,
        and the performance by the Company of its obligations under, this
        Agreement will not contravene any provision of applicable law (other
        than applicable state securities and blue sky laws, as to which such
        counsel need not express an opinion) or the articles of incorporation,
        as amended, or bylaws, as amended, of the Company or, to such counsel's
        knowledge, any agreement or other instrument binding upon the Company
        that is material to the Company, or, to such counsel's knowledge, any
        judgment, order or decree of any governmental body, agency or court
        having jurisdiction over the Company, and no consent, approval,
        authorization or order of, or qualification with, any governmental body
        or agency is required for the performance by the Company of its
        obligations under this Agreement, except such as have been obtained
        under the Securities Act and such as may be required by the securities
        or Blue Sky laws of the various states in connection with the offer and
        sale of the Shares;

                        (viii)  the statements (A) in the Prospectus under the
        captions "Management -- Incentive Stock Plans," "--Limitations on
        Directors' and Executive Officers' Liability and Indemnification," "Risk
        Factors --Significant Shareholders and Current Management Will Control
        Approximately __% of Our Common Stock After this Offering, and These
        Parties may Have Conflicts of Interest," "--Future Sales of Our Common
        Stock by our Existing Shareholders Could Cause Our Stock Price To Fall"
        and "Description of Capital Stock" and (B) in the Registration Statement
        in Items 14 and 15, in each case insofar as such statements constitute
        summaries of the legal matters, documents or proceedings referred to
        therein, fairly present the information called for with respect to such
        legal matters, documents and proceedings and fairly summarize such
        matters to the extent required by the Securities Act and the Rules;

                        (ix)    such counsel does not know of any legal or
        governmental proceedings pending or threatened to which the Company is a
        party or to which any of the properties of the Company is subject that
        are required under the Securities Act and the Rules to be described in
        the Registration Statement or the Prospectus and are not so described or
        of any statutes, regulations, contracts or other documents that are
        required to be described in the Registration Statement or the Prospectus
        or to be filed as exhibits to the Registration Statement that are not
        described or filed as required under the Securities Act and the Rules;

                        (x)     the Company is not and, after giving effect to
        the offering and sale of the Shares and the application of the proceeds
        thereof as described in the Prospectus, will not be an "investment
        company" as such term is defined in the Investment Company Act of 1940,
        as amended;



                                       10

<PAGE>   11

                        (xi)    such counsel (A) is of the opinion that the
        Registration Statement and Prospectus (except for financial statements
        and schedules and other financial and statistical data included therein
        as to which such counsel need not express any opinion) comply as to form
        in all material respects with the Securities Act and the applicable
        rules and regulations of the Commission thereunder, (B) has no reason to
        believe that (except for financial statements and schedules and other
        financial and statistical data as to which such counsel need not express
        any belief) the Registration Statement and the prospectus included
        therein at the time the Registration Statement became effective
        contained any untrue statement of a material fact or omitted to state a
        material fact required to be stated therein or necessary to make the
        statements therein not misleading and (C) has no reason to believe that
        (except for financial statements and schedules and other financial and
        statistical data as to which such counsel need not express any belief)
        the Prospectus contains any untrue statement of a material fact or omits
        to state a material fact necessary in order to make the statements
        therein, in the light of the circumstances under which they were made,
        not misleading;

                        (xii)   the Registration Statement has become effective
        under the Securities Act and, to such counsel's knowledge, no stop order
        suspending the effectiveness of the Registration Statement has been
        issued and no proceedings for that purpose have been instituted or are
        pending or threatened by the Commission under the Securities Act;


                        (xiii)  except as set forth in the Registration 
        Statement and Prospectus, no holders of Common Stock or other Securities
        of the Company have registration rights with respect to Securities of
        the Company and, except as set forth in the Registration Statement and
        Prospectus, all holders of securities of the Company having rights known
        to such counsel to registration of such shares of Common Stock or other
        Securities, because of the filing of the Registration Statement by the
        Company have, with respect to the offering contemplated thereby, waived
        such rights or such rights have expired by reason of lapse of time
        following notification of the Company's intent to file the Registration
        Statement.

                (d)     The Underwriters shall have received on the Closing Date
and the Option Closing, as the case may be, an opinion of Morrison & Foerster
LLP, counsel for the Underwriters, dated the Closing Date or the Option Closing,
as the case may be, covering the matters referred to in Sections 5(c)(v), 5(c)
(vi), 5(c) (viii) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 5(c)(xi) above.

        With respect to Section 5(c)(xi) above, Cooley Godward LLP and Morrison
& Foerster LLP may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except as
specified.

        The opinion of Cooley Godward LLP described in Section 5(c) above shall
be rendered to the Underwriters at the request of the Company and shall so state
therein.

                (e)     The Underwriters shall have received, on each of the
date hereof and the Closing Date and the Option Closing, as the case may be, a
letter dated the Closing Date or the Option Closing, as the case may be, in form
and substance satisfactory to the Underwriters, from PriceWaterhouseCoopers LLP,
independent public accountants, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

                (f)     The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to 



                                       11

<PAGE>   12

sales and certain other dispositions of shares of Common Stock or certain other
securities, delivered to you on or before the date hereof, shall be in full
force and effect on the Closing Date.

        The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the existence of
the Company, the due authorization and issuance of the Additional Shares and
other matters related to the issuance of the Additional Shares.

        6.      Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:

                (a)     To furnish to you, without charge, four signed copies of
the Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 10:00 a.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 6(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.

                (b)     Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the Commission
within the applicable period specified in Rule 424(b) under the Securities Act
any prospectus required to be filed pursuant to such Rule.

                (c)     If, during such period after the first date of the
public offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales by an
Underwriter or dealer, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of counsel for
the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose names
and addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.

                (d)     To endeavor to qualify the Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.



                                       12

<PAGE>   13

                (e)     To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering the
twelve-month period ending ________ ____, 2000 that satisfies the provisions of
Section 11(a) of the Securities Act and the Rules.

                (f)     Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the registration and
delivery of the Shares under the Securities Act and all other fees or expenses
in connection with the preparation and filing of the Registration Statement, any
preliminary prospectus, the Prospectus and amendments and supplements to any of
the foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 6(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to listing the Shares on the
Nasdaq National market, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and the
cost of any aircraft chartered in connection with the road show, (ix) all
reasonable fees and disbursements of counsel incurred by the Underwriters in
connection with the Directed Share Program and stamp duties, similar taxes or
duties or other taxes, if any, incurred by the Underwriters in connection with
the Directed Share Program, and (x) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision is
not otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 7 entitled "Indemnity and Contribution", and
the last paragraph of Section 9 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.

                (g)     To advise you, promptly after it shall receive notice or
obtain knowledge thereof of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the initiation or threat of any proceeding for that purpose;
and to promptly use its best efforts to prevent the issuance of any such stop



                                       13

<PAGE>   14

order or to obtain its withdrawal at the earliest possible moment if such stop
order should be issued.

                (h)     During a period of five years after the date hereof, as
soon as practicable after the end of the each respective period, to furnish to
its shareholders annual reports (including financial statements audited by
independent certified public accountants) and furnish to its shareholders
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and to, upon request, furnish to you and the other several
Underwriters hereunder (i) concurrently with making such reports available to
its shareholders, statements of operations of the Company for each of the first
three quarters in the form made available to the Company's shareholders; (ii)
concurrently with the furnishing thereof to its shareholders, a balance sheet of
the Company as of the end of such fiscal year, together with statements of
operations, of shareholders' equity and of cash flow of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its shareholders, copies of
all reports (financial or other) mailed to shareholders; and (iv) as soon as
they are available, copies of all reports and financial statements furnished to
or filed with the Commission, any securities exchange or the Nasdaq National
Market by the Company (except for documents for which confidential treatment is
requested). During such five-year period, if the Company shall have any active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company are consolidated with any
subsidiaries, and shall be accompanied by similar financial statements for any
significant subsidiary that is not so consolidated.

                (i)     In connection with the Directed Share Program, to ensure
that the Directed Shares will be restricted to the extent required by the NASD
or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. Morgan Stanley will notify the Company as to which
Participants will need to be so restricted. The Company will direct the transfer
agent to place stop transfer restrictions upon such securities for such period
of time.

        7.      Indemnity and Contribution. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Underwriter from whom the person asserting
any 



                                       14

<PAGE>   15

such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.

                (b)     Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

                (c)     In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 7(a) or 7(b), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 7(a), and by the Company, in the case of
parties indemnified pursuant to Section 7(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request 



                                       15

<PAGE>   16

and (ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.

                (d)     To the extent the indemnification provided for in
Section 7(a) or 7(b) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties,
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.

                (e)     The Company and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 7(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent 



                                       16

<PAGE>   17

misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 7 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.

                (f)     The indemnity and contribution provisions contained in
this Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.

        8.      Directed Share Program Indemnification. (a) The Company agrees
to indemnify and hold harmless Morgan Stanley and each person, if any, who
controls Morgan Stanley within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act ("MORGAN STANLEY ENTITIES"),
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i) caused
by any untrue statement or alleged untrue statement of a material fact contained
in any material prepared by or with the consent of the Company for distribution
to Participants in connection with the Directed Share Program, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant has agreed to purchase; or (iii) related
to, arising out of, or in connection with the Directed Share Program other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Morgan Stanley Entities.

                (b)     In case any proceeding (including any governmental
investigation) shall be instituted involving any Morgan Stanley Entity in
respect of which indemnity may be sought pursuant to Section 8(a), the Morgan
Stanley Entity seeking indemnity shall promptly notify the Company in writing
and the Company, upon request of the Morgan Stanley Entity, shall retain counsel
reasonably satisfactory to the Morgan Stanley Entity to represent the Morgan
Stanley Entity and any other the Company may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any Morgan Stanley Entity shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Morgan Stanley Entity unless (i) the Company shall have agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Company and the
Morgan Stanley Entity and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Company shall not, in respect of the legal expenses of the Morgan
Stanley Entities in connection with any proceeding or related proceedings the
same jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Morgan Stanley Entities. Any
such firm for the Morgan Stanley Entities shall be designated in writing by
Morgan Stanley. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees to



                                       17

<PAGE>   18

indemnify the Morgan Stanley Entities from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time a Morgan Stanley Entity shall have requested the Company to
reimburse it for fees and expenses of counsel as contemplated by the second and
third sentences of this paragraph, the Company agrees that it shall be liable
for any settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after receipt by the Company
of the aforesaid request and (ii) the Company shall not have reimbursed the
Morgan Stanley Entity in accordance with such request prior to the date of such
settlement. The Company shall not, without the prior written consent of Morgan
Stanley, effect any settlement of any pending or threatened proceeding in
respect of which any Morgan Stanley Entity is or could have been a party and
indemnity could have been sought hereunder by such Morgan Stanley Entity, unless
such settlement includes an unconditional release of the Morgan Stanley Entities
from all liability on claims that are the subject matter of such proceeding.

                (c)     To the extent the indemnification provided for in
Section 8(a) is unavailable to a Morgan Stanley Entity or insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
the Company, in lieu of indemnifying the Morgan Stanley Entity thereunder, shall
contribute to the amount paid or payable by the Morgan Stanley Entity as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Morgan Stanley Entities on the other hand from the offering of
the Directed Shares or (ii) if the allocation provided by clause 8(c)(i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 8(c)(i) above but
also the relative fault of the Company on the one hand and of the Morgan Stanley
Entities on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and of the Morgan Stanley Entities on the other hand in
connection with the offering of the Directed Shares shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Directed Shares (before deducting expenses) and the total underwriting discounts
and commissions received by the Morgan Stanley Entities for the Directed Shares,
bear to the aggregate Public Offering Price of the Shares. If the loss, claim,
damage or liability is caused by an untrue or alleged untrue statement of a
material fact, the relative fault of the Company on the one hand and the Morgan
Stanley Entities on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement or the omission or
alleged omission relates to information supplied by the Company or by the Morgan
Stanley Entities and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

                (d)     The Company and the Morgan Stanley Entities agree that
it would not be just or equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Morgan Stanley Entities were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 8(c). The amount paid or payable by the Morgan Stanley Entities as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
the Morgan Stanley Entities in connection with investigating or 



                                       18

<PAGE>   19

defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Morgan Stanley Entity shall be required to contribute any amount
in excess of the amount by which the total price at which the Directed Shares
distributed to the public were offered to the public exceeds the amount of any
damages that such Morgan Stanley Entity has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
Morgan Stanley Entity at law or in equity.

                (e)     The indemnity and contribution provisions contained in
this Section 8 shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Morgan Stanley Entity or the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Directed Shares.

        9.      Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.

        10.     Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.

        If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with 



                                       19

<PAGE>   20

respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you and
the Company for the purchase of such Firm Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

        If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.

        11.     Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

        12.     Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.

        13.     Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.


                                        Very truly yours,

                                        InterNAP Network Services Corporation

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



                                       20

<PAGE>   21

Accepted as of the date hereof

Morgan Stanley & Co. Incorporated
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
Hambrecht & Quist

Acting severally on behalf of
    themselves and the several
    Underwriters named in Schedule I hereto.

By: Morgan Stanley & Co. Incorporated


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



                                       21

<PAGE>   22

                                   SCHEDULE I


<TABLE>
<CAPTION>
                      Underwriter                          Number of Firm Shares To Be Purchased
                      -----------                          -------------------------------------
<S>                                                        <C>
Morgan Stanley & Co. Incorporated

Credit Suisse First Boston

Donaldson, Lufkin & Jenrette

Hambrecht & Quist

                                                                      ---------------
                                  Total .................
                                                                      ===============
</TABLE>





<PAGE>   23

                                                                       EXHIBIT A

                            [FORM OF LOCK-UP LETTER]

                                                             _____________, 1999

Morgan Stanley Dean Witter & Co. Incorporated
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
Hambrecht & Quist
c/o Morgan Stanley & Co. Incorporated
1585 Broadway

New York, NY 10036

Dear Sirs and Mesdames:

        The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with InterNAP Network Services Corporation, a
Washington corporation (the "COMPANY"), providing for the public offering (the
"PUBLIC OFFERING") by the several Underwriters, including Morgan Stanley (the
"UNDERWRITERS"), of shares (the "SHARES") of the Common Stock ($.001 par value)
of the Company (the "COMMON STOCK").

        To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date of the final prospectus relating to the Public Offering (the
"PROSPECTUS"), and ending 180 days after such date of the Prospectus, (1) 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 (2) 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, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (a)
the sale of any Shares to the Underwriters pursuant to the Underwriting
Agreement, (b) transactions relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
Public Offering, (c) if the undersigned is an individual, transfers of any
shares of the Common Stock or securities convertible into or exchangeable or
exercisable for the Common Stock either during his or her lifetime or on death
by will or intestacy to his or her immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her 




<PAGE>   24

immediate family or (d) if the undersigned is a corporation or a partnership,
transfers of shares of Common Stock or securities convertible into or
exchangeable or exercisable for the Common Stock as a distribution to partners
or shareholders of the undersigned; provided, however, that prior to any such
transfer in clause (c) or (d) above each transferee shall execute an agreement,
satisfactory to Morgan Stanley, pursuant to which each transferee shall agree to
receive and hold such shares of Common Stock, or securities convertible into or
exchangeable or exercisable for the Common Stock, subject to the provisions
hereof, and there shall be no further transfer except in accordance with the
provisions hereof. For the purposes of this paragraph, "immediate family" shall
mean spouse, lineal descendant, father, mother, brother or sister of the
transferor.

        In addition, the undersigned agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.

        It is understood that, if the Company notifies you that it does not
intend to proceed with the Public Offering, if the Underwriting Agreement does
not become effective, or if the Underwriting Agreement (other than the
provisions thereof which survive termination) shall terminate or be terminated
prior to payment for and delivery of the Shares, the undersigned will be
released from the undersigned's obligations under this agreement.

        Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.


                                        Very truly yours,

                                        ----------------------------------------
                                        (Name)

                                        ----------------------------------------
                                        (Address)




<PAGE>   25




                                8,700,000 SHARES

                      INTERNAP NETWORK SERVICES CORPORATION

                                $0.001 PAR VALUE

                             UNDERWRITING AGREEMENT





______________, 1999






<PAGE>   1

                                                                     EXHIBIT 5.1

                        [COOLEY GODWARD LLP LETTERHEAD]

September 7, 1999

InterNAP Network Services Corporation
601 Union Street, Suite 1000
Seattle, WA 98101

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by InterNAP Network Services Corporation (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") covering an underwritten
public offering of up to ten million five thousand (10,005,000) shares of Common
Stock (the "Common Stock").

In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Articles of
Incorporation,as amended, and Bylaws, as currently in effect, and the originals
or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below; (ii) assumed
that the Amended and Restated Articles of Incorporation, as set forth in Exhibit
3.2 of the Registration Statement, shall have been duly approved and filed with
the office of the Washington
 Secretary of State; and (iii) that the shares of
Common Stock will be sold by the Underwriters at a price established by the
Pricing Committee of the Board of Directors of the Company.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
non-assessable.

We consent to the reference to our firm under the caption "Legal Matters"
in the Prospectus included in the Registration Statement and to the filing of
this opinion as an exhibit to the Registration Statement.

Very truly yours,

COOLEY GODWARD LLP

By:  /s/ CHRISTOPHER W. WRIGHT
     ------------------------------
     Christopher W. Wright



<PAGE>   1

                                                                   EXHIBIT 10.19

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

                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
                      INTERNAP NETWORK SERVICES CORPORATION

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

<PAGE>   2

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                          Page
                                                                                          ----
<S>     <C>                                                                               <C>
1       ACCOUNTING AND OTHER TERMS...........................................................4

2       LOAN AND TERMS OF PAYMENT............................................................4

        2.1    Credit Extensions.............................................................4
        2.2    Overadvances..................................................................5
        2.3    Interest Rate, Payments.......................................................5
        2.4    Fees..........................................................................5

3       CONDITIONS OF LOANS..................................................................5

        3.1    Conditions Precedent to Initial Credit Extension..............................5
        3.2    Conditions Precedent to all Credit Extensions.................................5

4       CREATION OF SECURITY INTEREST........................................................6

        4.1    Grant of Security Interest....................................................6

5       REPRESENTATIONS AND WARRANTIES.......................................................6

        5.1    Due Organization and Authorization............................................6
        5.2    Collateral....................................................................6
        5.3    Litigation....................................................................6
        5.4    No Material Adverse Change in Financial Statements............................6
        5.5    Solvency......................................................................7
        5.6    Regulatory Compliance.........................................................7
        5.7    Subsidiaries..................................................................7
        5.8    Full Disclosure...............................................................7

6       AFFIRMATIVE COVENANTS................................................................7

        6.1    Government Compliance.........................................................7
        6.2    Financial Statements, Reports, Certificates...................................7
        6.3    Inventory; Returns............................................................8
        6.4    Taxes.........................................................................8
        6.5    Insurance.....................................................................8
        6.6    Primary Accounts..............................................................8
        6.7    Financial Covenants...........................................................9
        6.8    Further Assurances............................................................9

7       NEGATIVE COVENANTS...................................................................9

        7.1    Dispositions..................................................................9
        7.2    Changes in Business, Ownership, Management or Business Locations..............9
        7.3    Mergers or Acquisitions.......................................................9
        7.4    Indebtedness..................................................................9
        7.5    Encumbrance..................................................................10
        7.6    Distributions; Investments...................................................10
        7.7    Transactions with Affiliates.................................................10
        7.8    Subordinated
 Debt............................................................10
        7.9    Compliance...................................................................10

8       EVENTS OF DEFAULT...................................................................10

        8.1    Payment Default..............................................................10
        8.2    Covenant Default.............................................................10
        8.3    Material Adverse Change......................................................11
        8.4    Attachment...................................................................11
</TABLE>



                                       2

<PAGE>   3


<TABLE>
<S>     <C>                                                                               <C>
        8.5    Insolvency...................................................................11
        8.6    Other Agreements.............................................................11
        8.7    Judgments....................................................................11
        8.8    Misrepresentations...........................................................11

9       BANK'S RIGHTS AND REMEDIES..........................................................11

        9.1    Rights and Remedies..........................................................11
        9.2    Power of Attorney............................................................12
        9.3    Accounts Collection..........................................................12
        9.4    Bank Expenses................................................................12
        9.5    Bank's Liability for Collateral..............................................12
        9.6    Remedies Cumulative..........................................................12
        9.7    Demand Waiver................................................................13

10      NOTICES.............................................................................13


11      CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER.........................................13


12      GENERAL PROVISIONS..................................................................13

        12.1   Successors and Assigns.......................................................13
        12.2   Indemnification..............................................................13
        12.3   Time of Essence..............................................................13
        12.4   Severability of Provision....................................................13
        12.5   Amendments in Writing, Integration...........................................14
        12.6   Counterparts.................................................................14
        12.7   Survival.....................................................................14
        12.8   Confidentiality..............................................................14
        12.9   Effect of Amendment and Restatement..........................................14
        12.10  Attorneys'Fees, Costs and Expenses...........................................14

13      DEFINITIONS.........................................................................15

        13.1   Definitions..................................................................15
</TABLE>



                                       3

<PAGE>   4

        THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated June 30,
1999, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 with a loan production office located at 915 118th
Ave. S.E., Ste. 250, Bellevue, Washington 98005 and INTERNAP NETWORK SERVICES
CORPORATION ("Borrower"), whose address is Two Union, 601 Union Street, Suite
1000, Seattle, Washington 98101-4064.

                                    RECITALS

        A. Bank and Borrower are parties to that certain QuickStart Loan and
Security Agreement, together with all Schedules made a part thereof, dated
November 3, 1997, as amended (collectively, the "Original Agreement").

        B. Borrower and Bank desire in this Agreement to set forth their
agreement with respect to a working capital loan and to amend and restate in its
entirety without novation the Original Agreement in accordance with the
provisions herein.

                                    AGREEMENT

        The parties agree as follows:

1       ACCOUNTING AND OTHER TERMS


        Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.

2       LOAN AND TERMS OF PAYMENT

2.1     CREDIT EXTENSIONS.

        Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions,
when due.

2.1.1   REVOLVING ADVANCES.

        (a) Bank will make Advances not exceeding the lesser of (A) the
Committed Revolving Line minus the QuickStart Payoff minus the Cash Management
Services Sublimit or (B) the Borrowing Base. Amounts borrowed under this Section
may be repaid and reborrowed during the term of this Agreement. Notwithstanding
the foregoing, the QuickStart Payoff will not be subject to the Borrowing Base
until the earlier to occur of: (a) June 30, 1999 or (b) Borrower's ability to
support the QuickStart Payoff under the Borrowing Base.

        (b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.

        (c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.


                                       4

<PAGE>   5

2.1.2          CASH MANAGEMENT SERVICES SUBLIMIT.

        Borrower may use up to $300,000 for Bank's Cash Management Services,
which may include, business credit card services identified in various cash
management services agreements related to such services (the "Cash Management
Services"). All amounts Bank pays for any Cash Management Services will be
treated as Advances under the Committed Revolving Line.

2.2            OVERADVANCES.

        If Borrower's Obligations under Section 2.1.1 and Section 2.1.2 exceed
the Committed Revolving Line or obligations under Section 2.1.1 exceed the
Borrowing Base, Borrower must immediately pay Bank the excess.

2.3            INTEREST RATE, PAYMENTS.

        (a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of 1.00 percentage point above the Prime Rate. After
an Event of Default, Obligations accrue interest at 5 percent above the rate
effective immediately before the Event of Default. The interest rate increases
or decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.

        (b) Payments. Interest due on the Committed Revolving Line is payable on
the last day of each month. Bank may debit any of Borrower's deposit accounts
including Account Number _____________________________ for principal and
interest payments or any amounts Borrower owes Bank. Bank will notify Borrower
when it debits Borrower's accounts. These debits are not a set-off. Payments
received after 2:00 p.m. Pacific time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional fees or
interest accrue.

2.4            FEES.

        Borrower will pay:

        (a) Facility Fee. A fully earned, non-refundable Facility Fee of $6,000
due on the Closing Date; and

        (b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.

3              CONDITIONS OF LOANS

3.1            CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.

        Bank's obligation to make the initial Credit Extension is subject to;

        (a) The condition precedent that it receive the agreements, documents
and fees it requires; and

        (b) Borrower's initial Credit Extension shall be used to payoff
Borrower's existing QuickStart facility with Bank in an amount equal to the
QuickStart Payoff. Notwithstanding the foregoing, the QuickStart Payoff will not
be subject to the Borrowing Base until the earlier to occur of: (a) June 30,
1999 or (b) Borrower's ability to support the QuickStart Payoff under the
Borrowing Base.

3.2            CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.

        Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:


                                       5

<PAGE>   6

        (a) timely receipt of any Payment/Advance Form as specified in Section
2.1.1 above; and

        (b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension except as otherwise disclosed to Bank and no Event of Default
may have occurred and be continuing, or result from the Credit Extension. Each
Credit Extension is Borrower's representation and warranty on that date that the
representations and warranties of Section 5 remain true except as otherwise
disclosed to Bank.

4              CREATION OF SECURITY INTEREST

4.1            GRANT OF SECURITY INTEREST.

        Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.

5              REPRESENTATIONS AND WARRANTIES

        Borrower represents and warrants as follows:

5.1            DUE ORGANIZATION AND AUTHORIZATION.

        Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified except where failure to so qualify would
have a material adverse effect on Borrower.

        The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.

5.2            COLLATERAL.

        Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Accounts are bona fide, existing obligations, and the
service or property has been performed or delivered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects.

5.3            LITIGATION.

        Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.

5.4            NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.

        All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.


                                       6

<PAGE>   7

5.5            SOLVENCY.

        The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.6            REGULATORY COMPLIANCE.

        Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.

5.7            SUBSIDIARIES.

        Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

5.8            FULL DISCLOSURE.

        No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.

6              AFFIRMATIVE COVENANTS

        Borrower will do all of the following:

6.1            GOVERNMENT COMPLIANCE.

        Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.

6.2            FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

        (a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 90 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary 


                                       7

<PAGE>   8

of $100,000 or more; and (iv) budgets, sales projections, operating plans or
other financial information Bank requests.

        (b) Within 30 days after the last day of each month, Borrower will
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
the form of Exhibit C together with a subscriber report.

        (c) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.

        (d) Bank has the right to audit Borrower's Collateral at Borrower's
expense, if an Event of Default has occurred and is continuing.

6.3            INVENTORY; RETURNS.

        Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.

6.4            TAXES.

        Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.

6.5            INSURANCE.

        Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
relating to Collateral to the extent not subject to a Permitted Lien, will, at
Bank's option, be payable to Bank on account of the Obligations. Statutory
notice regarding insurance:

                                     WARNING

        Unless you provide us with evidence of the insurance coverage as
required by our contract or loan agreement, we may purchase insurance at your
expense to protect our interest. This insurance may, but need not, also protect
your interest. If the collateral becomes damaged, the coverage we purchase may
not pay any claim you make or any claim made against you. You may later cancel
this coverage by providing evidence that you have obtained property coverage
elsewhere.

        You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount. The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.

        This coverage we purchased may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for property
damage coverage or any mandatory liability insurance requirements imposed by
applicable law.


                                       8

<PAGE>   9

6.6            PRIMARY ACCOUNTS.

        Borrower will maintain a depository account with Bank.

6.7            FINANCIAL COVENANTS.

        Borrower will maintain as of the last day of each month:

                (i) QUICK RATIO. A ratio of Quick Assets to Current Liabilities
of at least 1.50 to 1.00 or have available commitments of at least twice the
outstanding loan amount.

                (ii) TANGIBLE NET WORTH. A Tangible Net Worth of at least
$25,000,000 for the quarter ended March 31, 1999; $15,000,000 for the quarter
ending June 30, 1999; $4,000,000 for the quarter ending September 30, 1999; and
$50,000,000 for the quarter ending December 31, 1999, and thereafter.

                (iii) MONTHLY REVENUE LEVEL. Borrower shall not report a decline
in the revenue on a rolling, three month average.

6.8            FURTHER ASSURANCES.

        Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.

7              NEGATIVE COVENANTS

        Borrower will not do any of the following:

7.1            DISPOSITIONS.

        Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and exclusive licenses in
geographic regions and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business; (iii) of
worn-out or obsolete Equipment; (iv) sale leaseback transactions; (v) Permitted
Investments; or (vi) Permitted Liens.

7.2            CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.

        Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 49%. Borrower will not, without at least
30 days prior written notice, relocate its chief executive office or add any new
offices or business locations.

7.3            MERGERS OR ACQUISITIONS.

        Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) result in a decrease of more than 25% of Tangible Net Worth.
A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.


                                       9

<PAGE>   10

7.4            INDEBTEDNESS.

        Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

7.5            ENCUMBRANCE.

        Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.

7.6            DISTRIBUTIONS; INVESTMENTS.

        Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock; provided, that Borrower may redeem
or repurchase its securities in connection with any agreement between Borrower
and any officer, director or employee of Borrower wherein Borrower is obligated
or entitled to repurchase from such officer, director or employee share of
equity securities of Borrower upon such person's termination of employment or
services or other event not to exceed $500,000.

7.7            TRANSACTIONS WITH AFFILIATES.

        Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.

7.8            SUBORDINATED DEBT.

        Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.

7.9            COMPLIANCE.

        Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.

8              EVENTS OF DEFAULT

        Any one of the following is an Event of Default:

8.1            PAYMENT DEFAULT.

        If Borrower fails to pay any of the Obligations;

8.2            COVENANT DEFAULT.

        If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan 


                                       10

<PAGE>   11

Documents, or in any agreement between Borrower and Bank and as to any default
under a term, condition or covenant that can be cured, has not cured the default
within 10 days after it occurs, or if the default cannot be cured within 10 days
or cannot be cured after Borrower's attempts within 10 day period, and the
default may be cured within a reasonable time, then Borrower has an additional
period (of not more than 30 days) to attempt to cure the default. During the
additional time, the failure to cure the default is not an Event of Default (but
no Credit Extensions will be made during the cure period);

8.3            MATERIAL ADVERSE CHANGE.

        (i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a material impairment of the prospect of repayment of
the Obligations..

8.4            ATTACHMENT.

        If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);

8.5            INSOLVENCY.

        If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

8.6            OTHER AGREEMENTS.

        If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;

8.7            JUDGMENTS.

        If a money judgment(s) of at least $100,000 is rendered against Borrower
and is unsatisfied and unstayed for 30 days (but no Credit Extensions will be
made before the judgment is stayed or satisfied); or

8.8            MISREPRESENTATIONS.

        If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

9              BANK'S RIGHTS AND REMEDIES

9.1            RIGHTS AND REMEDIES.

        When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:


                                       11

<PAGE>   12

        (a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);

        (b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;

        (c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;

        (d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;

        (e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;

        (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral; and

        (g) Dispose of the Collateral according to the Code.

9.2            POWER OF ATTORNEY.

        Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.

9.3            ACCOUNTS COLLECTION.

        When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.

9.4            BANK EXPENSES.

        If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.


                                       12

<PAGE>   13

9.5            BANK'S LIABILITY FOR COLLATERAL.

        If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral except for Bank's gross negligence
and willful misconduct.

9.6            REMEDIES CUMULATIVE.

        Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.

9.7            DEMAND WAIVER.

        Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

10             NOTICES

        All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.

11             CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER

        Washington law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in King County, Washington.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12             GENERAL PROVISIONS

12.1           SUCCESSORS AND ASSIGNS.

        This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.

12.2           INDEMNIFICATION.

        Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection 


                                       13

<PAGE>   14

with the transactions contemplated by the Loan Documents; and (b) all losses or
Bank Expenses incurred, or paid by Bank from, following, or consequential to
transactions between Bank and Borrower (including reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.

12.3           TIME OF ESSENCE.

        Time is of the essence for the performance of all obligations in this
Agreement.

12.4           SEVERABILITY OF PROVISION.

        Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.

12.5           AMENDMENTS IN WRITING, INTEGRATION.

        All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW. UNDER OREGON OR WASHINGTON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.

12.6           COUNTERPARTS.

        This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.

12.7           SURVIVAL.

        All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.

12.8           CONFIDENTIALITY.

        In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

12.9           EFFECT OF AMENDMENT AND RESTATEMENT.

        This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and 


                                       14

<PAGE>   15

shall continue to be outstanding under this Agreement. All security interests
granted under the Original Agreement are hereby confirmed and ratified and shall
continue to secure all Obligations under this Agreement.

12.10          ATTORNEYS' FEES, COSTS AND EXPENSES.

        In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.

13             DEFINITIONS

13.1           DEFINITIONS.

        In this Agreement:

        "ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

        "ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.

        "AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.

        "BASE SUBSCRIBER RATE" means the recurring monthly revenue received by
Borrower per Subscriber, on a rolling three month basis.

        "BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

        "BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

        "BORROWING BASE" is QuickStart Payoff plus the percentage (set forth
below) of the prior rolling three month Base Subscriber Rate as determined by
Bank from Borrower's most recent Borrowing Base Certificate, adjusted as
follows:


<TABLE>
<CAPTION>

        MONTHLY CHURN RATE          BORROWING BASE
        ------------------          --------------
        <S>                         <C>
        Less than 5%                      80%
        5% to 7%                          75%
        10% to 12%                        65%
</TABLE>


        "BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

        "CASH MANAGEMENT SERVICES" are defined in Section 2.1.2.


                                       15

<PAGE>   16

        "CHURN RATE" means the average monthly cancellations of services
provided to Subscribers, on a rolling three (3) month basis, divided by the
number of Subscribers as of the last day of the month being measured.

        "CLOSING DATE" is the date of this Agreement.

        "CODE" is the Washington Uniform Commercial Code.

        "COLLATERAL" is the property described on Exhibit A.

        "COMMITTED REVOLVING LINE" is an Advance of up to $3,000,000.

        "CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

        "CREDIT EXTENSION" is each Advance or any other extension of credit by
Bank for Borrower's benefit.

        "CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.

        "EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

        "ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.

        "GAAP" is generally accepted accounting principles.

        "INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

        "INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

        "INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.


                                       16

<PAGE>   17

        "INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

        "LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

        "LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

        "MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

        "OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later under the Agreement or any other Loan
Document, including letters of credit and exchange contracts, cash management
services, and including interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower assigned to Bank.

        "ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A.

        "PERMITTED INDEBTEDNESS" is:

        (a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;

        (b) Indebtedness existing on the Closing Date and shown on the Schedule;

        (c) Subordinated Debt;

        (d) Indebtedness to trade creditors incurred in the ordinary course of
business;

        (e) Indebtedness secured by Permitted Liens;

        (f) Other Indebtedness of Borrower, not exceeding $500,000 in the
aggregate outstanding at any time;

        (g) Indebtedness with respect to capital lease obligations (including
leases of real property);

        (h) Prepaid royalties and deferred revenue in connection with prepaid
support services not to exceed $500,000;

        (i) Indebtedness of up to $7,500,000 to Finova Capital Corporation in
connection with an equipment loan; and

        (j) Extensions, renewals, refundings, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness (a)
through (j) above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower.

        "PERMITTED INVESTMENTS" are:

        (a) Investments shown on the Schedule and existing on the Closing Date;

        (b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue;


                                       17

<PAGE>   18

        (c) Extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;

        (d) Investments consisting of the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business;

        (e) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with customers or suppliers
arising in the ordinary course of business;

        (f) Investments consisting of (i) travel advances, employee relocation
loans and other employee loans and advances in the ordinary course of business
not to exceed $500,000, (ii) loans to employees, officers or directors relating
to the purchase of equity securities of Borrower, and (iii) other loans to
officers and employees approved by the Board of Directors;

        (g) Investments in Morgan Stanley Auction Rate Preferred; and

        (h) other Investments aggregating not in excess of $500,000 at any time.

        "PERMITTED LIENS" are:

        (a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;

        (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;

        (c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment,
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment, or (iii) lien on up
to $2,500,000 of existing Equipment to be encumbered relation to an equipment
loan;

        (d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;

        (e) Liens securing capital lease obligations on assets subject to such
capital leases;

        (f) Liens on equipment leased by Borrower pursuant to an operating lease
(including sale-leaseback transactions) in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such equipment (including Liens arising from
UCC financing statements regarding leases permitted by this Agreement);

        (g) Easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in title and other similar Liens affecting real property not
interfering in any material respect with the ordinary conduct of the business or
Borrower;

        (h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;

        (i) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution;

        (j) Liens on Equipment in favor of Finova Capital Corporation and other
Equipment Lenders, which Liens do not in the aggregate exceed $7,500,000 at any
time; and


                                       18

<PAGE>   19

        (k) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c) above, but any
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness may
not increase.

        "PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.

        "PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.

        "QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.

        "QUICKSTART PAYOFF" is the amount necessary to fully repay Borrower's
outstanding Quickstart facility with Bank.

        "RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower or other
such person specifically authorized by Borrower..

        "REVOLVING MATURITY DATE" is June 30, 2000.

        "SCHEDULE" is any attached schedule of exceptions.

        "SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).

        "SUBSCRIBER" means a customer and paid subscriber of Borrower services.

        "SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.

        "TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries including non-current Subordinated Debt, minus,
(i) any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, Patents, trade and service marks and
names, Copyrights and research and development expenses except prepaid expenses,
and (c) reserves not already deducted from assets, and (ii) Total Liabilities
excluding Subordinated Debt.

        "TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

BORROWER:

INTERNAP NETWORK SERVICES CORPORATION

By: /s/ JEFF ARROWSMITH
    ----------------------------------------
Title: Director of Finance                                      
       -------------------------------------   


                                       19

<PAGE>   20

BANK:

SILICON VALLEY BANK

By: /s/ C. D. GRANT
    ----------------------------------------
   
Title: Vice President                                      
       -------------------------------------


                                       20

<PAGE>   21

                                    EXHIBIT A

        The Collateral consists of all of Borrower's right, title and interest
in and to the following:

        All goods and equipment (other than equipment financed elsewhere) now
owned or hereafter acquired, including, without limitation, all machinery,
fixtures, vehicles (including motor vehicles and trailers), and any interest in
any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located;

        All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;

        All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;

        All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;

        All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing
(excluding cash pledged to another party); and

        Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.

        NOTWITHSTANDING THE FOREGOING, THE COLLATERAL SHALL NOT BE DEEMED TO
INCLUDE ANY COPYRIGHTS, COPYRIGHT APPLICATIONS, COPYRIGHT REGISTRATION AND LIKE
PROTECTION IN EACH WORK OF AUTHORSHIP AND DERIVATIVE WORK THEREOF, WHETHER
PUBLISHED OR UNPUBLISHED, NOW OWNED OR HEREAFTER ACQUIRED; ANY PATENTS, PATENT
APPLICATIONS AND LIKE PROTECTIONS INCLUDING WITHOUT LIMITATION IMPROVEMENTS,
DIVISIONS, CONTINUATIONS, RENEWALS, REISSUES, EXTENSIONS AND
CONTINUATIONS-IN-PART OF THE SAME, TRADEMARKS, SERVICEMARKS AND APPLICATIONS
THEREFOR, WHETHER REGISTERED OR NOT, AND THE GOODWILL OF THE BUSINESS OF
BORROWER CONNECTED WITH AND SYMBOLIZED BY SUCH TRADEMARKS, ANY TRADE SECRET
RIGHTS, INCLUDING ANY RIGHTS TO UNPATENTED INVENTIONS, KNOW-HOW, OPERATING
MANUALS, LICENSE RIGHTS AND AGREEMENTS AND CONFIDENTIAL INFORMATION, NOW OWNED
OR HEREAFTER ACQUIRED; OR ANY CLAIMS FOR DAMAGE BY WAY OF ANY PAST, PRESENT AND
FUTURE INFRINGEMENT OF ANY OF THE FOREGOING (COLLECTIVELY, THE "INTELLECTUAL
PROPERTY"), EXCEPT THAT THE COLLATERAL SHALL INCLUDE THE PROCEEDS OF ALL THE
INTELLECTUAL PROPERTY THAT ARE ACCOUNTS, I.E. ACCOUNTS RECEIVABLE, OF BORROWER;
AND TO THE EXTENT THAT THE BORROWER IS IN DEFAULT OF THIS AGREEMENT, IF A
JUDICIAL AUTHORITY (INCLUDING A U.S. BANKRUPTCY COURT) HOLDS THAT A SECURITY
INTEREST IN THE UNDERLYING INTELLECTUAL PROPERTY IS NECESSARY TO HAVE A SECURITY
INTEREST IN SUCH ACCOUNTS OF BORROWER THAT ARE PROCEEDS OF THE INTELLECTUAL
PROPERTY, THEN THE COLLATERAL SHALL INCLUDE THE INTELLECTUAL PROPERTY SOLELY TO
THE EXTENT NECESSARY TO PERMIT PROTECTION OF BANK'S SECURITY INTEREST IN SUCH
ACCOUNTS OF BORROWER THAT ARE PROCEEDS OF THE INTELLECTUAL PROPERTY.



<PAGE>   22

                                    EXHIBIT B

                   LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

              DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.


TO:  CENTRAL CLIENT SERVICE DIVISION         DATE:
                                                   -----------------------------
FAX#:  (408) 496-2426                        TIME:
                                                   -----------------------------

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

FROM:  INTERNAP NETWORK SERVICES CORPORATION 
--------------------------------------------------------------------------------
                                    CLIENT NAME (BORROWER)
REQUESTED BY:
              ------------------------------------------------------------------
                                    AUTHORIZED SIGNER'S NAME

AUTHORIZED SIGNATURE:                                                   
                      ----------------------------------------------------------
PHONE NUMBER:                                                            
             -------------------------------------------------------------------
FROM ACCOUNT #                                TO ACCOUNT #       
              --------------------------------           -----------------------

REQUESTED TRANSACTION TYPE                  REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE)                       $
                                                   -----------------------------
PRINCIPAL PAYMENT (ONLY)                           $
                                                   -----------------------------
INTEREST PAYMENT (ONLY)                            $
                                                   -----------------------------
PRINCIPAL AND INTEREST (PAYMENT)                   $
                                                   -----------------------------
OTHER INSTRUCTIONS: 
                   -------------------------------------------------------------

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

All Borrower's representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that date.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                  BANK USE ONLY

TELEPHONE REQUEST:

The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.

-------------------------------------      -------------------------------------
         Authorized Requester                          Phone #

-------------------------------------      -------------------------------------
         Received By (Bank)                            Phone #


                           ---------------------------
                           Authorized Signature (Bank)

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


<PAGE>   23

                                    EXHIBIT C

                           BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------
Borrower: INTERNAP NETWORK SERVICES CORPORATION   Bank:  Silicon Valley Bank
                                                         3003 Tasman Drive
                                                         Santa Clara, CA 95054

Commitment Amount:    $3,000,000
--------------------------------------------------------------------------------
BORROWING BASE
1. Total Subscribers as of _________                    $_______________
2. Base Subscriber Rate*                                $_______________
3. Additions (please explain on reverse)                $_______________
4. Loan Value (80% of #2*)                              $_______________
*75% of #2 if Churn Rate is 5% to 7% 
*65% of #2 if Churn Rate is 10% to 12%

BALANCES
5.  Maximum Loan Amount                                 $_______________
6.  Total Funds Available [Lesser of #5 or #4]          $_______________
7.  Present balance owing on Line of Credit             $_______________
8.  Outstanding under Sublimits (Cash Management)       $_______________
9.  QuickStart Payoff (through the earlier to occur of (a) ablility to be
     supported by the Borrowing Base or (b) 5/3/99)     $_______________
10. RESERVE POSITION (#6 minus #7, #8 and #9)           $_______________

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Amended and Restated Loan and Security
Agreement between the undersigned and Silicon Valley Bank.

COMMENTS:
                                                  ___________________________
                                                        BANK USE ONLY
INTERNAP NETWORK SERVICES CORPORATION             Rec'd By: ________________
                                                            Auth. Signer
                                                  Date: ____________________
By: ____________________________________          Verified:_________________
         Authorized Signer                                  Auth. Signer
                                                  Date:_____________________
                                                  __________________________



<PAGE>   24

                                    EXHIBIT D

                             COMPLIANCE CERTIFICATE

TO:            SILICON VALLEY BANK

               3003 Tasman Drive
               Santa Clara, CA 95054

FROM:          INTERNAP NETWORK SERVICES CORPORATION

        The undersigned authorized officer of INTERNAP NETWORK SERVICES
CORPORATION ("Borrower") certifies that under the terms and conditions of the
Amended and Restated Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. Attached are the required documents supporting
the certification. The Officer certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The Officer acknowledges that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.

        PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.


<TABLE>
<CAPTION>

      REPORTING COVENANT                         REQUIRED                             COMPLIES
      ------------------                         --------                             --------
      <S>                                        <C>                                  <C>
      Monthly financial statements+Comp. Cert    Monthly within 30 days               Yes     No
      Annual (Audited)                           FYE within 90 days*                  Yes     No
      Borrowing Base Certificate +               Monthly within 30 days               Yes     No
      Subscriber report 
</TABLE>


*120 days for 1998FYE.


<TABLE>
<CAPTION>

        FINANCIAL COVENANT                       REQUIRED               ACTUAL        COMPLIES
        ------------------                       --------               ------        --------
<S>                                              <C>                    <C>           <C>
        Maintain on a Monthly Basis: 
          Minimum Quick Ratio                    1.50:1.00              _____:1.00    Yes     No
          Minimum Tangible Net Worth             *                      $________     Yes     No
          Monthly Pre-billed revenue level       No decline on a        $________     Yes     No
                                                 rolling 3 month average
</TABLE>


* of at least $25,000,000 the quarter ended March 31, 1999; $15,000,000 for the
quarter ending June 30, 1999; $4,000,000 for the quarter ending September 30,
1999; and $50,000,000 for the quarter ending December 31, 1999, and thereafter.

COMMENTS REGARDING EXCEPTIONS: See Attached.

                                        ----------------------------------------
                                                   BANK USE ONLY

                                        Received by:________________________
                                                       AUTHORIZED SIGNER

                                        Date: ______________________________

                                        Verified: __________________________

                                                        AUTHORIZED SIGNER
                                        Date:_______________________________

                                        Compliance Status:       Yes     No
                                        ----------------------------------------



<PAGE>   25

Sincerely,


INTERNAP NETWORK SERVICES CORPORATION

______________________________________
SIGNATURE

______________________________________
TITLE

______________________________________
DATE


                                       2

<PAGE>   26

[LOGO]

                               SILICON VALLEY BANK

                       PRO FORMA INVOICE FOR LOAN CHARGES


BORROWER:        INTERNAP NETWORK SERVICES CORPORATION

LOAN OFFICER:    CAROLYN GRANT

DATE:            JUNE 30, 1999


<TABLE>
                 <S>                                  <C>      
                 REVOLVING LOAN FEE                   $6,000.00
                 UCC FILING FEE                           40.00
                 DOCUMENTATION FEE                     1,000.00
                 LEGAL FEE                               250.00

                 TOTAL FEE DUE                        $7,290.00
                                                      =========
</TABLE>


PLEASE INDICATE THE METHOD OF PAYMENT:

        {   }   A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.

        {   }   DEBIT DDA # __________________ FOR THE TOTAL AMOUNT.

        {   }   LOAN PROCEEDS

BORROWER:

BY: ________________________________________
    (AUTHORIZED SIGNER)


____________________________________________
SILICON VALLEY BANK                  (DATE)
ACCOUNT OFFICER'S SIGNATURE



<PAGE>   27

                            NEGATIVE PLEDGE AGREEMENT

        This Negative Pledge Agreement is made as of June 30, 1999, by and
between INTERNAP NETWORK SERVICES CORPORATION ("Borrower") and Silicon Valley
Bank ("Bank").

In connection with, among other documents, the Amended and Restated Loan and
Security Agreement (the "Loan Documents") being concurrently executed herewith
between Borrower and Bank, Borrower agrees as follows:

        1.      Borrower shall not sell, transfer, assign, mortgage, pledge,
                lease, grant a security interest in, or encumber any of
                Borrower's intellectual property, including, without limitation,
                the following:

                a.      Any and all copyright rights, copyright applications,
                        copyright registrations and like protections in each
                        work or authorship and derivative work thereof, whether
                        published or unpublished and whether or not the same
                        also constitutes a trade secret, now or hereafter
                        existing, created, acquired or held;

                b.      All mask works or similar rights available for the
                        protection of semiconductor chips, now owned or
                        hereafter acquired;

                c.      Any and all trade secrets, and any and all intellectual
                        property rights in computer software and computer
                        software products now or hereafter existing, created,
                        acquired or held;

                d.      Any and all design rights which may be available to
                        Borrower now or hereafter existing, created, acquired or
                        held;

                e.      All patents, patent applications and like protections
                        including, without limitation, improvements, divisions,
                        continuations, renewals, reissues, extensions and
                        continuations-in-part of the same, including without
                        limitation the patents and patent applications;

                f.      Any trademark and servicemark rights, whether registered
                        or not, applications to register and registrations of
                        the same and like protections, and the entire goodwill
                        of the business of Borrower connected with and
                        symbolized by such trademarks, including without
                        limitation;

                g.      Any and all claims for damages by way of past, present
                        and future infringements of any of the rights included
                        above, with the right, but not the obligation, to sue
                        for and collect such damages for said use or
                        infringement of the intellectual property rights
                        identified above;

                h.      All licenses or other rights to use any of the
                        Copyrights, Patents, Trademarks or Mask Works, and all
                        license fees and royalties arising from such use to the
                        extent permitted by such license or rights; and

                i.      All amendments, extensions, renewals and extensions of
                        any of the Copyrights, Trademarks, Patents, or Mask
                        Works; and

                j.      All proceeds and products of the foregoing, including
                        without limitation all payments under insurance or any
                        indemnity or warranty payable in respect of any of the
                        foregoing;

        2.      It shall be an event of default under the Loan Documents between
                Borrower and Bank if there is a breach of any term of this
                Negative Pledge Agreement.



<PAGE>   28

        3.      Capitalized terms used but not otherwise defined herein shall
                have the same meaning as in the Loan Documents.

BORROWER:

INTERNAP NETWORK SERVICES CORPORATION

By: /s/ JEFF ARROWSMITH
    ----------------------------------

Name: Jeff Arrowsmith
      --------------------------------

Title: Director of Finance
       -------------------------------


BANK:

SILICON VALLEY BANK

By: /s/ JOHN BALBACH
    ----------------------------------

Name: John Balbach
      --------------------------------

Title: AVP
       -------------------------------


                                       2

<PAGE>   29

                         CORPORATE BORROWING RESOLUTION

BORROWER:  INTERNAP NETWORK SERVICES      BANK:  SILICON VALLEY BANK
           CORPORATION                           915 118TH AVE. S.E., STE. 250
           TWO UNION, 601 UNION STREET,          BELLEVUE, WA 98005
           SUITE 1000,
           SEATTLE, WA  98101-4064

I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF INTERNAP NETWORK SERVICES
CORPORATION ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the laws of the State of
Washington.

I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.

BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown below:

     NAMES                   POSITIONS                   ACTUAL SIGNATURES

Paul E. McBride       V.P. of Finance and Admin/CFO    /s/ PAUL E. MCBRIDE
-------------------   -----------------------------    ------------------------

Jeff Arrowsmith       Director of Finance              /s/ JEFF ARROWSMITH
-------------------   -----------------------------    ------------------------


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


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


acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:

        BORROW MONEY. To borrow from time to time from Silicon Valley Bank
        ("Bank"), on such terms as may be agreed upon between the officers of
        Borrower and Bank, such sum or sums of money as in their judgment should
        be borrowed.

        EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan
        documents of Borrower, on Bank's forms, at such rates of interest and on
        such terms as may be agreed upon, evidencing the sums of money so
        borrowed or any indebtedness of Borrower to Bank, and also to execute
        and deliver to Bank one or more renewals, extensions, modifications,
        refinancings, consolidations, or substitutions for one or more of the
        loan documents, or any portion of the loan documents.

        GRANT SECURITY. To grant a security interest to Bank in any of
        Borrower's assets, which security interest shall secure all of
        Borrower's obligations to Bank.

        NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
        trade acceptances, promissory notes, or other evidences of indebtedness
        payable to or belonging to Borrower or in which Borrower may have an
        interest, and either to receive cash for the same or to cause such
        proceeds to be credited to the account of Borrower with Bank, or to
        cause such other disposition of the proceeds derived therefrom as they
        may deem advisable.

        LETTERS OF CREDIT. To execute letter of credit applications and other
        related documents pertaining to Bank's issuance of letters of credit.



<PAGE>   30

        FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
        contracts, either spot or forward, from time to time, in such amount as,
        in the judgment of the officer or officers herein authorized.

        FURTHER ACTS. In the case of lines of credit, to designate additional or
        alternate individuals as being authorized to request advances
        thereunder, and in all cases, to do and perform such other acts and
        things, to pay any and all fees and costs, and to execute and deliver
        such other documents and agreements, including agreements waiving the
        right to a trial by jury, as they may in their discretion deem
        reasonably necessary or proper in order to carry into effect the
        provisions of these Resolutions.

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.

I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they are in full force and effect and have not been modified or revoked in any
manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand on June 30, 1999 and attest that
the signatures set opposite the names listed above are their genuine signatures.

CERTIFIED TO AND ATTESTED BY:

X /s/ ANTHONY C. NAUGHTIN
  ----------------------------------------------
   *Secretary or Assistant Secretary

X
  ----------------------------------------------


*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.


                                       2



<PAGE>   1
                                                                   EXHIBIT 10.20



[LOGO]                                                  Master Agreement No.1103

                       MASTER AGREEMENT TO LEASE EQUIPMENT

THIS MASTER AGREEMENT TO LEASE EQUIPMENT (this "Agreement") is entered into as
of January 20, 1998 by and between CISCO SYSTEMS CAPITAL CORPORATION ("Lessor")
having its principal place of business at 3535 Garrett Drive, Santa Clara,
California 95054 and INTERNAP NETWORK SERVICES CORPORATION, a
_______________________ corporation ("Lessee"), having a principal place of
business at 2001 6th Avenue, Suite 800, Seattle, WA, 98121. In consideration of
the covenants set forth herein, Lessor and Lessee have agreed as follows:

                                  I. THE LEASE

1.1     LEASE OF EQUIPMENT. In accordance with the terms and conditions of this
        Agreement, Lessor shall lease to Lessee, and Lessee shall lease from
        Lessor, the units of personal property (individually, a "Unit," and,
        collectively, the "Equipment") described in the lease schedule(s) (each,
        a "Lease") to be entered into from time to time into which this
        Agreement is incorporated. Each Lease shall constitute a separate,
        distinct, and independent lease and contractual obligation of Lessee.
        Lessor or its assignee shall at all times retain the full legal title to
        the Equipment, it being expressly agreed by both parties that each Lease
        is an agreement
 of lease only. Notwithstanding any provision to the
        contrary contained in this Agreement, Lessee shall be deemed to accept
        the Equipment on the Commencement Date (as specified in each Lease).

1.2     TERM OF LEASE. The original term (the "Original Term") of each Unit
        shall commence on the Commencement Date and, subject to Sections 3.3 and
        3.5 below, shall terminate on the date specified in such Lease.
        Notwithstanding the foregoing, the Original Term for each Unit shall
        automatically extend for successive 30-day periods after its expiration
        unless either party gives the other party written notice, at least 90
        days prior to the expiration of the Original Term or the then extended
        term, as the case may be, of its intent not to so extend the applicable
        Lease. Except as specifically provided in this Section 1.2, no Lease may
        be terminated by Lessor or Lessee, for any reason whatsoever, prior to
        the end of the Original Term or any extended term.

1.3     RENTAL PAYMENTS. Lessee shall pay Lessor rent ("Rent") for each Unit in
        the amounts and at the times specified in the Lease. The Lease Term for
        each Unit shall commence on the Commencement Date and shall continue for
        the period specified in the Lease, [unless otherwise extended pursuant
        to Section __ below]. The Lease Term as to any Unit may not be
        terminated by Lessee unless otherwise expressly provided in the Lease.
        All rental and other amounts payable by Lessee to Lessor hereunder shall
        be paid to Lessor at the address specified above, or at such other place
        as Lessor may designate in writing to Lessee from time to time.

1.4     RETURN OF EQUIPMENT. Upon expiration of the Original Term of a Unit,
        Lessee shall immediately return such Unit to Lessor as provided in
        Section 3.3 below. Except as provided in Section 1.2 above, should
        Lessee not return any Unit at the end of its Original Term, Lessee shall
        continue to pay Rent to Lessor with respect to such Unit in the sum and
        on the due dates set out in the applicable Lease, as a month-to-month
        lease, until such Unit is returned by Lessee. If Lessee fails to return
        any of the Equipment upon demand therefor by Lessor, Lessee shall pay
        Lessor, as the measure of Lessor's damages, the Casualty Value (as
        defined in the applicable Lease) of such Equipment.

                    II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY

2.1     DISCLAIMERS; WARRANTIES. Lessee represents and acknowledges that each
        Unit is of a size, design, capacity and manufacture selected by it, and
        that it is satisfied that each Unit is suitable for its purposes. LESSOR
        SUPPLIES THE EQUIPMENT AS IS, AND, NOT BEING THE MANUFACTURER OF THE
        EQUIPMENT, THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO
        WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE
        MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN OR CONDITION
        OF THE EQUIPMENT, LESSOR SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE
        RESULTING FROM THE INSTALLATION, OPERATION OR OTHER USE, OR
        DEINSTALLATION OF THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY
        DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR LOSS. Lessee
        shall look solely to the manufacturer or the supplier of Equipment for
        correction of any problems that may arise with respect thereto, and all
        warranties made by the manufacturer or such supplier are, to the degree
        possible, hereby assigned to Lessee for the term of the applicable
        Lease. To the extent any such warranty requires performance of any kind
        by the beneficiary of the warranty, Lessee shall perform in accordance
        therewith.

2.2     INTELLECTUAL PROPERTY. Except as otherwise expressly provided in each
        Lease, LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER WITH
        RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING, WITHOUT
        LIMITATION, ANY PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD
        PARTY WITH RESPECT TO THE EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR
        OTHERWISE. Lessor shall, at Lessee's cost and expense, exercise, when
        requested by Lessee, rights of indemnification, if any, for patent,
        copyright or other intellectual property infringement obtained from the
        manufacturer under any agreement for purchase of the Equipment. If
        notified promptly in writing of any action brought against Lessee based
        on a claim that the Equipment infringes a United States patent,
        copyright or other intellectual property right, Lessor shall promptly
        notify the manufacturer thereof for purposes of exercising, for the
        benefit of Lessee, Lessor's rights with respect to such claim under any
        such agreement.

                            III. COVENANTS OF LESSEE

3.1     PAYMENTS UNCONDITIONAL; TAX BENEFITS; ACCEPTANCE. EACH LEASE SHALL BE A
        NET LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS
        THEREUNDER, AND THE RIGHTS OF LESSOR IN AND TO SUCH PAYMENTS, SHALL BE
        ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT,
        REDUCTION, SETOFF, DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR
        RECOUPMENT, FOR ANY REASON WHATSOEVER. It is the intent of Lessor, and
        an inducement to Lessor, to enter into each Lease, to claim all
        available tax benefits of ownership with respect to the Equipment
        subject thereto. Lessee acknowledges and represents that (a) no right,
        title or interest in such Equipment has been or is intended to be passed
        to Lessee, other than the right to maintain possession of and use of
        such Equipment for the Original Term of such Lease, conditioned on
        Lessee's performance of the terms and conditions of such Lease, (b)
        Lessee has not taken and will not, at any time during the Original Term
        of such Lease, take any action which could cause Lessor to lose any tax
        benefits of ownership, and (c) the Casualty Value of each Unit (as
        defined in the applicable Lease) includes an amount which provides for
        Lessor's recovery of the loss of such tax benefits. Lessee's acceptance
        of the Equipment subject to a Lease shall be conclusively and
        irrevocably evidenced by Lessee executing an Acceptance Certificate with
        respect to such Equipment, and, 



                                       1

<PAGE>   2

        upon acceptance, such Lease shall be noncancellable for its Original
        Term unless otherwise agreed to in writing by Lessor. Any nonpayment of
        Rent or other amounts payable under any Lease shall result in Lessee's
        obligation to promptly pay Lessor as additional Rent on such overdue
        payment, for the period of time during which it is overdue (without
        regard to any grace period), interest at a rate equal to the lesser of
        (a) 14% per annum, or (b) the maximum rate of interest permitted by law.

3.2     USE OF EQUIPMENT. Lessee shall use the Equipment solely in the conduct
        of its business, in a manner and for the use contemplated by the
        manufacturer thereof, and in compliance with all laws, rules and
        regulations of every governmental authority having jurisdiction over the
        Equipment or Lessee and with the provisions of all policies of insurance
        carried by Lessee pursuant to Section 3.6 below; provided, however,
        Lessee shall have the right to allow third parties, under Lessee's
        supervision, to use the Equipment, so long as Lessee shall retain
        uninterrupted possession and control of the Equipment. Lessee shall pay
        all costs, expenses, fees and charges incurred in connection with the
        use and operation of the Equipment.

3.3     DELIVERY; INSTALLATION; RETURN; MAINTENANCE AND REPAIR; INSPECTION.
        Lessee shall be solely responsible, at its own expense, for (a) the
        delivery of the Equipment to Lessee, (b) the packing, rigging and
        delivery of the Equipment back to Lessor, upon expiration of the
        Original Term, in good repair, condition and working order, ordinary
        wear and tear excepted, at the location(s) within the continental United
        States specified by Lessor, and (c) the installation, de-installation,
        maintenance and repair of the Equipment. During the term of the
        applicable Lease, Lessee shall ensure that each Unit is covered by a
        maintenance agreement, to the extent available, with the manufacturer of
        such Unit or such other party, reasonably acceptable to Lessor. Lessee
        shall, at its expense, keep the Equipment in good repair, condition and
        working order, ordinary wear and tear excepted, and, at the expiration
        of the Original Term, or any renewal term, with respect to any of the
        Equipment, have such Equipment inspected and certified acceptable for
        maintenance service by the manufacturer. In the event any of the
        Equipment, upon its return to Lessor, is not in good repair, condition
        and working order, ordinary wear and tear excepted, Lessee shall be
        obligated to pay Lessor for the out-of-pocket expenses Lessor incurs in
        bringing such Equipment up to such status, but not in excess of the
        Casualty Value (as defined in the applicable Lease) for such Equipment,
        promptly alter its receipt of an invoice for such expenses. Lessor shall
        be entitled to inspect the Equipment at Lessee's location at reasonable
        times.

3.4     TAXES. Lessee shall be obligated to pay, and hereby indemnifies Lessor
        and its successors and assigns against, and holds each of them harmless
        from, all license fees, assessments, and sales, use, property, excise
        and other taxes and charges, other than those measured by Lessor's net
        income, now or hereafter imposed by any governmental body or agency upon
        or with respect to any of the Equipment, or the possession, ownership,
        use or operation thereof, or any Lease or the consummation of the
        transactions contemplated in any Lease or this Agreement.
        Notwithstanding the foregoing, Lessor shall file all required personal
        property tax returns, and shall pay all personal property taxes payable,
        with respect to the Equipment, Lessee shall pay to Lessor, as additional
        rental, the amount of all such personal property taxes within 15 days of
        its receipt of an invoice for such taxes.

3.5     LOSS OF EQUIPMENT. Lessee shall bear the entire risk of the Equipment
        being lost, destroyed or otherwise rendered permanently unfit or
        unavailable for use from any cause whatsoever (an "Event of Loss") after
        it has been delivered to a common carrier for shipment to Lessee. If an
        Event of Loss shall occur with respect to any Unit, Lessee shall
        promptly and fully notify Lessor thereof in writing. On the rental
        payment date following Lessor's receipt of such notice, Lessee shall pay
        to Lessor an amount equal to the rental payment or payments due and
        payable with respect to such Unit on or prior to such date, plus a sum
        equal to the Casualty Value of such Unit as of the date of such payment,
        as set forth in such Lease. Upon the making of such payment by Lessee
        regarding any Unit, the rental for such Unit shall cease to accrue, the
        term of this Lease as to such Unit shall terminate and (except in the
        case of loss, theft or complete destruction) Lessor shall be entitled to
        recover possession of such Unit in accordance with the provisions of
        Section 3.3 above. Provided that Lessor has received the Casualty Value
        for any Unit, Lessee shall be entitled to the proceeds of any recovery
        in respect of such Unit from insurance or otherwise.

3.6     INSURANCE. Lessee shall obtain and maintain for the entire term of each
        Lease, at its own expense, property damage and liability insurance and
        insurance against loss or damage to the Equipment subject to such Lease
        including, without limitation, loss by fire (including so-called
        extended coverage), theft and such other risks of loss as are normally
        maintained on equipment of the type leased hereunder by company's
        carrying on the business in which Lessee is engaged, in such amounts, in
        such form and with such insurers as shall be satisfactory to Lessor.
        Each insurance policy will name Lessee as insured and Lessor as an
        additional insured and loss payee thereof as Lessor's interests may
        appear, and shall provide that it may not be canceled or altered without
        at least 30 days prior written notice thereof being given to Lessor or
        its successors and assigns.

3.7     INDEMNITY. Except with respect to the gross negligence or willful
        misconduct of Lessor, Lessee hereby indemnifies, protects, defends and
        holds harmless Lessor and its successors and assigns, from and against
        any and all claims, demands, actions, suits, and proceedings, losses
        costs, expenses, damages and liabilities, including, without limitation,
        reasonable attorneys' fees and costs (collectively, "Claims"), arising
        out of, connected with, or resulting from this Agreement, any Lease or
        any of the Equipment, including, without limitation, the manufacture,
        selection, purchase, delivery, possession, condition, use, operation, or
        return of the Equipment. Each of the parties shall give the other prompt
        written notice of any Claim of which it becomes aware. The provisions of
        this Section 3.7 shall survive the expiration or termination of this
        Agreement or any Lease.

3.8     PROHIBITIONS RELATED TO EQUIPMENT. Without the prior written consent of
        Lessor, which consent as it pertains to subsections (a) and (c) below
        shall not be unreasonably withheld, Lessee shall not: (a) sublease any
        of the Equipment (provided that Lessee may, without the prior written
        consent of Lessor, permit any Affiliate (defined below) of Lessee to use
        any of the Equipment in the ordinary course of its business); (b) create
        or incur, or permit to exist, any lien or encumbrance with respect to
        any of the Equipment, or any part thereof; (c) move any of the Equipment
        from the location at which it is first installed; or (d) permit any of
        the Equipment to be moved outside the continental limits of the United
        States. For purposes of this Agreement, the term "Affiliate" shall mean
        (i) any corporation which controls, is controlled by, or under common
        control with Lessee, (ii) any corporation resulting from the merger or
        consolidation of Lessee, or (iii) any entity which acquires all of the
        assets of Lessee as a going concern. For purposes of this Section 3.8,
        the term "control" shall mean the power to direct the management of the
        relevant entity.

3.9     IDENTIFICATION. Lessee shall place and maintain permanent markings
        provided by Lessor on each Unit evidencing ownership, security and other
        interests therein, as specified from time to time by Lessor. Lessee
        shall not place or permit to be placed on any Unit any other markings
        that might indicate any other ownership or security interest in such
        Unit. Any markings on any Unit not made at Lessor's request shall be
        removed by Lessee, at Lessee's sole cost and expense, prior to the
        return of such Unit in accordance with Section 3.3.

3.10    ALTERATIONS OR MODIFICATIONS. Lessee shall not make any additions,
        attachments, alterations or improvements to the Equipment without the
        prior written consent of Lessor. At any time during the Original Term of
        a Lease, there may be added to such Lease additional Units of the same
        type as are rented thereunder for a term equal to the remaining portion
        of such Original Term and, subject to the terms and conditions hereof,
        at the Rent applicable to such Units for such term at the time the order
        for such Units is placed, provided that the order is in writing and
        accepted by Lessor. Such acceptance shall be at the sole discretion of
        Lessor. Each addition, attachment, alteration or improvement to any Unit
        shall belong to and become the property of Lessor unless, at the request
        of Lessor, it is removed prior to the return of such Unit by Lessee.
        Lessee shall be responsible for all costs relating to such removal and
        shall restore such Unit to its operating condition that existed at the
        time it became subject to the applicable Lease.



                                       2

<PAGE>   3


3.11    EQUIPMENT TO BE PERSONAL PROPERTY. Lessee acknowledges and represents
        that the Equipment shall be and remain personal property,
        notwithstanding the manner in which it may be attached or affixed to
        realty, and Lessee shall do all acts and enter into all agreements
        necessary to ensure that the Equipment remains personal property.

3.12    FINANCIAL STATEMENTS. Lessee shall promptly furnish to Lessor such
        financial or other statements respecting the condition and operations of
        Lessee, and information respecting the Equipment, as Lessor may from
        time to time reasonably request.

3.13    LESSEE REPRESENTATIONS. Lessee hereby represents that, with respect to
        this Agreement and each Lease: (a) the execution, delivery and
        performance thereof by Lessee have been duly authorized by all necessary
        corporate action; and (b) the individual executing such document is duly
        authorized to do so; (c) such document constitutes legal, valid and
        binding obligations of Lessee, enforceable in accordance with its terms.

                            IV. DEFAULT AND REMEDIES

4.1     EVENTS OF DEFAULT. The occurrence of any of the following shall
        constitute an Event of Default hereunder: (a) Lessee shall fail to pay
        any rental or other payment due hereunder within five (5) days after its
        receipt of notice of nonpayment; (b) any representation or warranty of
        Lessee made in this Agreement, any Lease, or in any document furnished
        pursuant to the provisions of this Agreement or otherwise, shall prove
        to have been false or misleading in any material respect as of the date
        when it was made; (c) Lessee shall fail to perform any covenant,
        condition or agreement made by it under any Lease, and such failure
        shall continue for twenty (20) days after its receipt of notice thereof;
        (d) bankruptcy, receivership, insolvency, reorganization, dissolution,
        liquidation or other similar proceedings shall be instituted by or
        against Lessee or all or any part of its property under the Federal
        Bankruptcy Code or other law of the United States or of any other
        competent jurisdiction, and, if such proceeding is brought against
        Lessee, it shall consent thereto or shall fail to cause the same to be
        discharged within thirty (30) days after it is filed; (e) Lessee shall
        default under any agreement with respect to the purchase or installation
        of any of the Equipment; or (f) Lessee or any guarantor of Lessee's
        obligations under any Lease shall default under any other agreement with
        Lessor or Cisco Systems, Inc.

4.2     REMEDIES. If an Event of Default hereunder shall occur and be
        continuing, Lessor may exercise any one or more of the following
        remedies: (a) terminate any or all of the Leases and Lessee's rights
        thereunder; (b) proceed, by appropriate court action or actions, either
        at law or in equity, to enforce performance by Lessee of the applicable
        covenants of any or all of the Leases or to recover damages for the
        breach thereof; (c) recover from Lessee an amount equal to the sum of
        (i) all amounts due under any or all of the Leases on or before the
        Lessor giving Lessee written notice that such Event of Default has
        occurred and, if Lessor obtains a judgment against Lessee with respect
        to such Event of Default, the entry of such judgment, whichever shall
        last occur, (ii) as liquidated damages for loss of a bargain and not as
        a penalty, the present value of the balance of all rentals and other
        sums payable thereunder and hereunder, without any presentment, demand,
        protest or further notice (all of which are hereby expressly waived by
        Lessee), discounted at a rate equal to the rate for United States
        Treasury Bills, as the case may be, as shown in the Wall Street Journal,
        with a maturity which is closest to the balance of the term of such
        Lease (the "Discount Rate") as of the date of the payment of such
        amount, and (iii) any loss or damage to the Lessor's residual interest
        in the Equipment caused by such Event of Default; (d) personally, or by
        its agents, take immediate possession of any or all of the Equipment
        from Lessee and, for such purpose, enter upon Lessee's premises where
        any of the Equipment is located with or without notice or process of law
        and free from all claims by Lessee; and (e) require the Lessee to, and
        the Lessee shall, assemble the Equipment and deliver the Equipment to a
        location which is reasonably convenient to Lessor and Lessee. The
        exercise of any of the foregoing remedies by Lessor shall not constitute
        a termination of any Lease or this Agreement unless Lessor so notifies
        Lessee in writing.

4.3     DISPOSITION OF EQUIPMENT. In the event, upon the occurrence of an Event
        of Default, Lessor repossesses any of the Equipment, Lessor may lease
        any or all of such Equipment, or sell any or all of such Equipment at
        one or more public or private sales, in such manner, at such times and
        upon such terms as Lessor may determine. In the event that Lessor leases
        any of such Units, any rentals received by Lessor for the "Remaining
        Lease Term" (the period ending on the date when the Original Term for
        such Unit would have expired if an Event of Default had not occurred),
        discounted to present value, at the Discount Rate, as of the Possession
        Date (the "Recovery Rentals"), for such Units shall be applied to the
        payment of (a) all costs and expenses (including, without limitation,
        reasonable attorneys' fees) incurred by Lessor in retaking possession
        of, and removing, storing, repairing, refurbishing and leasing, such
        Units, (b) accrued and unpaid rentals as of the date Lessor obtained
        possession of such Units or the date on which Lessee made an effective
        tender of possession of such Units to Lessor, whichever shall first
        occur (the "Possession Date"), (c) the present value of the rentals for
        such Units for the balance of the Original Term of the applicable Lease
        (the "Discounted Remaining Rentals") and any other sums payable
        thereunder or hereunder with respect to such Units, discounted at the
        Discount Rate as of the Possession Date, (d) any and all other sums
        (other than rentals) with respect to such Units then owing to Lessor by
        Lessee thereunder or hereunder, and (e) any loss or damage to the
        Lessor's residual interest in such Units caused by such Event of Default
        (the aggregate of such amounts being referred to as the "Release
        Recovery Amount"). In the event that Lessor shall sell or otherwise
        dispose of (other than pursuant to a lease) any such Units, the proceeds
        thereof (the "Recovery Proceeds") shall be applied to the payment of the
        amounts referred to in clauses (a) through (d) above and the amount by
        which the Casualty Value for such Units, as of the Possession Date,
        exceeds the Discounted Remaining Rentals (the aggregate of such amounts
        being referred to as the "Sale Recovery Amount"). The balance, if any,
        of the Recovery Rentals, in the case of a release, and of the Recovery
        Proceeds, in the case of a sale or other disposition, shall be applied
        first to reimburse Lessee for any sums previously paid by Lessee as
        liquidated damages with respect to such Units, and any remaining amounts
        shall be retained by Lessor. Lessee shall remain liable to Lessor, with
        respect to any Units which are released or sold or otherwise disposed
        of, to the extent that the Release Recovery Amount exceeds the Recovery
        Rentals or the Sale Recovery Amount exceeds the Recovery Proceeds.
        Lessor shall be entitled to, and Lessee shall have no claim with respect
        to, all rentals, with respect to any period commencing after the
        expiration of the applicable Remaining Lease Term, from released Units.

                                V. MISCELLANEOUS

5.1     PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure to pay Rent
        (or any other sum due hereunder) or perform any obligation hereunder
        when due, Lessor shall have the right, but shall not be obligated, to
        pay such sum or perform such obligation, whereupon such sum or the cost
        of such performance shall immediately become due and payable hereunder
        as additional rent, with interest thereon at the highest legal rate from
        the date such payment or performance was made.

5.2     ASSIGNMENT. LESSEE SHALL NOT RELINQUISH POSSESSION OR CONTROL OF, OR
        ASSIGN, SUBLEASE, PLEDGE, HYPOTHECATE OR OTHERWISE TRANSFER, DISPOSE OF
        OR ENCUMBER ANY UNIT, THIS AGREEMENT OR ANY LEASE OR SCHEDULE, OR ANY
        PART THEREOF OR INTEREST THEREIN, OR ANY RIGHT OR OBLIGATION WITH
        RESPECT THERETO, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR.

5.3     QUIET ENJOYMENT. So long as Lessee shall not be in default of any of its
        obligations under any Lease, neither Lessor nor its assignee shall
        interfere with Lessee's right of quiet enjoyment and use of the
        Equipment.



                                       3

<PAGE>   4

5.4     FURTHER ASSURANCES. Lessee shall, upon the request of Lessor, from time
        to time, execute and deliver such further documents and do such further
        acts as Lessor may reasonably request in order fully to effect the
        purposes of any Lease and Lessor's rights thereunder. Lessor is
        authorized to file a financing statement, signed only by Lessor in
        accordance with the Uniform Commercial Code or signed by Lessor as
        Lessee's attorney in fact, with respect to any of the Equipment.

5.5     RIGHT AND REMEDIES. Each and every right and remedy granted to Lessor
        under any Lease shall be cumulative and in addition to any other right
        or remedy therein specifically granted or now or hereafter existing in
        equity, at law, by virtue of statute or otherwise, and may be exercised
        by Lessor from time to time concurrently or independently and as often
        and in such order as Lessor may deem expedient. Any failure or delay on
        the part of Lessor in exercising any such right or remedy, or
        abandonment or discontinuance of steps to enforce the same, shall not
        operate as a waiver thereof or affect Lessor's right thereafter to
        exercise the same. Waiver of any right or remedy on one occasion shall
        not be deemed to be a waiver of any other right or remedy or of the same
        right or remedy on any other occasion.

5.6     NOTICES. Any notice, request, demand, consent, approval or other
        communication provided for or permitted hereunder shall be in writing
        and shall be conclusively deemed to have been received by a party hereto
        on the day it is delivered to such party at its address set forth above
        (or at such other address as such party shall specify to the other party
        in writing), or if sent by registered or certified mail, return receipt
        requested, on the fifth day after the day on which it is mailed,
        addressed to such party at such address.

5.7     SECTION HEADINGS; COUNTERPARTS. Section headings are inserted for
        convenience of reference only and shall not affect any construction or
        interpretation of this Agreement. This Agreement and each Lease may be
        executed in counterparts, and when so executed each counterpart shall be
        deemed to be an original, and such counterparts together shall
        constitute one and the same instrument.

5.8     ENTIRE LEASE. This Agreement and each Lease constitute the entire
        agreement between Lessor and Lessee with respect to the lease of
        Equipment and supersede all other prior or contemporaneous agreements,
        whether oral or in writing, with respect thereto. No waiver or amendment
        of, or any consent with respect to, any provision of this Agreement
        shall bind either party unless set forth in writing, specifying such
        waiver, consent, or amendment, signed by both parties, and then such
        waiver, consent, or amendment shall be effective only in the specific
        instance and for the specific purpose given. Any term or condition of
        any purchase order or other document (with the exception of any Lease)
        submitted by Lessee in connection with this Lease which is in addition
        to or inconsistent with the terms and conditions of this Agreement shall
        not be binding on Lessor and shall not apply to this Agreement. To the
        extent permitted by applicable law and not otherwise specifically
        provided to Lessee in this Agreement, Lessee hereby waives any and all
        rights or remedies conferred upon a lessee under the California Uniform
        Commercial Code, and any other applicable similar code or statutes of
        another jurisdiction, with respect to a default by Lessor under this
        Agreement.

5.9     SEVERABILITY. Should any provision of this Agreement or any Lease be or
        become invalid, illegal, or unenforceable under applicable law, the
        other provisions of this Agreement and such Lease shall not be affected
        and shall remain in full force and effect, and, to the extent
        permissible under applicable law and possible, any such invalid, illegal
        or unenforceable provision shall be deemed amended to the extent
        necessary to be valid, legal and enforceable and to conform to the
        intent of the parties; provided, however, in the event Lessee's
        obligation under any Lease to pay rent or any other amount shall be
        invalid, illegal or unenforceable, Lessor shall have the right to
        terminate such Lease as if an Event of Default shall have occurred.

5.10    ATTORNEYS' FEES. Should either party institute any action or proceeding
        to enforce this Agreement or any Lease, or any provision hereof or
        thereof, or for a declaration of rights under any such agreement, the
        prevailing party in any such action or proceeding shall be entitled to
        receive from the other party all reasonable out-of-pocket costs and
        expenses, including, without limitation, attorneys' fees, which it
        incurs in connection with such action or proceeding.

5.11    GOVERNING LAW. This Lease shall be governed in all respects by the laws
        of the State of California with respect to agreements entered into, and
        to be performed, entirely in California. EXCEPT AS OTHERWISE
        SPECIFICALLY PROVIDED IN ANY LEASE, THIS AGREEMENT AND EACH LEASE SHALL
        BE GOVERNED IN ALL RESPECTS BY, AND CONSTRUED IN ACCORDANCE WITH, THE
        LAWS OF THE STATE OF CALIFORNIA. LESSOR AND LESSEE WAIVE ALL RIGHTS TO
        TRIAL BY JURY IN ANY LITIGATION ARISING FROM THIS AGREEMENT OR ANY
        LEASE. LESSEE CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
        COURTS OF CALIFORNIA, AND THE FEDERAL COURTS SITTING IN THE STATE
        CALIFORNIA, FOR THE RESOLUTION OF ANY DISPUTES HEREUNDER.

5.12    SURVIVAL. All obligations of Lessee to make payments to Lessor under any
        Lease or to indemnify Lessor, pursuant to Section 3.4 or 3.7 above, with
        respect to a Lease, and all rights of Lessor hereunder with respect to a
        Lease, shall survive the termination of such Lease.

LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES
THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS
AND CONDITIONS.

CISCO SYSTEMS CAPITAL CORPORATION (Lessor)    INTERNAP NETWORK SERVICES
                                              CORPORATION (Lessee)

By:       /s/ SUSAN A. ROFFO                  By:    /s/ PAUL E. MCBRIDE
    -------------------------------------         ------------------------------
         (Authorized Signature)                     (Authorized Signature)

       Susan A. Roffo, Controller                     Paul E. McBride/CFO
-----------------------------------------     ----------------------------------
              (Name/Title)                               (Name/Title)

                 5-27-98                                   1/23/98
-----------------------------------------     ----------------------------------
                 (Date)                                     (Date)



                                       4



<PAGE>   1
                                                                   EXHIBIT 10.21



                     [INTERNAP NETWORK SERVICES LETTERHEAD]


April 10, 1996



Mr. Christopher D. Wheeler
1711 E. Olive Way, #402
Seattle, WA 98102

        Re:  Offer of Employment

Dear Chris:

        We are pleased to extend this offer to you to join interNAP Network
Services, Inc. as Vice President of Network Engineering, effective April 15,
1996.

        Your compensation will be $7,500 per month (equal to $90,000 on an
annualized basis) plus you will participate in a discretionary bonus plan
determined by the Board of Directors that will provide up to an additional
$25,000 per year based on the successful accomplishment of certain performance
goals and objectives to be determined. You will be able to participate in the
purchase of interNAP common stock pursuant to a stock purchase agreement that
is currently being drawn up. In addition, you will also participate in the
benefits we offer generally to our employees, these are expected to initially
include medical, and company-paid life insurance for the employee with the
option to pay for these benefits for any additional dependents.

        It is a condition of this offer that, before commencing employment, you
sign an Employee Confidentiality, Nonraiding and Noncompetition Agreement,
which contains
 additional requirements for the protection of our business, a
copy of which is enclosed. This Agreement must be signed before you begin
active, productive work on our behalf.

        We wish to emphasize the importance we place on the proper treatment of
any confidential information with which you may have come into contact in the
past. We are offering you this job based on your skills and abilities and not
your possession of any trade secret, confidential or proprietary information.
We require that you not obtain, keep, use for our benefit or disclose to us any
confidential, proprietary or trade secret information that belongs to others,
unless the party who has the rights to the information expressly consents in
writing in advance. Also, by signing below you affirm that you are not a party
to any agreements, such as noncompetition agreements, that would limit your
ability to perform your duties for us.

        The employment opportunity that we offer is of indefinite duration and
will continue as long as both you and we consider it of mutual benefit. Either
you or we 

<PAGE>   2
Christopher D. Wheeler
April 10, 1996
Page 2



are free to terminate the employment relations at any time, with or without
cause. Any statements to the contrary are not authorized and may not be relied
upon.

      We look forward to working with you as part of the interNAP Network
Services, Inc. executive team. Please indicate your acceptance of these terms of
employment by signing and returning to me one of the two copies of this letter.


                                        Sincerely,

                                        /s/ PAUL E. McBRIDE

                                        Paul E. McBride
                                        President, Manager





ACCEPTED:



/s/ CHRISTOPHER D. WHEELER
-------------------------------
Mr. Christopher D. Wheeler



Dated:   4-11-96
      -------------------------

<PAGE>   3
                  [INTERNAP NETWORK SERVICES, INC. LETTERHEAD]



                        INTERNAP NETWORK SERVICES, INC.
                                        
                    EMPLOYEE CONFIDENTIALITY, NONRAIDING AND
                            NONCOMPETITION AGREEMENT


      In consideration of my hire and continued employment by InterNAP Network
Services, L.L.C. ("InterNAP"), the continued compensation of me by InterNAP
during my employment, and the disclosure to me of InterNAP's confidential and
proprietary information, I agree to the following terms and conditions.

      1.    Employment. Employment will begin on 5/16/96. While employed by
InterNAP, I shall devote my entire working time, attention, abilities and
efforts to InterNAP's business and affairs, faithfully and diligently serve
InterNAP's interests and refrain from engaging in any business or employment
activity that is not on InterNAP's behalf (whether or not pursued for gain or
profit), except for activities approved in writing in advance by InterNAP. My
precise services may be extended or curtailed, from time to time, at the
direction of InterNAP, and I shall assume and perform such further reasonable
responsibilities and duties as may be assigned to me from time to time by
InterNAP.

      2.    Termination. My employment may be terminated by either InterNAP or
me at any time and for any reason, or for no reason, in either party's sole and
absolute discretion.

      3.    Payment. I understand and agree that I will be compensated for my
services as follows:

      (a)   Base Salary. A base annual salary of $85,000.00 payable in equal
semi-monthly installments on approximately the 1st and 15th day of each month.
$90,000 Beginning 7/15.

      4.    Confidentiality and Nondisclosure. I agree that information not
generally known to the public to which I will be exposed as a result of my
being employed by InterNAP is confidential information that belongs to
InterNAP. This includes information developed by me, alone or with others, or
entrusted to InterNAP by its customers or others. InterNAP's confidential
information includes, without limitation, information relating to InterNAP's
trade secrets, research and development, inventions, know-how, software,
procedures, accounting, marketing, sales, creative and marketing strategies,
employee salaries and compensation, and the identities of customers and active
prospects to the extent not publicly disclosed (collectively, "Confidential
Information"). I will hold InterNAP's Confidential Information in strict
confidence, and not disclose or use it except as authorized by InterNAP and for
InterNAP's benefit.



                                      -1-

<PAGE>   4
                                [INTERNAP LOGO]


      I further acknowledge and agree that in order to enable InterNAP to
perform services for its customers or clients, such customers or clients may
furnish to InterNAP certain Confidential Information, that the goodwill
afforded to InterNAP depends upon InterNAP and its employees preserving the
confidentiality of such information, and that such information shall be treated
as Confidential Information of InterNAP for all purposes under this Agreement.

      5.    Noncompetition. I recognize and agree that InterNAP has many
substantial, legitimate business interests that can be protected only by my
agreement not to compete with InterNAP under certain circumstances. These
interests include, without limitation, InterNAP's contacts and relationships
with its clients and active prospects, InterNAP's reputation and goodwill in
the industry, and InterNAP's rights in its Confidential Information. Therefore,
I agree that during the term of my employment with InterNAP and for a period of
one (1) year after my employment ends for any reason whatsoever, I shall not,
voluntarily or involuntarily, directly or indirectly, on my own behalf or on the
behalf of another, approach, solicit, accept, receive or do work on any portion
of the computer network consulting and services business of any account that
was a client or active prospect of InterNAP, its parent or subsidiaries during
the twelve(12) month period immediately preceding the date my employment with
InterNAP ends.

      I also agree that during the term of my employment with InterNAP and for
a period of one (1) year after my employment ends for any reason whatsoever, I
shall not employ or seek to employ any person employed by InterNAP nor solicit
or induce any such person to leave InterNAP.

      6.    Injunctive Relief. I acknowledge that the breach or threatened
breach of the above noncompetition and/or nondisclosure provisions would cause
irreparable injury to InterNAP that could not be adequately compensated by money
damages. InterNAP may obtain a restraining order and/or injunction prohibiting
my breach or threatened breach of the noncompetition and/or nondisclosure
provisions, in addition to any other legal or equitable remedies that may be
available. I agree that the above noncompetition provision, including its
duration,scope and geographic extent, is fair and reasonably necessary to
protect InterNAP's client relationships, goodwill, Confidential Information and
other protectable interests.

      7.    Possession. I agree that upon request by InterNAP, and in any event
upon termination of employment for any reason, I shall turn over to InterNAP
all documents, notes, papers, data, files, office supplies or other material or
work product in my possession or under my control which was created pursuant
to, is connected with or derived from my services to InterNAP, or which is
related in any manner to InterNAP's business activities or research and
development efforts, whether or not such material is currently in my possession.




                                      -2-

<PAGE>   5
[INTERNAP LOGO]

     8.   Waiver of Breach. The waiver of any breach of any provision of this
Agreement or the failure to enforce any provision shall not be construed as a
waiver of any later breach by any party.

     9.   Enforcement and Severability. If any portion of this Agreement
becomes invalid or unenforceable, the rest of the Agreement shall be construed
as if the invalid or unenforceable portion was omitted. The noncompetition and
nondisclosure provisions shall be enforceable against me notwithstanding the
existence of any claim I may have against InterNAP.

     10.  Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions related to choice
of laws or conflict of laws. Venue and jurisdiction of any lawsuit involving
this Agreement or my employment shall exist exclusively in state and federal
courts in King County, Washington, unless injunctive relief is sought by
InterNAP, and in InterNAP's judgment, may not be effective unless obtained in
some other venue.

     11.  Attorneys' Fees. In any lawsuit arising out of or relating to this
Agreement or my employment, including without limitation arising from any
alleged tort or statutory violation, the prevailing party shall recover its
reasonable costs and attorneys' fees, including on appeal.

     12.  General. This Agreement may be modified, supplemented and/or amended
only by a writing that both I and InterNAP sign. This Agreement, as it may be
so amended, is the complete and final expression of my agreement with InterNAP
on the subjects covered, and shall control over any other statement,
representation or agreement on these subjects.

     I have read this Agreement before signing it, and I acknowledge receipt of
a signed copy.

                                              /s/ CHRISTOPHER D. WHEELER     
                                              -------------------------------
                                              Christopher D. Wheeler

                                              5-15-96
                                              -----------------------
                                              Date

                                      -3-

    

<PAGE>   6

                        INTERNAP NETWORK SERVICES, INC.

                                  ADDENDUM TO
                    EMPLOYEE CONFIDENTIALITY, NONRAIDING AND
                            NONCOMPETITION AGREEMENT


     This Addendum shall address a revision of Item 5, of the Employee
Confidentiality, Nonraiding and Noncompetition Agreement revised on May 22,
1997. All employees having been hired and having signed the Agreement before
this revision date shall execute this Addendum. All other terms and conditions
of the original Employee Confidentiality, Nonraiding and Noncompetition
Agreement are binding.

     Section 5. Noncompetition, in which the third sentence reads:

     "Therefore, I agree that during the term of my employment with InterNAP
     and for a period of one (1) year after my employment ends for any reason
     whatsoever, I shall not, voluntarily or involuntarily, directly or
     indirectly, on my own behalf or on the behalf of another, approach,
     solicit, accept, receive or do work on any portion of the computer network
     consulting and services business of any account that was a client or
     active prospect of InterNAP, its parent or subsidiaries during the twelve
     (12) month period immediately preceding the date my employment with
     InterNAP ends."

     Shall be amended to read as follows:

     "Therefore, I agree that during the term of my employment with InterNAP
     and for a period of one (1) year after my employment ends for any reason
     whatsoever, I shall not, voluntarily or involuntarily, directly or
     indirectly, on my own behalf or on the behalf of another, approach,
     solicit, accept, receive or do work in the area of Inter/Intranet
     connectivity and hosting services of any account that was a client or
     active prospect of InterNAP, its parent or subsidiaries during the twelve
     (12) month period immediately preceding the date my employment with
     InterNAP ends."

     I have read this Addendum before signing it, and I acknowledge receipt of
     a signed copy.

                                        /s/ CHRISTOPHER D. WHEELER
                                      -----------------------------------------
                                        Christopher D. Wheeler

                                        5-27-97
                                      -----------------------------------------
                                        Date


                                      -----------------------------------------
                                        Supervisor

                                      -----------------------------------------
                                        Date

 



<PAGE>   1
                                                                EXHIBIT 10.22
                             [INTERNAP LETTERHEAD]
May 16, 1996


Mr. Anthony C. Naughtin
6526 142nd Place SW
Edmonds, WA 980261

     Re:  Offer of Employment

Dear Tony:

     We are pleased to extend this offer to you to join InterNAP Network
Services, L.L.C. as President and CEO, effective May 16, 1996.

     Your starting compensation will be $7,500 per month (equal to $90,000 on
an annualized basis), increasing to $8,333.33 (equal to $100,000 on an
annualized basis) once the company completes the "buildout" phase of the
network currently projected by August 1, 1996. In addition, you will
participate in a discretionary bonus plan determined by the Board of Directors
that will provide up to an additional $25,000 per year based on the successful
accomplishment of certain performance goals and objectives to be determined.

     You will be able to purchase up to 500,000 InterNAP Units at a price of
$.001 per Unit pursuant to a Unit Purchase Agreement that is currently being
drawn up.

     You will also participate in the benefits we offer generally to our
employees, that are expected to initially include medical, and company-paid
life insurance for the employee, and 18 days/year of combined vacation/sick
lease (equal to .75 days/pay period) with an accrual limit of 18 days.

     It is
 a condition of this offer that, before commencing employment, you
sign an Employee Confidentiality, Nonraiding and Noncompetition Agreement,
which contains additional requirements for the protection of our business, a
copy of which is enclosed. This Agreement must be signed before you begin
active, productive work on our behalf.

     We wish to emphasize the importance we place on the proper treatment of
any confidential information with which you may have come into contact in the
past. We are offering you this job based on your skills and abilities and not
your possession of any trade secret, confidential or proprietary information.
We require that your not obtain, keep, use for our benefit or disclose to us
any confidential, proprietary or trade secret information that belongs to
others, unless the party who has the rights to the 

<PAGE>   2

Anthony C. Naughtin
May 16, 1996
Page 2


          information expressly consents in writing in advance. Also, by signing
          below you affirm that you are not a party to any agreements, such as
          noncompetition agreements, that would limit your ability to perform
          your duties for us.

               The employment opportunity that we offer is of indefinite
          duration and will continue as long as both you and we consider it of
          mutual benefit. Either you or we are free to terminate the employment
          relations at any time, with or without cause. Any statements to the
          contrary are not authorized and may not be relied upon.

               Tony, we are excited to have you on board and look forward to
          working with you as part of the InterNAP executive team. Please
          indicate your acceptance of these terms of employment by signing and
          returning to me one of the two copies of this letter.



                                                  Sincerely,


                                                  /s/ PAUL E. MCBRIDE
                                                  -----------------------------
                                                  Paul E. McBride
                                                  Manager


ACCEPTED:


/s/ ANTHONY C. NAUGHTIN
----------------------------
Mr. Anthony C. Naughtin


Dated: 5-29-96
      ----------------------

<PAGE>   3
                



                                [INTERNAP LOGO]
                                        
                                        
                        INTERNAP NETWORK SERVICES, INC.
                                        
                    EMPLOYEE CONFIDENTIALITY, NONRAIDING AND
                            NONCOMPETITION AGREEMENT


      In consideration of my hire and continued employment by InterNAP Network
Services, L.L.C. ("InterNAP"), the continued compensation of me by InterNAP
during my employment, and the disclosure to me of InterNAP's confidential and
proprietary information, I agree to the following terms and conditions.

      1.    Employment. Employment will begin on 5/16/96. While employed by
InterNAP, I shall devote my entire working time, attention, abilities and
efforts to InterNAP's business and affairs, faithfully and diligently serve
InterNAP's interests and refrain from engaging in any business or employment
activity that is not on InterNAP's behalf (whether or not pursued for gain or
profit), except for activities approved in writing in advance by InterNAP. My
precise services may be extended or curtailed, from time to time, at the
direction of InterNAP, and I shall assume and perform such further reasonable
responsibilities and duties as may be assigned to me from time to time by
InterNAP.

      2.    Termination. My employment may be terminated by either InterNAP or
me at any time and for any reason, or for no reason, in either party's sole and
absolute discretion.

      3.    Payment. I understand and agree that I will be compensated for my
services as follows:

      (a)   Base Salary. A base annual salary of $100,000.00, payable in equal
semi-monthly installments on approximately the 1st and 15th day of each month.

      4.    Confidentiality and Nondisclosure. I agree that information not
generally known to the public to which I will be exposed as a result of my
being employed by InterNAP is confidential information that belongs to
InterNAP. This includes information developed by me, alone or with others, or
entrusted to InterNAP by its customers or others. InterNAP's confidential
information includes, without limitation, information relating to InterNAP's
trade secrets, research and development, inventions, know-how, software,
procedures, accounting, marketing, sales, creative and marketing strategies,
employee salaries and compensation, and the identities of customers and active
prospects to the extent not publicly disclosed (collectively, "Confidential
Information"). I will hold InterNAP's Confidential Information in strict
confidence, and not disclose or use it except as authorized by InterNAP and for
InterNAP's benefit.



                                      -1-

<PAGE>   4
[INTERNAP LOGO]


      I further acknowledge and agree that in order to enable InterNAP to
perform services for its customers or clients, such customers or clients may
furnish to InterNAP certain Confidential Information, that the goodwill
afforded to InterNAP depends upon InterNAP and its employees preserving the
confidentiality of such information, and that such information shall be treated
as Confidential Information of InterNAP for all purposes under this Agreement.

      5.    Noncompetition. I recognize and agree that InterNAP has many
substantial, legitimate business interests that can be protected only by my
agreement not to compete with InterNAP under certain circumstances. These
interests include, without limitation, InterNAP's contacts and relationships
with its clients and active prospects, InterNAP's reputation and goodwill in
the industry, and InterNAP's rights in its Confidential Information. Therefore,
I agree that during the term of my employment with InterNAP and for a period of
one (1) year after my employment ends for any reason whatsoever, I shall not,
voluntarily or involuntarily, directly or indirectly, on my own behalf or on
the behalf of another, approach, solicit, accept, receive or do work on any
portion of the computer network consulting and services business of any account
that was a client or active prospect of InterNAP, its parent or subsidiaries
during the twelve (12) month period immediately preceding the date my
employment with InterNAP ends. I may not, should the opportunity arise, accept
a position of employment with any of the above specified clients or active
prospects.

      I also agree that during the term of my employment with InterNAP and for
a period of one (1) year after my employment ends for any reason whatsoever, I
shall not employ or seek to employ any person employed by InterNAP nor solicit
or induce any such person to leave InterNAP.

      6.    Injunctive Relief. I acknowledge that the breach or threatened
breach of the above noncompetition and/or nondisclosure provisions would cause
irreparable injury to InterNAP that could not be adequately compensated by
money damages. InterNAP may obtain a restraining order and/or injunction
prohibiting my breach or threatened breach of the noncompetition and/or
nondisclosure provisions, in addition to any other legal or equitable remedies
that may be available. I agree that the above noncompetition provision,
including its duration, scope and geographic extent, is fair and reasonably
necessary to protect InterNAP's client relationships, goodwill, Confidential
Information and other protectable interests.

      7.    Possession. I agree that upon request by InterNAP, and in any event
upon termination of employment for any reason, I shall turn over to InterNAP
all documents, notes, papers, data, files, office supplies or other material or
work product in my possession or under my control which was created pursuant
to, is connected with or derived from my services to InterNAP, or which is
related in any manner to InterNAP's business activities or research and
development efforts, whether or not such material is currently in my possession.


                                      -2-

<PAGE>   5
[INTERNAP LOGO]

     8.   Waiver of Breach. The waiver of any breach of any provision of this
Agreement or the failure to enforce any provision shall not be construed as a
waiver of any later breach by any party.

     9.   Enforcement and Severability. If any portion of this Agreement becomes
invalid or unenforceable, the rest of the Agreement shall be construed as if the
invalid or unenforceable portion was omitted. The noncompetition and
nondisclosure provisions shall be enforceable against me notwithstanding the
existence of any claim I may have against InterNAP.

     10.  Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions related to choice
of laws or conflict of laws. Venue and jurisdiction of any lawsuit involving
this Agreement or my employment shall exist exclusively in state and federal
courts in King County, Washington, unless injunctive relief is sought by
InterNAP, and in InterNAP's judgment, may not be effective unless obtained in
some other venue.

     11.  Attorneys' Fees. In any lawsuit arising out of or relating to this
Agreement or my employment, including without limitation arising from any
alleged tort or statutory violation, the prevailing party shall recover its
reasonable costs and attorneys' fees, including on appeal.

     12.  General. This Agreement may be modified, supplemented and/or amended
only by a writing that both I and InterNAP sign. This Agreement, as it may be
so amended, is the complete and final expression of my agreement with InterNAP
on the subjects covered, and shall control over any other statement,
representation or agreement on these subjects.

     I have read this Agreement before signing it, and I acknowledge receipt of
a signed copy.

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

                                              5-29-96
                                              -----------------------
                                              Date

                                      -3-




<PAGE>   1
                                                                   EXHIBIT 10.23



                                [INTERNAP LOGO]
                                        
                                        
                        INTERNAP NETWORK SERVICES, INC.
                                        
                    EMPLOYEE CONFIDENTIALITY, NONRAIDING AND
                            NONCOMPETITION AGREEMENT


      In consideration of my hire and continued employment by InterNAP Network
Services, L.L.C. ("InterNAP"), the continued compensation of me by InterNAP
during my employment, and the disclosure to me of InterNAP's confidential and
proprietary information, I agree to the following terms and conditions.

      1.    Employment. Employment will begin on 5/16/96. While employed by
InterNAP, I shall devote my entire working time, attention, abilities and
efforts to InterNAP's business and affairs, faithfully and diligently serve
InterNAP's interests and refrain from engaging in any business or employment
activity that is not on InterNAP's behalf (whether or not pursued for gain or
profit), except for activities approved in writing in advance by InterNAP. My
precise services may be extended or curtailed, from time to time, at the
direction of InterNAP, and I shall assume and perform such further reasonable
responsibilities and duties as may be assigned to me from time to time by
InterNAP.

      2.    Termination. My employment may be terminated by either InterNAP or
me at any time and for any reason, or for
 no reason, in either party's sole and
absolute discretion.

      3.    Payment. I understand and agree that I will be compensated for my
services as follows:

      (a)   Base Salary. A base annual salary of $85,000.00, payable in equal
semi-monthly installments on approximately the 1st and 15th day of each month.

      4.    Confidentiality and Nondisclosure. I agree that information not
generally known to the public to which I will be exposed as a result of my
being employed by InterNAP is confidential information that belongs to
InterNAP. This includes information developed by me, alone or with others, or
entrusted to InterNAP by its customers or others. InterNAP's confidential
information includes, without limitation, information relating to InterNAP's
trade secrets, research and development, inventions, know-how, software,
procedures, accounting, marketing, sales, creative and marketing strategies,
employee salaries and compensation, and the identities of customers and active
prospects to the extent not publicly disclosed (collectively, "Confidential
Information"). I will hold InterNAP's Confidential Information in strict
confidence, and not disclose or use it except as authorized by InterNAP and for
InterNAP's benefit.



                                      -1-

<PAGE>   2
[INTERNAP LOGO]


      I further acknowledge and agree that in order to enable InterNAP to
perform services for its customers or clients, such customers or clients may
furnish to InterNAP certain Confidential Information, that the goodwill
afforded to InterNAP depends upon InterNAP and its employees preserving the
confidentiality of such information, and that such information shall be treated
as Confidential Information of InterNAP for all purposes under this Agreement.

      5.    Noncompetition. I recognize and agree that InterNAP has many
substantial, legitimate business interests that can be protected only by my
agreement not to compete with InterNAP under certain circumstances. These
interests include, without limitation, InterNAP's contacts and relationships
with its clients and active prospects, InterNAP's reputation and goodwill in
the industry, and InterNAP's rights in its Confidential Information. Therefore,
I agree that during the term of my employment with InterNAP and for a period of
one (1) year after my employment ends for any reason whatsoever, I shall not,
voluntarily or involuntarily, directly or indirectly, on my own behalf or on
the behalf of another, approach, solicit, accept, receive or do work on any
portion of the computer network consulting and services business of any account
that was a client or active prospect of InterNAP, its parent or subsidiaries
during the twelve (12) month period immediately preceding the date my
employment with InterNAP ends. I may not, should the opportunity arise, accept
a position of employment with any of the above specified clients or active
prospects.

      I also agree that during the term of my employment with InterNAP and for
a period of one (1) year after my employment ends for any reason whatsoever, I
shall not employ or seek to employ any person employed by InterNAP nor solicit
or induce any such person to leave InterNAP.

      6.    Injunctive Relief. I acknowledge that the breach of threatened
breach of the above noncompetition and/or nondisclosure provisions would cause
irreparable injury to InterNAP that could not be adequately compensated by
money damages. InterNAP may obtain a restraining order and/or injunction
prohibiting my breach or threatened breach of the noncompetition and/or
nondisclosure provisions, in addition to any other legal or equitable remedies
that may be available. I agree that the above noncompetition provision,
including its duration, scope and geographic extent, is fair and reasonably
necessary to protect InterNAP's client relationships, goodwill, Confidential
Information and other protectable interests.

      7.    Possession. I agree that upon request by InterNAP, and in any event
upon termination of employment for any reason, I shall turn over to InterNAP
all documents, notes, papers, data, files, office supplies or other material or
work product in my possession or under my control which was created pursuant
to, is connected with or derived from my services to InterNAP, or which is
related in any manner to InterNAP's business activities or research and
development efforts, whether or not such material is currently in my possession.


                                      -2-

<PAGE>   3
[INTERNAP LOGO]

     8.   Waiver of Breach. The waiver of any breach of any provision of this
Agreement or the failure to enforce any provision shall not be construed as a
waiver of any later breach by any party.

     9.   Enforcement and Severability. If any portion of this Agreement
becomes invalid or unenforceable, the rest of the Agreement shall be construed
as if the invalid or unenforceable portion was omitted. The noncompletion and
nondisclosure provisions shall be enforceable against me notwithstanding the
existence of any claim I may have against InterNAP.

     10.  Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions related to choice
of laws or conflict of laws. Venue and jurisdiction of any lawsuit involving
this Agreement or my employment shall exist exclusively in state and federal
courts in King County, Washington, unless injunctive relief is sought by
InterNAP, and in InterNAP's judgment, may not be effective unless obtained in
some other venue.

     11.  Attorneys' Fees. In any lawsuit arising out of or relating to this
Agreement or my employment, including without limitation arising from any
alleged tort or statutory violation, the prevailing party shall recover its
reasonable costs and attorneys' fees, including on appeal.

     12.  General. This Agreement may be modified, supplemented and/or amended
only by a writing that both I and InterNAP sign. This Agreement, as it may be
so amended, is the complete and final expression of may agreement with InterNAP
on the subjects covered, and shall control over any other statement,
representation or agreement on these subjects.

     I have read this Agreement before signing it, and I acknowledge receipt of
a signed copy.

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

                                              5-16-96
                                              -----------------------
                                              Date

                                      -3-




<PAGE>   1

                                                                   EXHIBIT 10.24

                             [INTERNAP LETTERHEAD]

March 18, 1998

                                                       PERSONAL AND CONFIDENTIAL

Mr. Michael Ortega
989 Via Rincon
Palos Verdes Estates, CA 90274

Dear Mike:

RE: Offer of Employment

I am pleased to extend this employment offer to you to join InterNAP Network
Services Corporation as our Vice President of Sales and Marketing. During the
week next week, I would like to establish with you a reasonable start date for
this position, and as you know, we would like to commence with it as soon as
possible.

In this position you will be an officer of the Corporation, and will report
directly to me. Your total compensation and benefit package will be as follows:

     o    A base compensation and incentive bonus package as detailed in the
          attached summary document which is incorporated herein by reference
          to this formal offer letter.

     o    A recoverable draw against cash incentive bonus of $30,000, subject
          to the terms of the attached summary.

     o    Base level and override bonus stock options as detailed in the
          attached summary document.

     o    You are eligible to participate in the benefits we generally offer to
          our employees which include medical, dental, vision, and life
          insurance coverage for your immediate family; 18 days per year of
          combined
 vacation/sick leave (equal to .75 days per pay period) with
          an accrual limit of 18 days, and 9 paid holidays.

     o    Additional benefits include a 401(k) plan which will commence for the
          entire Company next month, as well as other benefits and insurance
          coverages that we expect to add to our overall employee package in
          the months ahead.

     o    Parking space is available to you in the Westin Garage and paid
          monthly by InterNAP.

     o    InterNAP will reimbursement you on a monthly basis for your use of a
          Sprint PCS cell phone in the conduct of InterNAP business (though you
          will be responsible for the initial purchase of this cell phone).

     o    Internet access on your existing computer at home will be provided by
          InterNAP, and other necessary and reasonable executive-level expenses
          related to your activities and responsibilities on behalf of the
          Company will be fully reimbursed to you by InterNAP.

     o    In addition to these provisions, your benefit and compensation
          package with InterNAP include all other items detailed in the
          attached summary.


<PAGE>   2
Mr. Michael Ortega
March 18, 1998
Page 2


It is a condition of this offer that, before commencing employment, you sign an
Employee Confidentiality, Nonraiding and Noncompetition Agreement, which
contains additional requirements for the protection of our business. A copy of
this standard document is enclosed for your review and execution. Compared to
these types of agreements which other employers often require newly hired
employees to sign, our standard form of this agreement is non-onerous, but if
you have any questions or reservations about this agreement, I invite you to
call me at your earliest convenience.

The employment opportunity that we offer is of indefinite duration and will
continue as long as it is of mutual benefit to you and InterNAP. Either party
is free to terminate the employment relationship at any time, with or without
cause. Any statements to the contrary are not authorized and may not be relied
upon.

Mike, I can't say enough about how excited we all are to have you joining the
InterNAP family and taking the reins of our sales and marketing efforts. As you
and I have discussed, InterNAP is now poised to become a significant
national/global provider of high-performance IP services of all types, and
joining our organization is a major step forward toward accomplishing this
objective. We know you have the right blend of professionalism, experience,
integrity, attitude and personal charisma to be the right man for the job we are
placing you in. We look forward to your contributions and counsel and we,
together as a management team, build InterNAP into a world-class company that
delivers high value to its customers and its shareholders. Welcome to our
family!

Please indicate you acceptance of the terms and conditions of this employment
offer by signing and returning to me one of the two copies of this letter,
along with our Confidentiality, Nonraiding, and Noncompetition Agreement.

Yours very truly,

/s/ ANTHONY C. NAUGHTIN

Anthony C. Naughtin
President/CEO


                                        ACCEPTED:

ACN:1p
Attachment

                                        /s/ MICHAEL ORTEGA
                                        ----------------------------------------
                                        Michael Ortega

                                        Date:
                                             -----------------------------------


<PAGE>   3
                                           InterNAP Proprietary and Confidential
--------------------------------------------------------------------------------



                     INTERNAP NETWORK SERVICES CORPORATION
                                        
              MICHAEL ORTEGA -- VICE PRESIDENT OF SALES/MARKETING
                       COMPENSATION AND BENEFITS PACKAGE
                             (YEAR 1 OF EMPLOYMENT)


Benefits:

      Full standard package (as discussed, though additional specifics will be
      provided)

Base Elements:

      $120K base annual salary
      350,000 stock options exercisable @ $.06 per share

Bonuses:

      Up to $120K annual sales/marketing bonus -- based on revenue performance
      (starting at 70% of sales revenue quota: 70% of quota yields .7 of bonus
      total ($84K), 80% of quota yields .8 of bonus total ($96K), etc. up
      through 100% = $120K). Bonus installments shall be paid on a quarterly
      basis based upon proportional achievement of revenue performance goals
      (quota) within each quarter.

      Override Bonus -- when sales revenue quota is exceeded, an additional
      bonus shall be paid in the form of stock options on the following basis:
      110% of quota yields a stock option bonus total of 35,000 stock options;
      120% of quota yields a stock option bonus total of 55,000 stock options;
      130% of quota yields a stock option bonus total of 75,000 stock options;
      140% of quota yields a stock option bonus total of 105,000 stock options;
      155% of quota yields a stock option bonus total of 130,000 stock options.
      These options may be exercised at the discounted common stock price in
      effect at the time of option award (based on InterNAP stock valuation at
      that time).

Expense Reimbursement:

      Full participation in executive level expense reimbursement, which
      includes reimbursement of all reasonable and necessary expenses that you
      incur on behalf of InterNap in execution of authorized management job
      tasks and responsibilities. This also includes reimbursement for company
      business use of a Sprint PCS phone.

Important Additional Items:

      $30K draw against 1st year sales/marketing bonus (applied or recovered by
      InterNAP over the final 3 quarters).

      Seattle living expenses: through first 4 months of employment (or until
      long-term residence is in place, whichever occurs first) InterNAP will pay
      in the range of $2,000-2,500 per month for apartment and living
      expenses.

      Relocation package: TBD after 90-120 days.

      Severance (within year 1 only): 120-day (base salary) severance only if
      terminated by InterNAP (except for termination for cause); payable up to
      time of new employment within 120 days.

<PAGE>   4



                                        
                        INTERNAP NETWORK SERVICES CORP.
                                        
                    EMPLOYEE CONFIDENTIALITY, NONRAIDING AND
                            NONCOMPETITION AGREEMENT


      In consideration of my hire and continued employment by InterNAP Network
Services Corporation ("InterNAP"), the continued compensation of me by InterNAP
during my employment, and the disclosure to me of InterNAP's confidential and
proprietary information, I agree to the following terms and conditions.

      1.    Employment. Employment will begin on ____________. While employed by
InterNAP, I shall devote my entire working time, attention, abilities and
efforts to InterNAP's business and affairs, faithfully and diligently serve
InterNAP's interests and refrain from engaging in any business or employment
activity that is not on InterNAP's behalf (whether or not pursued for gain or
profit), except for activities approved in writing in advance by InterNAP. My
precise services may be extended or curtailed, from time to time, at the
direction of InterNAP, and I shall assume and perform such further reasonable
responsibilities and duties as may be assigned to me from time to time by
InterNAP.

      2.    Termination. My employment may be terminated by either InterNAP or
me at any time and for any reason, or for no reason, in either party's sole and
absolute discretion.

      3.    Payment. I understand and agree that I will be compensated for my
services as follows:

      (a)   Base Salary. A base annual salary of $120,000, payable in equal
semi-monthly installments on approximately the 1st and 15th day of each month.

      4.    Confidentiality and Nondisclosure. I agree that information not
generally known to the public to which I will be exposed as a result of my
being employed by InterNAP is confidential information that belongs to
InterNAP. This includes information developed by me, alone or with others, or
entrusted to InterNAP by its customers or others. InterNAP's confidential
information includes, without limitation, information relating to InterNAP's
trade secrets, research and development, inventions, know-how, software,
procedures, accounting, marketing, sales, creative and marketing strategies,
employee salaries and compensation, and the identities of customers and active
prospects to the extent not publicly disclosed (collectively, "Confidential
Information"). I will hold InterNAP's Confidential Information in strict
confidence, and not disclose or use it except as authorized by InterNAP and for
InterNAP's benefit.

      I further acknowledge and agree that in order to enable InterNAP to
perform services for its customers or clients, such customers or clients may
furnish to InterNAP certain Confidential Information, that the goodwill
afforded to InterNAP depends upon InterNAP and its employees preserving the
confidentiality of such information, and that such information shall be treated
as Confidential Information of InterNAP for all purposes under this Agreement.

      5.    Noncompetition. I recognize and agree that InterNAP has many
substantial, legitimate business interests that can be protected only by my
agreement not to compete with InterNAP under certain circumstances. These
interests include, without limitation, InterNAP's contacts and relationships
with its clients and active prospects, InterNAP's reputation and goodwill in
the industry, and InterNAP's rights in its Confidential Information. Therefore,
I agree that during the term of my employment with InterNAP and for a period of
one (1) year after my employment ends for any reason whatsoever, I shall not,
voluntarily or involuntarily, directly or indirectly, on my own behalf or on
the behalf of another, approach, solicit, accept, receive or do work in the
area of Inter/Intranet connectivity and hosting services for any account
that was a client or active prospect of InterNAP, its parent or subsidiaries
during the twelve (12) month period immediately preceding the date my
employment with InterNAP ends. I may not, should the opportunity arise, accept
a position of employment with any of the above specified clients or active
prospects.



<PAGE>   5

Page 2

      I also agree that during the term of my employment with InterNAP and for
a period of one (1) year after my employment ends for any reason whatsoever, I
shall not employ or seek to employ any person employed by InterNAP nor solicit
or induce any such person to leave InterNAP.

      6.    Injunctive Relief. I acknowledge that the breach of threatened
breach of the above noncompetition and/or nondisclosure provisions would cause
irreparable injury to InterNAP that could not be adequately compensated by
money damages. InterNAP may obtain a restraining order and/or injunction
prohibiting my breach or threatened breach of the noncompetition and/or
nondisclosure provisions, in addition to any other legal or equitable remedies
that may be available. I agree that the above noncompetition provision,
including its duration, scope and geographic extent, is fair and reasonably
necessary to protect InterNAP's client relationships, goodwill, Confidential
Information and other protectable interests.

      7.    Possession. I agree that upon request by InterNAP, and in any event
upon termination of employment for any reason, I shall turn over to InterNAP
all documents, notes, papers, data, files, office supplies or other material or
work product in my possession or under my control which was created pursuant
to, is connected with or derived from my services to InterNAP, or which is
related in any manner to InterNAP's business activities or research and
development efforts, whether or not such material is currently in my possession.

     8.   Waiver of Breach. The waiver of any breach of any provision of this
Agreement or the failure to enforce any provision shall not be construed as a
waiver of any later breach by any party.

     9.   Enforcement and Severability. If any portion of this Agreement
becomes invalid or unenforceable, the rest of the Agreement shall be construed
as if the invalid or unenforceable portion was omitted. The noncompletion and
nondisclosure provisions shall be enforceable against me notwithstanding the
existence of any claim I may have against InterNAP.

     10.  Governing Law. This Agreement shall be governed by the internal laws
of the state of Washington without giving effect to provisions related to choice
of laws or conflict of laws. Venue and jurisdiction of any lawsuit involving
this Agreement or my employment shall exist exclusively in state and federal
courts in King County, Washington, unless injunctive relief is sought by
InterNAP, and in InterNAP's judgment, may not be effective unless obtained in
some other venue.

     11.  Attorneys' Fees. In any lawsuit arising out of or relating to this
Agreement or my employment, including without limitation arising from any
alleged tort or statutory violation, the prevailing party shall recover its
reasonable costs and attorneys' fees, including on appeal.

     12.  General. This Agreement may be modified, supplemented and/or amended
only by a writing that both I and InterNAP sign. This Agreement, as it may be
so amended, is the complete and final expression of my agreement with InterNAP
on the subjects covered, and shall control over any other statement,
representation or agreement on these subjects.

     I have read this Agreement before signing it, and I acknowledge receipt of
a signed copy.

                                              /s/ MICHAEL ORTEGA
                                              -------------------------------
                                              Michael Ortega


                                              -----------------------
                                              Date





<PAGE>   1
                                                                   EXHIBIT 10.25


August 27, 1999

InterNAP Network Services Corporation
601 Union Street

Suite 1000
Seattle, Washington 98101

RE:     STANDBY LOAN FACILITY FOR INTERNAP NETWORK SERVICES CORPORATION


Gentlemen:


You have advised us that InterNAP Network Services Corporation (the "Borrower")
would like to have up to $10,000,000 available for short term working capital
requirements. David Cornfield, Dan Newell, Richard Saada, Paul Canniff, Robert
Lunday, Todd Warren and Robert D. Shurtleff, Jr. ("Lenders"), and S.L. Partners,
Inc., as administrative agent (the "Administrative Agent"), are pleased to
confirm their commitment, in the pro rata amounts set forth opposite their names
on Appendix 1 to the Summary of Terms attached hereto as Exhibit A (or, upon
notice to Borrower, such other pro rata amounts as Lenders may decide among
themselves), which is incorporated herein and made a part of this letter, and
subject to the terms and conditions set forth below (the "Commitment"), to
provide a revolving credit facility of $10,000,000 (the "Loan Facility") to the
Borrower.

The basic terms and conditions governing the Loan Facility are contained in the
Summary of Terms, which is incorporated herein and made part of this letter.
Capitalized terms
 not defined in this letter have the meaning given to them in
the Summary of Terms (this letter and the Summary of Terms are collectively
referred to as the "Commitment Letter").

This Commitment Letter should not be construed as an attempt to define all the
terms and conditions of the Loan Facility. The Commitment is subject to the
negotiation, execution and delivery of definitive financing agreements
reasonably satisfactory in form and substance to the Lenders. The definitive
financing agreements will contain conditions, terms, covenants, representations
and warranties and other provisions, which may reasonably be in addition to
those set forth in the Summary of Terms but which will not be inconsistent with
this Commitment Letter in any material respect.

The Commitment and all undertakings and agreements hereunder are subject to (a)
the negotiation, execution and delivery of definitive financing agreements as
set forth in the preceding paragraph, (b) the Borrower obtaining all
governmental approvals (if any) and third party consents (including without
limitation the consent of Silicon Valley Bank, any other creditors or equipment
lenders and, if necessary, the waiver of the requirements in Section 4 of the
Borrower's Amended and Restated Investors Rights Agreement) required in
connection with the borrowing under and the fulfillment of the Borrower's
obligations under the Loan Facility, (c) the Borrower continuing in the same
line of business as the business in which it was engaged on the date of this
Commitment Letter and (d) no event that would constitute an Event of Default (as
defined in the Summary of Terms) having occurred. In the event any of the
foregoing conditions are not fulfilled to the reasonable satisfaction of the
Administrative Agent and the Lenders, the Commitment will terminate with no
further obligation on the part of any of the Administrative Agent or the
Lenders.



<PAGE>   2

By executing a copy of this Commitment Letter, regardless of whether any of the
definitive documentation for the Loan Facility is hereafter executed, the
Borrower agrees to pay, indemnify and hold the, Administrative Agent, the
Lenders and their affiliates and their respective directors, officers, employees
and agents, and each other person controlling any of the foregoing (within the
meaning of either Section 15 of the Securities Act of 1933, as amended, or
Section 20 of the Securities Exchange Act of 1934, as amended) (collectively,
the "Indemnified Parties") harmless from and against any and all claims made by
any person which give rise to liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind whatsoever against any of the Indemnified Parties with respect to or
arising out of or in connection with this Commitment Letter or any
investigation, litigation or proceeding otherwise related to the transactions
contemplated hereby (all of the foregoing, collectively, the "Indemnified
Matters"); provided, however, that the Borrower shall have no liability
hereunder with respect to Indemnified Matters arising solely from the grossly
negligent acts or willful misconduct of any person seeking indemnification.

The Borrower agrees to reimburse the Administrative Agent promptly for all its
reasonable out-of-pocket expenses (including, without limitation, the reasonable
legal fees and costs of one special counsel to the Administrative Agent)
regardless of whether the transactions contemplated hereby are consummated.

This Commitment Letter may be executed by the signatories hereto in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together one and the same agreement. This Commitment Letter
constitutes the entire understanding among the parties hereto with respect to
the subject matter hereof and replaces and supersedes all prior agreements and
understandings.

THIS COMMITMENT LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF WASHINGTON. EACH PARTY HERETO AGREES THAT IN
NO EVENT SHALL ANY PARTY TO THIS COMMITMENT LETTER SEEK FROM ANOTHER PARTY OR BE
LIABLE TO ANOTHER PARTY FOR CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES UNDER
CONTRACT, TORT OR OTHER THEORY OF LAW.

If you agree with the foregoing, please execute and return to the Agent at the
address set forth below the enclosed copy of this Commitment Letter no later
than 5:00 p.m., Washington time, on September 3, 1999. The Commitment will
terminate at such time unless an executed copy of this Commitment Letter shall
have been executed by you and delivered to the Administrative Agent prior to
such time.

We look forward to working with you to achieve a successful implementation of
the Loan Facility.

Very truly yours,

S.L. PARTNERS, INC.,
as Administrative Agent


By: /s/ ROBERT D. SHURTLEFF, JR.
    --------------------------------

Name: Robert D. Shurtleff, Jr.

Title: Agent, S.L. Partners, Inc.
      ------------------------------

Address:       422 34th Ave.
               So. Seattle,  Washington 98144

Facsimile:     (206) 709-1485



<PAGE>   3

/s/ David J. Cornfield                      /s/ Dan Newell
-----------------------------------         -----------------------------------
DAVID CORNFIELD, as a Lender                DAN NEWELL, as a Lender

/s/ Richard A. Saada                        /s/ Paul Canniff
-----------------------------------         -----------------------------------
RICHARD SAADA, as a Lender                  PAUL CANNIFF, as a Lender

/s/ Robert J. Lunday, Jr.                   /s/ Todd Warren
-----------------------------------         -----------------------------------
ROBERT LUNDAY, as a Lender                  TODD WARREN, as a Lender

/s/ Robert D. Shurtleff, Jr.
-----------------------------------         
ROBERT D. SHURTLEFF, JR., as a Lender



Agreed and accepted this 31st day of August 1999.

INTERNAP NETWORK SERVICES CORPORATION




By: /s/ Paul E. McBride
    --------------------------------

Printed Name: Paul E. McBride
Title: V.P. of Finance & Admin/CFO



<PAGE>   4

                                    EXHIBIT A

                           $10,000,000 LINE OF CREDIT

                                       TO

                      INTERNAP NETWORK SERVICES CORPORATION

                                SUMMARY OF TERMS



Borrower:               InterNAP Network Services Corporation.

Loan Facility and
 Commitments:           A line of credit, the total commitment under which is
                        $10,000,000 (the "Total Commitment"). Each Lender
                        commits (a "Commitment") to providing a portion of the
                        Total Commitment as set forth in APPENDIX 1 attached
                        hereto and incorporated herein by reference (provided,
                        however, that upon notice to Borrower, Lenders shall be
                        entitled to change the pro rata amounts set forth in
                        such APPENDIX 1 as Lenders may decide among themselves).

Administrative
 Agent:                 S.L. Partners, Inc., a corporation wholly owned by 
                        Rob Shurtleff.

Lenders:                David Cornfield , Dan Newell, Richard Saada, Paul
                        Canniff, Robert Lunday, Todd Warren and Robert D.
                        Shurtleff, Jr.

                        Each Lender will make loans (the "Loans") to the
                        Borrower in an aggregate principal amount up to the
                        amount of such Lender's Commitment. Within each Lender's
                        Commitment, such Lender will fund his Pro Rata Share (as
                        defined below) of each funding request, as described in
                        "Funding Requests" below. No Lender shall be obligated
                        to fund more than his Pro Rata Share of any funding
                        request or to make Loans in an aggregate principal
                        amount in excess of his Commitment.

Lenders' Pro
 Rata Share:            Each Lender's Pro Rata Share is (a) the ratio (expressed
                        as a percentage) of the aggregate outstanding principal
                        amount of Loans made by such Lender to the aggregate
                        principal amount of all Loans outstanding under the Loan
                        Facility or (b) if no such Loans are outstanding, the
                        ratio (expressed as a percentage) of such Lender's
                        Commitment to the Total Commitment.

Purpose:                Support short term working capital requirements of
                        Borrower.

Interest Rate:          The outstanding principal of Loans comprising each
                        funding request shall bear a fixed rate of interest
                        equal to the Prime Rate (as published in The




<PAGE>   5
                        Wall Street Journal) in effect on the date the Loans are
                        made to Borrower plus 2%, which interest shall be
                        payable at the maturity of the Loan Facility.

Default Interest:       In the event Borrower fails to pay Lenders in
                        full upon maturity of the Loan Facility, principal of
                        each Loan outstanding under the Loan Facility will bear
                        interest at the interest rate borne by such Loan plus
                        5%.

Funding Requests:       Borrower may draw or make multiple draws at any time
                        before December 31, 1999, upon ten (10) business days'
                        written notice to the Administrative Agent. Each funding
                        request shall specify the amount to be borrowed (which
                        shall not be less than $1,000,000; provided, however,
                        that if the then available funding under the Total
                        Commitment is less than $1,000,000, then the funding
                        request may be for such lesser amount) and the date of
                        the requested funding (which shall be no earlier than
                        the tenth (10th) business day following the date on
                        which such notice is received by the Administrative
                        Agent).

                        Each Lender will severally fund his Pro Rata Share of
                        each funding request made by Borrower by depositing, no
                        later than five (5) business days prior to the proposed
                        funding date, his Pro Rata Share in immediately
                        available funds to an account maintained by the
                        Administrative Agent. Upon satisfaction of all
                        conditions to funding (see "Conditions to Funding
                        Requests" below), the Administrative Agent will make
                        available to the Borrower the amount of the draw by the
                        close of business on the funding date.

                        In the event any Lender (a "Defaulting Lender") fails to
                        fund his Pro Rata Share of a borrowing (the "Unfunded
                        Amount") five (5) business days prior to the funding
                        date, the Administrative Agent shall on the next
                        business day notify by telephone each other Lender (a
                        "Non-Defaulting Lender") of such failure and offer such
                        Non-Defaulting Lenders the opportunity to fund the
                        Unfunded Amount, pro rata based on the ratio of the
                        outstanding principal amount of each such Non-Defaulting
                        Lender's Loans to the aggregate outstanding principal
                        amount of all Loans made by Non-Defaulting Lenders (or,
                        if no Loans are at the time outstanding the ratio of
                        each Non-Defaulting Lender's Commitment to the
                        Commitments of all Non-Defaulting Lenders). If, by the
                        close of business on the second (2nd) business day
                        following such telephonic notice, less than all of the
                        Non-Defaulting Lenders notify the Administrative Agent
                        that they desire to fund pro rata the Unfunded Amount,
                        the Administrative Agent shall offer to any one or more
                        Non-Defaulting Lenders the opportunity to fund on the
                        funding date all or a portion of the Unfunded Amount.




<PAGE>   6

Conditions to
 Funding Requests:      The funding of the first draw request under the Loan
                        Facility is subject to fulfillment of the following
                        conditions to the reasonable satisfaction of the
                        Administrative Agent and the Lenders:

                        (a)    Borrower, Lenders and Administrative Agent have
                               entered into Loan Documents (as defined below)
                               reasonably satisfactory to Lenders and
                               Administrative Agent;

                        (b)    All representations and warranties in the Loan
                               Documents are true and correct in all material
                               respects;

                        (c)    No Event of Default or event which, with notice
                               or lapse of time or both, would constitute an
                               Event of Default has occurred and is continuing;

                        (d)    All governmental consents required for the
                               borrowing of the Loans or the performance of
                               Borrower's obligations under the Loan Documents
                               have been obtained and are in full force and
                               effect;

                        (e)    The consent of Borrower's existing lenders to the
                               Loan Facility and to the payment of all
                               outstanding Loans, upon completion of any debt or
                               equity funding (excluding equipment financing
                               transactions), prior to the paydown of Borrower's
                               existing debt facilities has been obtained and is
                               in full force and effect;

                        (f)    All other consents or approvals of third parties
                               required for the borrowing of the Loans or the
                               performance of Borrower's obligations under the
                               Loan Documents have been obtained and are in full
                               force and effect;

                        (g)    The Warrants have been executed by Borrower and
                               delivered to the Administrative Agent; and

                        (h)    Borrower shall have delivered such certificates
                               and other documents as the Administrative Agent
                               may reasonably request to confirm or evidence the
                               foregoing.

                        The funding of any subsequent draw request is subject to
                        fulfillment to the reasonable satisfaction of the
                        Administrative Agent of the conditions identified in
                        clauses (b) and (c) above.

Term and Maturity:      The Loan Facility term will commence with
                        Borrower's first draw under the Loan Facility (the
                        "Commencement Date"). The Loan Facility will mature on
                        the earlier to occur of: (1) the closing of Borrower's
                        initial public offering, (2) the closing of Borrower's
                        next private equity financing resulting in proceeds to
                        Borrower in excess of $20,000,000, or (3) six (6) months
                        from the Commencement Date. If the closing of the
                        Borrower's




<PAGE>   7

                        initial public offering or the closing of the Borrower's
                        next private equity financing has not occurred during
                        the first six (6) month term of the Loan Facility,
                        Borrower will be entitled, at its option, to extend the
                        maturity date for an additional six (6) month period.
                        (See also "Warrants").

Optional
 Prepayment:            Borrower may prepay all or part of the indebtedness owed
                        to Lenders under the Loan Facility at any time without
                        penalty or premium. Amounts prepaid may not be
                        reborrowed.

Mandatory
 Prepayment:            Borrower shall prepay all of the Loans outstanding,
                        together with all accrued interest, within two (2)
                        business days of (1) the closing of the Borrower's
                        initial public offering, (2) the closing of Borrower's
                        next private equity financing or (3) the occurrence of a
                        Change of Control. Amounts prepaid may not be
                        reborrowed. "Change of Control" is defined as a material
                        change in Borrower's ownership of greater that 49%.

Warrants:               Warrants to purchase 100,000 shares of common stock of
                        Borrower will be issued to the Administrative Agent upon
                        signing of definitive agreements for the Loan Facility
                        (the "1999 Warrants").

                        Warrants to purchase an additional 100,000 shares of
                        common stock will be issued to the Administrative Agent
                        upon the extension of the Loan Facility for an
                        additional six (6) month period (the "2000 Warrants"
                        and, together with the 1999 Warrants, the "Warrants").

                        The 1999 Warrants will expire on December 31, 2004 and
                        the 2000 Warrants will expire five (5) years following
                        their date of issuance. All the Warrants will be struck
                        at the offering price of Borrower's common stock in its
                        initial public offering or in its next private equity
                        financing, whichever occurs first. Additionally, the
                        Warrants will have piggyback registration rights
                        equivalent to the rights of holders of Series C
                        Preferred Stock, subject to priority given to the
                        existing holders of registration rights, but prior to
                        any piggyback registration rights which may be given in
                        connection with any subsequent series of Borrower's
                        preferred stock.

                        The Warrants will be initially issued to the
                        Administrative Agent. Administrative Agent will be
                        entitled to 5% of the Warrants as an agency fee. (See
                        "Rights and Duties of Administrative Agent" below).
                        Promptly following December 31, 1999, Administrative
                        Agent (after deducting Warrants representing the agency
                        fee) will transfer to each Lender (other than any
                        Defaulting Lender) each Lender's Pro Rata Share of the
                        remaining 1999 Warrants. If the 2000 Warrants are
                        issued, Administrative Agent (after deducting Warrants
                        representing the agency fee) will transfer to each
                        Lender (other than any Defaulting Lender) each Lender's
                        Pro Rata Share of the remaining 2000 Warrants.



<PAGE>   8

Conversion Option:      In the event of a sale of Series D Preferred
                        Stock, each Lender (other than any Defaulting Lender)
                        will have the right to convert up to his Pro Rata Share
                        of $2M (or the outstanding principal balance of the Loan
                        Facility if less than $2M is outstanding) into shares of
                        Series D Preferred stock. Any Defaulting Lender's right
                        to convert Loans shall be allocated pro rata among the
                        Non-Defaulting Lenders. The conversion right of any
                        Lender who elects not to convert his Pro Rata Share
                        shall be allocated among the other Lenders as reasonably
                        determined by the Administrative Agent. The share price
                        used to determine the conversion will be the price to be
                        paid by other purchasers of the Series D Preferred
                        Stock.

                        To the extent that any Lender is an existing shareholder
                        of Borrower, any Loans converted under this Loan
                        Facility into Series D Preferred Stock will not impact
                        the rights of participation such shareholders may
                        currently have as holders of Series B or Series C
                        Preferred Stock. In other words, Series D Preferred
                        Stock issuable upon conversion of Loans under this Loan
                        Facility will be in addition to shares of Series D
                        Preferred Stock that Lenders may otherwise be entitled
                        to purchase individually in a Series D Preferred Stock
                        sale.

Collateral:             None.

Indemnity:              Borrower will pay, indemnify and hold the Administrative
                        Agent, the Lenders and their affiliates and their
                        respective directors, officers, employees and agents,
                        and each other person controlling any of the foregoing
                        (within the meaning of either Section 15 of the
                        Securities Act of 1933, as amended, or Section 20 of the
                        Securities Exchange Act of 1934, as amended)
                        (collectively, the "Indemnified Parties") harmless from
                        and against any and all claims made by any person which
                        give rise to liabilities, obligations, losses, damages,
                        penalties, actions, judgments, suits, costs, expenses
                        and disbursements of any kind whatsoever against any of
                        the Indemnified Parties with respect to or arising out
                        of or in connection with the Loan Facility, any of the
                        Loan Documents or any investigation, litigation or
                        proceeding otherwise related to the transactions
                        contemplated hereby (all of the foregoing, collectively,
                        the "Indemnified Matters"); provided that the Borrower
                        shall have no liability hereunder with respect to
                        Indemnified Matters arising solely from the grossly
                        negligent acts or willful misconduct of any person
                        seeking indemnification.

Loan Documents:         Lenders and Administrative Agent will execute
                        and deliver to Borrower such documentation ("Loan
                        Documents") as Borrower may reasonably request in
                        connection with the Loan Facility, including (a) a loan
                        agreement and promissory note or notes, (b) to the
                        extent required by Silicon Valley Bank, an agreement
                        subordinating the rights of the Lenders to the rights of
                        Silicon Valley Bank (other than the Lenders' right to




<PAGE>   9

                        repayment in full prior to any other creditor of
                        Borrower out of the proceeds of Borrower's initial
                        public offering or next private equity financing) and
                        (c) documentation relating to the Warrants and
                        Conversion Option (which may include, among other
                        matters, standard representations, warranties and
                        covenants to Borrower related to the Warrants and
                        Conversion Option). All Loan Documents must be in form
                        and substance reasonably satisfactory to the
                        Administrative Agent and Lenders in their reasonable
                        discretion.

Representations;
 Covenants:             The Loan Documents will contain representations and
                        warranties and covenants customary for facilities
                        similar to the Loan Facility.

Events of Default:      The following shall constitute Events of
                        Default under the Loan Documents:

                        (a) Borrower fails to pay when and as required under the
                        Loan Documents any amounts owed to Lenders by Borrower
                        under the Loan Documents;

                        (b) Any representation or warranty by Borrower made in
                        any Loan Document, or which is contained in any
                        certificate, document or financial or other statement by
                        Borrower, furnished at any time under the Loan
                        Documents, is incorrect in any material respect on or as
                        of the date made or deemed made; provided, however, that
                        Borrower shall have 30 days after written notice thereof
                        is given to Borrower by Administrative Agent to correct
                        such inaccuracy;

                        (c) Borrower fails to perform or observe any covenant
                        contained in the Loan Documents, and such default shall
                        continue unremedied for a period of 30 days;

                        (d) Borrower becomes insolvent or if Borrower begins an
                        insolvency proceeding or an insolvency proceeding is
                        begun against Borrower and not dismissed or stayed
                        within 30 days; or

                        (e) Borrower defaults in the payment of any indebtedness
                        owed to Silicon Valley Bank or defaults in the
                        performance of any other covenant under such
                        indebtedness and, in either case, Silicon Valley Bank
                        accelerates the maturity of such indebtedness.

Rights upon default:    Upon the occurrence and during the
                        continuation of an Event of Default, Administrative
                        Agent, acting on behalf of Lenders, may exercise the
                        following rights and remedies: (a) declare the Total
                        Commitment to make loans under the Loan Facility
                        terminated, (b) declare all amounts owing and payable
                        under the Loan Documents (the "Obligations") to be
                        immediately due and payable, and (c) proceed to enforce
                        payment or



<PAGE>   10

                        performance of the Obligations in such manner as they
                        may elect in accordance with applicable law.

Fees and Expenses:      Borrower will pay all reasonable
                        out-of-pocket expenses of Administrative Agent
                        (including fees and expenses of one counsel to Lenders)
                        incurred in connection with preparation of loan
                        documentation for the Loan Facility. Borrower will
                        reimburse Administrative Agent for all reasonable
                        out-of-pocket expenses incurred by Administrative Agent
                        in connection with the administration of the Loan
                        Facility or the enforcement, on behalf of the Lenders,
                        of the Lenders' rights thereunder (including reasonable
                        legal fees). No commitment fee will be payable by
                        Borrower.

Rights and Duties
 Of Administrative
 Agent:                 The Administrative Agent shall have authority to act on
                        behalf of the other Lenders and shall act as the sole
                        contact with Borrower with respect to the administration
                        of the Loan Facility, including, without limitation, for
                        purposes of receiving payments and notices under the
                        Loan Documents. No other Lender under the Loan Facility
                        shall contact Borrower with respect to the
                        administration of the Loan Facility.

                        The Loan Documents will contain customary agency
                        provisions, including the agreement of Lenders (i)
                        exculpating Administrative Agent from liability for
                        acting in such capacity and (ii) indemnifying
                        Administrative Agent for liabilities incurred in such
                        capacity (other than as a result of Administrative
                        Agent's own gross negligence or willful misconduct).
                        Administrative Agent will not be a fiduciary of Lenders.

                        Lenders will reimburse Administrative Agent for all
                        costs and expenses incurred in such capacity to the
                        extent not reimbursed by Borrower or out of interest
                        earnings on the agency account established and
                        maintained by Administrative Agent for purposes of
                        funding Loans. All earnings on such account not required
                        to be applied to reimbursement of expenses shall be for
                        the account of Administrative Agent. In addition, as
                        compensation for its agreement to serve in such
                        capacity, Administrative Agent shall be entitled to five
                        percent (5%) of all Warrants issued to Administrative
                        Agent in connection with the Loan Facility. (See
                        "Warrants" above.) Administrative Agent may transfer any
                        Warrants so received to its sole shareholder, Rob
                        Shurtleff. Any such Warrants will be in addition to
                        Warrants to which Rob Shurtleff may be entitled as a
                        Lender.

                        Administrative Agent shall not be required to take any
                        discretionary action under the Loan Documents without
                        the direction of Lenders holding in the aggregate Pro
                        Rata Shares of more than 50% (the "Majority Lenders").
                        No amendments or waivers of any provision or condition
                        under the Loan



<PAGE>   11

                        Documents shall be effective without the written consent
                        of the Majority Lenders, provided that no amendment or
                        waiver shall reduce the amount or extend the scheduled
                        date of maturity of the Loan Facility, reduce the stated
                        interest rate, increase the amount or extend the
                        expiration date of any Lender's Commitment under the
                        Loan Facility or affect the right of any Lender to
                        Warrants or the Conversion Option, in each case without
                        the written consent of all Lenders. No amendment that
                        would affect the rights or duties of Administrative
                        Agent shall be effective without the written consent of
                        Administrative Agent.

Other:                  Lenders will provide a statement to Borrower to
                        establish the liquidity of the members of the lending
                        syndicate. This information shall be kept confidential
                        by Borrower, provided that Borrower may disclose such
                        information to Silicon Valley Bank or, with the consent
                        of Lenders, to any other third parties inquiring about
                        the liquidity of Borrower, or as otherwise required by
                        law, regulation or governmental order.

                        Lenders shall not require an opinion letter of
                        Borrower's counsel.





<PAGE>   1

                                                                   EXHIBIT 10.26



                                                            FINANCIAL INNOVATORS


                                                                   [FINOVA LOGO]


                                                      FINOVA CAPITAL CORPORATION
                                                              10 WATERSIDE DRIVE
                                                       FARMINGTON, CT 06032-3065
                                                                  (860) 676-1818



                       MASTER LOAN AND SECURITY AGREEMENT

       Master Loan and Security Agreement No. S7410 Dated August 23, 1999


FINOVA Capital Corporation ("we," "us" or "FINOVA"), having its principal place
of business at 1850 North Central Avenue, Phoenix, Arizona 85004 is willing to
make a loan (the "Loan") to InterNAP Network Services Corporation ("you" or
"Borrower"), having its principal place of business at Two Union Square, 601
Union Street, Suite 1000, Seattle, WA 98101-4064, in one or more advances made
from time to time (individually, an "Advance" and collectively, the "Advances"),
in the aggregate principal amount of up to Five Million & 00/100 Dollars
($5,000,000.00), under the terms and conditions contained in this Master Loan
and Security Agreement (this "Master Agreement"). The entire Loan will be "cross
collateralized" and secured by the collateral (the "Collateral") described in
each schedule (individually, a "Schedule" and collectively, "Schedules") which
will be executed in connection with each Advance and the related Note (as
hereinafter defined). The Collateral includes the Equipment hereinafter
described and
 any and all replacement parts, additions, accessories and
accessions that you may add to the Equipment, as well as all replacements and
substitutions of the Equipment and all proceeds of the Equipment, including,
without limitation, insurance proceeds. We may treat any Schedule as a separate
loan and security agreement containing all of the provisions of this Master
Agreement.

         1. THE CREDIT

            (a) ADVANCES. Each Advance shall be evidenced by and the specific
terms applicable thereto set forth in a Note and related Schedule. All of the
Notes and Schedules, taken together, will evidence the entire Loan. We will only
make the Loan to you if all the conditions in this Master Agreement have been
met to our satisfaction. We will rely on your representations and warranties
contained in this Master Agreement, in making the Loan. The terms of this Master
Agreement will each apply to the entire Loan.

            (b) USE OF PROCEEDS. The proceeds of the Advances will be used
solely to reimburse you for your payment of the purchase price for equipment
which is reasonably satisfactory to us and which is described in the applicable
Schedule ("Equipment"). If you have not yet paid for the Equipment (but the same
is otherwise satisfactory to us), the proceeds of the Advance will be paid by us
directly to the supplier (which you have chosen) to pay the purchase price of
the Equipment.

            (c) NOTES. Your obligation to repay the Advance and to pay interest
thereon will be evidenced by separate secured promissory notes (individually, a
"Note" and collectively, the



<PAGE>   2

"Notes"). Each Note will be dated the date of the Schedule to which the Advance
evidenced by the Note is related. The related Schedule will be deemed to be part
of the Note.

            (d) TERM. The term ("Term") of each Schedule (and the related
Advance) begins upon the date that we make payment for the Collateral covered
under the Schedule (the "Closing Date"). The Term continues until you fully
perform all of your obligations under this Master Agreement, each related
Schedule and the related Note(s).

            (e) LOAN ACCOUNT. We will keep a loan account on our books and
records for the Loan. We will record all payments of principal and interest in
the loan account. Unless the entries in the loan account are clearly in error,
the loan account will definitively indicate the outstanding principal balance
and accrued interest on the Loan.

            (f) PAYMENTS. The scheduled payments of principal and interest (the
"Payments") are indicated on and due and payable in accordance with the terms of
the applicable Note and Schedule. The Payments are payable in advance and
otherwise on the dates and in the amounts set forth on the applicable Schedule.

            (g) FIRST PAYMENT AND SUBSEQUENT PAYMENTS. The first Payment under a
Note and Advance ("First Payment") is due at the beginning of its Term and
shall, at our option, either be deducted from the proceeds of the Advance or
paid directly to us by you. Subsequent Payments are due on the thirtieth (30th)
day of each successive month as set forth on the Schedule until you pay to us in
full all of the Payments and any other fees, costs, charges and expenses that
you owe us.

            (h) INTEREST. Prior to Maturity of an Advance, you will pay us
interest on the Advance at the interest rate indicated in the applicable
Schedule (the "Interest Rate"). "Maturity" means the scheduled maturity or any
earlier date on which we accelerate the Loan. The Payment amount indicated in
the Schedule includes interest at the applicable Interest Rate. Interest is
calculated in advance using a year of 360 days with twelve months of 30 days.

            (i) INTERIM INTEREST PAYMENT. If an Advance is made on a day other
than the thirtieth (30th) or thirty-first (31st) day of a month, you will also
pay to us, together with the First Payment, interest on the Advance at the
applicable interest rate for the period from the date the Advance is made until
the twenty-ninth (29th) day of the month in which the Advance is made. If an
Advance is made on the thirty-first (31st) day of a month, you will also pay to
us, together with the First Payment, interest on the Advance at the applicable
interest rate for the period from the date the Advance is made until the
twenty-ninth (29th) day of the following month. If an Advance is made on the
thirtieth (30th) day of a month, no interim interest will be due.

            (j) DEFAULT INTEREST RATE. After Maturity of the Loan or any
Advance, you will pay us interest thereon at a rate of three (3%) percent per
year above the applicable Interest Rate. This is referred to as the "Default
Rate."

            (k) USURY. You and we intend to obey the law. If the Interest Rate
charged would exceed the maximum legal rate, you will only have to pay the
maximum legal rate. You do not have to pay any excess interest over and above
the maximum legal rate of interest. However, if it later becomes legal for you
to pay all or part of any excess interest, you will then pay it to us upon our
request.

            (l) PAYMENT DETAILS. You will make all Payments due under this
Master Agreement by 3:00 P.M., Connecticut time, on the day they are due. You
will make all Payments in US Dollars (US$) in immediately available funds. We do
not have to make or give "presentment, demand, protest or notice" to get paid.
You waive "presentment, demand, protest and notice."

            (m) APPLICATION OF PAYMENTS. Each Payment under this Master
Agreement is to be applied in the following order: first, to any fees, costs,
expenses and charges




                                       2

<PAGE>   3

you may owe us; second, to any interest due; and third to the principal balance.

            (n) PREPAYMENT. You may prepay the Loan as specifically permitted by
Exhibit B to the applicable Schedule.

            (o) NO SETOFFS. Your obligation to pay us all Payments is absolute
and unconditional. You are not excused from making the Payments, in full, for
any reason. You agree that you have no defense for failure to make the Payments
and you will not make any counterclaims or setoffs to avoid making the Payments.

2. SECURITY INTEREST

            (a) You grant us a first and only lien on and security interest in
the Collateral. The Collateral secures the full and timely payment and
performance of all of your now existing or hereafter arising indebtedness,
liabilities and obligations to us, whether under this Master Agreement, the
Schedules, the Notes and any other agreement, loan or lease that you may at any
time or times have with us or otherwise (collectively, the "Obligations"). You
also grant us a security interest in any additional collateral identified in any
Schedule. Any additional collateral is considered to be "Collateral" and it
secures all of the Obligations.

            (b) In the event of a default, if we request, you will put labels
supplied by us stating "PROPERTY SUBJECT TO A SECURITY INTEREST HELD BY FINOVA
CAPITAL CORPORATION" on the Collateral where they are clearly visible.

            (c) You give us permission to add to this Master Agreement or any
Schedule the serial numbers and other information about the Collateral.

            (d) You give us permission to file this Master Agreement or Uniform
Commercial Code financing statements, at your expense, in order to perfect our
security interest in the Collateral. You also give us permission to sign your
name on the Uniform Commercial Code financing statements where this is permitted
by law.

            (e) You will pay our costs and reasonable fees for documentation,
closing, administration and termination of this Master Agreement, the Notes and
Schedules. These fees include such items as reasonable attorneys fees and
expenses incurred in preparing this Master Agreement and all agreements,
instruments and documents executed in connection herewith, and all amendments,
supplements and waivers hereto and thereto, as well as due diligence searches
and fees for preparing and filing UCC terminations and releases. You will also
pay any filing, recording or stamp fees or taxes resulting from filing this
Master Agreement or Uniform Commercial Code financing statements.

            (f) At your expense, you will defend our first priority security
interest in the Collateral against, and keep the Collateral free of, any legal
process, liens, other security interests, attachments, levies and executions,
except for Permitted Liens. You will give us immediate written notice of any
legal process, liens, attachments, levies or executions, and you will indemnify
us against any loss that results to us from these causes.

            (g) You will notify us at least 15 days before you change the
address of your principal executive office or principal place of business. Your
principal executive office and principal place of business are set forth at the
beginning of this Master Agreement.

            (h) You will promptly sign and return additional documents that we
may reasonably request in order to protect our first priority security interest
in the Collateral.

            (i) Except as set forth in a Schedule, the Collateral is personal
property and will remain personal property. Except as set forth in a Schedule,
you will not incorporate it into real estate and will not do anything that will
cause the Collateral to become part of real estate or a fixture.




                                       3

<PAGE>   4

3. CONDITIONS OF LENDING

            (a) See our Commitment Letter to you dated March 22, 1999 (the
"Commitment Letter"), which you and we consider to be a part of this Master
Agreement. The terms and conditions of the Commitment Letter continue following
the making of the first Advance, including, without limitation, conditions to
the Loan. However, if there is a conflict between the terms and conditions of
this Master Agreement, any Schedule or any Note and the terms and conditions of
the Commitment Letter, then you and we agree that the terms and conditions of
this Master Agreement, the Schedules and the Notes control over the Commitment
Letter terms and conditions.

            (b) Before we disburse any proceeds of any Advance, we also require
the following:

                     (i) That no payment is past due to us under any other
agreement, loan or lease that you or any guarantor have with us.

                     (ii) That you are complying with all terms of this Master
Agreement, the Schedules and the Notes and there are no defaults hereunder or
thereunder.

                     (iii) That we have received all the documents we reasonably
requested, including the signed Schedule and Note.

                     (iv) That there has been no material adverse change in your
financial condition, business or operations, or that of any guarantor, from the
financial condition that you or any guarantor have disclosed to us.

                     (v) All conditions contained in the Commitment Letter have
been satisfied.

4. REPRESENTATIONS AND WARRANTIES

You represent and warrant to us as follows:

            (a) You and each guarantor are duly organized, existing and in good
standing wherever you or it are required by law to be so qualified and where the
failure to so qualify would have a material adverse effect. You and each
guarantor have full power and authority to execute, deliver and carry out the
provisions of this Master Agreement, the Schedules and the Notes and to borrow
hereunder and thereunder. This Master Agreement, the Schedules and the Notes are
validly executed and delivered by you and the guarantors and are the legal,
valid and binding obligations of you and the guarantors, each enforceable in
accordance with its terms.

            (b) Neither you nor any guarantor is a defendant under any material
litigation and there are no judgments outstanding against you or any guarantor.

            (c) All of the Equipment has been delivered to you and installed at
the location set forth on the Schedule and you have accepted all of the
Equipment for all purposes of this Master Agreement.

            (d) You have good title to all of your assets, including, without
limitation, the Collateral, and in the case of the Collateral, free and clear of
all security interests, liens and other encumbrances, except for Permitted
Liens. Upon filing of UCC-1 financing statements in all applicable filing
offices, we will be granted a first and only perfected lien on and security
interest in all of the Collateral. There are no other security interests, liens
or encumbrances covering the Collateral, except for Permitted Liens. For
purposes of this Master Agreement, "Permitted Liens" means (i) liens for taxes,
assessments and other governmental charges or levies or the claims or demands of
landlords, carriers, warehousemen, mechanics laborers, materialmen and other
like persons arising by operation of law in the ordinary course of business for
sums which are not yet due and payable; (ii) liens to secure the payment of sums
which are not yet due and payable incurred in the ordinary course of business
with respect to workers' compensation, unemployment insurance or other social
security benefits or obligations; (iii) liens in favor of FINOVA; and (iv) liens
in favor of customs and revenue authorities arising as a matter of law to secure
payments of customs duties in connection with the importation of goods, which
liens are limited to the extent that such assets are in the possession of
customs authorities.



                                       4

<PAGE>   5

            (e) You have supplied us with information about the Collateral. You
promise to us that the amount of our Advance as to each item of Equipment is no
more than the fair and usual price for this kind of Equipment, taking into
account any discounts, rebates and allowances that you or any affiliate of yours
may have been given for the Equipment.

            (f) The Collateral is located at the premises set forth on the
Schedule.

            (g) All financial information and other information that you or any
guarantor have given us is true and complete as of the date given. You or any
guarantor have not failed to tell us anything that would make the financial
information not misleading. There has been no material adverse change in your
financial condition, business or operations, or the financial condition of any
guarantor, from the financial condition that you disclosed to us.

            (h) To your knowledge, you have complied with all "environmental
laws" and will continue to comply with all "environmental laws." No "hazardous
substances" are used, generated, treated, stored or disposed of by you or at
your properties except in compliance with all environmental laws. "Environmental
laws" mean all federal, state or local environmental laws and regulations,
including the following laws: CERCLA, RCRA, Hazardous Materials Transport Act
and The Federal Water Pollution Control Act. "Hazardous substances" means all
hazardous or toxic wastes, materials or substances, as defined in the
environmental laws, as well as oil, flammable substances, asbestos that is or
could become friable, urea formaldehyde insulation, polychlorinated biphenyls
and radon gas.

5. COVENANTS

You agree to do the following things (or not to do the following things if so
stated) until full payment of all amounts due to us under this Master Agreement,
the Schedules and the Notes:

            (a) CARE, USE, LOCATION, TRANSFER, ENCUMBRANCE AND ALTERATION OF THE
COLLATERAL.

                     (i) You will make sure that the Collateral is maintained in
good operating condition, and that it is serviced, repaired and overhauled when
this is necessary to keep the Collateral in good operating condition. All
maintenance must be done according to the Supplier's or Manufacturer's
requirements or recommendations. All maintenance must also comply with any legal
or regulatory requirements.

                     (ii) You will maintain service logs for the Collateral, if
applicable, and permit us or our agents to inspect the Collateral, the service
logs and service reports upon prior notice to you (except in a case of an event
of default, in which case no notice is due). You give us and our agents
permission to make copies of the service logs and service reports.

                     (iii) We will give you prior notice if we, or our agents,
want to inspect the Collateral or the service logs or service reports. We may
inspect it during regular business hours and not more than once a year unless an
Event of Default has occurred and is continuing. If we find during an inspection
that you are not complying with this Master Agreement or if you are otherwise in
default under this Master Agreement, you (and not us) will pay our reasonable
travel, meals and lodging costs, our salary costs, and our costs and fees and
those of our agents for reinspection. You will promptly cure any problems with
the Collateral that are discovered during our inspections.

                     (iv) You will use the Collateral only for business
purposes. You will obey all legal and regulatory requirements in your use of the
Collateral.

                     (v) You will make all additions, modifications and
improvements to the Collateral that are required by law or government
regulation. Otherwise, you will not alter the Collateral without our written
permission. You will replace all worn, lost, stolen or destroyed parts of the
Collateral with replacement parts that are as good



                                       5

<PAGE>   6

or better than the original parts. The new parts will become subject to our
security interest upon replacement.

                 (vi) You will not remove the Collateral from the location
indicated in the Schedule provided, however, that you may move the Collateral
presently located at such location to another location located in the
continental United States, but if and only if (a) you shall have given us not
less than thirty (30) days prior written notice of the actual move and a list of
all Collateral being so moved, (b) there is then no default hereunder, (c) if
the new location is leased, prior to such move, we shall have received a
Landlord Waiver to be in form and substance satisfactory to us, (d) we shall
have been granted a first perfected lien and security interest on such moved
Collateral and there shall be no other liens covering such Collateral (other
than Permitted Liens), (e) you shall have executed and delivered to us all such
agreements, instruments and documents reasonably requested by us in connection
therewith, and (f) we shall have received satisfactory results of all due
diligence searches (including, without limitation, environmental audits).

                 You may, however, move small items of Collateral with an
aggregate total cost of $100,000 or less, without prior written notice to us. In
such event, however, you agree to provide us with a list every other month
throughout the term of a Schedule of what Collateral has been moved and
designate the location where said Collateral was moved from and to.

                 (vii) You have and will have good and merchantable title to all
of the Collateral.

                 (viii) You will not convey, assign, sell, mortgage, transfer,
encumber, pledge, hypothecate, grant a security interest in, grant options with
respect to, lease or otherwise dispose of all or any part of any interest
whatsoever in or to any or all of the Collateral, or any interest therein,
except for Permitted Liens.

            (b) YEAR 2000 COMPLIANT.

You represent, warrant and agree to take all action necessary, including, but
not limited to, due inquiry and due diligence with critical business partners to
assure that there will be no material adverse change to your business by reason
of the advent of the year 2000, including, without limitation, that all
computer-based systems, embedded microchips and other processing capabilities
effectively recognize and process all dates before and after December 31, 1999
("Y2K Compliant"). At our request, you shall provide to us assurance reasonably
acceptable to us that your computer-based systems, embedded microchips and other
processing capabilities are Y2K Compliant.

            (c) RISK OF LOSS.

                (i) You have the complete risk of loss or damage to the
Collateral. Loss or damage to the Collateral will not relieve you of your
obligation to make the Payments.

                (ii) If any Collateral is lost or damaged, you have two choices
although if you are in default under this Master Agreement, we and not you will
have the two options. The choices are:

                     (A) Repair or replace the damaged or lost Collateral so
that, once again, the Collateral is in good operating condition and we have a
perfected first priority security interest in it.

                     (B) Pay us the present value (as of the date of payment) of
the remaining Payments. We will calculate the present value using a discount
rate of five (5%) percent per year. Once you have paid us this amount and any
other amount that you may owe us, we will release our security interest in the
damaged or lost Collateral and you (or your insurer) may keep the Collateral for
salvage purposes, on an "AS IS, WHERE IS" basis and without any representation
or warranty whatsoever.

            (d) INSURANCE.

                (i) Until you have made all Payments to us under this Master
Agreement, the Schedules and the Notes and all Obligations have been satisfied
in full, you will keep the Collateral



                                       6

<PAGE>   7

insured. The amount of insurance, the coverage, and the insurance company must
comply with the requirements of a letter dated July 17, 1999 from our Risk
Management Department to you be.

                (ii) If you do not provide us with written evidence of
insurance that complies with such requirements,, we may buy the insurance
ourselves, at your expense. You will promptly pay us the cost of this insurance.
We have no obligation to purchase any insurance. Any insurance that we purchase
will be our insurance, and not yours, and we may insure the Collateral beyond
the date of satisfaction of the Obligations.

                (iii) Insurance proceeds may be used to repair or replace
damaged or lost Collateral or to pay us the present value of the Payments, as
provided above.

                (iv) Upon the occurrence of an Event of Default, you appoint us
as your "attorney-in-fact" to make claims under the insurance policies, to
receive payments under the insurance policies, and to endorse your name on all
documents, checks or drafts relating to insurance claims for Collateral.

            (e) TAXES.

                (i) You will pay all sales, use, excise, stamp, documentary and
ad valorum taxes, license, recording and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession, use, lease
or rental of the Collateral or on the Loan.

                (ii) You will pay all taxes (other than our federal or state
net income taxes) imposed on you or on us regarding the Payments.

                (iii) You will reimburse us for any of these taxes that we pay
or advance.

                (iv) You will file and pay for any personal property taxes on
the Collateral.

            (f) INFORMATION SUPPLIED BY YOU AND ANY GUARANTOR.

                (i) During the Term you will promptly provide us with copies of
any current, quarterly and annual reports and all proxy (or information)
statements you or any guarantor file with the Securities and Exchange Commission
("SEC").

                (ii) You and any guarantor will also provide us with the
following financial statements:

                     (A) Quarterly balance sheet and statements of earnings and
cash flow - within 45 days after the end of your first three fiscal quarters in
each fiscal year. These will be certified by the chief financial officer.

                     (B) Annual balance sheet and statements of earnings and
cash flow - within 90 days after the end of each fiscal year. These will be
audited by independent auditors reasonably acceptable to us. Their audit report
must be unqualified.

All financial statements will be prepared according to generally accepted
accounting principles, consistently applied. All financial statements and SEC
filings that you or any guarantor provide us will be true and complete. They
will not fail to tell us anything that would make them not misleading.

                 (iii) At the same time you deliver the financial statements
described in paragraph 5(f)(ii)(A), you will also provide us with a certificate
of your chief financial officer stating that no default exists, or, if he cannot
certify this because a default does exist, he must specify in reasonable detail
the nature of the default.

                 (iv) The audited financial statements described in paragraph
5(f)(ii)(B), must be accompanied by a certificate executed by your chief
financial officer stating that no default exists, or, if it cannot certify this
because a default does exist, it must specify in reasonable detail the nature of
the default.

6. DEFAULTS

            (a) DEFAULTS. You are in default if any of the following happens:



                                       7

<PAGE>   8

                (i) You do not pay us, within 5 days of when it is due, any
Payment or other payment that you owe us under this Master Agreement, any
Schedule or any Note or that you owe under any other agreement, loan, lease or
other financial arrangement that you have with us.

                (ii) Any of the financial information that you give us is not
true and complete as of the date it is given, or you fail to tell us anything
that would make the financial information not misleading.

                (iii) You do something you are not permitted to do, or you fail
to do anything that is required of you, under this Master Agreement, any
Schedule and such breach continues uncured for a period of thirty (30) days
after we have given written notice of such default to you; provided that such
cure period shall not apply to any covenant relating to insurance covering the
Collateral.

                (iv) You do something you are not permitted to do or you fail
to do anything that is required of you under any other lease, loan or other
financial arrangement that you have with us and such action or failure continues
uncured beyond the time period, if any, provided therein.

                (v) An event of default occurs for any other lease, loan or
obligation of yours (or any guarantor) that exceeds $100,000 in the aggregate.

                (vi) You or any guarantor file bankruptcy, or involuntary
bankruptcy is filed against you or any guarantor and such involuntary bankruptcy
is not dismissed within sixty (60) days.

                (vii) You or any guarantor are subject to any other insolvency
proceeding other than bankruptcy (for example, a receivership action or an
assignment for the benefit of creditors) and such proceeding that is involuntary
is not dismissed within sixty (60) days.

                (viii) Without our permission, which permission shall not be
unreasonably withheld, you or any guarantor sell all or a substantial part of
its assets, merge or consolidate, or a majority of your voting stock or
interests (or any guarantor's voting stock or interests) is transferred.

                 (ix) There is a material adverse change in your financial
condition, business or operations, or that of any guarantor.

            (b) REMEDIES, DEFAULT INTEREST, LATE FEES.

                If you are in default and the default is continuing, we may
exercise one or more of our "remedies." Each of our remedies is independent. We
may exercise any of our remedies, all of our remedies or none of our remedies.
We may exercise them in any order we choose. Our exercise of any remedy will not
prevent us from exercising any other remedy or be an "election of remedies." If
we do not exercise a remedy, or if we delay in exercising a remedy, this does
not mean that we are forgiving your default or that we are giving up our right
to exercise the remedy. Our remedies allow us to do one or more of the
following:

                (i) "Accelerate" the Loan balance under any or all Notes. This
means that we may require you to immediately pay us the entire outstanding
principal balance of the entire Loan.

                (ii) Require you to immediately pay us all amounts that you are
required to pay us for the entire Term of any other agreements, loans, leases or
financial arrangements that you have with us.

                (iii) Sue you for the entire outstanding principal balance of
the Loan and all other amounts you owe us (including, without limitation, all
accrued and unpaid interest, including interest at the Default Rate),
outstanding fees, costs, expenses and charges, plus all prepayment premiums.

                (iv) Require you at your expense to assemble the Collateral at
a location we request in the United States of America.

                (v) Exercise any remedy under the Uniform Commercial Code or
otherwise permitted by law including to the extent permitted



                                       8

<PAGE>   9

retaking and removing the Collateral. If required, we may disconnect and
separate the Collateral from your other property. You will not be entitled to
any damages resulting from removal or repossession of the Collateral. We may
use, ship, store, repair or lease any Collateral that we repossess. We may sell
any repossessed Collateral at private or public sale. You give us permission to
show the Collateral to buyers at your location free of charge during normal
business hours. If we do this, we do not have to remove the Collateral from your
location. If we repossess the Collateral and sell it, we will give you credit
for the net sale price, after subtracting our costs of repossessing and selling
the Collateral. If we rent the Collateral to somebody else, we will give you
credit for the net rent received, after subtracting our costs of repossessing
and renting the Collateral, but the credit will be discounted to present value
using a discount rate equal to the Default Rate. The credit will be applied
against what you owe us under this Master Agreement, the Schedules, the Notes
and any other agreements, loans, leases and other financial arrangements that
you have with us. If the credit exceeds the amount you owe under this Master
Agreement, the Schedule, the Notes and any other agreements, loans, leases or
financial arrangements that you have with us, we will refund the amount of the
excess to you.

                (vi) We will have all of our rights and remedies under this
Master Agreement, the Notes, the Schedules and all agreements, instruments and
documents executed in connection herewith and therewith and all of our rights
and remedies under applicable law, whether as a secured party or otherwise.

                (vii) Return conditions:

                      (A) Following a default, at our request you will return
the Collateral, freight and insurance prepaid by you, to us at a location we
request in the United States of America. It will be returned in good operating
condition, as required by Section 5 above. The Collateral will not be subject to
any liens when it is returned.

                      (B) You will pack or crate the Collateral for shipping in
the original containers, or comparable ones. You will do this carefully and
follow all recommendations of the Supplier and the Manufacturer as to packing or
crating.

                      (C) You will also return to us the plans, specifications,
operating manuals, software, documentation, discs, warranties and other
documents furnished by the Manufacturer or Supplier. You will also return to us
all service logs and service reports, as well as all written materials that you
may have concerning the maintenance and operation of the Collateral.

                      (D) At our request, you will provide us with up to 60 days
free storage of the Collateral at your location, and will let us (or our agent)
have access to the Collateral in order to inspect it, display it to others for
purchase and sell it.

                     (E) You will pay us what it costs us to repair the
Collateral if you do not return it in the required condition.

                 (viii) You will also pay us the following:

                     (A) All our expenses of enforcing our remedies. This
includes all our expenses to repossess, store, ship, repair and sell the
Collateral.

                     (B) Our reasonable attorney's fees and expenses.

                     (C) Default interest on everything you owe us from the date
of your default to the date on which we are paid in full at the Default Rate.

                     (D) A premium in the amount equal to the prepayment premium
as set forth in Exhibit B to the applicable Schedule.

            (ix) So long as you are not accruing interest at the Default
Interest Rate, you will pay us a late fee whenever you pay any amount that you
owe us more than ten (10) days after it is due. You will pay the late fee within
one month after the late Payment was originally due. The late fee will be five
(5%) percent of the late Payment. If this exceeds the highest legal amount we
can charge you, you will only be required to pay the highest legal amount. The
late fee is intended to



                                       9

<PAGE>   10

reimburse us for our collection costs that are caused by late Payment. Subject
to the first sentence of this paragraph, it is charged in addition to all other
amounts you are required to pay us, including Default Interest.

        (x) You realize that the damages we could suffer as a result of your
default are very uncertain. This is why we have agreed with you in advance on
the Default Rate to be used in calculating the payments you will owe us if you
default. You agree that, for these reasons, the payments you will owe us if you
default are "agreed" or "liquidated" damages. You understand that these payments
are not "penalties" or "forfeitures."

7. PERFORMING YOUR OBLIGATIONS IF YOU DO NOT

If you do not perform one or more of your obligations under this Master
Agreement or a Schedule or Note, we may perform it for you. We will notify you
in writing at least ten (10) days before we do this. We do not have to perform
any of your obligations for you. If we do choose to perform them, you will pay
us all of our expenses to perform the obligations. You will also reimburse us
for any money that we advance to perform your obligations, together with
interest at the Default Rate on that amount. These will be additional "Payments"
that you will owe us and you will pay them at the same time that your next
Payment is due.

8. INDEMNITY

(a) You will indemnify us, defend us and hold us harmless from and against any
and all claims, expenses and attorney's fees concerning or arising from the
Collateral, this Master Agreement, any Schedule or Note, or your breach of any
representation, warranty or covenant. It includes, without limitation, any
claims, losses or charges concerning, arising out of or in connection with the
manufacture, selection, delivery, possession, use, operation or return of the
Collateral and any claims, losses or damages concerning, arising out of or in
connection with this Master Agreement, any Schedule or the Notes.

            (b) This obligation of yours to indemnify us continues even after
the Term is over.

9. MISCELLANEOUS

            (a) ASSIGNMENT.

WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS MASTER AGREEMENT, ANY
SCHEDULE, ANY NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE PERSON TO WHOM
WE ASSIGN IS CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT HAVE ANY OF OUR
OBLIGATIONS UNDER THIS MASTER AGREEMENT. YOU WILL NOT BE ABLE TO RAISE ANY
DEFENSE, COUNTERCLAIM OR OFFSET AGAINST THE ASSIGNEE. NOTWITHSTANDING ANY SUCH
ASSIGNMENT OR GRANTING OF A SECURITY INTEREST, WE WILL CONTINUE TO BE LIABLE FOR
ALL OF OUR OBLIGATIONS UNDER THIS MASTER AGREEMENT.

UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO
LEASE OR RENT THE COLLATERAL OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR
WRITTEN PERMISSION.

            (b) ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE,
SERVICE OF PROCESS, WAIVER OF JURY TRIAL.

THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.

THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF
ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN WHICH OUR
OFFICE IS LOCATED IN



                                       10

<PAGE>   11

WHICH FINAL APPROVAL OF THE TERMS OR CONDITIONS OF THIS MASTER AGREEMENT
OCCURRED AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WILL BE ORDERED.
HOWEVER, IF THIS MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA LAW, IT WILL
INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED.

YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA
COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL
JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT MARICOPA COUNTY,
ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE."

WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH PROCESS
IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR ADDRESS
INDICATED AFTER YOUR SIGNATURE BELOW.

YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.

            (c) NOTICES. Your address for notices is your address set forth
below your name on the signature page of this Master Agreement. We may give you
written notice in person, by mail, by overnight delivery service, or by fax.
Mail notice will be effective three (3) days after we deposit it with the U.S.
Postal Service. Overnight delivery notice requires a receipt and tracking
number. Fax notice requires a receipt from the sending machine showing that it
has been sent to your fax number and received.

Our address for notices is our address set forth below our name on the signature
page of this Master Agreement, with Attention: Director, Contract
Administration. You will also give copies of all notices to us at our principal
place of business at the address set forth in the opening paragraph of this
Master Agreement, with attention to Vice President, Law Department. You may give
us notice the same way that we may give you notice.

            (d) GENERAL

This Master Agreement benefits our successors and assigns. This Master Agreement
benefits only those successors and assigns of yours that we have approved in
writing.

This Master Agreement binds your successors and assigns. This Master Agreement
binds only those successors and assigns of ours that clearly assume our
obligations in writing.

TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT

This Master Agreement, all of the Schedules and the Notes and the Commitment
Letter are together the entire agreement between you and us concerning the
Collateral.

Only an employee of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Master Agreement or any Schedule or Note on our behalf,
and this must be in writing. Only he or she may give up any of our rights, and
this must be in writing. If more than one person is the Borrower under this
Master Agreement, then each of you is jointly and severally liable for your
obligations under this Master Agreement and all Schedules and Notes. This Master
Agreement is only for your benefit and for our benefit, as well as our
successors and assigns. It is not intended to benefit any other person.

If any provision in this Master Agreement is unenforceable, then that provision
must be deleted. Only unenforceable provisions are to be deleted. The rest of
this Master Agreement will remain as written.

We may make press releases and publish a tombstone announcing this transaction
and its 




                                       11

<PAGE>   12

total amount. You may publicize this transaction with our prior written consent,
which consent will not be unreasonably withheld.


LENDER:                                        BORROWER:

FINOVA CAPITAL CORPORATION                     INTERNAP NETWORK SERVICES CORP.
10 WATERSIDE DRIVE                             2 UNION SQUARE BUILDING, 
FARMINGTON, CT  06032-3065                     601 UNION STREET
                                               SEATTLE, WA  98101

BY: /s/ LINDA A. MOSCHITTO                    BY:  /s/ JEFF ARROWSMITH
   ------------------------------------            ----------------------------

PRINTED NAME: Linda A. Moschitto              PRINTED NAME: Jeff Arrowsmith
              -------------------------                     -------------------

TITLE: Director-Contract Administration        TITLE: Director of Finance
       --------------------------------               -------------------------

FAX NUMBER: (860) 676-1814                     Taxpayer ID# 91-1896926
            ---------------------------                     -------------------

DATE ACCEPTED:  September 1, 1999              FAX NUMBER:  206 264-1833
                -----------------------                     -------------------
 
                                               BY:  /s/ PAUL E. MCBRIDE
                                                    ----------------------------
 
                                               PRINTED NAME: Paul E. McBride 
                                                             -------------------

                                               TITLE: VP Finance & Admin/CFO
                                                       -------------------------

                                                DATED:
                                                      --------------------------

STATE OF
         ---------------------

COUNTY OF
         ---------------------


I acknowledge that ___________________, who stated that he/she is
_______________ of the Borrower named above, signed this Master Loan and
Security Agreement in my presence today: _______________. He/She acknowledged to
me that his/her signature on this Master Loan and Security Agreement was
authorized by a valid resolution or other valid authorization from Borrower's
board of directors or other governing body.


                                               --------------------------------
                                               Notary Public

                                                             [SEAL]




                                       12

<PAGE>   13
                             PROMISSORY NOTE NO. 01


$997,746.59

                                                            --------------, ---



INTERNAP NETWORK SERVICES CORPORATION, a ____________ corporation ("you"),
promise to pay to the order of FINOVA CAPITAL CORPORATION ("we," "us" or
"FINOVA") the principal amount of NINE HUNDRED NINETY-SEVEN THOUSAND SEVEN
HUNDRED FORTY-SIX AND 59/100 Dollars ($997,746.59), together with interest on
the unpaid principal balance at the interest rate per annum and on the dates and
as otherwise provided in the "Master Agreement" and "Schedule" referred to
below.

If the interest rate charged would exceed the maximum legal rate, you will only
have to pay the maximum legal rate. You do not have to pay any excess interest
over and above the maximum legal rate of interest. However, if it later becomes
legal for you to pay all or part of any excess interest, you will then pay it to
us upon our request.

You will make all payments in US Dollars at our offices at 10 Waterside Drive,
Farmington, Connecticut 06032-3065, or to another address that we request in
writing. All payments will be made in immediately available funds.

This Note is executed in connection with a Master Loan and Security Agreement
dated August 23, 1999 (the "Master Agreement"), between you and us. This Note is
one of the Notes referred to in the Master Agreement, is secured as provided
therein, and by all collateral set forth on Exhibit A to the attached Schedule
(the "Schedule"), dated the same date as this Note and made a part hereof, is
entitled to all of the benefits of the Master Agreement and may be prepaid only
as provided in Exhibit B to the Schedule. All of the terms contained in the
Schedule are incorporated in full herein as if set forth in its entirety. This
Note may be accelerated by us upon a payment default or upon another default
under the Master Agreement or any agreement, instrument or document executed in
connection herewith or therewith.

TIME IS OF THE ESSENCE.

So long as you are not accruing interest at the Default Interest Rate, if you do
not make a payment within ten (10) days after the date it is due, you will also
pay us a late charge of five percent (5%) of the amount past due. Your interest
rate will be increased by three percent (3%) per annum, over and above your
regular interest rate ("Default Interest Rate") if payment is not made at the
scheduled or accelerated maturity of this Note. You will also pay all of our
costs of collection, including our reasonable attorney's fees and expenses. If
we accelerate this Note, you will also owe us a prepayment premium, as set forth
in Exhibit B to the Schedule.

You waive diligence, presentment, formalities of demand, protest or notice of
nonpayment or dishonor or any other notice as to this Note.



                                        1

<PAGE>   14

THIS NOTE IS GOVERNED BY THE SUBSTANTIVE LAWS (AND NOT THE CONFLICT OF LAWS
PROVISIONS) OF THE STATE OF ARIZONA, THE STATE IN WHICH OUR OFFICE IS LOCATED IN
AND FROM WHICH FINAL APPROVAL OF THE TERMS AND CONDITIONS OF THIS NOTE OCCURRED
AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WAS ORDERED. YOU CONSENT TO THE
JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF ARIZONA. YOU
WAIVE TRIAL BY JURY.

You represent to us that the proceeds of the Loan evidenced by this Note are
being used to finance (or refinance) your purchase of the Collateral described
in the Schedule, and that the Collateral will only be used for business
purposes.



INTERNAP NETWORK SERVICES CORPORATION                   ATTEST:

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

                                                        -----------------------
                                                        [Assistant] Secretary




                                       2

<PAGE>   15

                    SCHEDULE NO. 01 TO PROMISSORY NOTE NO. 01
                                       AND
                       MASTER LOAN AND SECURITY AGREEMENT



Schedule No. 01, dated __________, 1999, (this "Schedule") to PROMISSORY NOTE
NO. 01 and MASTER LOAN AND SECURITY AGREEMENT dated as of August 23, 1999 (the
"Master Agreement") between INTERNAP NETWORK SERVICES CORPORATION, a
________corporation, with its executive office and principal place of business
at Two Union Square Building, 601 Union Street, Suite 1000, Seattle, WA 98101
("you"); and FINOVA CAPITAL CORPORATION, a Delaware corporation, with its
executive office and principal place of business at 1850 North Central Avenue,
Phoenix, Arizona 85004 ("we," "us", or "FINOVA").

1. Obligation to pay. You are presently borrowing NINE HUNDRED NINETY-SEVEN
THOUSAND SEVEN HUNDRED FORTY-SIX AND 59/100 DOLLARS from us. This borrowing is
evidenced by your promissory note dated the same date as this Schedule in the
amount of NINE HUNDRED NINETY-SEVEN THOUSAND SEVEN HUNDRED FORTY-SIX AND 59/100
Dollars ($997,746.59) (the "Note") to which this Schedule is attached and made a
part thereof.

2. Payments (Subject to adjustment in Paragraph 3). You will repay the Loan,
together with interest at the interest rate described below, in forty-eight (48)
consecutive monthly payments of principal and interest as follows: Forty-eight
(48) consecutive monthly payments of principal and interest, each in the amount
of $26,250.71. These payments will be adjusted two (2) business days prior to
the date we make the Loan to you as set forth in Paragraph 3.

The first (1st) and forty-eighth (48th) monthly payments of principal and
interest ("First Payment") will be due on the date that we make the Loan to you.
Subsequent payments of principal and interest are due and payable on the
thirtieth (30th) day of each and every month thereafter through and including
the date upon which the Final Payment is scheduled to be due (the "Maturity
Date"). Any remaining amount that you owe us is due on the Maturity Date. The
First Monthly Payment of principal and interest (as well as any interim interest
referred to below) shall, at our option, either be withheld from the proceeds of
the Loan or paid directly to us by you.

If the Loan is made on a day other than the thirtieth (30th) or thirty-first
(31st) day of a month, you will also pay to us, together with the First Payment,
interest on the Loan at the interest rate for the period from the date we make
the Loan to you until the twenty-ninth (29th) day of the same month. If the Loan
is made on the thirty-first (31st) day of a month, you will also pay to us,
together with the First Payment, interest on the Loan at the interest rate for
the period from the date we make the Loan to you until the twenty-ninth (29th)
day of the following month. If the Loan is made on the thirtieth (30th) day of a
month, no such interim interest will be due.

3. Interest; Indexing. The interest rate in your payments shown above is
calculated at the rate of 7.47% per annum plus an "Index Rate" of 5.64%. The
Index Rate means the highest yield, as published in The Wall Street Journal of
4-year United States Treasury Notes. The Index



                                       3

<PAGE>   16

Rate of 5.64% was the Index Rate published in The Wall Street Journal on May 21,
1999. Two-business days prior to the date we make the Loan to you, we will read
The Wall Street Journal to determine the final Index Rate. If the Index Rate is
not published in The Wall Street Journal, we will determine it from another
reliable source. We will increase or decrease the payments set forth above in
Paragraph 2 to reflect any increase or decrease in the Index Rate on such date.
We will give you notice of any increase as soon as we can. You will pay the
increased or decreased payments unless we have made an obvious mistake in our
calculations. Interest is calculated in advance using a 360-day year of twelve
30-day months.

4. Purpose of Loan; Security Interest. You are making this borrowing to finance
(or refinance) your purchase of the equipment described in the attached Exhibit
A to this Schedule (the "Equipment"). The Equipment, together with all other
property described on the attached Exhibit A is hereinafter referred to as the
"Collateral". The Collateral includes, without limitation, the Equipment and all
replacement parts, additions, accessories and accessions thereto, all
replacements and substitutions thereof and all proceeds of the foregoing,
including, without limitation, insurance proceeds. In order to secure all of the
Obligations (as defined in the Master Agreement), you grant us a first lien on
and security interest in the Collateral, as well as any additions, omissions,
substitutions and proceeds of the Collateral, including, without limitation,
insurance proceeds. You also grant us a security interest in any leases and
rentals of the Collateral. This security interest secures the Note. It also
secures the full and timely payment and performance of all of your other
Obligations to us, whether under the Master Agreement, any other agreement, loan
or lease that you may have with us, or otherwise.

5. Collateral Acceptance Date. The Equipment shall be delivered, installed and
accepted no later than April 30, 2000.

6. Terms of Master Agreement. The terms of the Master Agreement are made a part
of this Schedule as if repeated in its entirety in this Schedule. Any
declaration of default under the Master Agreement is a default under this
Schedule and permits us to exercise all remedies provided by the Master
Agreement.

INTERNAP NETWORK SERVICES CORPORATION              ATTEST:



By:
   ----------------------------------
Name:
     --------------------------------
Title:
      -------------------------------
Date:                                              ----------------------------
     --------------------------------              [Assistant] Secretary





                                       4

<PAGE>   17

                          EXHIBIT A TO SCHEDULE NO. 01

                                   Collateral



         All of the following property, in each case, whether now existing or
hereafter arising, now owned or hereafter acquired, wherever located:

         (a)   all of the following new machinery, equipment, fixtures and other
               assets ("Equipment") consisting of new office furniture,
               computers, network equipment, servers, phone, routers and
               communications equipment as more fully detailed and described on
               Schedule A attached hereto and made a part hereof.

         (b)   all accessions and additions thereto, substitutions for, and all
               replacements of, any and all of the foregoing, and all proceeds
               of the foregoing, cash and non-cash, including insurance
               proceeds.




EQUIPMENT LOCATION:   See Schedule A attached hereto and made a part hereof.

ACCEPTED AND AGREED TO THIS _____ DAY OF AUGUST, 1999.

INTERNAP NETWORK SERVICES CORPORATION

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




                                       5

<PAGE>   18

                          EXHIBIT B TO SCHEDULE NO. 01
                                   Prepayment


You may not prepay the Advance evidenced by the Note, in whole or in part, prior
to the date that you make the thirty-first (31st) timely consecutive monthly
Payment. You shall have the right, upon not less than thirty (30) days prior
written notice to us, on any regularly scheduled Payment date occurring after
the thirty-first (31st) regularly scheduled Payment date, to prepay the
outstanding principal balance of the Advance in whole, but not in part, provided
that you shall pay to us, together with the entire principal balance of the
Advance, (i) all accrued and unpaid interest on the amount prepaid through the
date of prepayment, (ii) all outstanding fees, charges and other amounts then
due under the Master Agreement, Schedule, Note and all of the other agreements,
instruments and documents executed in connection herewith, and (iii) a
prepayment fee in an amount equal to the product of (A) the outstanding
principal balance of the Advance at the time of prepayment, times (B) the
applicable percentage set forth opposite the month of the Term in which the
prepayment occurs, as set forth below:



<TABLE>
<CAPTION>
                           Number of                      
                      Month of the Term                           Percentage      
                      -----------------                   ----------------------- 
<S>                                                       <C>     
                   0 through and including 30             No prepayment permitted 
                  31 through and including 36                       2.45%
                  37 through and including 48                       1.25%
</TABLE>



Once you give us a notice of prepayment, that notice is final and irrevocable.
If we accelerate the Loan following a default, the default will be deemed to be
a means to avoid the prepayment premium, and you will also owe us a prepayment
premium calculated as if the Advance were prepaid on the date of acceleration.
If no prepayment is permitted, the premium due upon acceleration will be five
(5%) percent of the outstanding principal balance.

If you prepay the Advance under the Note, you must prepay all other Advances and
the entire outstanding principal balance of the Loan and Master Agreement and
all Notes, and pay to us the applicable premiums due under those Notes as well
as all other costs, fees, charges and other amounts due under the Master
Agreement, the Notes, the Schedules and all other agreements, instruments and
documents.





                                                                  [_______]
(Exhibit B Prepayment Loan)                                        Initial





                                       6

<PAGE>   19
                             PROMISSORY NOTE NO. 02


$881,516.86

                                                            --------------, ---



INTERNAP NETWORK SERVICES CORPORATION, a ____________ corporation ("you"),
promise to pay to the order of FINOVA CAPITAL CORPORATION ("we," "us" or
"FINOVA") the principal amount of EIGHT HUNDRED EIGHTY-ONE THOUSAND FIVE HUNDRED
SIXTEEN AND 86/100 Dollars ($881,516.86), together with interest on the unpaid
principal balance at the interest rate per annum and on the dates and as
otherwise provided in the "Master Agreement" and "Schedule" referred to below.

If the interest rate charged would exceed the maximum legal rate, you will only
have to pay the maximum legal rate. You do not have to pay any excess interest
over and above the maximum legal rate of interest. However, if it later becomes
legal for you to pay all or part of any excess interest, you will then pay it to
us upon our request.

You will make all payments in US Dollars at our offices at 10 Waterside Drive,
Farmington, Connecticut 06032-3065, or to another address that we request in
writing. All payments will be made in immediately available funds.

This Note is executed in connection with a Master Loan and Security Agreement
dated August 23, 1999 (the "Master Agreement"), between you and us. This Note is
one of the Notes referred to in the Master Agreement, is secured as provided
therein, and by all collateral set forth on Exhibit A to the attached Schedule
(the "Schedule"), dated the same date as this Note and made a part hereof, is
entitled to all of the benefits of the Master Agreement and may be prepaid only
as provided in Exhibit B to the Schedule. All of the terms contained in the
Schedule are incorporated in full herein as if set forth in its entirety. This
Note may be accelerated by us upon a payment default or upon another default
under the Master Agreement or any agreement, instrument or document executed in
connection herewith or therewith.

TIME IS OF THE ESSENCE.

So long as you are not accruing interest at the Default Interest Rate, if you do
not make a payment within ten (10) days after the date it is due, you will also
pay us a late charge of five percent (5%) of the amount past due. Your interest
rate will be increased by three percent (3%) per annum, over and above your
regular interest rate ("Default Interest Rate") if payment is not made at the
scheduled or accelerated maturity of this Note. You will also pay all of our
costs of collection, including our reasonable attorney's fees and expenses. If
we accelerate this Note, you will also owe us a prepayment premium, as set forth
in Exhibit B to the Schedule.

You waive diligence, presentment, formalities of demand, protest or notice of
nonpayment or dishonor or any other notice as to this Note.



                                       1

<PAGE>   20

THIS NOTE IS GOVERNED BY THE SUBSTANTIVE LAWS (AND NOT THE CONFLICT OF LAWS
PROVISIONS) OF THE STATE OF ARIZONA, THE STATE IN WHICH OUR OFFICE IS LOCATED IN
AND FROM WHICH FINAL APPROVAL OF THE TERMS AND CONDITIONS OF THIS NOTE OCCURRED
AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WAS ORDERED. YOU CONSENT TO THE
JURISDICTION OF ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF ARIZONA. YOU
WAIVE TRIAL BY JURY.

You represent to us that the proceeds of the Loan evidenced by this Note are
being used to finance (or refinance) your purchase of the Collateral described
in the Schedule, and that the Collateral will only be used for business
purposes.

INTERNAP NETWORK SERVICES CORPORATION               ATTEST:

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

                                                    ---------------------------
                                                    [Assistant] Secretary





                                       2

<PAGE>   21

                    SCHEDULE NO. 02 TO PROMISSORY NOTE NO. 02
                                       AND
                       MASTER LOAN AND SECURITY AGREEMENT



Schedule No. 02, dated __________, 1999, (this "Schedule") to PROMISSORY NOTE
NO. 02 and MASTER LOAN AND SECURITY AGREEMENT dated as of August 23, 1999 (the
"Master Agreement") between INTERNAP NETWORK SERVICES CORPORATION, a
________corporation, with its executive office and principal place of business
at Two Union Square Building, 601 Union Street, Suite 1000, Seattle, WA 98101
("you"); and FINOVA CAPITAL CORPORATION, a Delaware corporation, with its
executive office and principal place of business at 1850 North Central Avenue,
Phoenix, Arizona 85004 ("we," "us", or "FINOVA").

1. Obligation to pay. You are presently borrowing EIGHT HUNDRED EIGHTY-ONE
THOUSAND FIVE HUNDRED SIXTEEN AND 86/100 Dollars ($881,516.86) from us. This
borrowing is evidenced by your promissory note dated the same date as this
Schedule in the amount of EIGHT HUNDRED EIGHTY-ONE THOUSAND FIVE HUNDRED SIXTEEN
AND 86/100 Dollars ($881,516.86) (the "Note") to which this Schedule is attached
and made a part thereof.

2. Payments (Subject to adjustment in Paragraph 3). You will repay the Loan,
together with interest at the interest rate described below, in thirty-six (36)
consecutive monthly payments of principal and interest as follows: Thirty-six
(36) consecutive monthly payments of principal and interest, each in the amount
of $29,222.28 These payments will be adjusted two (2) business days prior to the
date we make the Loan to you as set forth in Paragraph 3.

The first (1st) and thirty-sixth (36th) monthly payments of principal and
interest ("First Payment") will be due on the date that we make the Loan to you.
Subsequent payments of principal and interest are due and payable on the
thirtieth (30th) day of each and every month thereafter through and including
the date upon which the Final Payment is scheduled to be due (the "Maturity
Date"). Any remaining amount that you owe us is due on the Maturity Date. The
First Monthly Payment of principal and interest (as well as any interim interest
referred to below) shall, at our option, either be withheld from the proceeds of
the Loan or paid directly to us by you.

If the Loan is made on a day other than the thirtieth (30th) or thirty-first
(31st) day of a month, you will also pay to us, together with the First Payment,
interest on the Loan at the interest rate for the period from the date we make
the Loan to you until the twenty-ninth (29th) day of the same month. If the Loan
is made on the thirty-first (31st) day of a month, you will also pay to us,
together with the First Payment, interest on the Loan at the interest rate for
the period from the date we make the Loan to you until the twenty-ninth (29th)
day of the following month. If the Loan is made on the thirtieth (30th) day of a
month, no such interim interest will be due.

3. Interest; Indexing. The interest rate in your payments shown above is
calculated at the rate of 7.45% per annum plus an "Index Rate" of 5.64%. The
Index Rate means the highest yield, as published in The Wall Street Journal of
4-year United States Treasury Notes. The Index



                                       3

<PAGE>   22

Rate of 5.64% was the Index Rate published in The Wall Street Journal on May 21,
1999. Two-business days prior to the date we make the Loan to you, we will read
The Wall Street Journal to determine the final Index Rate. If the Index Rate is
not published in The Wall Street Journal, we will determine it from another
reliable source. We will increase or decrease the payments set forth above in
Paragraph 2 to reflect any increase or decrease in the Index Rate on such date.
We will give you notice of any increase as soon as we can. You will pay the
increased or decreased payments unless we have made an obvious mistake in our
calculations. Interest is calculated in advance using a 360-day year of twelve
30-day months.

4. Purpose of Loan; Security Interest. You are making this borrowing to finance
(or refinance) your purchase of the equipment described in the attached Exhibit
A to this Schedule (the "Equipment"). The Equipment, together with all other
property described on the attached Exhibit A is hereinafter referred to as the
"Collateral". The Collateral includes, without limitation, the Equipment and all
replacement parts, additions, accessories and accessions thereto, all
replacements and substitutions thereof and all proceeds of the foregoing,
including, without limitation, insurance proceeds. In order to secure all of the
Obligations (as defined in the Master Agreement), you grant us a first lien on
and security interest in the Collateral, as well as any additions, omissions,
substitutions and proceeds of the Collateral, including, without limitation,
insurance proceeds. You also grant us a security interest in any leases and
rentals of the Collateral. This security interest secures the Note. It also
secures the full and timely payment and performance of all of your other
Obligations to us, whether under the Master Agreement, any other agreement, loan
or lease that you may have with us, or otherwise.

5. Collateral Acceptance Date. The Equipment shall be delivered, installed and
accepted no later than April 30, 2000.

6. Terms of Master Agreement. The terms of the Master Agreement are made a part
of this Schedule as if repeated in its entirety in this Schedule. Any
declaration of default under the Master Agreement is a default under this
Schedule and permits us to exercise all remedies provided by the Master
Agreement.



INTERNAP NETWORK SERVICES CORPORATION              ATTEST:


By:
   ----------------------------------
Name:
     --------------------------------
Title:
      -------------------------------
Date:
      -------------------------------           -------------------------------
                                                [Assistant] Secretary




                                       4


<PAGE>   23

                          EXHIBIT A TO SCHEDULE NO. 02

                                   Collateral



         All of the following property, in each case, whether now existing or
hereafter arising, now owned or hereafter acquired, wherever located:

         (a)   all of the following software which is more fully detailed and
               described on Schedule A attached hereto and made a part hereof.

         (b)   all accessions and additions thereto, substitutions for, and all
               replacements of, any and all of the foregoing, and all proceeds
               of the foregoing, cash and non-cash, including insurance
               proceeds.





EQUIPMENT LOCATION:    See Schedule A attached hereto.

ACCEPTED AND AGREED TO THIS _____ DAY OF AUGUST, 1999.

INTERNAP NETWORK SERVICES CORPORATION



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




                                       5

<PAGE>   24

                          EXHIBIT B TO SCHEDULE NO. 02


                                   Prepayment




You may not prepay the Advance evidenced by the Note, in whole or in part, prior
to the date that you make the twenty-fifth (25th) timely consecutive monthly
Payment. You shall have the right, upon not less than thirty (30) days prior
written notice to us, on any regularly scheduled Payment date occurring after
the twenty-fifth (25th) regularly scheduled Payment date, to prepay the
outstanding principal balance of the Advance in whole, but not in part, provided
that you shall pay to us, together with the entire principal balance of the
Advance, (i) all accrued and unpaid interest on the amount prepaid through the
date of prepayment, (ii) all outstanding fees, charges and other amounts then
due under the Master Agreement, Schedule, Note and all of the other agreements,
instruments and documents executed in connection herewith, and (iii) a
prepayment fee in an amount equal to the product of (A) the outstanding
principal balance of the Advance at the time of prepayment, times (B) the
applicable percentage set forth opposite the month of the Term in which the
prepayment occurs, as set forth below:



<TABLE>
<CAPTION>
                        Number of                  
                    Month of the Term                         Percentage      
                    -----------------                  -----------------------  
<S>                                                    <C>   
               0 through and including 24               No prepayment permitted  
              25 through and including 36                         3.15%
</TABLE>


Once you give us a notice of prepayment, that notice is final and irrevocable.
If we accelerate the Loan following a default, the default will be deemed to be
a means to avoid the prepayment premium, and you will also owe us a prepayment
premium calculated as if the Advance were prepaid on the date of acceleration.
If no prepayment is permitted, the premium due upon acceleration will be five
(5%) percent of the outstanding principal balance.

If you prepay the Advance under the Note, you must prepay all other Advances and
the entire outstanding principal balance of the Loan and Master Agreement and
all Notes, and pay to us the applicable premiums due under those Notes as well
as all other costs, fees, charges and other amounts due under the Master
Agreement, the Notes, the Schedules and all other agreements, instruments and
documents.



                                                -------------------------------
                                                             Initial



                                       6



<PAGE>   1
                                                                   EXHIBIT 23.1


                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the use in this Registration Statement on Amendment No. 1
to Form S-1 of our reports dated April 2, 1999 relating to the financial
statements and financial statement schedule of InterNAP Network Services
Corporation, which appear in such Registration Statement. We also consent to
the reference to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.




Seattle, Washington
September 2, 1999