<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
                                ---------------
 
(MARK ONE)
 

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
 

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

 
        FOR THE TRANSITION PERIOD FROM ______________ TO ______________
 
                       COMMISSION FILE NUMBER: 000-27265
 
                            ------------------------
 
                     INTERNAP NETWORK SERVICES CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)
 

<TABLE>
<S>                                            <C>
              WASHINGTON                                    91-1896926
    (State or Other Jurisdiction of                       (IRS Employer
    Incorporation or Organization)                     Identification No.)
</TABLE>

 
                          601 UNION STREET, SUITE 1000
                           SEATTLE, WASHINGTON 98101
                    (Address of Principal Executive Offices)
 
                                 (206) 441-8800
              (Registrant's Telephone Number, Including Area Code)
 
                            ------------------------
 
    Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/  No / /
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
 
    The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing sale price of the Common Stock on February 29,
2000 as reported on the Nasdaq National Market was approximately $6,757,294,898.
Shares of Common Stock held by each current executive officer and director and
by each person who is known by the registrant to own 5% or more of the
outstanding Common Stock have been excluded from this computation in that such
persons maybe deemed to be affiliates of the Company. Share ownership
information of certain persons know by the Company to own greater than 5% of the
outstanding common stock for purposes of the preceding calculation is based
solely on information on Schedule 13D or 13G filed with the Commission and is as
of December 31, 1999. This determination of affiliate status is not a conclusive
determination for other purposes.
 
    The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share as of February 29, 2000, was 132,981,682.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>
                               TABLE OF CONTENTS
 

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

PART I.
 

           Item 1.    Business....................................................      3
 

           Item 2.    Properties..................................................      8
 

           Item 3.    Legal Proceedings...........................................      8
 

           Item 4.    Submission of Matters to a Vote of Security Holders.........      8
 

PART II.
 

           Item 5.    Market for Registrant's Common Stock and Related Shareholder
                        Matters...................................................      9
 

           Item 6.    Selected Financial Data.....................................     10
 

           Item 7.    Management's Discussion and Analysis of Financial Condition
                        and Results of Operations.................................     11
 

           Item 7A.   Quantitative and Qualitative Disclosures About Market
                        Risk......................................................     17
 

           Item 8.    Financial Statements and Supplementary Data.................     26
 

           Item 9.    Changes in and Disagreements with Accountants on Accounting
                        and Financial Disclosure..................................     26
 

PART III.
 

           Item 10.   Directors and Executive Officers of the Registrant..........     27
 

           Item 11.   Executive Compensation......................................     27
 

           Item 12.   Security Ownership of Certain Beneficial Owners and
                        Management................................................     27
 

           Item 13.   Certain Relationships and Related Transactions..............     27
 

PART IV.
 

           Item 14.   Exhibits, Financial Statements and Reports on Form 8-K......     27
 
           SIGNATURES.............................................................     29
</TABLE>

 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    The information required by Part III of this Annual Report, to the extent
not set forth herein, is incorporated by reference from the registrant's proxy
statement relating to the annual meeting of shareholders to be held on
April 26, 2000, which definitive proxy statement shall be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year to which this Annual Report relates.
 
                                       2

<PAGE>

                                     PART I
 
    THE STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT")
THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE
ACT"), INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. FORWARD-LOOKING STATEMENTS
INCLUDE, WITHOUT LIMITATION, STATEMENTS REGARDING THE EXTENT AND TIMING OF
FUTURE REVENUES AND EXPENSES AND CUSTOMER DEMAND, STATEMENTS REGARDING THE
DEPLOYMENT OF THE COMPANY'S PRODUCTS AND SERVICES, AND STATEMENTS REGARDING
RELIANCE ON THIRD PARTIES. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY AS OF THE DATE
HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING
STATEMENT. IT IS IMPORTANT TO NOTE THAT THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS, INCLUDING, WITHOUT LIMITATION, THOSE DISCUSSED IN ITEM 7A ON
PAGE 17, UNDER THE HEADING "RISK FACTORS" ON PAGE 18 AND ELSEWHERE IN THIS
REPORT.
 

ITEM 1.  BUSINESS.
 
OVERVIEW
 
    InterNAP Network Services Corporation ("InterNAP" or 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, or P-NAP facilities, 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 December 31, 1999, the
Company provided consistent high performance Internet connectivity services to
approximately 247 customers, including Akamai Technologies, Amazon.com,
Beyond.com, Bizrate.com, Datek Online, Fidelity Investments, Go2Net, MindSpring,
The Nasdaq Stock Market, Network Associates, The Street.com, Travelocity, Warner
Bros. Online, Waterhouse Securities, and WebTV.
 
    The Company offers its 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. The Company
provides its high performance connectivity services through the deployment of
P-NAP facilities, which are highly redundant network infrastructure facilities
coupled with its patented routing technology. P-NAP facilities maintain high
speed, dedicated connections to major global Internet networks, commonly
referred to as backbones, such as AT&T, Cable & Wireless USA, Global Crossing,
GTE, ICG Communications, Intermedia, PSINet, Qwest Communications International,
Sprint, UUNET and Verio. As of January 20, 2000, the Company operated 13 P-NAP
facilities which are located in the Atlanta, Boston, Chicago, Dallas, Denver,
Los Angeles, Miami, New York, Philadelphia, San Jose, Seattle and Washington,
D.C. metropolitan areas, and expect to have 24 P-NAP facilities operational by
the end of 2000.
 
    The Company believes that its P-NAP facilities provide a superior quality of
service over the public Internet enabling its customers to realize the full
potential of their existing Internet-based applications, such as e-commerce and
on-line trading. In addition, the Company believes its P-NAP facilities will
enable its 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.
 
SERVICES
 
    The Company offers Internet connectivity services to its customers over T-1,
DS-3 and OC-3 telecommunication connections at speeds ranging from 1.5 Mbps to
155 Mbps. T-1, DS-3 and OC-3 are
 
                                       3

<PAGE>
three of many possible media used to transport Internet Protocol packets across
the Internet. T-1 is a telecommunications standard that carries voice calls or
data at a rate of 1.544 million bits per second over a communication line. DS-3
carries voice calls or data at a rate of 45 million bits per second, and OC-3
carries voice calls or data at a rate of 155 million bits per second. The
Company's 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
facility 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 its 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 facility using standard ethernet
connections with speeds ranging from 10 Mbps to 200 Mbps. The Company also
offers its customers additional value added services, including:
 
    - INTERNAP DIVERSITY PLUS.  The Company's 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 facility. In a typical Diversity Plus configuration, the
      customer has a connection to a P-NAP facility and to one or more backbone
      providers of their choice. The customer's router is configured using the
      Company's 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 facility. In this manner, the customer can use redundant Internet
      connections, while also taking advantage of the unique features of the
      P-NAP facility.
 
    - CONNECTIONS TO DATA CENTERS.  Many of the Company's customers have their
      servers located at third party data centers. The Company connects to these
      customers either by establishing a circuit directly to their routers or
      through a connection the Company has with the network maintained by the
      third party data center operator. The Company has its own data center in
      its Seattle P-NAP facility at which a number of its customers have
      co-located their servers.
 
    - INSTALLATION SERVICES.  The Company performs installation services
      necessary to connect its customers' networks to its P-NAP facilities.
 
TECHNOLOGY
 
    P-NAP FACILITY ARCHITECTURE.  The P-NAP facility 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
facility circuit or device.
 
    The P-NAP facility architecture is designed to grow as its customers'
traffic demands grow and as the Company adds new customers. Its P-NAP facility
model provides for the addition of significant backbone providers as necessary.
 
    InterNAP only deploys P-NAP facilities within central office grade
facilities. All P-NAP facilities are equipped with battery backup and emergency
generators, as well as dual heating, ventilation and air conditioning systems.
 
    ASSIMILATOR ROUTING TECHNOLOGY.  ASsimilator technology is a software based
system for Internet Protocol route management that interfaces with the P-NAP
facility infrastructure to provide the high performance routing service
characteristics of the P-NAP facility. 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 facility. 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
 
                                       4

<PAGE>
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 facility as well as
inbound routing from a backbone network. The Company plans to beta test a new
version of ASsimilator, which will add further enhancements to its existing
routing technology, by the third quarter of 2000.
 
    DISTRIBUTED NETWORK MANAGEMENT SYSTEM.  The Company has developed a highly
scalable proprietary network management system optimized for monitoring P-NAP
facilities. With the use of its distributed network management system, its
network operations center is capable of real-time monitoring of the backbones
connected to each P-NAP facility, customer circuits, network devices and servers
24 hours a day, seven days a week. This system provides the Company's network
operations center with proactive trouble notification, allowing for
instantaneous identification and handling of problems, frequently before its
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 the Company's capacity planning and
provisioning process, helping it to forecast and plan upgrades before capacity
becomes strained.
 
    RESEARCH AND DEVELOPMENT COSTS.  The Company's 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
$3.1 million for the year ended December 31, 1999. The Company expects its
product development costs to increase as the Company hires additional engineers
and technical personnel to develop new products and services and upgrade
existing ones.
 
SALES AND MARKETING
 
    The Company's 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 December 31,
1999, the Company had 59 employees engaged in direct sales and sales management,
18 in sales administration and support, 22 in technical support and 12 in
marketing located in 12 cities.
 
    SALES.  The Company has developed a direct high-end sales organization with
managers who have extensive relevant sales experience and representatives who
have many years of relevant sales experience with a broad range of
telecommunications and technology companies. In addition, the Company's highly
trained technical sales engineers and client interaction engineers, who
facilitate optimal routing solutions for its customers, are responsible for
generating recurring sales revenues and serve to complement its sales force.
When the Company deploys a new P-NAP facility, the Company sets up a dedicated
team of sales representatives and engineers focused exclusively on that market.
The Company believes this localized direct sales approach allows it to respond
to regional competitive characteristics, educate customers, and identify and
close business opportunities better than a centralized sales force. The Company
is also developing an indirect sales channel for its products and services
through relationships with content developers, cable companies, DSL service
providers, consulting companies and Internet service providers.
 
    MARKETING.  The Company's marketing efforts are designed to help educate
customers in its 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. The Company's marketing activities have included collateral
advertising, tradeshows, direct response programs, new P-NAP facility launch
events and management of its Web site. These programs are targeted at key
information technology executives as well as senior marketing and finance
managers. In addition, the Company conducts comprehensive public relations
efforts focused on cultivating industry analyst and media relationships with the
goal of securing broad media coverage and public recognition of its proprietary
high speed public Internet communications solutions.
 
                                       5

<PAGE>
    The Company's marketing organization is responsible for expanding its 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. The Company expects that
competition will intensify in the future, and the Company may not possess the
financial resources, technical expertise, sales and marketing abilities or
support capabilities to compete successfully in its market. Many of the
Company's existing competitors have greater market presence, engineering and
marketing capabilities, and financial, technological and personnel resources
than the Company does. The Company' competitors include:
 
    - backbone providers that provide the Company connectivity services
      including, AT&T, Cable & Wireless, USA, Global Crossing, GTE
      Internetworking, ICG Communications, Intermedia, PSINet, Qwest
      Communications International, 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 its market, the
Company expects other companies to enter its market. In addition, if the Company
is successful in implementing its international expansion, the Company will
encounter additional competition from international Internet service providers
as well as international telecommunication companies. As new participants enter
the Internet connectivity services market, the Company 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 the Company's competitors to
bundle other services and products with their network services could place the
Company 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.
 
    The Company believes the principal competitive factors in its 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 the Company and
its competitors. The Company believes it presently is positioned to compete
favorably with respect to most of these factors. In particular, many of the
Company's competitors have built and must maintain capital-intensive backbone
infrastructures that are highly dependent on traditional public and private
peering exchanges. Each backbone provider tries to offer high quality service
within its own network but is unable to guarantee service quality once data
leaves its network, and there is little incentive to optimize the
interoperability of traffic between networks. The Company actively routes
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
there can be no assurance that the Company will compete successfully in the
future. As a result, the Company may not maintain a competitive position against
current or future competitors. See "Risk Factors--Competition from More
Established Competitors Who Have Greater Revenues Could Decrease the Company's
Market Share."
 
                                       6

<PAGE>
INTELLECTUAL PROPERTY
 
    The Company relies on a combination of patent, copyright, trademark, trade
secret and other intellectual property law, nondisclosure agreements and other
protective measures to protect its proprietary technology. InterNAP and P-NAP
are trademarks of InterNAP which are registered in the United States. The United
States Patent and Trademark Office, or USPTO, issued a patent in September 1999
relating to an initial patent application the Company filed on September 3,
1997. The patent is enforceable for a duration of 20 years from the date of
filing, or until September 3, 2017. The Company has a second application pending
and may file additional applications in the future. Additional claims that were
included by amendment in the Company's initial application have now been
included in its second patent application. The Company's patent and patent
applications relate to its P-NAP facility technology. In addition, the Company
has filed a corresponding international patent application under the Patent
Cooperation Treaty.
 
    The Company also enters into confidentiality and invention assignment
agreements with its employees and consultants and controls access to and
distribution of its proprietary information. Despite the Company's efforts to
protect its proprietary rights, departing employees and other unauthorized
parties may attempt to copy or otherwise obtain and use its products and
technology. Monitoring unauthorized use of the Company's products and technology
is difficult, and the Company cannot be certain the steps it has taken will
prevent misappropriation of its technology, particularly in foreign countries
where the laws may not protect its 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 the
Company or its suppliers or customers with respect to existing or future
products and services. Although the Company has not been a party to any claims
alleging infringement or intellectual property rights, there can be no assurance
that it will not be subject to these claims in the future. Further, the Company
may in the future initiate claims or litigation against third parties for
infringement of its proprietary rights to determine the scope and validity of
its proprietary rights or those of its 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 the Company 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 the Company's failure or inability to develop noninfringing
technology or license the infringed or similar technology on a timely basis, its
business and results of operations may be seriously harmed.
 
EMPLOYEES
 
    As of December 31, 1999, the Company employed 299 full-time persons, 156 of
whom were engaged in engineering and operations, 111 in sales and marketing and
32 in finance and administration. None of the Company's employees is represented
by a labor union, and the Company has not experienced any work stoppages to
date. The Company considers its employee relations to be good.
 
                                       7

<PAGE>
EXECUTIVE OFFICERS
 
    The Company's executive officers, the positions held by them and their ages
as of December 31, 1999 are as follows:
 

<TABLE>
<CAPTION>
NAME                                       AGE                     POSITION                   SINCE
----                                     --------   ---------------------------------------  --------
<S>                                      <C>        <C>                                      <C>
Anthony C. Naughtin....................     43      President and Chief Executive Officer      1996
 
Paul E. McBride........................     37      Vice President of Finance &                1996
                                                    Administration, Chief Financial Officer
                                                    and Secretary
 
Christopher D. Wheeler.................     32      Vice President and Chief Technology        1996
                                                    Officer
 
Charles M. Ortega......................     44      Vice President of Sales & Marketing        1998
</TABLE>

 
    ANTHONY C. NAUGHTIN founded InterNAP and has served as its Chief Executive
Officer since May 1996. Mr. Naughtin has also served as the Company's President
since May 1996 and as its director since October 1997.
 
    PAUL E. MCBRIDE has served as the Company's Vice President of Finance and
Administration since May 1996. He has also served as the Company's Chief
Financial Officer since June 1999.
 
    CHRISTOPHER D. WHEELER has served as the Company's Chief Technology Officer
and Vice President since May 1996.
 
    CHARLES M. ORTEGA has served as the Company's Vice President of Sales and
Marketing since April 1998.
 
    The Company's current officers, directors and affiliated entities together
beneficially owned approximately 56.4% of the outstanding shares of Common Stock
as of December 31, 1999. In particular, Anthony C. Naughtin, the Company's
President and Chief Executive Officer, owned approximately 3.4% of the
outstanding shares of Common Stock as of December 31, 1999. As a result, these
shareholders will be able to exercise control over matters requiring shareholder
approval, including the election of directors, the approval of mergers,
consolidations and sales of all or substantially all of the assets of the
Company. This may prevent or discourage tender offers for the Company's Common
Stock unless the terms are approved by such shareholders.
 

I
TEM 2.  PROPERTIES.
 
    The Company's executive offices are located in Seattle, Washington and
consist of approximately 74,100 square feet that are leased under an agreement
that expires in 2003. The Company leases facilities for its network operations
center, sales offices and P-NAP facilities in a number of metropolitan areas and
specific cities.
 

ITEM 3.  LEGAL PROCEEDINGS.
 
    From time to time, the Company is subject to various legal proceedings and
claims arising in the ordinary course of business. The Company's management does
not expect that the results in any of these legal proceedings will have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
    No matter was submitted for a vote of shareholders of the Company during the
fourth quarter of the year ended December 31, 1999.
 
                                       8

<PAGE>

                                    PART II
 

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
 
    The Company's common stock is traded on the Nasdaq National Market under the
symbol "INAP". Public trading of the common stock commenced on September 29,
1999. Prior to that time, there was no public market for its common stock. The
table below sets forth the high and low sale price for the Company's common
stock for the periods indicated as adjusted for its 100% share dividend paid on
January 7, 2000 to shareholders of record on December 27, 1999:
 

<TABLE>
<CAPTION>
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
Year Ended December 31, 1999:
Fourth Quarter (from September 29, 1999)....................   $92.97     $10.00
</TABLE>

 
    As of February 29, 2000, the number of shareholders of record was 633.
Because many of its shares are held by brokers and other institutions on behalf
of shareholders, the Company is unable to estimate the total number of
beneficial shareholders represented by these record holders.
 
    The Company has never declared or paid any cash dividends on its stock. The
Company currently intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable future.
 
    RECENT SALES OF UNREGISTERED SECURITIES
 
    None.
 
    USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES.
 
    The Company's initial public offering of Common Stock was effected through a
Registration Statement on Form S-1 (File No. 333-84035) that was declared
effective by the SEC on September 29, 1999 and pursuant to which the Company
sold an aggregate of 21,850,000 shares of its Common Stock at $10.00 per share
to an underwriting syndicate managed by Morgan Stanley Dean Witter and including
Credit Suisse First Boston, Donaldson, Lufin & Jenrette, and Hambrecht & Quist.
As of December 31, 1999, the Company had used the estimated aggregate net
proceeds of $201.6 million from its initial public offering as follows:
 

<TABLE>
<S>                                                           <C>
Construction of plant, building and facilities:.............  $ 0.3 million
Purchase and installation of machinery and equipment:.......  $ 5.8 million
Purchases of real estate:...................................             --
Acquisition of other businesses:............................             --
Repayment of indebtedness:..................................             --
Working capital:............................................  $10.3 million
Temporary investments (interest bearing treasury securities
  and corporate paper):.....................................  $55.2 million
</TABLE>

 
    The residual net proceeds were held as cash and cash equivalents at
December 31, 1999.
 
    The foregoing amounts represent the Company's best estimate of its use of
proceeds for the period indicated. No such payments were made to the Company's
directors or officers or their associates, holders of 10% or more of any class
of its equity securities or to its affiliates.
 
                                       9

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.
 
    The following selected financial data are qualified by reference to, and
should be read in conjunction with, the Company's financial statements and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this annual report on
Form 10-K. The statement of operations data presented below for the years ended
December 31, 1997, 1998 and 1999, and the selected balance sheet data at
December 31, 1998 and 1999 are derived from the Company's financial statements
that have been audited by PricewaterhouseCoopers LLP, independent accountants,
included elsewhere in this annual report on Form 10-K. The statement of
operations data presented below for the period from inception (May 1, 1996) to
December 31, 1996, and the selected balance sheet data at December 31, 1996 and
1997 are derived from the Company's financial statements that have also been
audited by PricewaterhouseCoopers LLP and that are not included in this annual
report on Form 10-K.
 

<TABLE>
<CAPTION>
                                                PERIOD FROM INCEPTION
                                                    (MAY 1, 1996)          YEAR ENDED DECEMBER 31,
                                                   TO DECEMBER 31,      ------------------------------
                                                        1996              1997       1998       1999
                                                ---------------------   --------   --------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>                     <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................         $   44           $ 1,045    $ 1,957    $ 12,520
                                                       ------           -------    -------    --------
Costs and expenses:
  Cost of network and customer support........            321             1,092      3,216      27,412
  Product development.........................            184               389        754       3,919
  Sales and marketing.........................             78               261      2,822      17,523
  General and administrative..................            378               713      1,910       8,328
  Amortization of deferred stock
    compensation..............................             --                --        205       7,569
                                                       ------           -------    -------    --------
    Total operating costs and expenses........            961             2,455      8,907      64,751
                                                       ------           -------    -------    --------
Loss from operations..........................           (917)           (1,410)    (6,950)    (52,231)
Other income (expense):
  Interest income.............................              6                36        169       3,388
  Interest and financing expense..............            (48)             (235)       (90)     (1,074)
  Loss on disposal of assets..................             --                --       (102)         --
                                                       ------           -------    -------    --------
Net loss......................................         $ (959)          $(1,609)   $(6,973)   $(49,917)
                                                       ======           =======    =======    ========
Basic and diluted net loss per share (1)......         $ (.14)          $  (.24)   $ (1.04)   $  (1.31)
                                                       ======           =======    =======    ========
Weighted average shares used to compute basic
  and diluted net loss per share (1)..........          6,666             6,666      6,673      37,994
                                                       ======           =======    =======    ========
Pro forma basic and diluted net loss per share
  (2).........................................                                     $  (.15)   $   (.46)
                                                                                   =======    ========
Weighted average shares used in computing pro
  forma basic and diluted net loss per share
  (2).........................................                                      45,466     108,391
                                                                                   =======    ========
</TABLE>

 

<TABLE>
<CAPTION>
                                                                         AS OF DECEMBER 31,
                                                              -----------------------------------------
                                                                1996       1997       1998       1999
                                                              --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...........   $ 145      $4,770     $ 275     $205,352
Total assets................................................   1,099       5,987     7,487      245,546
Notes payable and capital lease obligations, less current
  portion...................................................     421         240     2,342       14,378
Total shareholders' equity (deficit)........................      43       4,829      (436)     210,500
</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 that occurred upon the closing of the Company's
    initial public offering as if the conversion occurred as of the date of
    original issuance of the preferred stock.
 
                                       10

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.
 
OVERVIEW
 
    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 P-NAP facilities 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.
 
    After the Company decides to open a new P-NAP facility, the Company enters
into a deployment phase which typically lasts four to six months, during which
time the Company executes the required steps to make the P-NAP facility
commercially ready for service. Among other things, this usually entails
obtaining co-location space to locate the Company's equipment, entering into
agreements with backbone providers, obtaining local loop connections from local
telecommunications providers, building P-NAP facilities and initiating pre-sales
and marketing activities. Consequently, the Company usually incurs a significant
amount of upfront costs related to making a P-NAP facility commercially ready
for service prior to generating revenues. Therefore, the Company's results of
operations will be negatively affected during times of P-NAP facility
deployment.
 
    As of December 31, 1999, the Company had a total of 12 P-NAP facilities
deployed in the Atlanta, Boston, Chicago, Dallas, Los Angeles, Miami, New York,
Philadelphia, San Jose, Seattle and Washington D.C. metropolitan areas, and
expect to have a total of 24 P-NAP facilities operational by the end of 2000.
 
    The Company's customers are primarily businesses that desire high
performance Internet connectivity services in order to run mission-critical
Internet-based applications. Due to its high quality of service, the Company
generally prices its services at a premium to providers of conventional Internet
connectivity services. The Company expects to remain a premium provider of high
quality Internet connectivity services and anticipate continuing its pricing
policy in the future. The Company believes 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.
 
    The Company's revenues are generated primarily from the sale of Internet
connectivity services and, to a lesser extent, other ancillary services
primarily provided from its Seattle data center, such as co-location, web
hosting and server management services and installation services at fixed rate
or usage based pricing to its customers that desire a DS-3 or faster connection.
The Company offers T-1 connections only at a fixed rate. The Company recognizes
its revenues when the Company has 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-NAP facilities and
the Company's network operations center. To the extent a P-NAP facility is
located a distance from the respective Internet backbone providers, the Company
may incur additional local loop charges on a recurring basis. Additionally,
rental fees and depreciation costs related to the Company's P-NAP facilities 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 the Company's proprietary technology, enhancement of
its network management software and development of its internal systems. The
Company's product development costs are generally expensed as incurred.
 
                                       11

<PAGE>
    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 facility launch events, management of the Company's 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 years ended December 31, 1998 and December 31, 1999, in
connection with the grant of certain stock options to employees, the Company
recorded deferred stock compensation totaling $25.0 million, representing the
difference between the deemed fair value of its 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. The
Company recorded amortization of deferred stock compensation in the amount of
$205,000 for the year ended December 31, 1998 and $7.6 million for the year
ended December 31, 1999. At December 31, 1999, the Company had a total of
$17.2 million remaining to be amortized over the corresponding vesting periods
of the stock options.
 
    The revenue and income potential of the Company's business and market is
unproven, and its limited operating history makes it difficult to evaluate its
prospects. The Company has only been in existence since 1996, and its services
are only offered in limited regions. The Company has incurred net losses in each
quarterly and annual period since its inception, and as of December 31, 1999,
its accumulated deficit was $59.5 million.
 
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>
                                                                              YEAR ENDED
                                                                             DECEMBER 31,
                                                              ------------------------------------------
                                                                1997             1998             1999
                                                              --------         --------         --------
                                                                            (IN THOUSANDS)
<S>                                                           <C>              <C>              <C>
Revenues....................................................     100%             100%             100%
                                                                ----             ----             ----
Costs and expenses:
  Cost of network and customer support......................     105              164              219
  Product development.......................................      37               39               31
  Sales and marketing.......................................      25              144              140
  General and administrative................................      68               98               67
  Amortization of deferred stock compensation...............      --               10               60
                                                                ----             ----             ----
    Total operating costs and expenses......................     235              455              517
                                                                ----             ----             ----
Loss from operations........................................    (135)            (355)            (417)
Other income (expense):
  Interest income...........................................       3                9               27
  Interest and financing expense............................     (22)              (5)              (9)
  Loss on disposal of assets................................      --               (5)              --
                                                                ----             ----             ----
Net loss....................................................    (154)%           (356)%           (399)%
                                                                ====             ====             ====
</TABLE>

 
YEARS ENDED DECEMBER 31, 1998 AND 1999
 
    REVENUES.  Revenues increased 525% from $2.0 million for the year ended
December 31, 1998, to $12.5 million for the year ended December 31, 1999. This
increase of $10.5 million was primarily due
 
                                       12

<PAGE>
to increased Internet connectivity revenues. The increase in Internet
connectivity revenues was attributable to the increased sales at the Company's
existing P-NAP facilities and the opening of nine additional P-NAP facilities
during 1999, resulting in a total of 12 operational P-NAP facilities at
December 31, 1999, as compared to three P-NAP facilities at December 31, 1998.
 
    COSTS OF NETWORK AND CUSTOMER SUPPORT.  Costs of network and customer
support increased 756% from $3.2 million for the year ended December 31, 1998,
to $27.4 million for the year ended December 31, 1999. This increase of
$24.2 million was primarily due to increased connectivity costs related to added
connections to Internet backbone providers at each P-NAP facility, comprising
48% of the increase, and to a lesser extent, additional compensation costs,
related to the addition of 69 personnel, comprising 14% of the increase, and
depreciation expense related to the equipment at newly deployed P-NAP
facilities, comprising 13% of the increase. Network and customer support costs
as a percentage of total revenues are generally greater than 100% for newly
deployed P-NAP facilities because the Company purchases Internet connectivity
capacity from the backbone providers in advance of securing new customers. The
Company expects these costs to increase in absolute dollars as it deploys
additional P-NAP facilities.
 
    PRODUCT DEVELOPMENT.  Product development costs increased 411% from $754,000
for the year ended December 31, 1998, to $3.9 million for the year ended
December 31, 1999. This increase of $3.1 million was primarily due to
compensation costs related to the addition of 53 personnel, comprising 52% of
the increase, and outside consulting fees, comprising 25% of the increase. The
Company expects product development costs to increase in absolute dollars for
the foreseeable future.
 
    SALES AND MARKETING.  Sales and marketing costs increased 525% from
$2.8 million for the year ended December 31, 1998, to $17.5 million for the year
ended December 31, 1999. This increase of $14.7 million was primarily due to
compensation costs related to the addition of 71 personnel, comprising 66% of
the increase, marketing and advertising costs, comprising 11% of the increase,
and to a lesser extent, facility costs related to the addition of sales offices.
 
    GENERAL AND ADMINISTRATIVE.  General and administrative costs increased 337%
from $1.9 million for the year ended December 31, 1998, to $8.3 million for the
year ended December 31, 1999. This increase of $6.4 million was primarily due to
compensation costs related to the addition of 44 personnel, comprising 46% of
the increase, increased depreciation and amortization costs due to the addition
of corporate office space during the third quarter of 1999, comprising 9% of the
increase, and professional services costs, comprising 12% of the increase. The
Company expects general and administrative costs to increase in absolute dollars
as the Company deploys additional P-NAP facilities.
 
    OTHER INCOME (EXPENSE).  Other income (expense) consists of interest income,
interest and financing expense and other non-operating expenses. Other income,
net, increased from an expense of $23,000 for the year ended December 31, 1998,
to other income, net of $2.3 million for the year ended December 31, 1999. This
increase was primarily due to interest income earned on the proceeds from the
Company's private equity financings and initial public offering.
 
YEARS ENDED DECEMBER 31, 1997 AND 1998
 
    REVENUES.  Revenues increased 100% from $1.0 million in 1997 to
$2.0 million in 1998. This increase was primarily due to increased Internet
connectivity revenues, comprising 76% of the increase, other ancillary service
revenues, comprising 12% of the increase, and to a lesser extent, customer
installation fees, comprising 12% of the increase. The increase in Internet
connectivity revenues was attributable to the deployment of two additional P-NAP
facilities resulting in a total of three operational P-NAP facilities at
December 31, 1998.
 
    COSTS OF NETWORK AND CUSTOMER SUPPORT.  Costs of network and customer
support increased 191% from $1.1 million in 1997 to $3.2 million in 1998. This
increase was primarily due to increased connectivity costs related to added
connections to Internet backbone providers at each P-NAP facility,
 
                                       13

<PAGE>
comprising 40% of the increase, and depreciation expense related to the
equipment at newly deployed P-NAP facilities, comprising 17% of the 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 six additional personnel at the Company's network operations center, seven
additional personnel in its customer installation department and seven
additional personnel in its P-NAP facility deployment department.
 
    PRODUCT DEVELOPMENT.  Product development costs increased 94% from $389,000
in 1997 to $754,000 in 1998. This increase was primarily due to increased
compensation costs, comprising 67% of the increase, and increased travel costs
related to developing systems at new P-NAP facilities, comprising 20% of the
increase. The increased compensation costs were related to the addition of
product development personnel during 1998.
 
    SALES AND MARKETING.  Sales and marketing costs increased 973% from $261,000
in 1997 to $2.8 million in 1998. The increase was primarily due to increased
compensation costs, comprising 74% of the increase, and increased travel and
entertainment costs, comprising 10% of the increase. The increased compensation
costs were related to the addition of 40 personnel during 1998.
 
    GENERAL AND ADMINISTRATIVE.  General and administrative costs increased 166%
from $713,000 in 1997 to $1.9 million in 1998. The increase was primarily due to
compensation costs, comprising 11% of the increase, depreciation and
amortization comprising 6% of the increase, facility costs, comprising 38% of
the increase, outside consulting fees, comprising 13% of the increase, travel
costs related to the deployment of new P-NAP facilities, comprising 13% of the
increase, and bad debt expense in 1998 and the subsequent bankruptcy of a
significant customer, comprising 9% of the increase. The increased compensation
costs were related to the addition of 13 personnel during the second half of
1998.
 
    OTHER INCOME (EXPENSE).  Other expense, net, decreased from $199,000 in 1997
to $23,000 in 1998. Other expense, net, decreased by $176,000, or 88%, in 1998
primarily due to increased interest income earned on the proceeds from the
Company's private equity financings, offset by a loss on disposal of assets of
$102,000.
 
PROVISION FOR INCOME TAXES
 
    The Company incurred operating losses from inception through December 31,
1999, and therefore has not recorded a provision for income taxes. The Company
has recorded a valuation allowance for the full amount of its net deferred tax
assets, as the future realization of the tax benefit is not currently likely.
 
    As of December 31, 1999, the Company had net operating loss carry-forwards
of $50.3 million. These loss carry-forwards are available to reduce future
taxable income and expire at various dates through 2019. Under the provisions of
the Internal Revenue Code, certain substantial changes in the Company's
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 its inception, the Company has financed its operations primarily
through the issuance of its equity securities, capital leases and bank loans.
The Company has raised an aggregate of approximately $261.6 million, net of
offering expenses, through the sale of its equity securities. In January 2000, a
100% stock dividend was paid on the Company's common stock and, accordingly, all
related disclosures have been revised to reflect the stock dividend for all
periods presented.
 
    In October 1999, the Company sold 19,000,000 shares of its common stock at
an initial public offering price of $10.00 per share resulting in net proceeds
of $176.7 million. During October 1999, in connection with the Company's initial
public offering, the underwriters exercised their overallotment option,
resulting in the sale of an additional 2,850,000 shares of its common stock at
$10.00 per share
 
                                       14

<PAGE>
for additional net proceeds of $26.5 million. Upon the closing of the Company's
initial public offering, all shares of outstanding preferred stock converted
into 98,953,050 shares of common stock.
 
    Concurrent with the closing of its initial public offering on October 4,
1999, the Company sold 2,150,537 shares of common stock to Inktomi Corporation
for $9.30 per share, resulting in proceeds of $19.0 million, net of a private
placement fee of $1.0 million paid to Morgan Stanley & Co. Incoporated. In
conjunction with this investment, the Company issued a warrant to Inktomi to
purchase 1,075,268 shares of its common stock at an exercise price of $13.95 per
share. The warrant has a two-year term and includes demand and piggyback
registration rights. On November 24, 1999, Inktomi exercised 50% of these
warrants through a cashless exercise, resulting in the issuance of 397,250
shares of the Company's common stock to Inktomi. The agreement also prohibits
Inktomi from acquiring additional shares of the Company's common stock for a
period of two years. In addition, the Company intends to complete a joint
technical and marketing agreement with Inktomi.
 
    At December 31, 1999, the Company had cash, cash equivalents and investments
of $210.4 million. The Company has a revolving line of credit with Silicon
Valley Bank under which the Company is allowed to borrow up to $3.0 million, as
limited by certain borrowing base requirements which include maintaining certain
levels of monthly revenues and customer turnover ratios. The line of credit
requires monthly payments of interest only at prime plus 1%, or 9.5%, as of
December 31, 1999, and matures on June 30, 2000. As of December 31, 1999, the
Company had outstanding borrowings of $1.5 million on the line of credit.
 
    On September 23, 1999, the Company signed a standby loan facility agreement
with seven shareholders, which matured upon the closing of its initial public
offering. This facility allowed the Company to draw up to $10 million, prior to
the earlier of maturity or December 31, 1999, but the Company did not draw any
amounts on this facility prior to maturity. In connection with this facility,
the Company issued warrants to purchase 200,000 shares of common stock with
exercise prices of $10.00 per share. The estimated fair value ascribed to the
warrants was $536,000 based upon the Black Scholes option pricing model, and the
Company recorded this amount as a financing expense for the year ended
December 31, 1999.
 
    On August 23, 1999, the Company entered into an equipment financing
arrangement with Finova Capital Corporation allowing the Company to borrow up to
$5.0 million for the purchase of property and equipment. The equipment financing
arrangement includes sublimits of $3.5 million for equipment costs and
$1.5 million for the acquisition of software and other P-NAP facility and
facility costs. Loans under the $3.5 million sublimit require monthly principal
and interest payments over a term of 48 months. This facility bears interest at
7.5% plus an index rate based on the yield of 4-year U.S. Treasury Notes. This
rate was 13.7% at December 31, 1999. Loans under the $1.5 million sublimit
require monthly principal and interest payments over a term of 36 months. This
facility bears interest at 7.9% plus an index rate based on the yield of
three-year U.S. Treasury Notes. This rate was 14.0% at December 31, 1999.
Borrowings under each sublimit must be drawn prior to May 1, 2000. As of
December 31, 1999, the Company had outstanding borrowings of approximately
$3.9 million pursuant to this arrangement.
 
    On November 19, 1999, the Company amended an existing equipment lease credit
facility with a vendor to increase its available credit by $17.5 million to
$35.5 million. As of December 31, 1999, the Company had approximately
$18.4 million available under this credit facility.
 
    Net cash used in operations was $1.1 million, $5.3 million and
$33.8 million in the years ended December 31, 1997, 1998 and 1999, respectively.
Net cash used in operations for the year ended December 31, 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
 
                                       15

<PAGE>
December 31, 1997 was primarily due to net operating losses and increases in
accounts receivable, partially offset by non-cash charges.
 
    Net cash used in investing activities was $141,000, $855,000 and
$68.0 million in the years ended December 31, 1997, 1998 and 1999, respectively.
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 facility 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 $260,000,
$3.6 million and $15.9 million for the years ended December 31, 1997, 1998 and
1999, respectively. Additionally, for the year ended December 31, 1999,
$65.2 million was used to purchase investments offset by proceeds of
$10 million from the disposition of certain investments.
 
    Net cash provided from financing activities was $5.9 million, $1.7 million
and $256.7 million for the years ended December 31, 1997, 1998 and 1999,
respectively. Net cash from financing activities primarily reflects proceeds
from the public and private sales of the Company's equity securities.
 
    On January 27, 2000, the Company filed a registration statement on Form S-1
with the Securities and Exchange Commission to offer 7,500,000 shares of its
common stock to the public. Of these shares, the Company will offer 3,000,000
shares and 4,500,000 shares will be offered by selling shareholders.
 
    On February 22, 2000, pursuant to an investment agreement, the Company
purchased 588,236 shares of Aventail Corporation Series D preferred stock at
$10.20 per share for a total cash investment of $6,000,007. The Series D
preferred stock is convertible to common stock at a ratio of one share of
preferred stock to one share of common stock, subject to adjustment for certain
equity transactions. Additionally, the Company entered into a joint marketing
agreement with Aventail which, among other things, granted the Company certain
limited exclusive rights to sell Aventail's managed extranet service and granted
Aventail certain rights to sell the Company's services. In return, the Company
committed to either sell Aventail services or pay Aventail, or a combination of
both, which would result in Aventail's recognition of $3,000,000 of revenue over
a two-year period.
 
    The Company expects to spend significant additional capital to recruit and
train its customer installation team and the sales force and to build out the
sales facilities related to newly deployed P-NAP facilities. In addition to
P-NAP facility deployment, although to a lesser extent, product development and
the development of the Company's internal systems and software will continue to
require significant capital expenditures in the foreseeable future, as will the
expansion of its marketing efforts. The Company expects 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.
 
    The Company believes the net proceeds from this offering together with its
cash and cash equivalents, investments and funds available under its revolving
and capital lease lines will be sufficient to satisfy its cash requirements for
the next 12 months. Depending on its rate of growth and cash requirements, the
Company may require additional equity or debt financing to meet future working
capital needs, which may have a dilutive effect on its then current
shareholders. There can be no assurance that such additional financing will be
available or, if available, that such financing can be obtained on satisfactory
terms. The Company's management intends to invest cash in excess of current
operating requirements in short-term, interest-bearing, investment-grade
securities.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS
No. 133, which will be effective for the Company 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
 
                                       16

<PAGE>
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 its financial position, results of operations and cash flows.
 
    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the Securities and Exchange Commission. SAB 101 outlines
the basic criteria that must be met to recognize revenue and provides guidance
for disclosures related to revenue recognition policies. The Company believes
the impact of SAB 101 would have no material effect on its financial position or
results of operations.
 
RECENT DEVELOPMENTS
 
    EQUANT RELATIONSHIP.  In December 1999, the Company entered into an
agreement with Equant to assist the Company in its international expansion.
Equant will help support the international deployment of the Company's P-NAP
facilities in exchange for the right to provide its high performance
connectivity services for customers connected to its network.
 
    PREFERRED CO-LOCATION PROGRAM.  In January 2000, the Company entered into
agreements with leading co-location providers to offer its customers a high
quality co-location solution. Under this program the Company will provide its
customers with the ability to co-locate their equipment at various data centers
throughout the country while still maintaining access to its high performance
connectivity services.
 
    AVENTAIL RELATIONSHIP.  In February 2000, the Company invested $6.0 million
in Aventail Corporation. The Company also entered into a joint marketing
agreement with Aventail that grants the Company certain limited exclusive rights
to sell Aventail's managed extranet service and grants Aventail rights to sell
its services.
 

I
TEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
    Substantially all of the Company's cash equivalents, 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 December 31, 1999, all of the Company's cash equivalents mature within three
months and all of its short-term investments mature within one year. As of
December 31, 1999, the Company believes the reported amounts of cash
equivalents, investments and capital lease obligations to be reasonable
approximations of their fair values. As a result, the Company believes that the
market risk arising from its holdings of financial instruments is minimal.
 
                                       17

<PAGE>
                                  RISK FACTORS
 
RISKS RELATED TO THE COMPANY'S BUSINESS
 
    THE COMPANY HAS A HISTORY OF LOSSES, EXPECTS FUTURE LOSSES AND MAY NOT
ACHIEVE OR SUSTAIN ANNUAL PROFITABILITY. The Company has incurred net losses in
each quarterly and annual period since the Company began operations. The Company
incurred net losses of $1.6 million, $7.0 million and $49.9 million for the
years ended December 31, 1997, 1998 and 1999, respectively. As of December 31,
1999, the Company's accumulated deficit was $59.5 million. As a result of its
expansion plans, the Company expects to incur net losses and negative cash flows
from operations on a quarterly and annual basis for at least the next
24 months, and the Company may never become profitable.
 
    THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE ITS
PROSPECTS.  The revenue and income potential of the Company's business and
market is unproven, and its limited operating history makes it difficult to
evaluate its prospects. The Company has only been in existence since 1996, and
its services are only offered in limited regions. Investors should consider and
evaluate the Company's 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 THE COMPANY'S QUARTERLY OPERATING RESULTS MAY
DISAPPOINT ANALYSTS' EXPECTATIONS, WHICH COULD HAVE A NEGATIVE IMPACT ON THE
COMPANY'S STOCK PRICE.  Should the Company's results of operations from quarter
to quarter fail to meet the expectations of public market analysts and
investors, its stock price could suffer. Any significant unanticipated shortfall
of revenues or increase in expenses could negatively impact its expected
quarterly results of operations should the Company be unable to make timely
adjustments to compensate for them. Furthermore, a failure on the part of the
Company to estimate accurately the timing or magnitude of particular anticipated
revenues or expenses could also negatively impact its quarterly results of
operations.
 
    Because the Company's quarterly results of operations have fluctuated in the
past and will continue to fluctuate in the future, investors should not rely on
the results of any past quarter or quarters as an indication of future
performance in its business operations or stock price. For example, increases in
the Company's quarterly revenues for the quarters ended March 31, 1998, through
December 31, 1999 have varied between 13% and 74%, and total operating costs and
expenses, as a percentage of revenues, have fluctuated between 310% and 609%.
Fluctuations in the Company's quarterly operating results depend on a number of
factors. Some of these factors are industry risks over which the Company has no
control, including the introduction of new services by its competitors,
fluctuations in the demand and sales cycle for its services, fluctuations in the
market for qualified sales and other personnel, changes in the prices for
Internet connectivity the Company pays backbone providers and its ability to
obtain local loop connections to its P-NAP facilities at favorable prices.
 
    Other factors that may cause fluctuations in the Company's quarterly
operating results arise from strategic decisions the Company has made or will
make with respect to the timing and magnitude of capital expenditures such as
those associated with the deployment of additional P-NAP facilities and the
terms of its Internet connectivity purchases. For example, the Company's
practice is to purchase Internet connectivity from backbone providers at new
P-NAP facilities before customers are secured. The Company also has agreed to
purchase Internet connectivity from some providers without regard to the amount
the Company resells to its customers.
 
    IF THE COMPANY IS UNABLE TO MANAGE COMPLICATIONS THAT ARISE DURING
DEPLOYMENT OF NEW P-NAP FACILITIES, THE COMPANY MAY NOT SUCCEED IN ITS EXPANSION
PLANS.  Any delay in the opening of new P-NAP facilities would significantly
harm the Company's plans to expand its business. In its effort to deploy new
P-NAP facilities, the Company faces various risks associated with significant
construction projects, including identifying and locating P-NAP facility sites,
construction delays, cost estimation errors or overruns, delays in connecting
with local exchanges, equipment and material delays or shortages, the inability
to obtain necessary permits on a timely basis, if at all, and other factors,
many
 
                                       18

<PAGE>
of which are beyond the Company's control and all of which could delay the
deployment of a new P-NAP facility. The deployment of new P-NAP facilities, each
of which takes approximately four to six months to complete, is a key element of
the Company's business strategy. In addition to its 13 existing locations, the
Company is planning to continue to deploy P-NAP facilities across a wide range
of geographic regions, including foreign countries. Although the Company
conducts market research in a geographic area before deploying a P-NAP facility,
the Company does not enter into service contracts with customers prior to
building a new P-NAP facility.
 
    THE COMPANY WILL INCUR ADDITIONAL EXPENSE ASSOCIATED WITH THE DEPLOYMENT OF
NEW P-NAP FACILITIES AND THE COMPANY MAY BE UNABLE TO EFFECTIVELY INTEGRATE NEW
P-NAP FACILITIES INTO ITS EXISTING NETWORK, WHICH COULD DISRUPT ITS
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 the Company does not institute adequate financial and managerial
controls, reporting systems, and procedures with which to operate multiple
facilities in geographically dispersed locations, its operations will be
significantly harmed.
 
    BECAUSE THE COMPANY'S REVENUES DEPEND HEAVILY ON A FEW SIGNIFICANT
CUSTOMERS, A LOSS OF MORE THAN ONE OF THESE SIGNIFICANT CUSTOMERS COULD REDUCE
THE COMPANY'S REVENUES.  The Company currently derives a substantial portion of
its total revenues from a limited number of customers, and the revenues from
these customers may not continue. For the quarter ended December 31, 1999,
revenues from the Company's five largest customers represented approximately 25%
of its total revenues. Typically, the agreements with the Company's customers
are based on the Company's 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 the Company's 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. In addition, the Company may not succeed in
diversifying its customer base in future periods. Accordingly, the Company may
continue to derive a significant portion of its revenues from a relatively small
number of customers. Further, the Company has 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 the Company.
 
    IF THE COMPANY IS UNABLE TO CONTINUE TO RECEIVE COST-EFFECTIVE SERVICE FROM
ITS BACKBONE PROVIDERS, THE COMPANY MAY NOT BE ABLE TO PROVIDE ITS INTERNET
CONNECTIVITY SERVICES ON PROFITABLE TERMS AND THESE BACKBONE PROVIDERS MAY NOT
CONTINUE TO PROVIDE SERVICE TO THE COMPANY.  In delivering its services, the
Company relies on Internet backbones, which are built and operated by others. In
order to be able to provide optimal routing to its customers through its P-NAP
facilities, the Company must purchase connections from several Internet backbone
providers. There can be no assurance that these Internet backbone providers will
continue to provide service to the Company on a cost-effective basis, if at all,
or that these providers will provide the Company with additional capacity to
adequately meet customer demand. Furthermore, it is very unlikely that the
Company could replace its Internet backbone providers on comparable terms.
 
    Currently, in each of its fully operational P-NAP facilities, the Company
has connections to some combination of the following 11 backbone providers:
AT&T, Cable & Wireless USA, Inc., Global Crossing Telecommunications, Inc., GTE
Internetworking, Inc., ICG Communications, Intermedia Communications Inc.,
PSINet, Inc., Qwest Communications International, Inc., Sprint Internet
Services, UUNET, a MCI WorldCom Company, and Verio, Inc. The Company may be
unable to maintain relationships with, or obtain necessary additional capacity
from, these backbone providers. Furthermore, the Company may be unable to
establish and maintain relationships with other backbone providers that may
emerge or that are significant in geographic areas in which the Company locates
its P-NAP facilities.
 
                                       19

<PAGE>
    COMPETITION FROM MORE ESTABLISHED COMPETITORS WHO HAVE GREATER REVENUES
COULD DECREASE ITS MARKET SHARE.  The Internet connectivity services market is
extremely competitive, and there are few substantial barriers to entry. The
Company expects competition from existing competitors to intensify in the
future, and the Company may not have the financial resources, technical
expertise, sales and marketing abilities or support capabilities to compete
successfully in its market. Many of the Company's existing competitors have
greater market presence, engineering and marketing capabilities, and financial,
technological and personnel resources than the Company does. As a result, the
Company's competitors may have several advantages over the Company as it seeks
to develop a greater market presence.
 
    The Company's competitors currently include backbone providers that provide
connectivity services to the Company, including AT&T, Cable & Wireless USA,
Global Crossing, GTE Internetworking, ICG Communications, Intermedia, PSINet,
Qwest Communications International, Sprint, UUNET and Verio, regional Bell
operating companies which offer Internet access, and global, national and
regional Internet service providers.
 
    In addition, if the Company is successful in implementing the Company's
international expansion, the Company expects to encounter additional competition
from international Internet service providers as well as international
telecommunications companies.
 
    COMPETITION FROM NEW COMPETITORS COULD DECREASE THE COMPANY'S MARKET
SHARE.  The Company also believes that new competitors will enter its 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 have announced plans to offer or expand,
their network services. For example, 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 the Company 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.
 
    PRICING PRESSURE COULD DECREASE THE COMPANY'S MARKET SHARE.  Increased price
competition or other competitive pressures could erode the Company's market
share. The Company currently charges, and expects to continue to charge, more
for its Internet connectivity services than its competitors. For example, the
Company's current standard pricing is approximately 5% 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 the Company 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 the Company to decrease its prices. The
Company may not be able to offset the effects of any such price reductions even
with an increase in the number of its customers, higher revenues from enhanced
services, cost reductions or otherwise. In addition, the Company believes that
the Internet connectivity industry is likely to encounter consolidation in the
future. Consolidation could result in increased pressure on the Company to
decrease its prices.
 
    A FAILURE IN THE COMPANY'S NETWORK OPERATIONS CENTER, P-NAP FACILITIES OR
COMPUTER SYSTEMS WOULD CAUSE A SIGNIFICANT DISRUPTION IN THE PROVISION OF ITS
INTERNET CONNECTIVITY SERVICES.  Although the Company has taken precautions
against systems failure, interruptions could result from natural disasters as
well as power loss, telecommunications failure and similar events. The Company's
business depends on the efficient and uninterrupted operation of its network
operations center, its P-NAP facilities and its computer and communications
hardware systems and infrastructure. The Company currently has one network
operations center located in Seattle, and it has 13 P-NAP facilities which are
located in the Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, Miami, New
York, Philadelphia, San Jose,
 
                                       20

<PAGE>
Seattle and Washington, D.C. metropolitan areas. If the Company experiences a
problem at its network operations center, the Company may be unable to provide
Internet connectivity services to its customers, provide customer service and
support or monitor its network infrastructure and P-NAP facilities, any of which
would seriously harm its business.
 
    BECAUSE THE COMPANY HAS NO EXPERIENCE OPERATING INTERNATIONALLY, ITS
INTERNATIONAL EXPANSION MAY BE LIMITED.  Although the Company currently operates
in 12 domestic metropolitan markets, a key component of its strategy is to
expand into international markets. The Company has no experience operating
internationally. The Company may not be able to adapt its services to
international markets or market and sell these services to customers abroad. In
addition to general risks associated with international business expansion, the
Company faces the following specific risks in its 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
 
    - difficulties in locating, building and deploying P-NAP facilities and a
      network operations center in foreign countries, including in the United
      Kingdom and the Netherlands where the Company plans to deploy facilities
      in 2000, and managing P-NAP facilities and network operations centers
      across disparate geographic areas.
 
    The Company may be unsuccessful in its efforts to address the risks
associated with its currently proposed international operations, and its
international sales growth may therefore be limited.
 
    THE COMPANY'S BRAND IS RELATIVELY NEW, AND FAILURE TO DEVELOP BRAND
RECOGNITION COULD HURT THE COMPANY'S ABILITY TO COMPETE EFFECTIVELY.  To
successfully execute its strategy, the Company must strengthen its brand
awareness. If the Company does not build its brand awareness, its ability to
realize its strategic and financial objectives could be hurt. Many of the
Company's competitors have well-established brands associated with the provision
of Internet connectivity services. To date, the Company's market presence has
been limited principally to the Atlanta, Boston, Chicago, Dallas, Denver, Los
Angeles, Miami, New York, Philadelphia, San Jose, Seattle and Washington D.C.
metropolitan areas. To date, the Company has attracted its existing customers
primarily through a relatively small sales force and word of mouth. In order to
build its brand awareness, the Company intends to increase its marketing efforts
significantly, which may not be successful, and the Company must continue to
provide high quality services. As part of its brand building efforts, the
Company expects to increase its marketing budget substantially as well as its
marketing activities, including advertising, tradeshows, direct response
programs and new P-NAP facility launch events.
 
    THE COMPANY IS DEPENDENT UPON ITS KEY EMPLOYEES AND MAY BE UNABLE TO ATTRACT
OR RETAIN SUFFICIENT NUMBERS OF QUALIFIED PERSONNEL.  The Company's future
performance depends to a significant degree upon the continued contributions of
its executive management team and key technical personnel. The loss of any
member of the Company's executive management team or a key technical employee,
such as its Chief Executive Officer, Anthony Naughtin, its Chief Technology
Officer, Christopher Wheeler, or its Chief Financial Officer, Paul McBride,
could significantly harm the Company. Any of the Company's officers or employees
can terminate his or her relationship with the Company at any time. To the
extent the Company is able to expand its operations and deploy additional P-NAP
facilities, its workforce will be required to grow. Accordingly, the Company's
future success depends on the Company's 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, the Company may not be successful in attracting, hiring,
training and retaining the people the Company needs, which would seriously
impede its ability to implement its business strategy.
 
    IF THE COMPANY IS NOT ABLE TO SUPPORT ITS RAPID GROWTH EFFECTIVELY, ITS
EXPANSION PLANS MAY BE FRUSTRATED OR MAY FAIL.  The Company's inability to
manage growth effectively would seriously harm its plans to expand its Internet
connectivity services into new markets. Since the introduction of its
 
                                       21

<PAGE>
Internet connectivity services, the Company has experienced a period of rapid
growth and expansion, which has placed, and continues to place, a significant
strain on all of its resources. For example, as of December 31, 1996 the Company
had one operational P-NAP facility and nine employees compared to 12 operational
P-NAP facilities and 299 full-time employees as of December 31, 1999. In
addition, the Company had $44,000 in revenues for the period from May 1, 1996 to
December 31, 1996 compared to $12.5 million in revenues for the year ended
December 31, 1999. The Company expects its growth to continue to strain its
management, operational and financial resources. For example, the Company may
not be able to install adequate financial control systems in an efficient and
timely manner, and its current or planned information systems, procedures and
controls may be inadequate to support its future operations. The difficulties
associated with installing and implementing new systems, procedures and controls
may place a significant burden on the Company's management and its internal
resources. The Company's plans to rapidly deploy additional P-NAP facilities
could place a significant strain on its management's time and resources.
 
    IF THE COMPANY FAILS TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY, THE
COMPANY MAY LOSE RIGHTS TO SOME OF ITS MOST VALUABLE ASSETS.  The Company relies
on a combination of patent, copyright, trademark, trade secret and other
intellectual property law, nondisclosure agreements and other protective
measures to protect its proprietary technology. InterNAP and P-NAP are
trademarks of InterNAP which are registered in the United States. The United
States Patent and Trademark Office, or USPTO, issued a patent in September 1999
relating to an initial patent application the Company filed on September 3,
1997. The patent is enforceable for a duration of 20 years from the date of
filing, or until September 3, 2017. There can be no assurance that this patent
or any future issued patent will provide significant proprietary protection or
commercial advantage to the Company or that the USPTO will allow any additional
or future claims. The Company has a second application pending and may file
additional applications in the future. Additional claims that were included by
amendment in the Company's initial application have now been included in its
second patent application. The Company's patent and patent applications relate
to its P-NAP facility technology. In addition, the Company has filed a
corresponding international patent application under the Patent Cooperation
Treaty.
 
    It is possible that any patents that have been or may be issued to the
Company could still be successfully challenged by third parties, which could
result in the Company's loss of the right to prevent others from exploiting the
inventions claimed in those patents. Further, current and future competitors may
independently develop similar technologies, duplicate the Company's services and
products or design around any patents that may be issued to the Company. In
addition, effective patent protection may not be available in every country in
which the Company intends to do business.
 
    In addition to patent protection, the Company believes the protection of its
copyrightable materials, trademarks and trade secrets is important to its future
success. The Company relies 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 its
proprietary rights. In particular, the Company generally enters into
confidentiality agreements with its employees and nondisclosure agreements with
its customers and corporations with whom the Company has strategic
relationships. In addition, the Company generally registers its important
trademarks with the USPTO to preserve their value and establish proof of its
ownership and use of these trademarks. Any trademarks that may be issued to the
Company may not provide significant proprietary protection or commercial
advantage to the Company. Despite any precautions that the Company has taken,
intellectual property laws and contractual restrictions may not be sufficient to
prevent misappropriation of its technology or deter others from developing
similar technology.
 
    THE COMPANY 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 the Company's business. Any claims
that the Company's services infringe or may infringe proprietary rights of third
parties, with or without merit, could be
 
                                       22

<PAGE>
time-consuming, result in costly litigation, divert the efforts of the Company's
technical and management personnel or require the Company to enter into royalty
or licensing agreements, any of which could significantly harm its operating
results. In addition, in its customer agreements, the Company agrees to
indemnify its customers for any expenses or liabilities resulting from claimed
infringement of patents, trademarks or copyrights of third parties. If a claim
against the Company were to be successful and the Company were not able to
obtain a license to the relevant or a substitute technology on acceptable terms
or redesign its products to avoid infringement, its ability to compete
successfully in its competitive market would be impaired.
 
    BECAUSE THE COMPANY DEPENDS ON THIRD PARTY SUPPLIERS FOR KEY COMPONENTS OF
ITS NETWORK INFRASTRUCTURE, FAILURES OF THESE SUPPLIERS TO DELIVER THEIR
COMPONENTS AS AGREED COULD HINDER ITS ABILITY TO PROVIDE ITS SERVICES ON A
COMPETITIVE AND TIMELY BASIS.  Any failure to obtain required products or
services from third party suppliers on a timely basis and at an acceptable cost
would affect the Company's ability to provide its Internet connectivity services
on a competitive and timely basis. The Company is dependent on other companies
to supply various key components of its infrastructure, including the local
loops between its P-NAP facilities and its Internet backbone providers and
between its P-NAP facilities and its customers' networks. In addition, the
routers and switches used in the Company's 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. The Company purchases these products pursuant to
purchase orders placed from time to time. The Company does not carry significant
inventories of these products, and the Company has no guaranteed supply
arrangements with its vendors. The Company has 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 the
Company's ability to deploy P-NAP facilities in the future on a timely basis. If
Cisco Systems does not provide the Company with its routers, or if the Company's
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 the Company uses in its network infrastructure, the
Company may be unable to meet its customer service commitments.
 
    THE COMPANY MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE AND MAY NOT BE ABLE
TO SECURE ADEQUATE FUNDS ON TERMS ACCEPTABLE TO THE COMPANY.  The expansion and
development of the Company's business will require significant capital, which
the Company may be unable to obtain, to fund its capital expenditures and
operations, including working capital needs. The Company's 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 the Company's future capital
requirements may vary significantly depending on numerous factors, including
regulatory, technological, competitive and other developments in its industry.
During the next 12 months, the Company expects to meet its cash requirements
with existing cash, cash equivalents, short-term investments and cash flow from
sales of its services. However, the Company's capital requirements depend on
several factors, including the rate of market acceptance of the Company's
services, the ability to expand its customer base, the rate of deployment of
additional P-NAP facilities and other factors. If the Company's capital
requirements vary materially from those currently planned, or if the Company
fails to generate sufficient cash flow from the sales of its services, the
Company may require additional financing sooner than anticipated or the Company
may have to delay or abandon some or all of its development and expansion plans
or otherwise forego market opportunities.
 
    The Company may not be able to obtain future equity or debt financing on
favorable terms, if at all. In addition, the Company's credit agreement contains
covenants restricting its 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 the
Company to pledge assets as security for borrowings thereunder. The Company's
inability to obtain additional capital on satisfactory terms may delay or
prevent the expansion of its business.
 
                                       23

<PAGE>
    THE COMPANY MAY FIND IT DIFFICULT TO INTEGRATE POTENTIAL FUTURE
ACQUISITIONS, WHICH COULD DISRUPT ITS BUSINESS, DILUTE SHAREHOLDER VALUE AND
ADVERSELY AFFECT ITS OPERATING RESULTS.  The Company may acquire businesses
and/or technology in the future, which would complicate its management's tasks.
The Company may need to integrate widely dispersed operations that have
different and unfamiliar corporate cultures. These integration efforts may not
succeed or may distract management's attention from existing business
operations. The Company's failure to successfully manage future acquisitions
could seriously harm its business. Also, the Company's existing shareholders
would be diluted if the Company financed the acquisitions by issuing equity
securities.
 
                    RISKS RELATED TO THE COMPANY'S INDUSTRY
 
    BECAUSE THE DEMAND FOR THE COMPANY'S SERVICES DEPENDS ON CONTINUED GROWTH IN
USE OF THE INTERNET, A SLOWING OF THIS GROWTH COULD HARM THE DEVELOPMENT OF THE
DEMAND FOR THE COMPANY'S SERVICES.  Critical issues concerning the commercial
use of the Internet remain unresolved and may hinder the growth of Internet use,
especially in the business market the Company targets. 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 the Company's revenues to grow more slowly than anticipated and
reduce the demand for its services.
 
    BECAUSE THE INTERNET CONNECTIVITY MARKET IS NEW AND ITS VIABILITY IS
UNCERTAIN, THERE IS A RISK THE COMPANY'S SERVICES MAY NOT BE ACCEPTED.  The
Company faces the risk that the market for high performance Internet
connectivity services might fail to develop, or develop more slowly than
expected, or that its 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, the Company may be unable to
market and sell its services successfully and cost-effectively to a sufficiently
large number of customers. The Company typically charges more for its services
than do its competitors, which may affect market acceptance of its 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 the Company's Internet connectivity services
could be largely resolved and its core business rendered obsolete.
 
    IF THE COMPANY IS UNABLE TO RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO
RAPID TECHNOLOGICAL CHANGE, THE COMPANY MAY LOSE OR FAIL TO ESTABLISH A
COMPETITIVE ADVANTAGE IN ITS MARKET.  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.
The Company may be unable to successfully use or develop new technologies, adapt
its network infrastructure to changing customer requirements and industry
standards, introduce new services or enhance its existing services on a timely
basis. Furthermore, new technologies or enhancements that the Company uses or
develops may not gain market acceptance. The Company's pursuit of necessary
technological advances
 
                                       24

<PAGE>
may require substantial time and expense, and the Company may be unable to
successfully adapt its network and services to alternate access devices and
technologies.
 
    If its services do not continue to be compatible and interoperable with
products and architectures offered by other industry members, the Company's
ability to compete could be impaired. The Company's ability to compete
successfully is dependent, in part, upon the continued compatibility and
interoperability of its services with products and architectures offered by
various other industry participants. Although the Company intends to support
emerging standards in the market for Internet connectivity, there can be no
assurance that the Company 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 THE COMPANY'S SERVICES OR RENDER THEM
OBSOLETE.  New technologies and industry standards have the potential to replace
or provide lower cost alternatives to the Company's services. The adoption of
such new technologies or industry standards could render the Company's existing
services obsolete and unmarketable. For example, the Company's 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 the Company's
services obsolete and unmarketable. The Company's failure to anticipate the
prevailing standard or the failure of a common standard to emerge could hurt its
business. Further, the Company anticipates 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 there can be no assurance that
such technologies will create opportunities for the Company.
 
    SERVICE INTERRUPTIONS CAUSED BY SYSTEM FAILURES COULD HARM CUSTOMER
RELATIONS, EXPOSE THE COMPANY TO LIABILITY AND INCREASE THE COMPANY'S CAPITAL
COSTS.  Interruptions in service to the Company's customers could harm the
Company's customer relations, expose the Company to potential lawsuits and
require the Company to spend more money adding redundant facilities. The
Company's operations depend upon its ability to protect its customers' data and
equipment, its equipment and its network infrastructure, including its
connections to its backbone providers, against damage from human error or "acts
of God." Even if the Company takes precautions, the occurrence of a natural
disaster or other unanticipated problem could result in interruptions in the
services the Company provides to its customers.
 
    CAPACITY CONSTRAINTS COULD CAUSE SERVICE INTERRUPTIONS AND HARM CUSTOMER
RELATIONS.  Failure of the backbone providers and other Internet infrastructure
companies to continue to grow in an orderly manner could result in capacity
constraints leading to service interruptions to the Company's customers.
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 the Company's telecommunications and Internet
service providers to provide the Company with the data communications capacity
it requires could cause service interruptions.
 
    THE COMPANY'S NETWORK AND SOFTWARE ARE VULNERABLE TO SECURITY BREACHES AND
SIMILAR THREATS WHICH COULD RESULT IN ITS LIABILITY FOR DAMAGES AND HARM ITS
REPUTATION.  Despite the implementation of network security measures, the core
of the Company's network infrastructure is vulnerable to computer viruses,
break-ins, network attacks and similar disruptive problems. This could result in
the Company's liability for damages, and its reputation could suffer, thereby
deterring potential customers from working with the Company. Security problems
caused by third parties could lead to interruptions and delays or to the
cessation of service to the Company's customers. Furthermore, inappropriate use
of the network by third parties could also jeopardize the security of
confidential information stored in the Company's computer systems and in those
of its customers.
 
                                       25

<PAGE>
    Although the Company intends 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 its system.
Therefore, there can be no assurance that the measures the Company implements
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 the Company's customers, which could hurt its
business.
 
    SHOULD THE GOVERNMENT MODIFY OR INCREASE ITS REGULATION OF THE INTERNET, THE
PROVISION OF ITS SERVICES COULD BECOME MORE COSTLY.  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 the Company's 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 the Company or its
customers. The government may also seek to regulate some segments of the
Company's 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. The Company cannot predict the impact, if any, that future
regulation or regulatory changes may have on its business.
 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
    The index to our Consolidated Financial Statements, Financial Schedules, and
the Report of the Independent Accountants appears in Part IV of this Form 10-K.
 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
    None.
 
                                       26

<PAGE>

                                    PART III
 
    Certain information required by Part III is omitted from this Report on
Form 10-K since the Company will file a definitive Proxy Statement for its
Annual Meeting of Shareholders to be held on April 26, 2000, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Proxy
Statement"), not later than 120 days after the end of the fiscal year covered by
this Report, and certain information included in the Proxy Statement is
incorporated herein by reference.
 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
    (a) Executive Officers
 
        Please refer to the Section entitled "Executive Officers" in Part I,

       Item 1 hereof.
 
    (b) Directors
 
        The information required by this Item is incorporated by reference to
       the section entitled "Election of Directors" in the Proxy Statement.
 

ITEM 11. EXECUTIVE COMPENSATION.
 
    Information required by Part III, Item 11, is included in the Company's
Proxy Statement and is incorporated herein by reference.
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
    Information required by Part III, Item 12, is included in the Company's
Proxy Statement and is incorporated herein by reference.
 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
    Information regarding certain of the Company's relationships and related
transactions is included in the Company's Proxy Statement and is incorporated
herein by reference.
 

                                    PART IV
 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
    (a) (1) FINANCIAL STATEMENTS.
 
        The following Consolidated Financial Statements and Report of
       Independent Auditors are incorporated by reference to pages F-1 through
       F-22 of this Form 10-K:
 
        The consolidated balance sheets for the years ended December 31, 1998
       and 1999, and the consolidated statements of operations, statements of
       shareholders' (deficit) equity and cash flows for each of the years in
       the three year period ended December 31, 1999, together with the notes
       thereto.
 
    (a) (2) SCHEDULES.
 

<TABLE>
<CAPTION>
      SCHEDULE
       NUMBER
---------------------
<C>                     <S>
    1.1+                Report of Independent Accountants on Financial Statement
                        Schedule.
    1.2+                Valuation and qualifying accounts and reserves.
</TABLE>

 
------------------------
 
+   Incorporated by reference to designated schedule included with the Company's
    Registration Statement on Form S-1, File No. 333-95503.
 
                                       27

<PAGE>
    (a) (3) EXHIBITS.
 

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                                    DESCRIPTION
-----------------------   ------------------------------------------------------------
<C>                       <S>
 3.1+                     Amended and Restated Articles of Incorporation of InterNAP.
 
 3.2+                     Bylaws of InterNAP.
 
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 Employee Stock Purchase Plan.
 
10.4*-                    1999 Employee Stock Purchase Plan.
 
10.5*-                    1999 Stock Option/Stock Issuance Plan.
 
10.6+-                    Amended 1999 Equity Incentive Plan (Exhibit 10.7).
 
10.7*-                    Form of 1999 Equity Incentive Plan Stock Option Agreement
                          (Exhibit 10.8).
 
10.8+                     Lease Agreement, dated June 1, 1996, between Registrant and
                          Sixth & Virginia Properties, as amended by Lease
                          Modification No. 1, dated May 1, 1998, as amended by Lease
                          Modification No. 2 dated September 1, 1998, as amended by
                          Lease Modification No. 3, dated December 20, 1999 (Exhibit
                          10.10).
 
10.9*                     Form of Employee Confidentiality, Nonraiding and
                          Noncompetition Agreement used between Registrant and its
                          Executive Officers (Exhibit 10.11).
 
10.10+                    Amended and Restated Investor Rights Agreement, dated
                          October 4, 1999 (Exhibit 10.17).
 
10.11*                    Amended and Restated Loan and Security Agreement, dated June
                          30, 1999, between Registrant and Silicon Valley Bank
                          (Exhibit 10.19).
 
10.12+                    Master Agreement to Lease Equipment, dated January 20, 1998
                          between Registrant and Cisco Systems Capital Corporation, as
                          amended on November 17, 1999 (Exhibit 10.20).
 
10.13+-                   Letter Agreement dated September 7, 1999 between Richard K.
                          Cotton and Registrant (Exhibit 10.25).
 
10.14*                    Master Loan and Security Agreement, dated August 23, 1999
                          between Registrant and Finova Capital Corporation (Exhibit
                          10.26).
 
10.15*                    Common Stock and Warrant Purchase Agreement, dated September
                          17, 1999, between Registrant and Inktomi Corporation
                          (Exhibit 10.27).
 
10.16+                    Warrant, dated December 22, 1999, issued to S.L. Partners,
                          Inc (Exhibit 10.28).
 
10.17+                    Form of Warrant issued to Paul Canniff, David Cornfield,
                          Robert J. Lunday, Jr., Dan Newell, Richard Saada, Robert D.
                          Shurtleff, Jr. and Todd Warren (Exhibit 10.29).
 
21.1+                     List of Subsidiaries.
 
23.1                      Consent of PricewaterhouseCoopers LLP, Independent
                          Accountants.
 
27.1+                     Financial Data Schedule.
</TABLE>

 
------------------------
 
*   Incorporated by reference to designated exhibit included with the Company's
    Registration Statement on Form S-1, File No. 333-84035.
 
+   Incorporated by reference to designated exhibit included with the Company's
    Registration Statement on Form S-1, File No. 333-95503.
 
-  Management contract or compensatory plan.
 
    (b) REPORTS ON FORM 8-K.
 
        The Company did not file any reports on Form 8-K for the quarter ended
       December 31, 1999.
 
                                       28

<PAGE>

                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
 

<TABLE>
<S>                                                    <C>  <C>
                                                       INTERNAP NETWORK SERVICES CORPORATION
 
                                                       By            /s/ ANTHONY C. NAUGHTIN
                                                            -----------------------------------------
                                                                       Anthony C. Naughtin
                                                              CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>

 
    Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
 

<TABLE>
<CAPTION>
                      SIGNATURE                                    TITLE                      DATE
                      ---------                                    -----                      ----
<C>                                                    <S>                             <C>
               /s/ ANTHONY C. NAUGHTIN                 Chief Executive Officer and
     -------------------------------------------         President (Principal            March 22, 2000
                 Anthony C. Naughtin                     Executive Officer)
 
                                                       Chief Financial Officer and
                 /s/ PAUL E. MCBRIDE                     Vice President of Finance
     -------------------------------------------         (Principal Finance and          March 22, 2000
                   Paul E. McBride                       Accounting Officer)
 
                /s/ EUGENE EIDENBERG                   Chairman of the Board
     -------------------------------------------                                         March 22, 2000
                  Eugene Eidenberg
 
               /s/ WILLIAM J. HARDING                  Director
     -------------------------------------------                                         March 22, 2000
                 William J. Harding
 
                /s/ FREDRIC W. HARMAN                  Director
     -------------------------------------------                                         March 22, 2000
                  Fredric W. Harman
 
              /s/ ROBERT J. LUNDAY, JR.                Director
     -------------------------------------------                                         March 22, 2000
                Robert J. Lunday, Jr.
 
                  /s/ KEVIN L. OBER                    Director
     -------------------------------------------                                         March 22, 2000
                    Kevin L. Ober
 
            /s/ ROBERT D. SHURTLEFF, JR.               Director
     -------------------------------------------                                         March 22, 2000
              Robert D. Shurtleff, Jr.
</TABLE>

 
                                       29

<PAGE>
                     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>

                       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, 1998 and 1999 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the United States,
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
January 22, 2000

 
                                      F-2

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                                 BALANCE SHEET
 
                     (IN THOUSANDS, EXCEPT PAR VALUE DATA)
 

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
<S>                                                           <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................   $  275    $155,184
  Short-term investments....................................       --      50,168
  Accounts receivable, net of allowance of $65, and $206,
  respectively..............................................      766       4,084
  Prepaid expenses and other assets.........................      280       1,144
                                                               ------    --------
      Total current assets..................................    1,321     210,580
Property and equipment, net.................................    5,828      28,811
Patents and trademarks, net.................................       48         142
Investments.................................................       --       5,050
Deposits and other assets, net..............................      290         963
                                                               ------    --------
      Total assets..........................................   $7,487    $245,546
                                                               ======    ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................   $2,603    $  7,278
  Accrued liabilities.......................................      713       4,209
  Deferred revenue..........................................      284          22
  Note payable, current portion.............................       --       1,021
  Line of credit............................................      650       1,525
  Capital lease obligations, current portion................    1,331       6,613
                                                               ------    --------
      Total current liabilities.............................    5,581      20,668
Note payable, less current portion..........................       --       2,861
Capital lease obligations, less current portion.............    2,342      11,517
                                                               ------    --------
      Total liabilities.....................................    7,923      35,046
                                                               ------    --------
Commitments and contingencies
Shareholders' equity (deficit):
  Convertible preferred stock, $.001 par value, authorized
    100,139 and 10,000 shares, respectively; 39,291 and no
    shares issued and outstanding, respectively; aggregate
    liquidation preference of $8,466 and $0, respectively...       39          --
  Common stock, $.001 par value, authorized 100,000 and
    500,000 shares, respectively; 6,673, and 132,089 shares
    issued and outstanding, respectively....................        7         132
  Additional paid-in capital................................    9,553     287,054
  Deferred stock compensation...............................     (494)    (17,228)
  Accumulated deficit.......................................   (9,541)    (59,458)
                                                               ------    --------
      Total shareholders' equity (deficit)..................     (436)    210,500
                                                               ------    --------
      Total liabilities and shareholders' equity
      (deficit).............................................   $7,487    $245,546
                                                               ======    ========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1997       1998       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Revenues....................................................  $ 1,045    $ 1,957    $ 12,520
                                                              -------    -------    --------
Costs and expenses:
  Cost of network and customer support......................    1,092      3,216      27,412
  Product development.......................................      389        754       3,919
  Sales and marketing.......................................      261      2,822      17,523
  General and administrative................................      713      1,910       8,328
  Amortization of deferred stock compensation...............       --        205       7,569
                                                              -------    -------    --------
    Total operating costs and expenses......................    2,455      8,907      64,751
                                                              -------    -------    --------
  Loss from operations......................................   (1,410)    (6,950)    (52,231)
Other income (expense):
  Interest income...........................................       36        169       3,388
  Interest and financing expense............................     (235)       (90)     (1,074)
  Loss on disposal of assets................................       --       (102)         --
                                                              -------    -------    --------
    Net loss................................................  $(1,609)   $(6,973)   $(49,917)
                                                              =======    =======    ========
Basic and diluted net loss per share........................  $  (.24)   $ (1.04)   $  (1.31)
                                                              =======    =======    ========
Weighted average shares used in computing basic and diluted
  net loss per share........................................    6,666      6,673      37,994
                                                              =======    =======    ========
</TABLE>

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

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                  STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
 
                   FROM JANUARY 1, 1997 TO DECEMBER 31, 1999
 
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        CONVERTIBLE
                                                  CLASS A AND            PREFERRED              COMMON
                                                    B UNITS                STOCK                 STOCK
                                              -------------------   -------------------   -------------------   ADDITIONAL
                                                           PAR                   PAR                   PAR       PAID-IN
                                               UNITS      VALUE      SHARES     VALUE      SHARES     VALUE      CAPITAL
                                              --------   --------   --------   --------   --------   --------   ----------
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>        <C>
Balances, January 1, 1997...................   12,000     $   12         --     $   --         --    $    --     $    990
Exchange of Class A Units for common stock
  at an exchange ratio of 1:1.667...........   (4,000)        (4)        --         --      6,666          7           (3)
Exchange of Class B Units for Series A
  preferred stock at an exchange ratio of
  1:1.667...................................   (8,000)        (8)    13,333         13         --         --           (5)
Convertible notes payable and accrued
  interest converted to Series B preferred
  stock.....................................       --         --      1,855          2         --         --          555
Value ascribed to bridge financing
  warrants..................................       --         --         --         --         --         --          124
Issuance of Series B preferred stock, net of
  issuance costs of $47.....................       --         --     19,203         19         --         --        5,695
Net loss....................................       --         --         --         --         --         --           --
                                              -------     ------    -------     ------    -------    -------     --------
Balances, December 31, 1997.................       --         --     34,391         34      6,666          7        7,356
Issuance of Series B preferred stock, net of
  issuance costs of $21.....................       --         --      4,667          4         --         --        1,374
Issuance of common stock to an employee.....       --         --         --         --          7         --            1
Value ascribed to lease financing
  warrants..................................       --         --         --         --         --         --           54
Exercise of warrants to purchase Series B
  preferred stock...........................       --         --        233          1         --         --           69
Deferred compensation related to grants of
  stock options.............................       --         --         --         --         --         --          699
Amortization of deferred stock
  compensation..............................       --         --         --         --         --         --           --
Net Loss....................................       --         --         --         --         --         --           --
                                              -------     ------    -------     ------    -------    -------     --------
Balances, December 31, 1998.................       --         --     39,291         39      6,673          7        9,553
Issuances of Series C preferred stock, net
  of issuance costs of $85..................       --         --     59,260         60         --         --       31,850
Issuance of common stock, net of issuance
  costs of $17,866..........................       --         --         --         --     24,000         24      220,616
Exercise of warrants to purchase Series B
  preferred stock...........................       --         --        402         --         --         --          120
Exercise of employee stock options..........       --         --         --         --      2,065          2           76
Deferred compensation related to grants of
  stock options.............................       --         --         --         --         --         --       24,303
Amortization of deferred stock
  compensation..............................       --         --         --         --         --         --           --
Value ascribed to standby credit facility
  warrants..................................       --         --         --         --         --         --          536
Conversion of preferred stock to common
  stock.....................................       --         --    (98,953)       (99)    98,953         99           --
Cashless exercise of warrants to purchase
  common stock..............................       --         --         --         --        398         --           --
Net loss....................................       --         --         --         --         --         --           --
                                              -------     ------    -------     ------    -------    -------     --------
Balances, December 31, 1999.................       --     $   --         --     $   --    132,089    $   132     $287,054
                                              =======     ======    =======     ======    =======    =======     ========
 
<CAPTION>
 
                                                DEFERRED      ACCUMUL
                                                  STOCK         ATED
                                              COMPENSATION    DEFICIT     TOTAL
                                              -------------   --------   --------
<S>                                           <C>             <C>        <C>
Balances, January 1, 1997...................    $     --      $  (959)   $     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)     (1,609)
                                                --------      --------   --------
Balances, December 31, 1997.................          --       (2,568)      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.............................        (699)          --          --
Amortization of deferred stock
  compensation..............................         205           --         205
Net Loss....................................          --       (6,973)     (6,973)
                                                --------      --------   --------
Balances, December 31, 1998.................        (494)      (9,541)       (436)
Issuances of Series C preferred stock, net
  of issuance costs of $85..................          --           --      31,910
Issuance of common stock, net of issuance
  costs of $17,866..........................          --           --     220,640
Exercise of warrants to purchase Series B
  preferred stock...........................          --           --         120
Exercise of employee stock options..........          --           --          78
Deferred compensation related to grants of
  stock options.............................     (24,303)          --          --
Amortization of deferred stock
  compensation..............................       7,569           --       7,569
Value ascribed to standby credit facility
  warrants..................................          --           --         536
Conversion of preferred stock to common
  stock.....................................          --           --          --
Cashless exercise of warrants to purchase
  common stock..............................          --           --          --
Net loss....................................          --      (49,917)    (49,917)
                                                --------      --------   --------
Balances, December 31, 1999.................    $(17,228)     $(59,458)  $210,500
                                                ========      ========   ========
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1997       1998       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................  $(1,609)   $(6,973)   $(49,917)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization...........................      297        725       4,808
    Loss on disposal of assets..............................       --        102          --
    Non-cash interest and financing expense.................      146          7         553
    Provision for doubtful accounts.........................       27        140         212
    Non-cash compensation expense...........................       --        205       7,569
  Changes in operating assets and liabilities:
    Accounts receivable.....................................     (224)      (678)     (3,531)
    Prepaid expenses and other assets.......................       38       (391)     (1,762)
    Accounts payable........................................       82        721       6,016
    Deferred revenue........................................       84        200        (262)
    Accrued liabilities.....................................       37        619       2,496
                                                              -------    -------    --------
      Net cash used in operating activities.................   (1,122)    (5,323)    (33,818)
                                                              -------    -------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................      (93)      (794)    (12,905)
  Deposits on property and equipment........................       --        (58)         --
  Purchase of investments...................................       --         --     (65,214)
  Redemption of investments.................................       --         --       9,995
  Payments for patents and trademarks.......................      (48)        (3)        104
                                                              -------    -------    --------
      Net cash used in investing activities.................     (141)      (855)    (68,020)
                                                              -------    -------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from shareholder loan and line of credit.........      180         --       1,100
  Repayment of shareholder loan and line of credit..........     (180)        --      (1,100)
  Issuance of notes payable.................................       --         --       4,237
  Principal payments on note payable........................      (34)       (34)       (355)
  Net increase (decrease) in line of credit.................       --        650         875
  Payments on capital lease obligations.....................     (327)      (534)     (2,186)
  Proceeds from equipment leaseback financing...............       --        153         428
  Proceeds from exercise of stock options...................       --         --          78
  Proceeds from issuance of convertible notes payable.......      660         --          --
  Principal payments on convertible note payable............     (125)        --          --
  Proceeds from issuance of and exercise of warrants to
    purchase preferred stock, net of issuance costs.........    5,714      1,448      32,030
  Proceeds from issuance of common stock, net of issuance
    costs...................................................       --         --     221,640
                                                              -------    -------    --------
      Net cash provided by financing activities.............    5,888      1,683     256,747
                                                              -------    -------    --------
Net increase (decrease) in cash and cash equivalents........    4,625     (4,495)    154,909
Cash and cash equivalents at beginning of period............      145      4,770         275
                                                              -------    -------    --------
Cash and cash equivalents at end of period..................  $ 4,770    $   275    $155,184
                                                              =======    =======    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest, net of amounts capitalized........  $   103    $    82    $    413
                                                              =======    =======    ========
  Purchase of property and equipment financed with capital
    leases..................................................  $   260    $ 3,606    $ 15,857
                                                              =======    =======    ========
  Purchase of property and equipment included in accounts
    payable.................................................  $    --    $ 1,537    $    196
                                                              =======    =======    ========
  Conversion of convertible notes to Series B preferred
    stock...................................................  $   535    $    --    $     --
                                                              =======    =======    ========
  Conversion of preferred stock to common stock.............  $    --    $    --    $     99
                                                              =======    =======    ========
  Value ascribed to warrants................................  $   124    $    54    $    536
                                                              =======    =======    ========
  Accrued private placement fee.............................  $    --    $    --    $  1,000
                                                              =======    =======    ========
</TABLE>

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

<PAGE>
                     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 amended in January and October 1999 to change the amount of
authorized common and preferred stock. In December 1999, the Company
incorporated a wholly-owned subsidiary in the United Kingdom, InterNAP Network
Services U.K. Limited, however there was no activity in the subsidiary through
December 31, 1999. In December 1999, a 100% stock dividend was declared on the
Company's common stock to be paid in January 2000. Accordingly, the number of
shares disclosed in the financial statements and related notes have been
adjusted to reflect the latest amendment and stock dividend 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 facilities ("P-NAP
facilities") 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.
 
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, 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 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). 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
investments are based on quoted market prices. The carrying value of those
investments approximates their fair value. At December 31, 1999, investments
consisted of commercial paper and government securities.
 
    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.
 
                                      F-7

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
 
    The Company had no customers representing over 10% of its 1999 revenues or
10% of its accounts receivable at December 31, 1999. The Company had two
significant customers representing approximately 13.6% and 9.6% of 1998 revenues
and 9.9% and 11.0% of accounts receivable at December 31, 1998. 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. During 1997, the Company had a significant customer
representing 18.1% of revenues. In addition, a significant customer that
represented 20.8% of 1997 revenues 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.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    The Company's financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, capital lease
obligations, and the line of credit are carried at cost. The Company's
short-term financial instruments approximate fair value due to their relatively
short maturities. The carrying value of the Company's long-term financial
instruments approximate fair value as the interest rates approximate current
market rates of similar debt or investments.
 
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 three to seven 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 facility, 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-NAP facilities
when the P-NAP facilities require an extended period of time to ready them for
their intended use. During 1998 and 1999, the Company capitalized approximately
$78,000 and $177,000 of labor costs and $34,000 and $108,000 of interest costs,
respectively, related to the construction of several P-NAP facilities. 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
 
                                      F-8

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 and 1999,
the Company capitalized approximately $76,000 and $230,000 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. At December 31, 1998 and 1999, $47,797
and $142,154 of capitalized patent and trademark costs, net of accumulated
amortization of $3,698 and $9,872, are included in the Company's financial
statements.
 
VALUATION OF LONG-LIVED ASSETS
 
    The Company periodically evaluates the carrying value of its long-lived
assets, including, but not limited to, property and equipment, patents and
trademarks, and other assets. The carrying value of a long-lived asset is
considered impaired when the undiscounted cash flow from such asset is
separately identifiable and is estimated to be less than its carrying value. In
that event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset. Fair market value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets to be disposed
of would be 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. The value
ascribed to the warrants is based on the Black-Scholes option pricing model. The
portion of the proceeds allocated to the warrants 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 and 1999,
$46,934 and $29,469
 
                                      F-9

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of deferred financing costs, net of accumulated amortization of $7,525 and
$24,990, 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 first day of each month
either on a usage or a flat-rate basis. The usage based billing relates to the
month prior to the month in which the billing occurs, whereas certain flat rate
billings relate to the month in which the billing occurs. 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 which for the years ended December 31, 1997, 1998 and 1999
amounted to approximately $389,000, $708,000 and $3,079,000, respectively.
 
ADVERTISING COSTS
 
    The Company expenses advertising costs as they are incurred. Advertising
expense for 1997, 1998 and 1999 was $16,000, $63,000 and $1,790,000,
respectively.
 
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. The Company has excluded all outstanding 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-10

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    The following table presents the calculation of basic and diluted net loss
per share (in thousands, except per share data):
 

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1997       1998       1999
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net loss....................................................  $(1,609)   $(6,973)   $(49,917)
                                                              =======    =======    ========
Basic and diluted:
  Weighted average shares of common stock outstanding used
    in computing basic and diluted net loss per share.......    6,666      6,673      37,994
                                                              =======    =======    ========
  Basic and diluted net loss per share......................  $  (.24)   $ (1.04)   $  (1.31)
                                                              =======    =======    ========
  Antidilutive securities not included in diluted net loss
    per share calculation:
      Convertible preferred stock...........................   34,391     39,291          --
      Options to purchase common stock......................       --      6,823      15,441
      Warrants to purchase common and Series B preferred
        stock...............................................    1,572      1,588       1,924
      Unvested shares of common stock subject to
        repurchase..........................................       --         --          54
                                                              -------    -------    --------
                                                               35,963     47,702      17,419
                                                              =======    =======    ========
</TABLE>

 
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 December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the
 
                                      F-11

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
basic criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. Management believes that
the impact of SAB 101 would have no material effect on the financial position or
results of operations of the Company.
 
2. PROPERTY AND EQUIPMENT:
 
    Property and equipment consists of the following (in thousands):
 

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                             -------------------
                                                               1998       1999
                                                             --------   --------
<S>                                                          <C>        <C>
Network equipment..........................................   $1,150    $ 4,665
Network equipment under capital lease......................    4,465     20,095
Furniture, equipment and software..........................      424      6,717
Furniture, equipment and software under capital lease......      142      1,164
Leasehold improvements.....................................      688      2,009
                                                              ------    -------
                                                               6,869     34,650
Less: Accumulated depreciation and amortization ($952 and
  $4,851 related to capital leases at December 31, 1998 and
  1999, respectively)......................................   (1,041)    (5,839)
                                                              ------    -------
Property and equipment, net................................   $5,828    $28,811
                                                              ======    =======
</TABLE>

 
    Depreciation and amortization expense for the years ended December 31, 1997,
1998 and 1999 amounted to $297,000, $721,000 and $4,798,000, 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,
                                                             -----------------------
                                                               1998           1999
                                                             --------       --------
<S>                                                          <C>            <C>
Compensation payable.......................................    $567          $2,729
Taxes payable..............................................      95              49
Private placement fee......................................      --           1,000
Other......................................................      51             431
                                                               ----          ------
                                                               $713          $4,209
                                                               ====          ======
</TABLE>

 
4. FINANCING ARRANGEMENTS:
 
    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 1,571,158 shares of Series B preferred stock
at a price of $.30 per share, which resulted in financing expense of $124,310.
 
                                      F-12

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
4. FINANCING ARRANGEMENTS: (CONTINUED)
    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.
 
    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.
 
    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 was collateralized by
the assets of the Company and interest was payable at prime plus 1%. The Line
required interest only payments monthly and matured in May 1999. At
December 31, 1998, the Company had $650,000 outstanding on the Line.
 
    During July 1999, the Company amended the 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 1.0% (9.5% at December 31, 1999)
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. During 1999,
the Company refinanced $650,000 outstanding under the New Line and borrowed an
additional $875,000 under the New Line during 1999.
 
    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.
 
    During August 1999, the Company entered into an equipment financing
arrangement with a finance company which allows borrowings of up to $5,000,000
for the purchase of property and equipment. The equipment financing arrangement
includes sublimits of $3,500,000 for equipment costs and $1,500,000 for the
acquisition of software and other P-NAP and facility costs. Loans under the
$3,500,000 sublimit require monthly principal and interest payments over a term
of 48 months. This facility bears interest at 7.5% plus an index rate based on
the yield of 4-year U.S. Treasury Notes (13.7% at December 31, 1999). Loans
under the $1,500,000 sublimit require monthly principal and interest payments
over a term of 36 months. This facility bears interest at 7.9% plus an index
rate based on the yield of 3-year U.S. Treasury Notes (14.0% at December 31,
1999). Borrowings under each sublimit must be prior to May 1, 2000. During 1999,
the Company borrowed approximately $3,882,000, net of principal repayments of
$355,000, pursuant to this arrangement. Amounts borrowed are collateralized by
the property and equipment purchased and require monthly payments of principle
and interest.
 
                                      F-13

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
4. FINANCING ARRANGEMENTS: (CONTINUED)
    On September 23, 1999, the Company signed a standby loan facility agreement
with seven shareholders that matured upon closing of the Company's initial
public offering. This facility allowed the Company to draw up to $10,000,000
prior to the earlier of maturity or December 31, 1999, with interest at prime
plus 2% and principal and interest due on the earlier of six months from the
first draw or maturity. The Company did not draw any amounts on the standby
credit facility. In connection with the standby credit facility, the Company
issued warrants to purchase 200,000 shares of common stock with exercise prices
of $10.00 per share. The estimated fair value ascribed to the warrants was
$536,000 based upon the Black-Scholes option pricing model, and has been
reflected as interest expense for the year ended December 31, 1999.
 
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, 1999 (in thousands):
 

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S>                                                           <C>
2000........................................................  $ 7,435
2001........................................................    7,072
2002........................................................    4,771
2003........................................................       44
                                                              -------
  Total minimum lease payments..............................   19,322
Less: amount representing interest..........................   (1,192)
                                                              -------
Present value of minimum lease payments.....................   18,130
Less: current portion.......................................   (6,613)
                                                              -------
Capital lease obligations, less current portion.............  $11,517
                                                              =======
</TABLE>

 
    In November 1999, the Company amended an existing lease credit facility with
a vendor which increased the available line by $17,500,000 to $35,500,000
through November 2000. Approximately $18,389,000 was available under this
facility at December 31, 1999.
 
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, 1999, the Company has net operating loss carryforwards of
approximately $50,300,000, expiring through 2019. 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.
 
                                      F-14

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
6. INCOME TAXES: (CONTINUED)
    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,
                                                          -----------------------
                                                            1998           1999
                                                          --------       --------
<S>                                                       <C>            <C>
Deferred income tax assets:
Net operating loss carryforwards........................   $2,680        $19,117
Allowance for doubtful accounts.........................       24             78
Accrued compensation....................................       --            402
Other...................................................       --              4
                                                           ------        -------
                                                            2,704         19,601
Deferred income tax liabilities:
Property and equipment..................................      (58)          (775)
                                                           ------        -------
                                                            2,646         18,826
Valuation allowance.....................................   (2,646)       (18,826)
                                                           ------        -------
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, net of the federal tax benefit, as follows:
 

<TABLE>
<CAPTION>
                                                                           YEAR ENDED
                                                                          DECEMBER 31,
                                                         ----------------------------------------------
                                                           1997               1998               1999
                                                         --------      ------------------      --------
<S>                                                      <C>           <C>                     <C>
Federal income tax benefit at statutory rates..........    (34%)                      (34%)      (34%)
State income tax benefit at statutory rates............     --                         (3%)       (4%)
Non-taxable LLC losses.................................     25%                        --         --
Change in valuation allowance..........................      9%                        37%        38%
                                                           ---         ------------------        ---
Effective tax rate.....................................     --%                        --%        --%
                                                           ===         ==================        ===
</TABLE>

 
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. Effective January 1, 2000, the
Company began matching 50% of employee contributions, up to a maximum of 6% of
each employee's gross wages.
 
                                      F-15

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
8. COMMITMENTS AND CONTINGENCIES:
 
OPERATING LEASES
 
    The Company has entered into leasing arrangements relating to office space
and P-NAP facility rental space which are classified as operating. Future
minimum lease payments on non-cancelable operating leases are as follows at
December 31, 1999 (in thousands):
 

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S>                                                           <C>
2000........................................................  $ 4,038
2001........................................................    4,172
2002........................................................    3,855
2003........................................................    3,199
2004........................................................      874
Thereafter..................................................      878
                                                              -------
                                                              $17,016
                                                              =======
</TABLE>

 
    Rent expense was approximately, $111,000, $571,000 and $3,381,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
 
SERVICE COMMITMENTS
 
    The Company has entered into service commitment contracts with backbone
service providers to provide interconnection services. Minimum payments under
these service commitments are as follows at December 31, 1999 (in thousands):
 

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S>                                                           <C>
2000........................................................  $ 3,300
2001........................................................   12,880
2002........................................................    9,868
                                                              -------
                                                              $26,048
                                                              =======
</TABLE>

 
9. SHAREHOLDERS' EQUITY (DEFICIT):
 
    In January and October 1999, the articles of incorporation were amended to
change the authorized amount of common and preferred stock. In December 1999, a
100% share dividend was declared on the Company's common stock to be distributed
in January 2000. Accordingly, the disclosures in the financial statements and
related notes have been adjusted to reflect the October 1999 amendment to the
Articles of Incorporation and the stock dividend for all periods presented.
 
                                      F-16

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
9. SHAREHOLDERS' EQUITY (DEFICIT): (CONTINUED)
CONVERTIBLE PREFERRED STOCK
 
    At December 31, 1998, preferred stock consisted of the following (in
thousands):
 

<TABLE>
<CAPTION>
                                                                                            COMMON STOCK
                               SHARES     ISSUED AND                     ADDITIONAL         RESERVED FOR   LIQUIDATION
SERIES                       DESIGNATED   OUTSTANDING   PAR VALUE   PAID-IN CAPITAL (NET)    CONVERSION    PREFERENCE
------                       ----------   -----------   ---------   ---------------------   ------------   -----------
<S>                          <C>          <C>           <C>         <C>                     <C>            <C>
A..........................     13,333      13,333         $13             $  987              13,333         $  680
B..........................     27,546      25,958          26              7,693              25,958          7,786
C..........................     59,260          --          --                 --                  --             --
                               -------      ------         ---             ------              ------         ------
                               100,139      39,291         $39             $8,680              39,291         $8,466
                               =======      ======         ===             ======              ======         ======
</TABLE>

 
    In February 1999, the Company sold 59,259,260 shares of Series C preferred
stock at a price of $.54 per share, resulting in gross proceeds of approximately
$32,000,000, prior to deducting issuance costs. In addition, during 1999 several
warrant holders exercised warrants to purchase 402,008 shares of Series B
preferred stock, resulting in net proceeds to the Company of $120,303. Upon the
closing of the Company's initial public offering on October 4, 1999, all shares
of preferred stock outstanding converted into 98,953,050 shares of common stock.
 
    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 to the Articles of Incorporation in
January 1999, the number of shares authorized for preferred stock was increased
to 100,139,230 shares. As a result of the amendment to the Articles of
Incorporation in October 1999, the number of shares authorized for preferred
stock was decreased to 10,000,000.
 
COMMON STOCK
 
    As a result of the January 1999 amendment, the number of shares of common
stock authorized was increased to 100,000,000 from 70,000,000. In July 1999, the
Board of Directors increased the authorized shares of common stock to
300,000,000 and, in October 1999 upon the closing of the Company's initial
public offering, the authorized shares of common stock were increased to
500,000,000 shares.
 
    On September 29, 1999, the Company sold 19,000,000 shares of its common
stock in an initial public offering at a price of $10.00 per share for net
proceeds of $176,700,000. On October 1, 1999, the underwriters exercised their
over-allotment option, resulting in the sale of an additional 2,850,000 shares
of common stock at $10.00 per share for additional net proceeds of $26,505,000.
 
    Concurrent with the closing of its initial public offering, the Company sold
2,150,537 shares of common stock to Inktomi Corporation for $9.30 per share,
resulting in proceeds of $19,000,000, net of a private placement fee of
$1,000,000. In conjunction with this investment, the Company issued a warrant to
purchase 1,075,268 shares of common stock at an exercise price of $13.95 per
share. The warrant has a two-year term and includes demand and piggyback
registration rights. The agreement also prohibits Inktomi from acquiring
additional shares of the Company's common stock for a period of two years. The
Company intends to complete a joint technical and marketing agreement with
Inktomi. On November 24, 1999, Inktomi exercised 50% of these warrants through a
cashless exercise, resulting in the issuance of 397,250 shares of common stock
to Inktomi.
 
                                      F-17

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
9. SHAREHOLDERS' EQUITY (DEFICIT): (CONTINUED)
CLASS A AND B UNITS
 
    During 1996, conducting business as an LLC, the Company issued 4,000,000
Class A units to its founding members upon incorporation and subsequently sold
8,000,000 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 AND COMMON STOCK
 
    During 1997, the Company issued warrants to purchase up to 1,571,518 shares
of Series B preferred stock at $.30 per share in conjunction with its bridge
financing. During 1998, the Company issued warrants to purchase up to 250,002
shares of Series B preferred stock at $.30 per share in connection with various
lease financings. The warrants to purchase Series B preferred stock converted to
warrants to purchase common stock upon the closing of the Company's initial
public offering. Outstanding warrants to purchase shares of common stock at
December 31, 1999, including the warrants issued to Inktomi and in connection
with the standby loan agreements, are as follows (shares in thousands):
 

<TABLE>
<CAPTION>
YEAR OF                                                       EXERCISE
EXPIRATION                                                     PRICE      SHARES
----------                                                    --------   --------
<S>                                                           <C>        <C>
2001........................................................   $13.95       538
2002........................................................      .30       936
2004........................................................    10.00       200
2008........................................................      .30       250
                                                                          -----
                                                                          1,924
                                                                          =====
</TABLE>

 
10. STOCK-BASED COMPENSATION PLANS:
 
    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 8,070,000 and were increased to
10,070,000 in January 1999.
 
    During June 1999, the Company's Board of Directors adopted the 1999 Equity
Incentive Plan (the "1999 Plan") which provides for the issuance of incentive
stock options ("ISOs") and nonqualified stock options to eligible individuals
responsible for the management, growth and financial success of the Company. As
of December 31, 1999, 13,000,000 shares of common stock have been reserved for
the 1999 Plan. Upon the first nine anniversaries of the adoption date of the
1999 Plan, the number of shares reserved for issuance under the 1999 Plan will
automatically be increased by 3.5% of the total shares of common stock then
outstanding or, if less, by 6,500,000 shares. The terms of the 1999 Plan are the
same as the 1998 Plan with respect to ISO treatment and vesting. During the year
ended December 31, 1999, the Company granted an additional 2,937,000 options
under the 1998 Plan and 7,717,500 options under the 1999 Plan. As of
December 31, 1999, 7,345,442 and 7,655,500 options were outstanding under the
1998 Plan and 1999 Plan, respectively, net of exercises and cancellations.
 
    During July 1999, the Company adopted the 1999 Non-Employee Director's 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 1,000,000
shares of the Company's common stock have been
 
                                      F-18

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)
reserved for issuance under the Director Plan. Under the terms of the Director
Plan, 480,000 fully vested options were granted to existing directors on the
effective date of the Company's initial public offering with an exercise price
of $10.00 per share, all of which remained outstanding at December 31, 1999.
Subsequent to the Company's initial public offering, initial grants, which are
fully vested as of the date of the grant, of 80,000 shares of the Company's
common stock are to be made under the Director Plan to all non-employee
directors 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 20,000
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.
 
    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 and 1999 under all of the Company's stock option
plans is as follows (there was no activity in 1997) (shares in thousands):
 

<TABLE>
<CAPTION>
                                                                       WEIGHTED
                                                                       AVERAGE
                                                          SHARE     EXERCISE PRICE
                                                         --------   --------------
<S>                                                      <C>        <C>
Granted................................................    6,823         $ .05
Exercised..............................................       --            --
Canceled...............................................       --            --
                                                          ------
Balance, December 31, 1998.............................    6,823         $ .05
Granted................................................   11,135         $5.82
Exercised..............................................   (2,065)        $ .04
Cancelled..............................................     (412)        $3.92
                                                          ------
Balance, December 31, 1999.............................   15,481         $4.10
                                                          ======
</TABLE>

 
    Options granted during 1998 include 800,000 non-qualified options granted to
members of the Board of Directors ("Directors' Options") which are immediately
exercisable, and upon exercise, are 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.
 
                                      F-19

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)
    The following table summarizes information about options outstanding at
December 31, 1999 (shares in thousands):
 

<TABLE>
<CAPTION>
                                                                              OPTIONS EXERCISABLE
                                                                        (EXCLUDING OPTIONS WHICH SHARES
                       OPTIONS OUTSTANDING                                    WOULD BE SUBJECT TO
-----------------------------------------------------------------     THE COMPANY'S RIGHT OF REPURCHASE)
                                              WEIGHTED AVERAGE      ---------------------------------------
                                            REMAINING CONTRACTUAL                         WEIGHTED AVERAGE
   EXERCISE PRICES      NUMBER OF SHARES       LIFE (IN YEARS)       NUMBER OF SHARES     EXERCISE PRICES
   ---------------     ------------------   ---------------------   ------------------   ------------------
<S>                    <C>                  <C>                     <C>                  <C>
     $.03--$.03               2,076                 8.49                    438                $  .03
     $.08--$.08               2,542                 8.85                    515                $  .08
     $.22--$.22                 690                 9.10                     30                $  .22
     $.40--$.40               2,037                 9.24                      8                $  .40
    $2.00--$2.00              3,440                 9.41                     --                    --
    $2.50--$4.00              2,188                 9.59                      2                $ 4.00
    $5.00--$10.00             1,865                 9.73                    480                $10.00
   $28.75--$28.75               104                 9.76                     --                    --
   $44.00--$44.00               212                 9.84                     --                    --
   $70.06--$70.06               327                 9.94                     --                    --
                             ------                                       -----
    $.03--$70.06             15,481                 9.24                  1,473                $ 3.31
                             ======                                       =====
</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 and in 1999 prior to the Company's initial public offering 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% and 6.75%;
volatility of 0% and 0%; and an expected life of 6 and 5 years, respectively.
The fair value of options granted in 1999 subsequent to the Company's initial
public offering was estimated at the date of grant using the Black-Scholes
option pricing model assuming no expected dividends and the following weighted
average assumptions: risk free interest rate of 6.75%; volatility of 80%; and an
expected life of 5 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 years ended December 31, 1998 and 1999 would
have been approximately $6,985,000 and $60,372,000 and $1.05 and $1.59,
respectively.
 
    During 1998 and 1999, options to purchase 6,823,498 and 9,854,000 shares of
the Company's common stock, with a weighted-average exercise price of $.05 and
$3.09 per share and a weighted-average option fair value of $.12 and $3.69 per
share, were granted, respectively, 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 and 1999 Plans 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
 
                                      F-20

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)
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, 1999, the Company has
recorded deferred stock compensation related to these options in the total
amount of $25,002,000, of which $205,000 and $7,569,000 has been amortized to
expense during 1998 and 1999, respectively. The weighted average exercise price
of the 6,823,498 options granted in 1998 to purchase common stock was $.05 and
the weighted average fair value per share was $.15 during 1998. The weighted
average exercise price of the 11,134,500 options granted in 1999 to purchase
common stock was $5.82 and the weighted average fair value per share was $7.98.
 
EMPLOYEE STOCK PURCHASE PLAN
 
    A total of 3,000,000 shares of common stock have been reserved for issuance
under the Company's 1999 Employee Stock 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 3,000,000 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 the Company through payroll deductions. The purchase plan is
implemented by offering rights to eligible employees. Under the purchase plan,
the Company may specify offerings with a duration of not more than 27 months,
and may specify shorter purchase periods within each offering. The first
offering began on September 29, 1999 and will terminate on September 30, 2001.
Purchase dates occur each March 31 and September 30.
 
    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 is 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 ends automatically on termination of
their employment with the Company or one of its subsidiaries.
 
11. UNAUDITED QUARTERLY RESULTS:
 
    The following tables set forth certain unaudited quarterly results of
operations of the Company for the year ended 1999. In the opinion of management,
this information has been prepared on the same basis as the audited consolidated
financial statements and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly the quarterly information when read in conjunction with the audited
consolidated financial statements and
 
                                      F-21

<PAGE>
                     INTERNAP NETWORK SERVICES CORPORATION
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
11. UNAUDITED QUARTERLY RESULTS: (CONTINUED)
notes thereto included elsewhere in this annual report on Form 10-K. The
quarterly operating results are not necessarily indicative of future results of
operations.
 

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                           --------------------------------------------------------------------------------------
                                           MAR. 31,   JUN. 30,   SEPT. 30,   DEC. 31,   MAR. 31,   JUN. 30,   SEPT. 30   DEC. 31
                                             1998       1998       1998        1998       1999       1999       1999       1999
                                           --------   --------   ---------   --------   --------   --------   --------   --------
                                                                               (IN THOUSANDS)
<S>                                        <C>        <C>        <C>         <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................  $   314     $  417     $   472    $   754    $ 1,244    $  2,166   $  3,613   $  5,497
                                           -------     ------     -------    -------    -------    --------   --------   --------
Costs and expenses:
  Costs of network and customer
    support..............................      440        554         797      1,425      2,346       5,560      8,428     11,078
  Product development....................      160        158         187        249        565         830      1,053      1,471
  Sales and marketing....................      128        224         715      1,755      2,236       3,633      4,691      6,963
  General and administrative.............      235        359         487        829      1,172       1,733      2,216      3,207
  Amortization of deferred stock
    compensation.........................       10          9         110         76        349       1,438      2,505      3,277
                                           -------     ------     -------    -------    -------    --------   --------   --------
      Total operating costs and and
        expenses.........................      973      1,304       2,296      4,334      6,668      13,194     18,893     25,996
                                           -------     ------     -------    -------    -------    --------   --------   --------
Loss from operations.....................     (659)      (887)     (1,824)    (3,580)    (5,424)    (11,028)   (15,280)   (20,499)
Other income (expense):
  Interest income........................       65         56          38         10        206         244         93      2,845
  Interest and financing expense.........      (12)       (24)        (27)       (27)       (57)        (90)      (640)      (287)
  Loss on disposal of assets.............       --         --          --       (102)        --          --         --         --
                                           -------     ------     -------    -------    -------    --------   --------   --------
Net loss.................................  $  (606)    $ (855)    $(1,813)   $(3,699)   $(5,275)   $(10,874)  $(15,827)  $(17,941)
                                           =======     ======     =======    =======    =======    ========   ========   ========
Basic and diluted net loss per share.....  $  (.09)    $ (.13)    $  (.27)   $  (.55)   $  (.79)   $  (1.59)  $  (1.92)  $   (.14)
                                           =======     ======     =======    =======    =======    ========   ========   ========
Weighted average shares used in computing
  basic and diluted net loss per share...    6,671      6,673       6,673      6,673      6,674       6,839      8,246    129,314
                                           =======     ======     =======    =======    =======    ========   ========   ========
</TABLE>

 
12. EVENTS SUBSEQUENT TO DECEMBER 31, 1999 (UNAUDITED):
 
SECONDARY OFFERING
 
    On January 27, 2000, the Company filed a registration statement with the
Securities and Exchange Commission on Form S-1 to offer 7,500,000 shares of
common stock to the public. Of these shares, 3,000,000 shares will be offered by
the Company and 4,500,000 shares will be offered by selling shareholders.
 
INVESTMENT
 
    On February 22, 2000, pursuant to an investment agreement, the Company
purchased 588,236 shares of Aventail Corporation ("Aventail") Series D preferred
stock at $10.20 per share for a total cash investment of $6,000,007. The
Series D preferred stock is convertible to common stock at a ratio of one share
of preferred stock to one share of common stock, subject to adjustment for
certain equity transactions. Additionally, the Company and Aventail entered into
a joint marketing agreement which, among other things, granted the Company
certain limited exclusive rights to sell Aventail's managed extranet service and
granted Aventail certain rights to sell the Company's services. In return, the
Company committed to either sell Aventail services or pay Aventail, or a
combination of both, which would result in Aventail's recognition of $3,000,000
of revenue over a two-year period.
 
                                      F-22

<PAGE>

 
                                EXHIBIT INDEX
 

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                                    DESCRIPTION
-----------------------   ------------------------------------------------------------
<C>                       <S>
 3.1+                     Amended and Restated Articles of Incorporation of InterNAP.
 
 3.2+                     Bylaws of InterNAP.
 
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 Employee Stock Purchase Plan.
 
10.4*-                    1999 Employee Stock Purchase Plan.
 
10.5*-                    1999 Stock Option/Stock Issuance Plan.
 
10.6+-                    Amended 1999 Equity Incentive Plan (Exhibit 10.7).
 
10.7*-                    Form of 1999 Equity Incentive Plan Stock Option Agreement
                          (Exhibit 10.8).
 
10.8+                     Lease Agreement, dated June 1, 1996, between Registrant and
                          Sixth & Virginia Properties, as amended by Lease
                          Modification No. 1, dated May 1, 1998, as amended by Lease
                          Modification No. 2 dated September 1, 1998, as amended by
                          Lease Modification No. 3, dated December 20, 1999 (Exhibit
                          10.10).
 
10.9*                     Form of Employee Confidentiality, Nonraiding and
                          Noncompetition Agreement used between Registrant and its
                          Executive Officers (Exhibit 10.11).
 
10.10+                    Amended and Restated Investor Rights Agreement, dated
                          October 4, 1999 (Exhibit 10.17).
 
10.11*                    Amended and Restated Loan and Security Agreement, dated June
                          30, 1999, between Registrant and Silicon Valley Bank
                          (Exhibit 10.19).
 
10.12+                    Master Agreement to Lease Equipment, dated January 20, 1998
                          between Registrant and Cisco Systems Capital Corporation, as
                          amended on November 17, 1999 (Exhibit 10.20).
 
10.13+-                   Letter Agreement dated September 7, 1999 between Richard K.
                          Cotton and Registrant (Exhibit 10.25).
 
10.14*                    Master Loan and Security Agreement, dated August 23, 1999
                          between Registrant and Finova Capital Corporation (Exhibit
                          10.26).
 
10.15*                    Common Stock and Warrant Purchase Agreement, dated September
                          17, 1999, between Registrant and Inktomi Corporation
                          (Exhibit 10.27).
 
10.16+                    Warrant, dated December 22, 1999, issued to S.L. Partners,
                          Inc (Exhibit 10.28).
 
10.17+                    Form of Warrant issued to Paul Canniff, David Cornfield,
                          Robert J. Lunday, Jr., Dan Newell, Richard Saada, Robert D.
                          Shurtleff, Jr. and Todd Warren (Exhibit 10.29).
 
21.1+                     List of Subsidiaries.
 
23.1                      Consent of PricewaterhouseCoopers LLP, Independent
                          Accountants.
 
27.1+                     Financial Data Schedule.
</TABLE>

 
------------------------
 
*   Incorporated by reference to designated exhibit included with the Company's
    Registration Statement on Form S-1, File No. 333-84035.
 
+   Incorporated by reference to designated exhibit included with the Company's
    Registration Statement on Form S-1, File No. 333-95503.
 
-  Management contract or compensatory plan.





<PAGE>
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
    We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-89369) of INTERNAP NETWORK SERVICES CORPORATION
of our report dated January 22, 2000 relating to the financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated JANUARY 22, 2000 relating to the financial statement schedule,
which appears in the Registration Statement on Form S-1 (No. 333-95503) of
InterNap Network Services Corporation and which has been incorporated by
reference in this Form 10-K.
 
/s/ PricewaterhouseCoopers LLP
 
PricewaterhouseCoopers LLP
 
Seattle, Washington
 
March 21, 2000