INTERLIANT INC, S-1/A, 2000-06-29

INTERLIANT INC
S-1/A, 2000-06-29
BUSINESS SERVICES, NEC

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As filed with the Securities and Exchange Commission on June 29, 2000

Registration No. 333-38228
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1

to
FORM S-1
INTERLIANT, INC.
(Exact name of registrant as specified in its charter)
Delaware 7379 13-397-8980
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
Two Manhattanville Road
Purchase, New York 10577
(914) 640-9000
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
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Herbert R. Hribar
President and Chief Executive Officer
Interliant, Inc.
Two Manhattanville Road
Purchase, New York 10577
(914) 640-9000
(Name, address, including zip code and telephone number,
including area code, of agent for service)
--------------
Copies to:
Bruce S. Klein, Esq.
Senior Vice President, General Counsel and Secretary
Interliant, Inc.
Two Manhattanville Road
Purchase, New York 10577
(914) 640-9000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Title Of Each Class Of Maximum Proposed Amount Of
Securities To Be Amount To Be Offering Price Maximum Aggregate Registration
Registered Registered Per Unit Offering Price Fee
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<S> <C> <C> <C> <C>
7% Convertible
Subordinated Notes due
2005.................. $10,000,000 $54.844(1) $5,484,375 $1,448
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Common Stock, par value
$0.01................. 188,324(2) -(3) -(3) -(3)
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Common Stock, par value
$0.01................. 4,458,394 $20.6875(4) $74,224,013 $21,043(5)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) and based on the average of the high and low
prices, on May 30, 2000, for the 7% Convertible Subordinated Notes due
2005, as traded on the PORTAL system.
(2) This number represents the number of shares of Common Stock that are
initially issuable upon conversion of the 7% Convertible Subordinated Notes
due 2005 (the "Notes") registered hereby. For purposes of estimating the
number of shares of Common Stock to be included in the Registration
Statement upon conversion of the Notes, the Company calculated the number
of shares issuable upon conversion of the Notes based on a conversion rate
of 18.8324 shares per $1,000 principal amount of the Notes. In addition to
the shares set forth in the table, pursuant to Rule 416 under the
Securities Act of 1933, as amended, the amount to be registered includes an
indeterminate number of shares of Common Stock issuable upon conversion of
the Notes, as this amount may be adjusted in certain circumstances outlined
in the prospectus. For more details, see "Description of the Notes" under
the heading "Conversion Rights."
(3) No additional consideration will be received for the Common Stock, and,
therefore, no registration fee is required pursuant to Rule 457(i).

(4) Pursuant to Rule 457(c), such per share price is based on the average high
and low prices of our common stock on June 27, 2000, as reported on the
Nasdaq National Market and relates to 511,213 shares of our common stock
and the per share price with respect to previously paid registration fees
relating to 3,947,181 shares ($16.125) was based on the average high and
low prices of our common stock on May 30, 2000, as reported on the Nasdaq
National Market.

(5) Of this amount, $16,803 was paid previously.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion

Preliminary Prospectus dated June 29, 2000

PROSPECTUS

[LOGO OF INTERLIANT]

$10,000,000 7% Convertible Subordinated Notes due 2005
and 188,324 Shares of Common Stock Issuable Upon Conversion of the Notes

4,458,394 Shares of Common Stock

This prospectus relates to the offering of the 7% Convertible Subordinated
Notes due 2005 of Interliant, Inc., a Delaware corporation, held by Microsoft
Corporation and the shares of our common stock into which the notes are
convertible, as well as 4,458,394 shares of our common stock by certain of our
stockholders. Microsoft and these stockholders may offer the securities covered
in this prospectus at any time at market prices prevailing at the time of sale
or at privately negotiated prices. These selling security holders may sell the
notes or the common stock they hold directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the
form of discounts, concessions or commissions.

The holders of the notes may convert the notes into shares of our common
stock at any time before their maturity, unless we have previously redeemed or
repurchased them, at a conversion rate of 18.8324 shares per $1,000 principal
amount of notes. This is equivalent to a conversion price of approximately
$53.10 per share. We will pay interest on the notes on February 16 and August
16 of each year, beginning August 16, 2000. The notes will mature on February
16, 2005. We may redeem some or all of the notes at any time on or before
February 18, 2003 at a redemption price of $1,000 per $1,000 principal amount
of notes, plus accrued and unpaid interest, if any, to the redemption date, if
the closing price of our common stock has exceeded 150% of the conversion price
then in effect for at least 20 trading days within a period of 30 consecutive
trading days ending on the trading day before the date of mailing of the
provisional redemption notice. We will make an additional payment in cash with
respect to the notes called for provisional redemption in an amount equal to
$152.54 per $1,000 principal amount of notes, less the amount of any interest
actually paid on the notes before the call for redemption. At any time after
February 18, 2003, we may redeem the notes, in whole or in part, at the
redemption prices set forth in this prospectus.

In the event of a Change of Control, as defined in this prospectus, each
holder of the notes may require us to repurchase the notes at 100% of the
principal amount of the notes plus accrued interest. The notes are general,
unsecured obligations that are subordinated in right of payment to all of our
existing and future senior indebtedness and effectively subordinate to all
existing and future liabilities of our subsidiaries.

On June 27, 2000 the last reported sale price of our common stock, listed
under the symbol "INIT", on the Nasdaq National Market was $20.6875 per share.
Our 7% Convertible Subordinated Notes are currently eligible for trading on the
PORTAL Market of the Nasdaq Stock Market.

Investing in the notes or our common stock involves significant risks,
including those described in the "Risk Factors" section beginning on page 3 of
this prospectus.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is trustful or complete. Any representation to the contrary is
a criminal offense.

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The date of this prospectus is , 2000.
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 3
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Price Range of Common Stock.............................................. 15
Selected Consolidated Financial Data..................................... 16
Ratio of Earnings to Fixed Charges....................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 27
Management............................................................... 45
Related Party Transactions............................................... 56
Principal Stockholders................................................... 59
Selling Securityholders.................................................. 61
Description Of Notes..................................................... 63
Description Of Capital Stock............................................. 79
Certain United States Federal Income Tax Considerations.................. 81
Plan Of Distribution..................................................... 86
Legal Matters............................................................ 87
Experts.................................................................. 87
Where You Can Find More Information About Us............................. 88
Index to Financial Statements............................................ F-1
</TABLE>

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Interliant(R) is a registered trademark of Interliant, Inc. This prospectus
also includes trademarks of other companies. These trademarks are the property
of their respective holders.

You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it.

All references to "we," "us," "our" or "Interliant" in this prospectus means
Interliant, Inc., the issuer of the notes and the common stock issuable upon
conversion of the notes. For purposes of this prospectus, the company whose
business we acquired in March 1999, the name of which was Interliant, Inc., is
referred to as Interliant Texas. We changed our name from Sage Networks, Inc.
to Interliant, Inc. after acquiring Interliant Texas.

i
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements relating to, among other
things, future results of operations, growth plans, acquisitions and
integration, sales, gross margin and expense trends, capital requirements,
strategic partnerships and general industry and business conditions applicable
to Interliant. These forward-looking statements are based largely on our
current expectations and are subject to a number of risks and uncertainties.
When used in this prospectus, the words "anticipate," "believe," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Actual results could differ materially from these forward-looking
statements. In addition to the other risks described elsewhere in the "Risk
Factors" discussion, important factors to consider in evaluating such forward-
looking statements include unforeseen difficulties in integrating acquisitions
or in completing profitable acquisitions in the future, changes in external
competitive market factors, changes in our business strategy or an inability to
execute our strategy due to unanticipated changes in our business, our industry
or the economy in general and various other factors that may prevent us from
competing successfully in existing or future markets. In light of these risks
and uncertainties, we cannot assure you that the forward-looking statements
contained in this prospectus will be in fact realized and we assume no duty to
update any information herein.

ii
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PROSPECTUS SUMMARY

Our Company

We are a leading application service provider, or ASP, providing our
customers with a broad range of outsourced e-business solutions. Our customers
face significant challenges in doing business on the Internet due to its
technical complexity, their lack of technical skills, the time necessary to
implement solutions and the cost of implementation and ongoing support. By
providing comprehensive outsourced solutions that combine our hosting
infrastructure with Internet professional services expertise, we can rapidly
design, implement, deploy and effectively manage cost-effective e-business
solutions for our customers.

As an ASP, we provide:

. hosting infrastructure for our customers' network-based applications,
which allows our customers to store their databases, applications or Web
sites on equipment owned and maintained by us or on our customers'
equipment located in our data centers;

. Internet professional services for designing, implementing and deploying
these network-based applications; and

. operations support, systems and applications management and customer
care for our customers and their end-users.

Our services portfolio consists of the following solutions:

Web Hosting. We provide virtual, dedicated and co-located Web hosting
services. These range from simple, low-end, marketing-oriented Web sites on a
server shared by many customers to high-end, Web-based, mission-critical
applications on hardware dedicated to a specific customer.

Enterprise Resource Planning. Our enterprise resource planning, or ERP,
solutions include the implementation and hosting of PeopleSoft solutions. We
provide hosting services for outsourced human resources and finance solutions,
as well as implementation and management support to PeopleSoft customers.

E-Commerce. We provide e-commerce solutions based on IBM Net.Commerce,
Microsoft SiteServer, Mercantec SoftCart and other applications. Our e-commerce
solutions allow our customers to create and manage electronic storefronts and
provide end-to-end online e-commerce solutions.

Customer Relationship Management. Our Customer Relationship Management, or
CRM, solutions, which are based on software provided by companies such as Onyx,
provide geographically distributed sales and marketing organizations with all
the elements needed to deploy sales force automation, partner relationship
management and other CRM solutions quickly and at a reasonable cost.

Infrastructure/Security Solutions. Our infrastructure/security solutions
allow our customers to implement and deploy technologies that enhance the
performance of their hosted e-business solutions. These technologies include
managed firewall services, load balancing, and caching solutions from vendors
such as Cisco Systems, Check Point Software, ArrowPoint Communications, and
Alteon WebSystems.

Messaging/Knowledge Management. We offer a range of messaging and knowledge
management hosting solutions for the Lotus Notes/Domino and Microsoft Exchange
platforms. These solutions provide our customers with the infrastructure needed
to support e-mail and other messaging methods for internal and external
communication, project team collaboration and document sharing and to improve
business process automation and workflow. We also provide outsourced messaging
solutions based on industry-standard e-mail technologies, such as POP and SMTP,
as well as proprietary messaging solutions, including our eReach for messaging.

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Distributed Learning. Our distributed learning solutions, which are based on
software provided by Lotus, Macromedia and other companies, allow our customers
to create online learning and training environments.

Internet Professional Services. We implement, enhance and support all of our
ASP solutions with Internet professional services, either provided by our own
consultants or by our business partners. Our Internet professional services
include capabilities to create intranet, extranet and application hosting
solutions for our customers, as well as provide network implementation,
security implementation and back-end Web development projects. These services
are a key part of our ASP service delivery, enabling us to provide our
customers with an end-to-end outsourced solution.

We have four state-of-the-art primary data centers located in Houston,
Texas; Atlanta, Georgia; Vienna, Virginia and Columbus, Ohio. Our data centers
in Houston, Atlanta and Vienna are monitored on a 24x7 basis and include
sophisticated monitoring and diagnostics, 24x7 customer support, multiple high
speed network connections to the Internet and uninterruptible power supplies,
fire suppression and external fuel generators. Our Columbus data center is a
secured, raised-floor data center that provides continuous support, plus a
standby generator, hot and cold disaster recovery sites, and off-site data
storage and is monitored on a 24x7 basis.

We have grown rapidly since our inception in December 1997, acquiring 23
hosting and related Internet service businesses through March 31, 2000. In
addition, we have established strategic relationships that enable us to provide
complete, scalable and reliable ASP services to our customers and business
partners. Our current strategic alliances include partnerships with IBM, Dell
Computer, BMC Software, Lotus Development, Microsoft, UUNET Technologies,
Network Solutions, Cisco Systems and Onyx.

Our principal executive offices are located at Two Manhattanville Road,
Purchase, New York 10577 and our telephone number at that address is (914) 640-
9000.

2
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RISK FACTORS

Investing in the notes or shares of our common stock issuable upon
conversion of the notes entails significant risk. You should carefully consider
the risks and uncertainties described below and elsewhere in this prospectus
before making an investment decision. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. If any of the following risks or uncertainties actually
occur, our business could be adversely affected. In this event, the trading
price of the notes and our common stock could decline and you could lose part
or all of your investment.

We are a young and developing company and as a result investing in the notes
or our stock presents the following risks.

We have a limited operating history and may not successfully implement our
business plan.

We have a limited operating history. We were incorporated in December 1997
and began offering Web hosting services in February 1998. Through March 31,
2000, we have completed 23 acquisitions. As a result of our limited operating
history and numerous acquisitions, our business model is still developing. Our
business and prospects must be considered in light of the risks frequently
encountered by companies in their early stages of development, particularly
companies in the new and rapidly evolving Internet services market. Some of
these risks relate to our ability to:

. implement our sales and marketing strategy to support our business and
build the Interliant brand;

. identify, acquire and integrate strategic acquisitions and then cross-
sell our expanding range of branded services to the customer bases of
the acquired companies;

. provide reliable and cost-effective services to our customers;

. continue to build our operations and accounting infrastructure to
accommodate additional customers;

. respond to technological developments and new products and services
offered by our competitors;

. develop and offer new products and services or differentiate such
products and services from those offered by our competitors;

. enter into strategic relationships with application software vendors and
other strategic partners that further advance our objective to become a
full service ASP;

. build, maintain and expand distribution channels; and

. attract and retain qualified personnel.

We may not be successful in accomplishing these objectives. If we are not
successful, our business could be adversely affected.

We have a history of significant losses and these losses may increase in the
future.

Since our inception in December 1997, we have experienced operating losses
for each quarterly and annual period. We experienced net losses of
approximately $53.9 million in the year ended December 31, 1999 and $28.6
million in the three months ended March 31, 2000. As of March 31, 2000, we had
an accumulated deficit of approximately $93.4 million. The revenue, cash flow
and income potential of our business model is unproven and our limited
operating history makes it difficult to evaluate our prospects. We anticipate
that we will incur increased expenses, losses, and cash flow deficits as we
expand our sales and marketing initiatives to continue to grow the Interliant
brand, fund greater levels of product development, continue to build out our
data centers, implement centralized billing, accounting and customer service
systems and continue our acquisition program.

3
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We have experienced significant growth in revenues, primarily attributable
to acquisitions. This growth rate is not necessarily indicative of future
operating results. Our future results will depend not only on continuing our
acquisition strategy but also on internal growth. We expect that future
acquisitions will increase our operating expenses and operating losses. As a
result, we expect to incur significant additional operating losses. We cannot
give any assurance that we will ever achieve profitability on a quarterly or
annual basis, or, if we achieve profitability, that it will be sustainable.

Our operating results may fluctuate in the future. As a result, period-to-
period comparisons of our results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.

Our operating results may fluctuate in the future as a result of a variety
of factors, some of which are outside of our control. These factors include:

. the quality and timing of acquisitions we complete and our ability to
successfully integrate these acquisitions into our business;

. the demand for our services, pricing pressures in our market and changes
in the mix of products and services sold by us and our competitors;

. technological issues, including technical difficulties affecting the
Internet generally or our hosting operations in particular and increased
technological demands of our customers;

. the amount and timing of our costs related to our marketing efforts and
service introductions by us or our reseller or referral partners; and

. economic conditions specific to the hosting and consulting industries.

Historically, fluctuations in our operating results have resulted
principally from completed acquisitions. Due to the factors described above,
our operating results may not be indicative of future operating results. In
addition, our future operating results for any particular period may differ
materially from our expectations or those of investors or security analysts. In
this event, the market price of the notes and our common stock would likely
fall dramatically.

We only recently began to offer many of our products and services and we intend
to offer new products and services in the future. If our products are not
accepted by the market or have reliability or quality problems, our business
may suffer.

We have recently introduced new hosting solutions such as our hosted
customer relationship management solutions as well as enhanced Internet
services such as e-commerce and consulting services. If these and other new
hosting solutions and enhanced Internet services that we may introduce in the
future fail to gain market acceptance, our business could be adversely
affected. In addition, if these newly introduced hosting solutions and enhanced
Internet services have reliability, quality or compatibility problems, market
acceptance of these products could be greatly hindered and our ability to
attract new customers could be adversely affected. We cannot offer any
assurance that these new solutions and services are free from any reliability,
quality or compatibility problems.

The continued growth of the market for our products and services may not
materialize.

Our market is new and rapidly evolving. Whether the market for our products
and services will continue to grow is uncertain. Our business would be
adversely affected if the hosting market does not continue to grow or if
businesses reduce or discontinue outsourcing their hosting business.

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Our success depends in part on continued growth in the use of the Internet.
Our business would be adversely affected if Internet usage does not continue to
grow. Internet usage may be inhibited for a number of reasons, such as:

. security and privacy concerns;

. uncertainty of legal and regulatory issues concerning the use of the
Internet;

. inconsistent quality of service; and

. lack of availability of cost-effective, high-speed connectivity.

We are growing rapidly, principally through acquisitions, which presents the
following risks.

The success of our business plan depends on our ability to make additional
acquisitions. Our acquisition program entails significant risks.

We intend to pursue opportunities to expand our business through the
acquisition of selected companies in targeted markets. The acquisition
candidates we review can be large, and their acquisition by us could have a
significant and lasting impact on our business. We cannot guarantee that:

. we will be able to identify appropriate acquisition candidates or
negotiate acquisitions on favorable terms; or

. we will be able to obtain the financing necessary to complete all
projected future acquisitions.

Acquisitions involve numerous risks, including adverse effects on our
operating results from increases in amortization of intangible assets,
inability to integrate acquired businesses, increased compensation expense
associated with newly hired employees and unanticipated liabilities and
expenses. In addition, we cannot guarantee that we will realize the benefits or
strategic objectives we are seeking to obtain by acquiring any particular
company and any acquired company could significantly underperform relative to
our expectations. In particular, acquired companies have often experienced
modest revenue declines immediately following the closing of the acquisition.

Because we have only recently completed many of our acquisitions, we are
currently facing all of these challenges and we have not established our
ability to meet them over the long term. As a result of all of the foregoing,
our acquisition strategy could adversely affect our business.

The success of our business plan depends on the successful integration of
acquisitions.

From February 1998 through March 31, 2000, we have acquired 23 businesses
and are currently pursuing additional acquisitions. Our future performance will
depend in large part on our ability to integrate these businesses or any future
acquired businesses with our existing operations successfully and profitably.
To integrate acquired businesses, it is often necessary or desirable to
accomplish one or more of the following:

. consolidate their billing and accounting systems into our systems and
implement financial and other control systems;

. relocate the servers and other equipment of acquired companies to one of
our facilities;

. migrate the operations of acquired companies onto our technology
platforms;

. integrate the customer accounts of acquired companies into our customer
service system;

. integrate the service offerings of acquired companies into the
Interliant brand; and

. identify resellers and referral partners of the services of acquired
companies and migrate them to our business partner program.

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<PAGE>

We may not be able to successfully integrate acquired businesses with
existing operations without substantial costs, delays or other problems, if at
all. As we integrate acquired businesses:

. we may lose customers of acquired companies due to difficulties during
the integration process;

. we may not be able to bill customers of the acquired companies
accurately due to potential deficiencies in the internal controls of the
acquired companies, such as inadequate back-office systems of the
acquired companies and potential difficulties in migrating records onto
our own systems;

. we may experience difficulty in collecting bills rendered by acquired
companies due to inaccurate record keeping of the acquired companies;

. key employees of the acquired companies whom we wish to retain may
resign;

. management's attention and resources could be diverted from our ongoing
business concerns;

. we may not be able to integrate newly acquired technologies with our
existing technologies; and

. we may not be able to train, retain and motivate executives and
employees of the acquired companies.

The businesses we have acquired are in various stages of the integration
process. Our integration plan is constantly changing as a result of our
business activities, as well as future acquisitions. Because we employ a
strategy that includes a high level of acquisition activity, at any time there
are likely to be one or more operating businesses that have not been integrated
into our business. In addition, our acquisitions in February 2000 of reSOURCE
Partner, Inc. and Softlink, Inc., respectively, represent in the aggregate our
largest acquisition to date, and thus the integration risks set forth above
will likely be even more significant with respect to these two acquisitions.

A significant portion of our assets consists of intangible assets, the
recoverability of which is not certain and the amortization of which will
increase losses or reduce earnings in the future.

In connection with our acquisitions completed through March 31, 2000, $177.7
million of the aggregate purchase price has been allocated to intangible assets
such as covenants not to compete, customer lists, trade names, assembled work
force and goodwill. Annual amortization expense related to these intangible
assets in the current fiscal year will be approximately $46.9 million.
Amortization expense will increase as we acquire additional businesses. Our
business could suffer if changes in our industry or our inability to operate
the business successfully and produce positive cash flows from operations
result in an impairment in the value of our intangible assets and therefore
necessitate a write-off of all or part of these assets.

Our rapid growth and expansion has and may continue to significantly strain our
resources.

We are experiencing rapid growth, primarily due to acquisitions. This rapid
growth has placed and is likely to continue to place, a significant strain on
our operating and financial resources. Our future performance will partly
depend on our ability to manage our growth effectively, which will require that
we further develop our operating and financial system capabilities and
controls. We have invested and intend to continue to invest, significant
amounts in billing, accounts receivable, customer service and financial
systems. Because we employ a strategy that includes a high level of acquisition
activity, at any time there are likely to be one or more operating businesses
that have not been integrated into our core systems and continue to produce
financial and other information from their existing systems. As a result, our
ability to record, process, summarize and report financial data could be
adversely affected.

We may need additional funds which, if available, could result in an increase
in our interest expense or dilution of your shareholdings. If these funds are
not available, our business could be hurt.

To date, our cash flows from operations have been insufficient to fund our
operations and our acquisition and internal growth programs. We have funded our
operations principally from the proceeds of stock sales,

6
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sales of convertible notes and from other external sources. We cannot predict
when we will be able to fund our operations entirely from internally generated
cash flow. We may never be able to do so. As a result, we may need to raise
additional funds to conduct our operations and fund our growth programs.

We may raise funds through public or private debt or equity financing. If
funds are raised through the issuance of equity securities, the percentage
ownership of our then current stockholders may be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. If additional funds are raised through the
issuance of debt securities, such securities would have certain rights,
preferences and privileges senior to those of the holders of our common stock
and the terms of such debt could impose restrictions on our operations. If
additional funds become necessary, additional financing may not be available on
terms favorable to us, or at all. If adequate funds are not available on
acceptable terms, we may not be able to continue to fund our operations and
growth or to continue our acquisition program. Our inability to raise capital
could adversely affect our business.

We operate in the young and rapidly evolving Internet services industry, which
presents the following risks.

We depend on the growth and stability of the Internet infrastructure.

If the use of the Internet continues to grow rapidly, its infrastructure may
not be able to support the demands placed on it by such growth and its
performance or reliability may decline. In addition, Web sites have experienced
interruptions in their service as a result of outages and other delays
occurring throughout the Internet network infrastructure. If these outages or
delays occur frequently, use of the Internet as a commercial or business medium
could, in the future, grow more slowly or decline, which would adversely affect
our business.

If we do not respond effectively and on a timely basis to rapid technological
change, our business could suffer.

The Internet industry is characterized by rapidly changing technology,
industry standards, customer needs and competition, as well as by frequent new
product and service introductions. Our future success will depend, in part, on
our ability to accomplish all of the following in a timely and cost-effective
manner, all while continuing to develop our business model and roll-out our
services:

. effectively use and integrate leading technologies;

. continue to develop our technical expertise;

. enhance our products and current networking services;

. develop new products and services that meet changing customer needs;

. advertise and market our products and services; and

. influence and respond to emerging industry standards and other changes.

We cannot assure you that we will successfully use or develop new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies or enhancements used or developed by us
will achieve market acceptance. Our pursuit of necessary technological advances
may require substantial time and expense.

Disruption of our services due to accidental or intentional security breaches
may adversely impact our business.

A significant barrier to the growth of e-commerce and communications over
the Internet has been the need for secure transmission of confidential
information. Despite our design and implementation of a variety of

7
<PAGE>

network security measures, unauthorized access, computer viruses, accidental or
intentional actions and other disruptions could occur. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by such breaches. If someone were able to misappropriate our
users' personal or proprietary information or credit card information, we could
be subject to claims, litigation or other potential liabilities.

We operate in an uncertain regulatory and legal environment which may make it
more difficult to defend ourselves against any claims brought against us.

We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to business in general. While there are currently few
laws or regulations which specifically regulate Internet communications, laws
and regulations directly applicable to online commerce or Internet
communications are becoming more prevalent. There is much uncertainty regarding
the marketplace impact of these laws. In addition, various jurisdictions
already have enacted laws covering intellectual property, privacy, libel and
taxation that could affect our business by virtue of their impact on online
commerce. In the future, we may become subject to regulation by the FCC or
another regulatory agency. Further, the growth of the Internet, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. If we become subject to claims that we have violated
any laws, even if we successfully defend against these claims, our business
could suffer. Moreover, new laws that impose restrictions on our ability to
follow current business practices or increase our costs of doing business could
hurt our business.

If states and countries in which we do not currently collect sales or other
taxes mandate that we do so, our business could suffer.

We collect sales or other taxes with respect to the sale of products or
services in states and countries where we believe we are required to do so. We
currently do not collect sales and other taxes in all states and countries in
which we have offices and may be required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes
for prior periods, could have an adverse effect on our business.

We could face liability for information disseminated through our network.

It is possible that claims could be made against us in connection with the
nature and content of the materials disseminated through our networks. Several
private lawsuits are pending against other entities which seek to impose
liability upon online services companies and Internet service providers as a
result of the nature and content of materials disseminated over the Internet.
If any of these actions succeed, we might be required to respond by investing
substantial resources or discontinuing some of our product or service
offerings. The increased attention focused upon liability issues as a result of
these lawsuits and legislative proposals could impact the growth of Internet
use. Although we carry professional liability insurance, it may not be adequate
to compensate or may not cover us in the event we become liable for information
carried on or disseminated through our networks. Any costs not covered by
insurance incurred as a result of such liability or asserted liability could
adversely affect our business.

We operate in an extremely competitive market and may not be able to compete
effectively.

Our current and prospective competitors are numerous. Many of our
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we do. We
may not be able to compete effectively. See "Business--Competition."

8
<PAGE>

We depend on the skills of key personnel.

We depend on the continued service of our key personnel. Our key personnel
are critical to our success, and many of them would be difficult to replace.
Many of them are not bound by employment agreements, and competitors in our
industry may attempt to recruit them. We currently have agreements to retain
the services of certain members of our management team. These agreements do
not, however, as a practical matter, guarantee our retention of these persons.
In addition, our Co-Chairmen, Mr. Fassler and Mr. Feld, are each currently
active in, and serve as directors and/or executive officers of, a number of
businesses other than Interliant. Although Mr. Feld spends a significant
portion of his time on our business, and both Mr. Fassler and Mr. Feld are
active in our management, they are not contractually committed to spend any
specific amount of time at Interliant. The loss of the services of one or more
of our key personnel could adversely affect our business.

We operate in an industry where it is difficult to attract and retain qualified
personnel.

We expect that we will need to hire additional personnel in all areas of our
business. The competition for personnel throughout our industry is intense. At
times, we have experienced difficulty in attracting qualified new personnel. If
we do not succeed in attracting new, qualified personnel or retaining and
motivating our current personnel, our business could suffer.

Our application hosting solutions depend on software applications we obtain
from third parties.

We obtain software products pursuant to agreements with vendors such as
Lotus and Microsoft and package them as part of our application hosting
solutions. The agreements are typically for terms ranging from one to three
years. We also license additional technologies that we use in our business from
other third parties. If these agreements were terminated or not renewed, we
might have to discontinue products or services that are central to our business
strategy or delay their introduction unless we could find, license and package
equivalent technology. Our business strategy also depends on obtaining
additional application software. We cannot be sure, however, that we will be
able to obtain the new and enhanced applications we may need to keep our
solutions competitive. If we cannot obtain these applications and as a result
must discontinue, delay or reduce the availability of our solutions or other
products and services, our business may be adversely affected. In addition, we
may become subject to infringement actions based upon the technologies licensed
from third parties. Any of these claims, with or without merit, could subject
us to costly litigation and divert the attention of our technical and
management personnel.

Our business operations present the following additional risks.

We intend to commit substantial funds to sales and marketing initiatives. Our
failure to develop brand recognition for the Interliant brand could hurt our
business.

Our sales and marketing expenses were $17.2 million and $2.6 million in the
years ended December 31, 1999 and 1998, respectively, and $8.0 million for the
three months ended March 31, 2000. A key component of our strategy is to
significantly increase our sales and marketing activities. This will include
the expansion of our sales force, development of reseller and referral partner
channels and increased marketing efforts. As a result, sales and marketing
expenses are likely to increase substantially in future periods. Our business
could be adversely affected if the Interliant brand is not well received by our
customers, our marketing efforts are not productive or we are otherwise
unsuccessful in increasing our brand awareness. We are currently marketing and
expect to continue to market many of our products and services under the brand
names of acquired companies. In most circumstances, we intend to change the
brand under which we offer these products and services to the Interliant brand.
If we are unsuccessful in these efforts, we may not achieve our revenues
objectives and the acquired operations could lose substantial value.

Our agreements with application software vendors are not exclusive and may not
provide us with any competitive advantage.

None of our agreements for application software and other technology are
exclusive. Our competitors may also license and utilize the same technology in
competition with us. We cannot be sure that the vendors of

9
<PAGE>

technology used in our products will continue to support this technology in its
current form. Nor can we be sure that we will be able to adapt our own products
to changes in this technology. In addition, we cannot be sure that potential
financial or other difficulties of third party vendors will not have an adverse
affect on the technologies incorporated in our products, or that, if these
technologies become unavailable, we will be able to find suitable alternatives.

We depend on our network infrastructure. If we do not have continued access to
a reliable network, our business will suffer.

Our success partly depends upon the capacity, scalability, reliability and
security of our network infrastructure, including the capacity leased from our
telecommunications network suppliers such as UUNET Technologies. We depend on
these companies to provide uninterrupted and "bug free" service. We would be
adversely affected if such services were not provided. In addition, we would be
adversely affected if:

. these companies greatly increased the prices of their services; or

. the telecommunications capacity available to us was insufficient for our
business purposes and we were unable to use alternative networks or pass
along any increased costs to our customers.

Our business and expansion models assume that we will be able to scale our
network infrastructure to support increasing numbers of customers and increased
traffic. However, the scalability of our network is unproven.

We must continue to develop and expand our network infrastructure to
accommodate:

. increases in the number of users we service;

. increases in the amount of information our customers wish to transport;

. increases in the number of products and services we offer; and

. changing customer requirements.

Our expansion and adaptation of our telecommunications and hosting facility
infrastructure will require substantial financial, operational and management
resources. If we are required to expand our network significantly and rapidly
due to increased usage, additional stress will be placed upon our network
hardware, traffic management systems and hosting facilities. As a result of the
limited deployment of our services to date, the ability of our network to
connect and manage a substantially larger number of customers at high
transmission speeds while achieving expected performance is unknown.

As our customers' bandwidth usage increases, we will need to make additional
investments in our infrastructure to maintain adequate data transmission
speeds, the availability of which may be limited and the cost of which may be
significant. Additional network capacity may not be available from third-party
suppliers as it is needed by us. As a result, our network may not be able to
achieve or maintain a sufficiently high capacity of data transmission,
especially if customers' usage increases. Any failure on our part to achieve or
maintain high-capacity data transmission could significantly reduce consumer
demand for our services and adversely affect our business.

We could experience system failures and capacity constraints, which could
affect our ability to compete.

To succeed, we must be able to operate our network infrastructure on a 24x7
basis without interruption. Our operations depend upon our ability to protect
our network infrastructure, equipment and customer files against damage from:

. human error;

. natural disasters;

10
<PAGE>

. power loss or telecommunications failures; and

. sabotage or other intentional acts of vandalism.

However, even if we take precautions, the occurrence of a natural disaster
or other unanticipated problems at our data centers could result in
interruptions in the services we provide to our customers.

At this time, we do not have a formal disaster recovery plan. In addition,
our data centers are subject to various single points of failure. As a result,
a problem with one of our routers, switches or fiber paths or with another
aspect of our network could cause an interruption in the services we provide to
some of our customers. We have experienced interruptions in service in the
past. Any future interruptions could:

. require us to spend substantial amounts of money replacing existing
equipment or adding redundant facilities;

. damage our reputation for reliable service;

. cause existing end users, resellers and referral partners to cancel
their contracts;

. cause end users to seek damages for losses incurred; or

. make it more difficult for us to attract new end users, resellers and
referral partners.

Any of these occurrences could adversely affect our business.

We have entered into service level agreements with some of our customers and
we anticipate that we will offer service level agreements to a larger group of
customers in the future. In that case, we could incur significant liability to
our customers in connection with any system downtime and those obligations may
adversely affect our business.

Currency fluctuations and different standards, regulations and laws relating to
our international operations may adversely affect our business.

Approximately 20.0% of our revenue for the year ended December 31, 1999 and,
on a pro forma basis, giving effect to acquisitions completed through March 31,
2000, 10.0% for the three months ended March 31, 2000 were to customers located
outside the United States, primarily in Europe, Asia and South America. Our
success may depend in part on expanding our international presence. Because our
sales overseas are denominated in U.S. dollars, currency fluctuations may
inhibit us from marketing our services to potential foreign customers or
collecting for services rendered to current foreign customers.

In February, 2000 we entered into a shareholders agreement with @viso
Limited. Pursuant to this agreement we agreed to form a corporation through
which we will launch Web hosting, application hosting and related services in
continental Europe. We expect that this arrangement will significantly expand
our international operations and, consequently, increase the related risks such
as managing operations across disparate geographic areas and differences in
privacy, censorship and liability standards and regulations.

We may be liable for defects or errors in the solutions we develop.

Many of the solutions we develop are critical to the operations of our
clients' businesses. Any defects or errors in these solutions could result in:

. delayed or lost client revenues;

. adverse customer reaction toward Interliant;

. negative publicity;

. additional expenditures to correct the problem; and

. claims against us.

11
<PAGE>

Claims against us may not be adequately covered by insurance, may result in
significant losses and, even if defended successfully, may raise our insurance
costs.

Risks related to the notes, our common stock and the securities markets

The recent substantial increase in our indebtedness due to our sale of the
notes may have important consequences to you.

As a result of our recent sales of convertible notes to the initial
purchasers in February 2000 and to Microsoft Corporation in March 2000, we
incurred approximately $164.8 million in aggregate principal amount of
additional indebtedness, increasing our ratio of debt to equity, expressed as a
percentage, from approximately 2.7% at December 31, 1999 to approximately 89.9%
as of March 31, 2000. Our other indebtedness is principally comprised of notes
payable. We may incur substantial additional indebtedness in the future. The
level of our indebtedness, among other things, could:

. make it more difficult for us to make payments on the notes;

. impair our ability to obtain additional financing in the future;

. reduce funds available to us for other purposes, including working
capital, capital expenditures, strategic acquisitions, research and
development, and other general corporate purposes;

. restrict our ability to introduce new products or exploit business
opportunities;

. increase our vulnerability to economic downturns and competitive
pressures in the industry in which we operate;

. limit our ability to dispose of assets; and

. place us at a competitive disadvantage.

If we cannot obtain a significant amount of cash to service our indebtedness,
we may not be able to pay our debt and other obligations.

Our ability to make payments on our indebtedness and to fund planned capital
expansion and development and operating costs will depend on our ability to
generate cash in the future through sales of our services. Our cash flow
generated during the year ended December 31, 1999 and the three months ended
March 31, 2000, would have been insufficient to pay the amount of interest
payable on the notes, and we cannot assure you that we will be able to pay
interest and other amounts due on the notes as and when they become due and
payable. We cannot assure you that our available liquidity will be sufficient
to service our indebtedness or to fund our other cash needs. We may need to
refinance all or a portion of our indebtedness on or before maturity, but we
may not be able to do so on commercially reasonable terms, or at all. Without
sufficient funds to service our indebtedness we would have serious liquidity
constraints and would need to seek additional financing from other sources, but
we may not be able to do so on commercially reasonable terms, or at all.

In addition, if we are unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments on the notes or our other
obligations, we would be in default under the terms thereof, which would permit
the holders of the notes to accelerate the maturity of the notes and could also
cause defaults under future indebtedness we may incur. Any such default could
have a material adverse effect on our business, prospects, financial condition
and operating results.

You may encounter volatility in the market price of our common stock.

The trading price of our common stock has been and is likely to continue to
be highly volatile. Our stock price could be subject to wide fluctuations in
response to factors such as the following:

. actual or anticipated variations in quarterly results of operations;

. the addition or loss of customers, vendors or strategic partners;

12
<PAGE>

. our ability to hire and retain key personnel and other employees;

. announcements of technological innovations, new products or services by
us or our competitors;

. changes in financial estimates or recommendations by securities
analysts;

. conditions or trends in the Internet and online commerce industries;

. changes in the market valuations of other Internet or online service
companies; and

. our announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments.

In addition, the stock market in general and the Nasdaq National Market and
the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these companies.
These broad market and industry factors may materially and adversely affect our
stock price, regardless of our operating performance. The trading prices of the
stocks of many technology companies are at or near historical highs and reflect
price-earnings ratios and revenue multiples that are substantially above
historical levels. These trading prices and price earnings ratios may not be
sustained. Consequently, you may not be able to sell our common stock, the
notes or the common stock into which they are convertible at a price that is
attractive to you.

Holders of senior indebtedness will be paid before holders of the notes are
paid.

The notes are subordinated to our existing and future senior indebtedness
and are structurally subordinated to all liabilities, including trade payables,
of our subsidiaries and us. As of March 31, 2000, the notes were junior to $4.1
million of outstanding senior indebtedness and effectively junior to $7.1
million of trade payables and other liabilities of our subsidiaries. If we
become bankrupt, liquidate or dissolve, our assets would be available to pay
obligations on the notes only after our senior indebtedness has been paid. We
cannot assure you that there will be sufficient assets to pay amounts due on
the notes.

If we fail to pay any of our designated senior indebtedness, we may make
payments on the notes only if we cure the default or the holders of the senior
indebtedness waive the default. Moreover, if any non-payment default exists
under our designated senior indebtedness and the holders of the designated
senior indebtedness elect to exercise their rights, we may not make any cash
payments on the notes for a period of up to 179 days in any 365 day period,
unless we cure the default, the holders of the senior indebtedness waive the
default or rescind acceleration of the indebtedness, or we repay the
indebtedness in full.

We may not be able to repurchase notes upon a change of control which would be
an event of default under the indenture.

Upon the occurrence of specified change of control events, we could be
required to repurchase all outstanding notes at a price equal to 100% of their
principal amount, plus accrued interest to the repurchase date. We cannot
assure you that we will have sufficient funds available to repurchase the notes
upon a change of control. Our failure to repurchase the notes would constitute
an event of default under the indenture.

You may be unable to sell your notes if a trading market for the notes does not
develop.

The liquidity of any market for the notes will depend on the number of
holders of the notes, the interest of securities dealers in making a market in
the notes and other factors. Accordingly, we cannot assure you as to the
development or liquidity of any market for the notes. If an active trading
market for the notes does not develop, the market price and liquidity of the
notes may be adversely affected. If the notes are traded, they may trade at a
discount from your original purchase price depending upon prevailing interest
rates, the market for similar securities, our performance and certain other
factors.

13
<PAGE>

Our existing principal stockholders, executive officers and directors control
Interliant and could delay or prevent a change in corporate control that
stockholders may believe will improve management and could depress our stock
price because purchasers cannot acquire a controlling interest.

As of March 31, 2000, our directors, executive officers and their affiliates
beneficially owned, in the aggregate, shares representing approximately 62% of
our common stock. As a result, these persons, acting together, will be able to
control all matters submitted to our stockholders for approval and to control
our management and affairs. This control could have the effect of delaying or
preventing a change of control that stockholders may believe would be
beneficial to their interests. In addition, this control could depress our
stock price because purchasers will not be able to acquire a controlling
interest in Interliant.

Our stock price may be affected by the availability of shares for sale. The
future sale of large amounts of our stock, or the perception that such sales
could occur, could negatively affect our stock price.

The market price of our common stock could drop as a result of a large
number of shares of our common stock in the market. As of March 31, 2000 there
were approximately 47.4 million shares of common stock outstanding,
substantially all of which are eligible for sale in the public market. In
addition, holders of approximately 30.0 million restricted shares of common
stock have registration rights with respect to such shares, which if exercised
would permit the holders to sell their shares freely in the public market.
Also, in connection with a registration statement we filed recently in
connection with our sale of convertible notes in February 2000, approximately
2.9 million shares of our common stock will be issuable upon conversion of
those notes, which represents approximately 6.5% of our common stock currently
outstanding. In addition, shares issuable upon exercise of our outstanding
options may be sold freely under our registration statements on Form S-8.

14
<PAGE>

USE OF PROCEEDS

The selling securityholders will receive all of the proceeds from the sale
of the securities sold pursuant to this prospectus. We will not receive any of
the proceeds from the sale of the common stock, the notes or the common stock
into which the notes are convertible by the selling securityholders. See
"Selling Securityholders."

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock. We
currently intend to retain any future earnings for our business and, therefore,
do not anticipate paying cash dividends in the foreseeable future. Future
dividends, if any, will depend on, among other things, our results of
operations, capital requirements, restrictions in loan agreements and on such
other factors that our Board of Directors may, in its discretion, consider
relevant.

PRICE RANGE OF COMMON STOCK

Our common stock commenced trading on the Nasdaq National Market under the
symbol "INIT" on July 8, 1999. The following table sets forth, for the periods
indicated, the intra-day high and low sales prices per share of common stock on
the Nasdaq National Market. Such prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.

<TABLE>
<CAPTION>
1999 High Low
---- --------- -------
<S> <C> <C>
Third Quarter (from July 8, 1999)............................. $23 23/64 $10 1/2
Fourth Quarter................................................ $35 $ 9 1/4

<CAPTION>
2000
----
<S> <C> <C>
First Quarter................................................. $54 7/16 $28 1/4
Second Quarter (through June 27).............................. $27 15/16 $12 7/8
</TABLE>

The last reported sale price of our common stock on the Nasdaq National
Market on June 27, 2000 was $20 7/16 as reported by Nasdaq National Market. As
of March 31, 2000, there were approximately 171 stockholders of record of our
common stock.

15
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

(Dollars in thousands, except per share data)

The following selected consolidated financial data should be read in
conjunction with Interliant's Consolidated Financial Statements and Notes
thereto, the Unaudited Pro Forma Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period ended December 31, 1997 and the years ended December 31,
1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999, are
derived from the consolidated financial statements of Interliant that have been
audited by Ernst & Young LLP, independent auditors, whose report with respect
thereto is included elsewhere in this prospectus. The statement of operations
data for the three months ended March 31, 1999 and 2000 and the balance sheet
data as of March 31, 2000 have been derived from the unaudited financial
statements included in this prospectus. We believe that the unaudited
historical financial statements contain all adjustments needed to present
fairly the information in those statements and that the adjustments made
consist only of recurring adjustments.

The unaudited pro forma statement of operations data for the year ended
December 31, 1999 and for the three months ended March 31, 2000 assumes that
the acquisitions completed through March 31, 2000 had occurred on January 1,
1999 and includes the historical consolidated statements of operations of
Interliant, adjusted for the pro forma effects of such acquisitions.

Our historical results of operations are not necessarily indicative of
results of operations for future periods. Interliant's development and
expansion activities, including acquisitions, during the periods shown below
may significantly affect the comparability of this data from one period to
another. The unaudited pro forma statement of operations data is not
necessarily indicative of the results of operations that would actually have
occurred if the acquisitions had been consummated as of January 1, 1999 and is
not intended to indicate the expected results for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------------------------------------- ----------------------
Period from
December 8,
1997 Three Three Three
(Inception) months months months
to Year ended Year ended ended ended Year ended ended
December 31, December 31, December 31, March 31, March 31, December 31, March 31,
1997 1998 1999 1999 2000 1999 2000
------------ ------------ ------------ --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 4,905 $ 47,114 $ 5,434 $ 26,858 $133,039 $ 35,189
Costs and expenses:
Cost of revenues....... -- 3,236 27,514 3,251 18,534 86,407 25,012
Sales and marketing.... 2,555 17,236 1,896 7,999 25,639 9,155
General and
administrative........ 156 6,849 29,062 4,805 15,792 52,924 18,694
Depreciation........... 2 696 6,051 700 2,466 9,001 2,765
Amortization of
intangibles........... -- 2,439 22,069 2,594 9,316 46,911 11,728
------ -------- -------- ------- -------- -------- --------
158 15,775 101,932 13,246 54,107 220,882 67,354
------ -------- -------- ------- -------- -------- --------
Operating loss.......... (158) (10,870) (54,818) (7,812) (27,249) (87,843) (32,165)
Interest and other
income (expense), net.. -- 138 886 54 (112) 1,048 (109)
------ -------- -------- ------- -------- -------- --------
Loss before cumulative
effect of change in
accounting method...... (158) (10,732) (53,932) (7,758) (27,361) (86,795) (32,274)
Cumulative effect of
change in accounting
method................. (1,220) (1,220)
------ -------- -------- ------- -------- -------- --------
Net loss................ $ (158) $(10,732) $(53,932) $(7,758) $(28,581) $(86,795) $(33,494)
====== ======== ======== ======= ======== ======== ========
Net loss per share--
basic and diluted...... $(0.05) $ (1.22) $ (1.50) $ (0.31) $ (0.62) $ (2.22) $ (0.71)
====== ======== ======== ======= ======== ======== ========
Weighted average shares
outstanding basic and
diluted................ 3,000 8,799 35,838 24,770 45,989 39,109 46,854
====== ======== ======== ======= ======== ======== ========
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
As of December As of March 31,
31 2000
---------------- ---------------
1998 1999 Actual
------- -------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.............................. $ 6,813 $ 31,220 $178,279
Working capital........................... 3,755 26,886 175,927
Total assets.............................. 26,197 162,875 395,637
Total long term debt...................... -- 2,503 167,684
Total stockholders' equity................ 21,693 137,575 187,874
</TABLE>

<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------------- ----------------------
Period from
December 8, Three Three
1997 months months
(Inception) to Year ended Year ended ended Year ended ended
December 31, December 31, December 31, March 31, December 31, March 31,
1997 1998 1999 2000 1999 2000
-------------- ------------ ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Other Data:
EBITDA(1)............... $ (156) $ (6,902) $(24,711) $ (11,014) $(29,944) $(13,219)
Net cash flows from
operating activities... (59) (6,001) (24,152) (13,715)
Net cash flows from
investing activities... (29) (17,919) (46,459) (122,128)
Net cash flows from
financing activities... 1,000 29,821 91,406 186,107
Net capital
expenditures........... 29 4,322 12,084 6,465
</TABLE>
--------
(1) EBITDA represents earnings before net interest expense, income taxes, non
cash compensation expense, depreciation and amortization and other income
(expense). EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and because our management
believes that EBITDA is an additional meaningful measure of performance and
liquidity. EBITDA is not intended to present cash flows for the period, nor
has it been presented as an alternative to operating income (loss) as an
indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. The items
excluded from the calculation of EBITDA are significant components in
understanding and assessing our financial performance. Our computation of
EBITDA may not be comparable to the computation of similarly titled
measures of other companies. EBITDA does not represent funds available for
discretionary uses. See Interliant's Consolidated Financial Statements and
Notes thereto appearing elsewhere in this prospectus.

RATIO OF EARNINGS TO FIXED CHARGES

The following table shows the deficiency of earnings to cover fixed charges
of Interliant for the last three years and the three month periods ended March
31, 1999 and 2000.

<TABLE>
<CAPTION>
Period from
December 8,
1997 Three Months
(Inception) to Year Ended December 31, Ended March 31,
December 31, ------------------------ -----------------
1997 1998 1999 1999 2000
-------------- ----------- ----------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Deficiency of earnings
to cover fixed
charges(*)............ $(160) $ (10,865) $ (55,532) $(7,937) $(30,704)
</TABLE>
--------
(*) Earnings consist of net loss plus fixed charges. Fixed charges consist of
interest expense, including amortization of debt issuance costs and the
portion of rent expense considered to be interest (one-third).

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

You should read the following description of our financial condition and
results of operations in conjunction with the Consolidated Financial Statements
and the Notes thereto included elsewhere in this prospectus. This discussion
contains forward-looking statements based upon current expectations that
involve risks and uncertainties. Any statements contained herein that are not
statements of historical fact are forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements.

Overview

As an ASP, we provide:

. Internet professional services for designing, implementing and deploying
these network-based applications; and

. operations support, systems and applications management and customer
care for our customers and their end-users.

Our strategy has been to rapidly acquire operating companies in the Web
hosting, application hosting and Internet professional services businesses, to
build or acquire data centers, and to integrate the acquired hosting operations
into those data centers. We have acquired 23 operating businesses to date for
total consideration of approximately $188.2 million, including transaction
costs. We have accounted for all acquisitions using the purchase method of
accounting, which has resulted in the recognition of a substantial amount of
intangible assets on our balance sheet. Of the total consideration, we paid
$10.2 million of assumed seller debt and have allocated approximately $0.3
million to tangible net assets and $177.7 million to intangible assets, which
comprise covenants not to compete, customer lists, assembled work force, trade
names and goodwill. In accordance with APB 16, an allocation methodology was
applied to each acquisition to determine the value to be assigned to each type
of intangible asset where appropriate. Amounts not allocated to net tangible
assets and identifiable intangible assets have been recorded as goodwill.
Recoverability of our investment in intangible assets is dependent on our
ability to operate our businesses successfully and generate positive cash flows
from operations. Annual charges for amortization of intangible assets with
respect to acquisitions completed to date will be approximately $47.0 million,
which will result in increased losses or reduced net income. The purchase
consideration for the acquisitions was in the form of cash, stock or a
combination of cash and stock.

Since our inception in December 1997, we have experienced operating losses
and negative cash flows from operating activities for each quarterly and annual
period. As of March 31, 2000, we had an accumulated deficit of approximately
$93.4 million. Had the companies acquired to date been included since January
1, 1999, our accumulated deficit would have been approximately $106.0 million.
The revenue and income potential of our business is unproven and our limited
operating history makes an evaluation of us and our prospects difficult. We
anticipate increased operating expenses as we:

. significantly expand our sales and marketing initiatives to continue to
grow our brands;

. fund greater levels of product development;

18
<PAGE>

. continue to complete and equip our data centers;

. implement centralized billing, accounting and customer service systems;
and

. continue our acquisition program.

Although we have experienced revenue growth, primarily attributable to
acquisitions, we do not believe that this growth is necessarily indicative of
future operating results. Future acquisitions are expected to increase
operating expenses and operating losses and as a result, we expect to continue
to incur operating losses for the foreseeable future. We cannot assure you that
we will ever achieve profitability on a quarterly or annual basis, or, if
achieved, that we will sustain profitability.

Results of Operations

We derive our revenues from application hosting, Web hosting and Internet
professional and other services. Application hosting revenues primarily
comprise monthly usage fees per number of end users, including bandwidth fees
and one-time set up fees. Web hosting revenues consist primarily of hosting
fees and set up fees, which cover costs incurred by us to establish customers'
Web sites. We provide virtual, dedicated and co-located Web hosting. We charge
our Web hosting customers a fixed amount for bandwidth availability and
incremental fees if those fixed amounts are exceeded. In addition, our virtual
Web hosting customers are also charged for disk space on a server, dedicated
hosting customers are charged for use of one or more dedicated servers and our
co-location customers are charged for the amount of data center space such co-
location customers' servers occupy. We charge flat rates for our enhanced
Internet services. Internet professional service charges generally are fee-
based on a time and materials basis.

Our contracts with our application hosting customers range in length from
month-to-month to three years. Our contracts with our Web hosting customers
typically range in length from month-to-month to one year. A large proportion
of our Web hosting customer contracts are cancelable by either party with 30
days' notice. Revenues derived from hosting are recognized ratably over the
applicable contractual period. Payments received and billings in advance of
providing services are deferred until such services are provided. Revenues from
Internet professional services are recognized as the services are rendered.
Substantially all of our Internet professional services contracts call for
billings on a time and materials basis.

In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides guidance related
to revenue recognition based on interpretations and practices followed by the
SEC. SAB 101 allows companies to report any changes in revenue recognition
related to adopting its provisions as an accounting change at the time of
implementation in accordance with APB Opinion No. 20, "Accounting Changes." The
Company recorded a cumulative effect change in accounting principle, effective
January 1, 2000, for revenue recognized in 1999 for set up fees associated with
Web hosting and application hosting services. Effective January 1, 2000 such
fees are being amortized over one year, which generally represents the longer
of the contractual period or expected life of the customer relationship. For
the three months ended March 31, 2000, the Company recorded a cumulative effect
charge of $1.2 million to reflect the change in accounting principle.

Cost of revenues consists primarily of salaries and related expenses
associated with Internet professional services and data center operations
personnel, costs of hardware and software products sold to customers, and data
communications expenses, including one-time fees for circuit installation and
variable recurring circuit payments to network providers. Monthly circuit
charges vary based upon circuit type, distance and usage, as well as the term
of the contract with the carrier.

Sales and marketing expense consists of personnel costs associated with the
direct sales force, internal telesales, product development and product
marketing employees, as well as costs associated with marketing

19
<PAGE>

programs, advertising, product literature, external telemarketing costs and
corporate marketing activities, including public relations.

General and administrative expense includes the cost of customer service
functions, finance and accounting, human resources, legal and executive
salaries, corporate overhead, acquisition integration costs and fees paid for
professional services.

Three Months Ended March 31, 2000 and 1999

Revenues

Revenues increased $21.5 million, from $5.4 million for the three months
ended March 31, 1999 to $26.9 million for the corresponding 2000 period. The
increase in revenues was primarily due to the 11 acquisitions consummated
during 1999 and 2000. On a pro forma basis, giving effect to acquisitions
completed through March 31, 2000, revenues for the three months ended March
31, 2000 were $35.2 million.

For the three months ended March 31, 2000, on a pro forma basis:

. application hosting revenues comprise 27.5% of our revenues;

. Web hosting revenues comprise 16.4% of our revenues;

. Internet professional services revenues comprise 53.6% of our revenues;
and

. other services revenues comprise 2.5% of our revenues.

Cost of Revenues

Cost of revenues increased by $15.2 million, from $3.3 million for the
three months ended March 31, 1999 to $18.5 million for the corresponding 2000
period. This increase was due primarily to the 11 acquisitions consummated
during 1999 and 2000, and increased infrastructure costs to support current
and future revenue growth. In the future, cost of revenues will likely
increase due to capacity utilization, additional investments in existing and
new data centers, changes in the mix of services, fluctuations in bandwidth
costs and increased levels of staffing to support anticipated revenue growth.

On a pro forma basis, cost of revenues for the three months ended March 31,
2000 were $25.0 million.

For the three months ended March 31, 2000, gross margin on a pro forma
basis was 28.9% as compared to 31.0% on a historical basis. The lower pro
forma gross margins are the result of an increase in the proportion of revenue
from Internet professional services and product sales to total revenues
related to our recent acquisitions of Internet professional services
businesses, which typically generate lower gross margins as compared with our
hosting services.

Sales and Marketing

Sales and marketing expense increased by $6.1 million, from $1.9 million
for the three months ended March 31, 1999 to $8.0 million for the
corresponding 2000 period. This increase was attributable to the 11
acquisitions consummated during 1999 and 2000. A key component of our revenue
growth strategy is to significantly increase our sales and marketing
activities. We expect that this will include the continued expansion of our
sales force, increased marketing efforts to grow recognition of our brands,
and the development of reseller and referral partner channels. As a result,
sales and marketing expenses will increase substantially in future periods to
support anticipated revenue growth.

On a pro forma basis, sales and marketing expense for the three months
ended March 31, 2000 was $9.2 million. Sales and marketing costs as a
percentage of revenue was 29.8% on a historical basis versus 26.0% on a pro
forma basis due primarily to higher proportion of Internet professional
services revenues for the pro forma period, which businesses have historically
incurred lower marketing costs as a percentage of revenues.

20
<PAGE>

General and Administrative

General and administrative expense increased by $11.0 million, from $4.8
million for the three months ended March 31, 1999 to $15.8 million for the
corresponding 2000 period. This increase in general and administrative expense
was attributable to the 11 acquisitions consummated during 1999 and 2000, and
increased investments in infrastructure and levels of staffing with respect to
the customer service, billing, accounting and human resources functions to
support revenue growth. Substantial staffing and related increases are
expected to continue in future periods in order to support anticipated revenue
growth.

In February 2000, we issued options to purchase 1,500,000 shares of Common
Stock to our Chief Executive Officer at exercise prices that were below the
market price of our Common Stock at the date of grant. In total, such options
were valued at approximately $30.0 million, and for the three months ended
March 31, 2000, we charged $3.8 million to non-cash compensation expense in
connection with this arrangement.

On a pro forma basis, general and administrative expense for the three
months ended March 31, 2000 was $18.7 million.

Depreciation

Depreciation expense increased by $1.8 million, from $0.7 million for the
three months ended March 31, 1999 to $2.5 million for the corresponding 2000
period. The increase in depreciation expense was attributable to the 11
acquisitions consummated during 1999 and 2000, our investments in equipment,
furniture and construction to complete and equip our data centers in Atlanta,
Georgia, Houston, Texas and Vienna, Virginia, and investments in computer
equipment to support customer growth. On a pro forma basis, depreciation
expense for the three months ended March 31, 2000 was $2.8 million.

Amortization

Amortization expense increased by $6.7 million, from $2.6 million for the
three months ended March 31, 1999 to $9.3 million for the corresponding 2000
period. This increase in amortization expense was attributable to the 11
acquisitions consummated during 1999 and 2000. We expect amortization expense
to increase in future periods as we continue to make additional acquisitions.

On a pro forma basis, amortization expense for the three months ended March
31, 2000 was $11.7 million.

Years Ended December 31, 1999 and 1998

<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1998 % of 1999 % of 1999 % of
Historical Revenues Historical Revenues Pro Forma Revenues
---------- -------- ---------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 4,905 100% $ 47,114 100% $133,039 100%

Costs and expenses:
Cost of revenues...... 3,236 66% 27,514 58% 86,407 65%
Sales and marketing... 2,555 52% 17,236 37% 25,639 19%
General and
administrative....... 6,849 140% 29,062 62% 52,924 40%
Depreciation.......... 696 14% 6,051 13% 9,001 7%
Amortization of
intangibles.......... 2,439 50% 22,069 47% 46,911 35%
-------- -------- --------
15,775 322% 101,932 216% 220,882 166%
Interest and other
income, net.......... 138 3% 886 2% 1,048 -%
-------- -------- --------
Net loss................ $(10,732) -219% $(53,932) -114% $(86,795) -66%
======== ======== ========
</TABLE>

In the above table and the discussions below the unaudited pro forma
statement of operations data for the year ended December 31, 1999 assumes that
the acquisitions completed through March 31, 2000 had occurred on January 1,
1999.

21
<PAGE>

Revenues

Revenues increased $42.2 million, from $4.9 million in 1998 to $47.1 million
in 1999. The increase in revenues was due primarily to the 21 acquisitions
consummated during 1998 and 1999. On a pro forma basis, giving effect to
acquisitions completed through March 31, 2000, revenues for the year ended
December 31, 1999 were $133.0 million.

For the year ended December 31, 1999, on a pro forma basis:

. application hosting revenues comprised 29.8% of our revenues;

. Web hosting revenues comprised 13.5% of our revenues;

. Internet professional services revenues comprised 53.9% of our revenues;
and

. other services revenues comprised 2.8% of our revenues.

Cost of Revenues

Cost of revenues increased by $24.3 million, from $3.2 million in 1998 to
$27.5 million in 1999. This increase was due primarily to the 21 acquisitions
consummated during 1998 and 1999, and increased costs to support current and
future revenue growth. In the future, cost of revenues may fluctuate due to
capacity utilization, the timing of investments in data centers, changes in the
mix of services, fluctuations in bandwidth costs and increased levels of
staffing to support anticipated revenue growth.

On a pro forma basis, cost of revenues for the year ended December 31, 1999
were $86.4 million.

For 1999, gross margin on a pro forma basis was 35.6% as compared to 41.6%
on a historical basis. The lower pro forma gross margins are the result of an
increase in the proportion of revenue from Internet professional services to
total revenues related to our recent acquisitions of Internet professional
services businesses, which typically generate lower gross margins as compared
with our hosting services.

Sales and Marketing

Sales and marketing expense increased by $14.6 million, from $2.6 million in
1998 to $17.2 million in 1999. This increase was attributable to the 21
acquisitions consummated during 1998 and 1999. A key component of our revenue
growth strategy is to significantly increase our sales and marketing
activities. We expect that this will include the expansion of our sales force,
development of reseller and referral partner channels and increased marketing
efforts to grow recognition of our brands. As a result, sales and marketing
expenses will increase substantially in future periods to support anticipated
revenue growth.

On a pro forma basis, sales and marketing expense for the year ended
December 31, 1999 was $25.6 million. Sales and marketing costs as a percentage
of revenue was 36.6% on a historical basis versus 19.3% on a pro forma basis
due primarily to higher proportion of Internet professional services revenues
for the pro forma period, which businesses have historically incurred lower
marketing costs as a percentage of revenues.

General and Administrative

General and administrative expense increased by $22.3 million, from $6.8
million in 1998 to $29.1 million in 1999. This increase in general and
administrative expense was attributable to the 21 acquisitions consummated
during 1998 and 1999, and increased investments in infrastructure and levels of
staffing with respect to the billing, accounting, human resources and customer
service functions to support revenue growth. Substantial staffing and related
increases are expected to continue in future periods in order to support
anticipated revenue growth.

22
<PAGE>

In connection with an employment agreement executed in January 2000, which
included the grant of stock options to our new Chief Executive Officer, we
will incur non-cash compensation charges, aggregating approximately $30.0
million over the four-year vesting period of such stock options.

On a pro forma basis, general and administrative expense for the year ended
December 31, 1999 was $52.9 million.

Depreciation

Depreciation expense increased by $5.4 million, from $0.7 million in 1998
to $6.1 million in 1999. The increase in depreciation expense was attributable
to the 21 acquisitions consummated during 1998 and 1999 and our investment in
equipment, furniture and construction to complete and equip our data centers
in Atlanta, Georgia, Houston, Texas and Vienna, Virginia. On a pro forma
basis, depreciation expense for the year ended December 31, 1999 was $9.0
million.

Amortization

Amortization expense increased by $19.7 million, from $2.4 million in 1998
to $22.1 million in 1999. This increase in amortization expense was
attributable to the 21 acquisitions consummated during 1998 and 1999. We
expect amortization expense to increase in future periods as we continue to
make additional acquisitions as well as reflect amortization of intangibles
associated with acquisitions consummated to date.

On a pro forma basis, amortization expense for the year ended December 31,
1999 was $46.9 million.

Year Ended December 31, 1998 and the period December 8, 1997 (Inception) to
December 31, 1997

<TABLE>
<CAPTION>
1997 1998
Historical Historical
---------- ----------
(in thousands)
<S> <C> <C>
Revenues........................................... $ -- $ 4,905

Costs and expenses:
Cost of revenues................................. 3,236
Sales and marketing.............................. 2,555
General and administrative....................... 156 6,849
Depreciation..................................... 2 696
Amortization of intangibles...................... -- 2,439
----- --------
158 15,775
Interest income.................................. -- 138
----- --------
Net loss......................................... $(158) $(10,732)
===== ========
</TABLE>

Revenues

Revenues increased by $4.9 million for the year ended December 31, 1998.
This increase in revenues was primarily attributable to the 12 acquisitions
consummated during 1998.

Cost of Revenues

Cost of revenues increased by $3.2 million for the year ended December 31,
1998. This increase in cost of revenues was attributable to the 12
acquisitions consummated during 1998. In the future, cost of revenues may
fluctuate due to capacity utilization, the timing of investments in data
centers, changes in the mix of services, fluctuations in bandwidth costs and
increased levels of staffing.

23
<PAGE>

Sales and Marketing

Sales and marketing expense increased by $2.6 million for the year ended
December 31, 1998. This increase in sales and marketing expense was
attributable to the 12 acquisitions consummated during 1998. A key component of
our strategy is to significantly increase our sales and marketing activities
for Web hosting products. This will include the expansion of our sales force,
development of reseller and referral partner channels and increased marketing
efforts to grow recognition of our brands. As a result, sales and marketing
expenses are expected to increase substantially in future periods.

General and Administrative

General and administrative expense increased by $6.6 million, from $0.2
million in 1997 to $6.8 million in 1998. This increase in general and
administrative expense was attributable to the 12 acquisitions consummated
during 1998 and levels of staffing with respect to the billing, accounting,
human resources and customer service functions to support revenue growth.

Depreciation

Depreciation expense increased by $0.7 million, to $0.7 million in 1998.
This increase was due to the acquisition of approximately $5.7 million of
furniture, fixtures and equipment. This amount includes approximately $1.4
million acquired with operating businesses we acquired during 1998. Investments
included the construction of and acquisition of equipment for our Web hosting
facilities to ensure high levels of service to our customers and capacity for
future growth and of technology and infrastructure to implement centralized
billing, accounting and customer service systems to integrate the operations of
acquired companies.

Amortization

Amortization expense increased by approximately $2.4 million in 1998. The
amortization expense was attributable to intangible assets associated with the
12 acquisitions consummated during 1998.

Liquidity and Capital Resources

Summary

We have financed our operations and acquisitions primarily from private
placements of debt and equity, and our initial public offering of common stock.
We had $178.3 million in cash, cash equivalents and short-term investments at
March 31, 2000. Net cash used in operations for the three months ended March
31, 2000 was $13.7 million. This reflects primarily the net loss for the period
of $28.6 million along with changes in operating assets and liabilities, offset
by $2.5 million of depreciation expense and $9.3 million of amortization of
goodwill and other intangible assets and $4.8 million of other non-cash items
including provisions for bad debts and non-cash compensation charges. Net cash
used for investing activities for the three months ended March 31, 2000 was
$122.1 million, of which $96.8 million was for the purchases of short-term
investments in connection with proceeds received from financings completed
during the first quarter, $6.5 million for purchases of furniture, fixtures and
equipment and $18.9 million for acquisitions of businesses, net of acquired
cash. Net cash from financing activities for the three months ended March 31,
2000 was $186.1 million, primarily the result of the sale of $164.8 million of
7% Subordinated Convertible Notes and $27.5 million from private placements of
Common Stock, offset by $7.5 million in offering costs for such transactions.

First Quarter 2000 Activities

In January and February 2000, we raised $27.5 million in strategic funding
from equity investments by Dell Computer, Network Solutions and BMC Software.
In connection with these sales, we issued warrants to purchase 157,575 shares
of common stock with a weighted average exercise price of $34.90 per share,
which expire on December 31, 2000. We also entered into commercial agreements
with each of the strategic investors.

24
<PAGE>

We anticipate that these commercial agreements will result in significant
incremental revenues, expenses, EBITDA losses and capital expenditures for the
foreseeable future in the expectation that eventually they will result in
positive EBITDA and profits. The foregoing is a forward-looking statement and
is based on our current business plan and the assumptions on which that plan is
based. We cannot be sure that these arrangements will result in positive EBITDA
or profits.

In February 2000, we sold $154.8 million of 7% Convertible Subordinated
Notes in a private placement, including $4.8 million sold upon exercise of the
initial purchasers' over-allotment option. The notes are convertible at the
option of the holder, at any time on or prior to maturity, into Common Stock at
a conversion price of $53.10 per share, which is equal to a conversion rate of
approximately 18.8324 shares per $1,000 principal amount of notes. Semi-annual
interest payments of $5.4 million commence in August 2000. The notes mature on
February 16, 2005. Upon the occurrence of certain events, we may redeem the
notes prior to maturity.

In March 2000, we sold $10.0 million of 7% Convertible Subordinated Notes in
a private placement with Microsoft. Such notes have substantially the same
terms as the notes described above. We also entered into a commercial agreement
with Microsoft to develop application hosting services for Microsoft-based
platforms. We anticipate that this commercial agreement will indirectly result
in significant incremental revenues, expenses, EBITDA losses and capital
expenditures for the foreseeable future in the expectation that eventually it
will result in positive EBITDA and profits. The foregoing is a forward-looking
statement and is based on our current business plan and the assumptions on
which that plan is based. We cannot be sure that this arrangement will result
in positive EBITDA or profits.

In February and March 2000, we completed two acquisitions. The total cash
component of the consideration for these acquisitions amounted to approximately
$20.7 million.

In addition to funding ongoing operations and capital expenditures, our
principal commitments consist of non-cancelable operating leases and contingent
payments of earnouts to certain sellers of operating companies acquired by us.
In connection with certain acquisitions, we paid $1.4 million during the three
months ended March 31, 2000. If all targets for earnouts entered into through
March 31, 2000 are achieved in full, total consideration pursuant to these
earnouts will be $7.3 million and $16.5 million in cash in 2000 and 2001,
respectively. Certain agreements provide for issuance of common stock in lieu
of cash, at our option.

We currently believe that our existing cash, cash equivalents and short term
investments, will be adequate to meet operating needs through 2001, subject to
the use of additional cash for unspecified acquisitions, in which case the
period would be shortened. The foregoing is a forward-looking statement and is
based on our current business plan and the assumptions on which it is based,
including our ability to successfully integrate acquisitions and achieve the
expected benefits, such as operational efficiencies and revenue improvements
from cross-selling opportunities. Our plans also assume that we will complete a
given number of acquisitions, at given valuations using as consideration a
given mix of cash and stock. If our plans change or our assumptions prove to be
inaccurate, we may be required to seek additional capital sooner than we
currently anticipate. We may also seek to raise additional capital to take
advantage of favorable conditions in the capital markets. It is likely that
after 2001 we will need additional funds to conduct our operations, continue
our acquisition and internal growth programs, and fund debt service
obligations. In order to fund the repayment of our existing debt service
obligations, we will either have to increase revenues without a commensurate
increase in costs to generate sufficient cash from operations, refinance
existing debt obligations, raise additional equity, or execute a combination
thereof. We cannot be assured, however, that if we need or seek additional
capital that we will be successful in obtaining it.

Interest Rate Risk

We have limited exposure to financial market risks, including changes in
interest rates. At March 31, 2000, we had short-term investments of
approximately $100.4 million. These short-term investments consist of highly
liquid investments in debt obligations of highly rated entities with maturities
of between 90 days and one year.

25
<PAGE>

These investments are subject to interest rate risk and will fall in value if
market interest rates increase. We expect to hold these investments until
maturity, and therefore expect to realize the full value of these investments,
even though changes in interest rates may affect their value prior to maturity.
If interest rates decline over time, this will result in a reduction of our
interest income as our cash is reinvested at lower rates.

26
<PAGE>

BUSINESS

As an ASP, we provide:

. Internet professional services for designing, implementing and deploying
these network-based applications; and

. operations support, systems and applications management and customer
care for our customers and their end-users.

Our services portfolio consists of the following solutions:

27
<PAGE>

We have four state-of-the-art primary data centers located in Houston,
Texas; Atlanta, Georgia; Vienna, Virginia and Columbus, Ohio. Our data centers
in Houston, Altanta and Vienna are monitored on a 24x7 basis and include
sophisticated monitoring and diagnostics, 24x7 customer support, multiple high
speed network connections to the Internet and uninterruptible power supplies,
fire suppression and external fuel generators. Our Columbus data center is a
secured, raised-floor data center that provides continuous support, plus a
standby generator, hot and cold disaster recovery sites, and off-site data
storage and is monitored on a 24x7 basis.

Industry Background

Growth of the Internet. The Internet is experiencing significant growth and
is emerging as a global medium for communications and commerce. International
Data Corporation ("IDC") estimates that the number of Web users worldwide will
increase from approximately 142.2 million at the end of 1998 to 502.4 million
by the end of 2003, a 29.0% compounded annual growth rate. IDC also estimates
that the number of Web users in the United States will increase from
approximately 62.8 million at the end of 1998 to 177.0 million by the end of
2003, a 23.0% compounded annual growth rate. During this same period, the
number of business Web sites in the United States is projected by Forrester
Research, Inc. to increase from approximately 650,000 in 1998 to approximately
2.6 million in 2002, a 41.1% compounded annual growth rate. This growth in the
number of Web users and number of Web sites is being driven by a number of
factors including the large and growing installed base of personal computers,
easier and less expensive alternatives for Internet access, an increase in the
number of networked applications and the proliferation of broadband
technologies that promise consumers faster, more convenient access to the
Internet.

Growth in Business Use of the Internet. The dramatic growth in usage
combined with enhanced functionality and accessibility have made the Internet
an increasingly attractive medium for businesses to disseminate information,
engage in e-commerce, build customer relationships, streamline and automate
data-intensive processes and communicate more efficiently with dispersed
employees.

In the last several years, businesses have emerged with operating models
that are exclusively dependent on the Internet, while traditional businesses of
all sizes are working quickly to establish a Web presence. Many of these
businesses establish their initial online presence with a simple, static
brochure for marketing purposes. As they become more familiar with the Internet
as a communications platform, an increasing number of businesses are
implementing more complex, mission-critical applications on the Web for sales,
customer service, customer acquisition and retention, employee communications
and e-commerce between suppliers and business partners. IDC projects that
worldwide commercial business commerce on the Internet will grow from
approximately $27.4 billion in 1998 to approximately $1.0 trillion by 2003, a
compounded annual growth rate of 104.5%.

28
<PAGE>

Trend Toward Outsourcing. According to IDC, firms worldwide are now spending
approximately 30% of their overall information technology, or IT, services
budgets on outsourcing. These services include network consulting and
integration, network and desktop outsourcing, information services consulting
and outsourcing and application outsourcing. Reasons for the growth in
outsourcing include the desire of companies to focus on their core businesses,
the increased costs that businesses experience in developing and maintaining
their networks and software applications, the fast pace of technological change
that shortens time to obsolescence and increases capital expenditures as
companies attempt to capitalize on leading-edge technologies, the challenges
faced by companies in hiring, motivating and retaining qualified application
engineers and IT employees and the desire of companies to reduce deployment
time and risk.

Emergence of the Application Service Provider Industry. Companies are
increasingly relying on software applications to improve business process and
functions, develop new sales channels, improve customer relationships and
reduce costs. In addition, both new and traditional businesses are developing
complex Web sites to leverage e-commerce opportunities. However, given the
shortage of qualified IT professionals, the increasing cost and complexity of
applications and the importance of time to market cycles, many companies are
finding it increasingly difficult to manage the quality of their IT assets.

Application service providers combine Internet professional services,
network and application management and hosting capabilities to deliver
applications as a service to their customers. Customers access applications
that are remotely hosted and managed by the ASP using the Internet or leased
lines. Typically, ASPs offer their services on a contractual basis, charging
customers a monthly fee. In contrast to traditional application outsourcing
arrangements, where the application outsourcer is responsible for managing
custom built applications for one customer, the ASP offers primarily packaged
applications and manages those applications for multiple customers from a
centrally located facility. Dataquest Research Services forecasts the worldwide
ASP market will grow from $889 million in 1998 to $22.7 billion in 2003,
representing a compounded annual growth rate of 91.2%.

We believe that the ASP model offers customers the following advantages:

. Improved time to market. With rapid implementation methodologies and
applications management expertise, ASPs enable customers to take
advantage of the functionality of new applications, without the
difficulties associated with long implementation cycles and attracting
qualified IT talent. In addition, ASPs attempt to minimize
customization, therefore reducing the time and total expense associated
with any specific application implementation;

. Improved performance. As the complexity of applications and networks
increases, customers are finding it difficult to manage and maintain the
performance of their IT systems. By offering service level agreements
and utilizing the latest technology, ASPs are able to offer guaranteed
levels of service that are not easily attainable by customers' internal
IT departments;

. Focus on core competencies. By outsourcing the delivery and management
of certain applications, customers can better utilize scarce internal IT
resources;

. Access to best-of-breed applications and technology. ASPs utilize the
latest data center technologies, network management tools and leading
applications to provide a wide range of solutions. Customers of ASPs,
therefore, have the flexibility to select the best-of-breed solutions,
from multiple technology vendors, for many of their mission-critical
functions; and

. Reduced total cost of ownership. Until recently, the implementation of
applications required either the development of in-house software
applications or the customization of existing packages, making each
implementation unique and costly. It also made implementation time
frames and costs unpredictable. By outsourcing to an ASP, companies are
able to better forecast and plan for monthly IT expenditures.

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<PAGE>

Our Opportunity

The emerging ASP market is fragmented and is currently being served by a
range of companies, most of which, such as those described below, offer only a
portion of the services provided by full service ASPs:

. telecommunications companies and Internet service providers which
typically provide data center facilities and network connectivity;

. hosting companies, which typically provide data center facilities,
network connectivity and computer and storage hardware;

. software companies, which typically provide application and database
software; and

. IT services companies, which typically provide implementation services
and post implementation support.

As a full service ASP, we provide this entire range of services, including
data center facilities, network connectivity, computer and storage hardware,
systems and applications management, application development tools, application
and database software, implementation services and post-implementation support.
Through these capabilities, we can rapidly design, implement, deploy and
effectively manage cost effective e-business solutions for our customers. We
believe that a significant market opportunity exists for an internationally
recognized ASP with the scale and expertise to offer a wide range of outsourced
e-business solutions to businesses of all sizes.

Our Solution

We design, implement and deploy ASP solutions that enable our customers to
effectively manage e-business solutions in a rapid and cost effective manner.
We offer the technological expertise, partnering ability and understanding of
the business and licensing models which we believe are essential to succeed in
the ASP marketplace. We provide solutions to customers ranging from small
businesses to large enterprises in a variety of vertical markets across a wide
range of industries. We believe we have developed the infrastructure,
resources, systems and application management expertise and industry
relationships to capitalize on this emerging market opportunity.

We provide the following advantages to our customers:

Rapid Implementation. Designing, implementing, and deploying e-business
solutions is a complex problem requiring appropriate staff with the correct
skill sets. Our hosting solutions provide our customers with our pre-configured
infrastructure and our experienced team of consultants to rapidly implement
their e-business solutions.

Comprehensive Hosting Solutions. Our hosting solutions provide our customers
with continuously available remote access to mission-critical applications and
data. These solutions help to ensure that our customers' applications and Web
sites are continuously online and deliver data rapidly to users. Our state-of-
the-art data centers in Atlanta, Houston and Vienna, Virginia provide high-
quality performance and reliability through features such as a redundant, high-
speed, secure network architecture, continuous monitoring, alternate power
sources, environmental controls, regular data back-ups and a fault-tolerant
hosting platform. Our Network Operations Centers monitor our network on a 24x7
basis and allow our staff to minimize service interruptions.

Customer Service. We are dedicated to providing the highest quality customer
service. Our customer service organizations can address technical problems on a
24x7 basis. We have invested in advanced customer service software and call
routing technology to streamline the customer service process. We also offer a
self-service customer support alternative, which provides online access to
account and billing data and site statistics such as disk storage capacity and
bandwidth utilization.

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<PAGE>

Cost-Effective Solutions. Our customers benefit from the capital and labor
investments that we have made to support hosting and other Internet services.
For customers to replicate our performance and reliability, they would be
required to make significant expenditures for hardware, data center facilities,
connectivity and personnel. We believe that our hosting solutions are
significantly more cost-effective and reliable than in-house solutions, both
for businesses with low-end application requirements as well as for those
businesses whose Internet operations are mission-critical and require
sophisticated application support.

Services

Our services portfolio consists of the following solutions:

Web Hosting Services

We offer a comprehensive suite of solutions to meet the current and future
Web hosting needs of our customers. We provide virtual, dedicated and co-
located hosting services. The following table sets forth certain information
with respect to our Web hosting services.

<TABLE>
<CAPTION>
Hosting
Services Price Web Site Profile Key Features Customer Benefits
-------- ------------ ---------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Virtual $20-$350 Static Web pages, Shared space on Economical
per month moderately accessed Interliant-owned
sites server

Dedicated $100-$5,000 Dynamic Web content, Dedicated Interliant- Greater server
per month heavily accessed sites owned server in resources requiring
shared rack minimal customer
maintenance

Co- $500-$40,000 Mission-critical Secure cabinet for Greater customer
Located per month applications customer-owned server control/access to
hardware
</TABLE>

The foregoing prices are representative of products marketed under the
Interliant brand and may not be representative of our products marketed under
other brand names. Customers generally pay monthly, quarterly or annual fees
for the services used, as well as one-time fees for installation and any
equipment purchased by the customer.

Virtual Hosting. Our virtual hosting solution provides customers with all
the elements needed to establish a basic presence on the Web at a reasonable
cost, making it an economical solution for relatively simple or moderately
accessed Web sites. This entry-level service is known as virtual hosting
because the customer's home page has its own domain name and appears to exist
as a stand-alone server. It operates with the speed and efficiency of our high-
speed connections and its location at our facility remains invisible to Web
site visitors. Customers are able to have their own Web site with a domain name
at a fraction of the cost of maintaining it themselves. Because customers do
not need to invest in costly hardware or personnel to accommodate future
growth, we believe this solution also maximizes the customers' flexibility.

Dedicated Hosting. As companies increase the complexity, level of traffic or
reliance on their Web sites, they may prefer to host their Web site on a
dedicated server, which is typically owned and maintained by us. A dedicated
server provides greater server and network resources to our customers than
virtual hosting and allows them to configure their hardware to optimize site
performance. Customers receive a high level of site security, maintenance and
technical support without the prohibitive costs of setting up and maintaining
their own server and Internet connection. We support most leading Internet
hardware and software system vendor platforms, including Solaris, which
operates on a Sun Microsystems platform, Microsoft Windows NT, which operates
on an Intel/PC platform and Linux, which operates on a Cobalt Networks
platform.

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<PAGE>

Co-located Hosting. We provide co-located hosting services in each of our
primary data centers for customers with sophisticated, mission-critical
applications. This solution allows the customer to own and access their servers
on a 24x7 basis while delegating the day-to-day management of their Web site to
our IT specialists. In addition, co-located servers are housed in separate,
limited-access rooms in our data centers.

Enterprise Resource Planning

Through our recent acquisitions of reSOURCE PARTNER, Inc. and Soft Link,
Inc., we have expanded our business process outsourcing services into the
Enterprise Resource Planning (ERP) market by extending our service offerings to
include the implementation and hosting of PeopleSoft solutions. We offer our
customers fully integrated outsource solutions including consulting services
such as design and integration; hosting services such as IT outsourcing
management as well as processing services such as payroll processing and
benefits administration.

E-Commerce Capabilities

We offer a variety of e-commerce solutions to help businesses create and
maintain a successful electronic commerce presence on the Web. E-commerce
provides businesses the ability to sell products and services on the Internet.

Our e-commerce offerings include:

. Net.Commerce from IBM, which allows our customers to rapidly plan,
create and implement a fully manageable e-commerce Web site using the
IBM Net.Commerce software platform;

. SiteServer from Microsoft, which allows our customers to rapidly plan,
create, and implement a fully manageable e-commerce Web site using the
Microsoft SiteServer software platform;

. SoftCart from Mercantec, which allows users to create sophisticated e-
commerce Web sites that include order taking, credit card processing and
order fulfillment;

. CyberCash from Cybercash, Inc., which offers users a full suite of
Internet payment solutions, including credit card services, micropayment
and Internet check transactions; and

. ShopSite from Open Market, which allows users to build and maintain
catalogs of products or services to sell over the Internet.

Customer Relationship Management

Our customer relationship management, or CRM, solutions provide
geographically distributed sales and marketing organizations with all the
elements needed to quickly deploy sales force automation, partner relationship
management or other customer relationship management solutions. Our CRM
offerings are based on software from leading CRM software providers such as
Onyx. Our solutions are hosted on both shared and dedicated servers at one of
our data centers or on the customer's premises.

Infrastructure/Security Solutions

Our infrastructure/security solutions allow our customers to implement and
deploy technologies that enhance the performance of their hosted e-business
solutions. These technologies include managed firewall services, load balancing
and caching solutions from vendors such as Cisco Systems, Check Point Software,
ArrowPoint Communications, and Alteon WebSystems.

Messaging/Knowledge Management

We offer our customers a broad spectrum of messaging/knowledge management
solutions. These solutions allow a customer's widely distributed work force to
share software applications hosted on computers owned

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<PAGE>

and managed by us. Our messaging/knowledge management solutions provide
feature-rich e-mail and other types of messaging for internal and external
communication. These solutions also support workgroup and project team
collaboration and document sharing, business process automation and workflow,
as well as proprietary or custom applications built for this platform.

We provide hosting for messaging/knowledge management applications based on
the Lotus Notes/Domino and Microsoft Exchange platforms. We also provide
outsourced messaging solutions based on industry-standard e-mail technology,
such as POP and SMTP, as well as proprietary messaging solutions, including our
eReach for messaging. We host these solutions on both shared and dedicated
servers at one of our data centers or on the customer's premises. Customers can
connect to our servers using the Internet or a variety of private network
options, including frame relay, dedicated lines and local dialup access in more
than 100 countries.

Distributed Learning

Our distributed learning solutions allow our customers to create online
training and learning environments. We offer comprehensive solutions for
corporate and academic customers based on software from vendors such as Lotus.
These solutions include sophisticated course and student management systems and
online facilitation. Deployment of existing courses is very rapid, with
students typically able to access courses within a few days following
registration.

Internet Professional Services

We implement, enhance and support our ASP services with Internet
professional services, either provided by our own consultants or by our
business partners. These services are a key part of our ASP service portfolio,
enabling us to provide our customers with end-to-end outsourced solutions.

Our Internet professional services include capabilities to create intranet,
extranet and application hosting solutions for our customers, as well as
provide network implementation, security implementation and back-end Web
development projects. In addition, we provide support for our customers'
enterprise networking needs. We address the complete spectrum of services,
including desktop and network server support, network architecture and design,
strategic technology planning and application development and implementation.
We scale our Internet professional services to meet each client's needs.

Customers

We have established a diversified customer base across our service
offerings. Our customer contracts range in duration from one month to three
years. Our customers include end-users representing a variety of business
types, ranging from small businesses to large enterprises. We also sell our
services to Web consulting firms, Internet service providers, network
integration companies, system integrators and other Internet-related companies
who resell them to their customers. We do not believe that the loss of any one
customer would materially adversely affect us.

Strategic Relationships

Our strategic relationships and partnerships with leading technology
companies allow us to provide a wide range of services to meet our customers'
needs. The following is a description of selected companies with whom we have a
strategic relationship:

IBM. We are a Premier Partner in the IBM Partnerworld Business Partner
program for Service Providers, as well as an IBM Strategic Alliance Partner. We
began offering the IBM Net.Commerce Hosting Server product line in January 1999
as an end-to-end e-commerce solution. IBM currently lists Interliant on its Web
site as one of a select group of partners that are able to offer this product.
We are also hosting IBM Net.Commerce solutions, Start and Pro, for dedicated
server customers who maintain large e-stores and require large scale
implementations.

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<PAGE>

On October 22, 1999 we signed an agreement to create a sales and marketing
alliance to deliver application hosting solutions that combine IBM e-business
hardware and software with our hosting services. The first two services being
addressed under this alliance are: Interliant's eReach application management
service and hosted e-commerce solutions deploying IBM WebSphere and IBM
Net.Commerce. These solutions will be brought to market through IBM's and our
direct sales forces and IBM's and our Business Partner channels. The alliance
agreement includes obligations for both parties to work together on joint
marketing and sales activities. This agreement will expire on December 31,
2000, unless terminated sooner upon 90 days advance written notice by either
party.

Lotus Development. We believe we are a leading partner of IBM's Lotus
software division and are a Lotus Net Service Provider/Alliance Partner. We
provide a variety of messaging and hosting services for Internet, intranet and
extranet applications operating on Lotus Notes/Domino. We are currently listed
by Lotus on several sections of Lotus' Web site as one of a select group of
partners that provide hosting services for Lotus Notes/Domino and other Lotus
application solutions and have twice been recognized with Lotus' highest
recognition, the Lotus Beacon Award, most recently in January 1999.

We are party to a Joint Development Agreement with Lotus Development, dated
April 27, 1998, which was scheduled to expire on April 27, 2000, subject to
automatic renewal for additional one-year terms unless terminated by either
party upon prior written notice. We are currently in negotiations with Lotus
Development about whether this agreement will be terminated or renewed. Under
this agreement, together with Lotus we co-developed Lotus' Domino Instant! Host
now known as the Lotus Hosting Management System, or LHMS, platform, which
enables application developers to deploy and offer Web-based collaborative
applications. Under the terms of this agreement, we share joint development
responsibilities with Lotus. Terms of this agreement include:

. We are obligated to contribute proprietary computer code owned by us, to
name one of our employees as the project liaison and to provide non-
dedicated architectural and project management assistance to Lotus.

. Lotus is obligated to contribute substantially similar type of
intellectual property and personnel resources to the project.

. Lotus is obligated to pay us a royalty equal to 25% of the net revenues
received from licensing LHMS. The royalty percentage may be adjusted at
the request of Lotus not more than once with respect to each new release
of LHMS, however, such adjustment may not reduce the royalty percentage
by more than half the percentage in effect at that time.

. We must pay Lotus at its standard rate for all copies of LHMS which we
desire to license.

. If Lotus engages in product development or promotional activities which
impact its ability to generate revenues from the sale of LHMS, the
agreement will terminate and Lotus will be obligated to pay us up to
$250,000 in penalties depending upon the amount of royalties paid to us
through the date of termination.

Microsoft. We are a Microsoft Certified Solution Provider, or MCSP, at the
Partner level. The Partner designation is the highest attainable level in this
program. We believe this designation provides us with preferred access to a
broad range of Microsoft resources and is a distinguishing factor for software
development firms and systems integrators looking to identify sources for
advanced hosting services such as those offered by us.

Our status with Microsoft provides us with the following:

. access to a local, field-based Microsoft representative;

. a corporate-based business development manager;

. designated points of contact in the customer units and product groups;

34
<PAGE>

. enhanced technical support;

. advance product notification;

. advance product releases;

. participation in beta programs;

. joint marketing programs; and

. sales leads and new business development opportunities generated by
Microsoft.

We are a designated Microsoft Application Service Provider, defined by
Microsoft as being able to provide superior infrastructure, service and
performance for hosted applications on the Microsoft platform.

We are also designated as a rapid deployment partner for various Microsoft
products. As such, we are responsible for providing feedback on Microsoft
products in the advanced hosting and managed application markets prior to
release of those products and by doing so we have been able to provide
services and gain expertise on these products before the general market.

Additionally, we are currently engaged in several strategic initiatives
with Microsoft, as described below.

We also have entered into a co-marketing and promotion agreement whereby
Microsoft will include our advertisements in a catalog that is inserted into
every FrontPage 2000 product box that is packaged for retail sale, as well as
a catalog that is inserted into every full package product version of Office
Developer, Office Standard, Office Small Business, Office Professional and
Office Premium. Microsoft has also agreed that it will issue a press release
on its Web site highlighting our joint involvement in the promotion of
FrontPage 2000. In return, we have agreed to feature Front Page 2000 on our
Web site with greater frequency and visibility than any competing product and
have agreed to offer either free Web hosting with a value of up to $105 or
free or reduced registration and set up fees with a value of up to $500, in
order to induce the public to host a FrontPage 2000 Web site. This agreement
remains in effect until the earlier of the initial release of the next version
of FrontPage, Microsoft ceasing to produce FrontPage, or December 31, 2000.

We are also participating in a Microsoft initiative called the Complete
Commerce program. In conjunction with selected other MCSP's, we will incent
customers seeking to engage in e-commerce activities on the Web to enter into
this program by offering a specially priced, all inclusive storefront hosting
package that integrates shipping, credit card processing and tax elements. The
service will also include consulting and development of the storefront
application Web site, back-end integration and hosting activities. Microsoft
will provide resources to help us market this program, including promotional
activities, marketing activities and participation in the customer engagement
activities. Our marketing activities for the Complete Commerce program
commenced in April 1999.

We are also participating in a Microsoft initiative called the Complete
Commerce Phase II program. This program will launch end-to-end hosting
solutions for corporate procurement, customer relationship management and
accounting customers.

We are participating in Microsoft's Office Online pilot program and have
plans to offer Microsoft's desktop productivity suite over the Internet. As
part of this strategic initiative, we will deliver hosted and customized
Office 2000 solutions, instant software updates and service releases. We will
allow customers to pay for services on a monthly basis. In addition, our
hosting of Office 2000 will provide small- to medium-sized businesses a new,
pay-per-use option for familiar Office applications including, Microsoft Word,
Microsoft Excel, Microsoft PowerPoint, Microsoft Access, Microsoft FrontPage
and Microsoft Outlook.

We are also engaged in research and development efforts with the Microsoft
Exchange 2000 Product Team to develop a robust hosting platform for
collaborative applications running on Exchange 2000.

35
<PAGE>

All of these initiatives supplement our current shared and advanced
dedicated server offerings for Microsoft NT 4.0, IIS 4.0, SQL, 6.5/7.0,
FrontPage 98, FrontPage 2000 and Office Server Extensions. Dedicated and shared
server offerings based on Windows 2000 are currently under development. We plan
to launch these service offerings in the second half of 2000.

In March 2000, we entered into a commercial agreement with Microsoft to
develop application hosting services on the Windows 2000 Server and Exchange
2000 Server platforms. Under this agreement, we and Microsoft are to work
together to develop tools to make it easier for independent software vendors
and solution providers to develop hosted, collaborative applications on the
Microsoft Exchange 2000 Server platform. We are also to develop and offer
services that help independent software vendors to develop hosted applications
for Microsoft's collaboration platform.

Network Solutions. We have entered into a strategic alliance with Network
Solutions, Inc. to deliver enhanced Internet identity and hosting services for
small and medium-sized businesses. Under the terms of this agreement,
Interliant and Network Solutions will offer and promote our respective products
and services to each other's existing and potential customers. In particular:

. We will continue to offer our customers the benefit of Network
Solutions' registration services in the .com, .net and .org top-level
domains to help them establish their unique Internet identities;

. We will provide access to the "dot com directory" through a link on our
Web site;

. Network Solutions will promote our services on its Web site, on the dot
com directory and in a variety of other promotional campaigns. Network
Solutions will continue to refer customers to us as an Alliance Program
member and the two companies will engage in joint sales efforts with the
goal of offering those customers the benefits of our hosting and both
parties' services;

. Network Solutions will also expedite the registration process for our
customers and will provide dedicated advanced account management for our
customers with 24x7 support; and

. Interliant and Network Solutions will explore joint development of a
rentable application offering that would allow small and medium-sized
businesses to leverage the power of an Internet-based hosted application
without the traditional infrastructure required to host and administer
one.

Cisco Systems. We have entered into a strategic relationship with Cisco
Systems to provide comprehensive solutions to our customers utilizing Cisco
Systems access and switching products. As part of an Interliant overall IT
solution including design, installation, project management and post-sales
support, we are authorized to distribute Cisco Systems products, both
domestically and on a multinational scale, at substantial discounts to the
retail prices available generally. This relationship also grants us substantial
discounts on Cisco Systems products allocated for our internal uses.

Onyx. We have entered into a strategic relationship with Onyx, a leader in
e-business software and a professional services provider, to provide
comprehensive solutions for Onyx's customer relationship management
applications, Onyx Front Office and Onyx Enterprise Portal. As part of this
relationship, we will provide European customers with application set up and
configuration at our data center, operating system and application level
administration as well as customer support for Onyx Front Office and Onyx
Enterprise Portal. Outside of Europe, these implementation services will be
initially offered through our partnerships with Onyx system integrators.

In addition to the above relationship, Onyx has selected Interliant as one
if its ASPiN partners. Onyx ASPiN is a global program that includes software,
hardware and services companies working together and independently to deliver a
wide-ranging set of unique hosted offerings based on the Onyx Front Office
product family.

Dell Computer Corporation. In February 2000, we entered into an alliance
agreement with Dell under which we will collaborate to bring Web-based services
to market. Under the terms of the agreement, Interliant will provide certain
services to Dell. As part of the deal, Dell has agreed to sell its PowerEdge
servers and PowerVault storage products to us for use in our hosting service.

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<PAGE>

BMC Software. We have executed an agreement with BMC Software under which we
have agreed to standardize BMC Software's monitoring products to support our
hosting platforms and customer premise servers. BMC Software will also join us
in co-marketing activities intended to promote our respective products and
services. We will also promote one another's products and services to our
respective current and potential customers.

Interliant Europe. In February, 2000, we and @viso Limited, a company
incorporated under the laws of England and Wales and owned 50% by Softbank
Holdings, Inc. and 50% by Vivendi, S.A., agreed to form a corporation,
Interliant Europe B.V., owned 51% by us and 49% by @viso Limited. Interliant
Europe was formed in May, 2000. Under the agreement, @viso committed, through
its purchase of an equity interest and loans to us, to invest up to $40.0
million in Interliant Europe. In April 2000, as part of a $15.0 million initial
investment in Interliant Europe, @viso contributed approximately $7.3 million
to purchase its initial equity interest in Interliant Europe and loaned us the
amount required to purchase our initial equity interest in Interliant Europe
(approximately $7.7 million). Of the remaining balance of the $40.0 million
commitment (approximately $25.0 million), @viso has agreed to loan us the
amount required for our share of the commitment (approximately $12.75 million)
if and when required by Interliant Europe. As part of the agreement, Interliant
Europe also entered into a transaction in May 2000 with Cegetel Enterprises
S.A., a subsidiary of Vivendi, whereby Interliant Europe purchased data center
assets and intellectual property from Cegetel. We have also agreed to license
some of our technology and intellectual property to and to enter into a service
agreement with Interliant Europe.

VeriSign, Inc. In March 2000, we entered into a strategic agreement with
VeriSign, Inc., a leading provider of Internet trust services, to integrate
VeriSign's trust services, including website digital certificates and payment
services, with our Web hosting and e-commerce services. Under terms of the
alliance, we have joined VeriSign's Secure Site ISP/Web Host program as a
Premier Partner and have named VeriSign as our Preferred Provider of trust
services for our customer base. We intend to integrate VeriSign's Web site
digital certificates and payment services into our Web hosting packages and e-
commerce services, automating the customer enrollment and lifecycle process
using tools provided by VeriSign. To promote these joint offerings, Interliant,
VeriSign and Network Solutions will collaborate on a range of co-marketing
programs. In addition, we and VeriSign have agreed to collaborate with Network
Solutions to develop a range of value-added e-commerce service offerings for
small, medium and large enterprise customers.

UUNET. We also have a strategic partnership with UUNET Technologies to be
our primary connectivity provider on a worldwide basis. See "Technology and
Network Operations--Connectivity."

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<PAGE>

Acquisition Program

We have completed 23 acquisitions through March 31, 2000 and we intend to
seek additional acquisitions. We seek to identify businesses which will add
application expertise and service offerings, customers, sales capabilities
and/or geographic coverage while generating a positive rate of return on
investment. Furthermore, we intend to capitalize on the business practices of
acquired companies that we believe will best maintain our competitive
advantages and ensure ongoing delivery of high quality hosting services to our
customers. The acquisition candidates we review can be large, and their
acquisition by us could have a significant and lasting impact on our business.

The following table sets forth information with respect to the 23
acquisitions completed by us since our inception.

<TABLE>
<CAPTION>
Date Name Primary Focus Location of Acquisition
---- ---- ------------- -----------------------
<S> <C> <C> <C>
February 1998........... DirectNet Web hosting California

April 1998.............. Clever Computers Web hosting Georgia

April 1998.............. Server and network Web hosting Washington, D.C.
connectivity assets from
Knowledgelink
Interactive

May 1998................ Tri-Star Web Creations Web hosting New York

June 1998............... HostAmerica Web hosting Georgia

June 1998............... All Information Systems Web hosting Texas

July 1998............... Software Business Web hosting California
Technologies Web
Hosting business unit

July 1998............... Dev Com Web hosting California

July 1998............... Maikon Web hosting Texas

August 1998............. ICOM Web hosting California

September 1998.......... GEN International Web hosting Florida

December 1998........... Dialtone Web hosting Florida

February 1999........... DigiWeb Web hosting Washington, D.C.

February 1999........... Telephonics International Multimedia Florida

February 1999........... Net Daemons Associates Professional Services Massachusetts, California
and Colorado

March 1999.............. Interliant Texas Messaging, CRM, Texas and London,
e-Commerce, Distributed England
Learning

May 1999................ Advanced Web Creations Web Hosting New Jersey

August 1999............. Daily-e Professional Services New York

September 1999.......... Sales Technology CRM London, England

November 1999........... Triumph Technologies Professional Services, Massachusetts
and Triumph e-business security
Development solutions

December 1999........... The Jacobson Group Professional Services Massachusetts

February 2000........... reSOURCE PARTNER, Inc. ASP Ohio

February 2000........... Soft Link, Inc. Professional Services Minnesota
</TABLE>

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<PAGE>

Once we acquire a company, a multi-disciplinary team engages in a detailed
integration process. Technical integration often involves physically moving the
acquired company's equipment into one of our facilities and migrating acquired
company customers onto our hosting platforms. Our platforms are typically more
robust than that of the acquired company and standardization allows us to
manage the servers more efficiently. We also intend to continue to integrate
customer service operations at our primary data centers. By centralizing
customer service, we believe that we can improve performance while reducing
cost. We also intend to continue transitioning acquired company operations onto
a consistent billing platform. This platform will be serviced by our personnel
at a centralized location and employ uniform systems and procedures to operate
multiple billing systems.

Sales and Distribution

Our sales and marketing group sells our ASP solutions to our customers
through the following sales channels:

Direct Sales, which sells ASP solutions to large enterprises and other
businesses whose Internet operations are mission-critical.

Telesales, which acquires new customers through inbound calls generated
through traditional media and outbound telesales to pre-qualified potential
customers.

Internet Marketing programs that drive potential customers to our Web site
or our telesales group. Customers can purchase Web hosting services on a 24x7
basis from our Web site at www.interliant.com.

Indirect Sales consisting of reseller and referral partners, such as Web
consulting firms, Internet service providers, independent software vendors,
network integration companies and system integrators. These distribution
partners have established relationships with our prospective customer base as
well as sales forces capable of selling our ASP solutions. These indirect sales
channels extend our market reach and assist in the delivery of complete
solutions to meet customer needs. We offer our partners a discount from our
retail price on both products and services.

Marketing

We market our ASP solutions using a variety of media and channels. We intend
to continue investing in building the Interliant brand worldwide, using print
advertisements in key industry publications, broadcast advertising, direct
marketing and online advertising, such as general rotation and keyword-specific
Web banner advertisements, as well as other marketing techniques. In addition,
we intend to employ a number of other marketing tactics and communications
vehicles, such as product literature, trade shows, promotions with key hardware
and software vendors, direct response programs and our Web site to generate
leads and increase awareness of our brand. Our products are available from our
primary Web site at www.interliant.com as well as at www.appsonline.com. We
expect to significantly increase our marketing expenditures in order to support
our brand marketing and lead-generation efforts. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

When an acquired company's brand is already well-established, we may for a
period of time continue to market certain products and services under that
brand to capitalize on the competitive advantages the acquired brand may bring
to us. Our long-term goal, however, is to migrate most of our acquired product
offerings to our brands.

Technology and Network Operations

We have developed a secure, reliable, high-performance and scalable hosting
solution, which we believe provides a significant competitive advantage in the
market. This solution is comprised of multiple hosting

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platforms that incorporate automated functionality and a network infrastructure
that includes multiple Internet data centers and is monitored on a 24x7 basis.
Our strategy in developing our ASP solutions focuses on utilizing internally
created technological innovations that we integrate with leading software and
hardware providers.

ASP Hosting Platform. Although industry-standard Web servers are adequate
for basic Web hosting, we believe that efficiently managing large numbers of
Web sites and users on a single server or managing complex, Internet-based
applications requires significant technological innovations. We have developed
proprietary hosting platforms that permit us to integrate existing hardware and
software products, such as those from Microsoft, Cisco Systems, Compaq, Dell
and Network Appliance, to create our hosting platform. We have also developed
Web server applications designed to improve performance in a virtual server
environment and we have implemented resource monitoring tools designed to
report and address scarcity of shared computer processing units and memory
resources. Our solution is scalable, allowing servers to be added while being
monitored centrally, independent of where they are located.

Facilities and Operations. We have four primary data centers located in
Houston, Texas; Atlanta, Georgia; Vienna, Virginia and Columbus, Ohio. In
addition, we operate a data center in Paris, France and have a data center in
London, United Kingdom which we expect to be operational during the third
quarter of 2000. Our customer service and network monitoring infrastructures
are based in our four primary data centers. In order to provide our customers
with high-quality service, we have invested substantial resources in building
our network infrastructure.

We have designed our network to minimize the effect of any interruptions.
Our high-speed network is designed to continue operating in the case of
software or hardware failures. Our primary data centers feature separate,
redundant fiber and power connections, back-up diesel generators, environmental
control systems and uninterruptible power supplies designed to provide on-site
power for up to four weeks. Systems receive full daily back-ups and off-site
storage. We also provide remote access management and reporting tools. Quality
and security are paramount concerns for our customer base. Consequently, we
employ several security measures, including firewall, intrusion monitoring and
site security monitoring, limited access electronic card key measures and the
physical separation of servers from administrative workstations. We have also
implemented monitoring systems to identify potential sources of failure, limit
downtime and notify our staff of any problems. Although we have attempted to
build redundancy into our network and hosting facilities, our data centers are
subject to various single points of failure and a problem with one of our
routers or switches could cause an interruption in the services we provide to
some of our customers.

Our Vienna, Virginia facility is a world-class data center located within a
mile of MAE-East, the major East Coast data hub to the Internet, facilitating
the most scalable Internet connectivity and reliable network services
available. Originally an America Online data center, this 22,270 square-foot
facility features the latest in state-of-the-art equipment and design,
including MGE Uninterruptible Power Systems, multi-carrier connectivity,
environmental monitoring and conditioning and end-to-end physical security
systems. We believe these features ensure stable, reliable operation of
applications.

Historically, our Houston data center housed our application hosting
operations and our Atlanta center housed our Web hosting operations. Each of
these centers, as well as our data center in Vienna, Virginia, are capable of
providing a full range of ASP hosting. Customer service for our ERP customers
is currently housed in our Columbus data center. We anticipate that over time
the functional distinctions between our data centers will diminish.

Our Network Operations Centers ("NOCs"), with the exception of our NOC in
our Columbus data center which is focused solely on our ERP hosted
applications, are responsible for monitoring our entire network, server farm
and hosted applications on a 24x7 basis. We monitor each piece of equipment,
including routers, switches and servers. The NOCs also monitor all Internet and
telecommunications connections and ensure that they are functional and properly
loaded. The design of the NOCs enables systems administrators and support

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staff to be promptly alerted to problems and we have established procedures for
rapidly resolving any technical problems that arise. The NOCs are fully
integrated into our customer service facilities.

Connectivity. We offer connectivity to our systems from virtually anywhere
in the world, enabling customers to deploy global solutions. Customers can
access us:

. via the Internet;

. through X.28 connections provided by Compuserve and Equant, N.V. in more
than 105 countries;

. through dedicated lines at a bandwidth they specify;

. over Frame Relay through AT&T, Sprint and MCI Worldcom; or

. domestically via a toll-free number.

We utilize multiple DS-3 connections to the Internet provisioned directly
off a SONET ring from our Atlanta, Houston and Vienna, Virginia data centers.
In addition, we currently utilize four OC/3 sized circuits from our Atlanta
facility and another single OC/3 connection from our Virginia facility.
Internally developed management and monitoring systems provide insight into the
performance of our entire network, as well as consistency of security measures
across all of our current hosting platforms.

By utilizing top tier connectivity providers and developing private peering
arrangement with bandwidth providers, we are able to offer highly resilient,
redundant and high speed connectivity between the Internet and each of our data
center facilities.

On February 17, 1999 we entered into an agreement with UUNET Technologies to
be our primary connectivity provider on a worldwide basis. The agreement is
scheduled to expire on February 19, 2002, subject to automatic renewal for an
additional year unless either party notifies the other of its intent not to
renew. Terms of this agreement include:

. UUNET Technologies has agreed to provide and we have agreed to purchase
monthly minimum levels of connectivity ranging from 100 Mbps to 600 Mbps
of bandwidth.

. Upon execution of this agreement we were committed to purchase 100 Mbps
of bandwidth per month.

. Our minimum monthly bandwidth purchase commitment increased to 300 Mbps
in December 1999 and will increase to 600 Mbps in December 2000.

. We have agreed that, if during the second and third years of this
agreement, we obtain over 600 Mbps of bandwidth per month for our
Internet traffic, we will purchase 51 % of all bandwidth in excess of
600 Mbps from UUNET Technologies. If we do not purchase 51% of all
bandwidth over 600 Mbps from UUNET Technologies, we are obligated to pay
UUNET Technologies $21.66 for each Mbps we are obligated but fail to
purchase from them.

Under the terms of the agreement, the connectivity may range in capacity
from T-1 to DS-3 to OC-12 which are the technical names of the physical
telecommunications connections or pipelines that will be used to transport
data. A larger pipeline can carry a greater volume of data at a greater speed.
For example, a T-1 can carry 1.544 megabytes per second; a DS-3 can carry
44.736 megabytes per second and an OC-12 can carry 622 megabytes per second. At
our Atlanta data center, we have four OC-3 connections to diverse hubs in UUNET
Technologies' network, each of which can carry 155.52 megabytes of data per
second and use diverse fiber for redundancy. In addition to the connectivity
provisions, our companies have agreed to develop and implement a joint
marketing program including:

. allowing us to resell UUNET Technologies services through our network of
resellers;

. cooperating on mutually beneficial hosting and co-located remarketing
agreements; and

. cooperating on an international co-location facilities agreement.

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Our minimum financial commitment during each year of the agreement is as
follows: $0.7 million in year one, $2.1 million in year two and $4.1 million in
year three.

Customer Service

We view customer service as a critical part of our business strategy. As of
March 31, 2000, our customer service group had 233 employees located mainly in
our primary data centers. This group is responsible for providing customer
service to our customers as well as our resellers and referral partners,
including helping customers to use our ASP solutions.

We have invested in advanced customer service software and call routing
technology to streamline the customer service process. Through our customer
service systems, customer service representatives can generally resolve any
issue in a timely manner via e-mail or our toll-free number. We also offer many
of our customers a self-service customer support alternative, which provides
online access to account and billing data and site statistics such as disk
storage capacity and bandwidth utilization. Certain customer accounts also have
access to dedicated support engineers who are familiar with each unique
configuration or requirement a larger customer may have.

A focused support team handles all the application hosting support
requirements via several mechanisms including a facilitated discussion database
environment available over the Internet where customers, application developers
and support technicians can discuss pertinent issues and build a relevant
knowledge base. Our Web hosting customer service operations are supported by
the Vantive Support system, a customer/asset management tracking application
that enables a customer service representative to view a customer's entire
account, including past and recent interactions with such customer. This
database categorizes all reported problems so that if a particular problem
reoccurs, customer service representatives can view its prior resolution and
provide timely and accurate customer service.

Competition

The market served by us is highly competitive. Although barriers to entry
and continued growth are increasing, there are still few substantial barriers
to entry. We expect that we will face additional competition from existing
competitors and new market entrants in the future. The principal competitive
factors in this market include:

. quality of service, including network capability, scalability,
reliability and functionality;

. customer service and support;

. variety of services and products offered;

. price;

. brand name;

. Internet system engineering and technical expertise;

. timing of introductions of additional value added services and products;

. network security;

. financial resources; and

. conformity with industry standards.

We may not have the resources, expertise or other competitive factors to
compete successfully in the future.

Our current and potential competitors include:

. other ASPs, such as USinternetworking, FutureLink and Corio;

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. other Web hosting and Internet services companies such as
Metromedia/AboveNet Communications, Exodus Communications, Digital
Island, GlobalCenter, Globix, NaviSite, Digex, Data Return and local and
regional hosting providers;

. national and regional Internet service providers such as Concentric
Network, MindSpring Enterprises, UUNET Technologies, PSINet and Verio;

. global telecommunications companies including AT&T, British
Telecommunications, Telecom Italia and Nippon Telegraph and Telephone;

. other Internet professional services companies such as iXL Enterprises,
USWeb/CKS and Breakaway Solutions; and

. regional and local telecommunications companies, including the regional
Bell operating companies such as Bell Atlantic and USWest.

Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we do.
As a result, certain of these competitors may be able to develop and expand
their network infrastructures and service offerings more rapidly, adapt to new
or emerging technologies and changes in customer requirements more quickly,
take advantage of acquisition and other opportunities more readily, devote
greater resources to the marketing and sale of their services and adopt more
aggressive pricing policies than we can. In addition, these competitors have
entered and will likely continue to enter into joint ventures or consortia to
provide additional services competitive with those provided by us.

Intellectual Property Rights

We rely on a combination of copyright, trademark, service mark, trade secret
laws and contractual restrictions to establish and protect certain proprietary
rights in our services. We have no patented technology that would preclude or
inhibit competitors from entering our market. The steps taken by us to protect
our intellectual property may not prove sufficient to prevent misappropriation
of our technology or to deter independent third-party development of similar
technologies. The laws of certain foreign countries may not protect our
services or intellectual property rights to the same extent as do the laws of
the United States. We also rely on certain technologies that we license from
third parties. These third-party technology licenses may not continue to be
available to us on commercially reasonable terms. The loss of the ability to
use such technology could require us to obtain the rights to use substitute
technology, which could be more expensive or offer lower quality or performance
and therefore have an adverse effect on our business.

To date, we have not been notified that our services infringe on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to current or future services. From time to time, we are
notified that the content of one of our customer's sites infringes on a third
party's trademark or copyright. In response, we take steps pursuant to the
Digital Millenium Copyright Act to inform the customer of such claim and, where
appropriate, terminate a customer's service. We expect that participants in our
markets will be increasingly subject to infringement claims as the number of
services and competitors in our industry segment grows. Any such claim, whether
meritorious or not, could be time-consuming, result in costly litigation, cause
service installation delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on
terms acceptable to us or at all. As a result, any such claim could have an
adverse effect upon our business.

Government Regulation

We are not currently subject to direct federal, state or local government
regulation, other than regulations that apply to businesses generally. Only a
small body of laws and regulations currently applies specifically to hosting
and commerce activities, or access to the Internet. Due to the increasing
popularity and use of the

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Internet, however, it is possible that laws and regulations with respect to the
Internet may be adopted at international, federal, state and local levels,
covering issues such as user privacy, freedom of expression, pricing,
characteristics and quality of products and services, taxation, advertising,
intellectual property rights, information security and the convergence of
traditional telecommunications services with Internet communications. Although
sections of the Communication Decency Act of 1996 that, among other things,
proposed to impose criminal penalties on anyone distributing "indecent"
material to minors over the Internet were held to be unconstitutional by the
U.S. Supreme Court, similar laws may be proposed, adopted and upheld. The
nature of future legislation and the manner in which it may be interpreted and
enforced cannot be fully determined and, therefore, legislation similar to the
Communications Decency Act could subject us and/or our customers to potential
liability, which in turn could have a material adverse effect on our business,
results of operations and financial condition. The adoption of any such laws or
regulations might decrease the growth of the Internet, which in turn could
decrease the demand for our services, increase the cost of doing business or in
some other manner have an adverse effect on our business.

We collect sales and other taxes in the states we have offices and are
required by law to do so. We currently do not collect sales or other taxes with
respect to the sale of services or products in all states and countries in
which we have offices and may be required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes
for prior periods, could have an adverse effect on our business.

In addition, applicability to the Internet of existing laws governing issues
such as property ownership, copyright and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of such laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. Changes to such laws intended to
address these issues could create uncertainty in the marketplace that could
reduce demand for our services, increase the cost of doing business as a result
of costs of litigation or increased service delivery costs or could in some
other manner have an adverse effect on our business.

Any new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to our business, could
have an adverse effect on our business.

Employees

As of March 31, 2000 we had 1,256 employees, of which 155 were in sales,
distribution and marketing, 664 were in engineering and service development,
233 were in customer service and technical support, 200 were in finance and
administration and 4 were in acquisition integration. None of our employees are
represented by a labor union and we believe that our employee relations are
good.

Facilities

Our executive offices, which we lease, are located in Purchase, New York. We
also lease the facilities that house our primary data centers in Atlanta,
Georgia; Houston, Texas; Vienna, Virginia and Columbus, Ohio, as well as other
facilities in the Washington, D.C. and Boston metropolitan areas.

Legal Proceedings

In the ordinary course of our business, we may be involved in legal
proceedings from time to time. As of the date of this prospectus, there are no
material legal proceedings against us.

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MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information with respect to the
executive officers and directors of Interliant:

<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Leonard J. Fassler............... 68 Co-Chairman, Director
Bradley A. Feld.................. 34 Co-Chairman, Director
Herbert R. Hribar................ 48 President, Chief Executive
Officer, Director
Francis J. Alfano................ 38 Senior Vice President, Web
Hosting Solutions and Mergers and
Acquisitions
Paul E. Chollett................. 40 Senior Vice President, Finance
and Administration and Treasurer
Kim A. Crane..................... 45 Senior Vice President, Marketing
Randy D. Kautto.................. 54 Senior Vice President, Strategy
and International
Bruce S. Klein................... 41 Senior Vice President, General
Counsel and Secretary
Jennifer J. Lawton............... 36 Senior Vice President, ASP
Solutions
Kristian Nelson.................. 36 Senior Vice President, Operations
Richard C. Rose.................. 52 Senior Vice President, Sales
William A. Wilson................ 54 Chief Financial Officer
Thomas C. Dircks...................... 41 Director
Jay M. Gates.......................... 34 Director
Merril M. Halpern..................... 64 Director
John P. Landry........................ 51 Director
Charles R. Lax........................ 39 Director
Stephen W. Maggs...................... 46 Director
Patricia A. M. Riley.................. 57 Director
</TABLE>

Leonard J. Fassler is one of our co-founders and has been one of our Co-
Chairmen and a Director since our formation in December 1997. Mr. Fassler was
also our Secretary from December 1997 through April 1999. From 1992 to 1996,
Mr. Fassler was a Co-Chairman of AmeriData Technologies, Inc., a New York Stock
Exchange-listed reseller of computer equipment and provider of computer
consulting and other services that was acquired by General Electric Capital
Corporation in 1996. Mr. Fassler was a co-founder of AmeriData. Mr. Fassler
holds a bachelor's degree in business administration from City College of New
York and a law degree from Fordham Law School. Mr. Fassler is also a director
of Vestcom, Inc.

Bradley A. Feld is one of our co-founders and has been one of our Co-
Chairmen and a Director since our formation in December 1997. Since 1995, Mr.
Feld has been the President of Intensity Ventures Inc., a company that helps to
establish, advise and operate software companies. From 1993 to 1995, Mr. Feld
was the chief technology officer of AmeriData. From 1985 to 1993, he was
president of Feld Technologies, Inc., a computer consulting firm founded by Mr.
Feld to develop and implement information technology solutions for a wide
variety of businesses, which was acquired by AmeriData in 1993. Mr. Feld earned
a bachelor of science degree and a master of science degree from Massachusetts
Institute of Technology. Mr. Feld is a General Partner of SOFTBANK Technology
Ventures IV, L.P., SOFTBANK Technology Ventures V, L.P. and SOFTBANK Technology
Advisors Fund, L.P., venture capital funds. Mr. Feld is a director and co-
chairman of Message Media, Inc. and director of a number of privately held
companies.

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Herbert R. Hribar became our Chief Executive Officer and a Director
effective January 31, 2000. In addition, effective March 30, Mr. Hribar was
named our President. Prior to joining us and since July 1998, Mr. Hribar had
been President and Chief Operating Officer of Verio, Inc., a domain-based Web
hosting company. From March 1997 to July 1998, Mr. Hribar was President of
Ameritech Wireless in Chicago, Illinois and Managing Director of Ameritech
Europe from January 1996 to February 1997. Mr. Hribar is a graduate of the U.S.
Naval Academy in Annapolis and has advanced degrees in engineering, business,
and computer science.

Francis J. Alfano has served as our Senior Vice President, Mergers and
Acquisitions since December 1998. In March 2000, his title was changed to
Senior Vice President, Web Hosting and Mergers and Acquisitions. From January
1997 to November 1998, Mr. Alfano was Vice President of Business Development at
GE Capital Information Technology Solutions, Inc., formerly AmeriData. From
July 1994 to December 1996, Mr. Alfano was Director of Taxes at GE Capital
Information Technology Solutions, Inc. From January 1991 to June 1994, Mr.
Alfano was employed by Ernst & Young, an accounting, tax and consulting firm
and was a senior manager in the tax department at the time of his departure.
From 1984 to 1990, Mr. Alfano was employed as a Certified Public Accountant
with various public accounting firms. Mr. Alfano holds a bachelor of science
degree in business administration from the University of Arizona and is a
Certified Public Accountant.

Paul E. Chollett has served as our Senior Vice President, Finance and
Administration since March 1999 and our Treasurer since June 2000. From July
1996 until he joined us, Mr. Chollett was Senior Vice President and Chief
Financial Officer of Interliant Texas. From July 1993 to July 1996, Mr.
Chollett was the Director of Finance and Administration in the Audit Division
of the accounting firm of Arthur Andersen LLP. In this role, Mr. Chollett was
responsible for managing the financial, risk management and quality control
aspects of the firm's audit practice. Mr. Chollett holds a bachelor of science
degree in accounting from the University of Houston at Clear Lake City. Mr.
Chollett is a Certified Public Accountant.

Kim A. Crane has served as our Senior Vice President, Marketing since March
2000. In such role, she is responsible for the planning, development,
execution, and evaluation of all communications programs targeted to customers,
prospects, and other relevant external and internal audiences. Ms. Crane has
over 15 years of high tech marketing experience. Prior to joining Interliant in
March, 2000, Ms. Crane was at Alcatel, one of the largest telecommunications
companies in the world headquartered in Paris, France, where she served as Vice
President of Global Marketing Communications from March 1998 to April 1999 and
Assistant Vice President of Marketing Communications from September 1995
through February 1998. Prior to that time, she also held management positions
with International Data Group (IDG) and British Telecom.

Randy D. Kautto has served as our Senior Vice President, International and
Strategy since May, 2000. Previously, Mr. Kautto was Chairman, President and
CEO of reSOURCE PARTNER, Inc., an Application Service Provider founded by
Mr.Kautto. reSOURCE PARTNER was acquired by Interliant on February 29, 2000.
Mr. Kautto served as Senior Vice President, Human Resources and Corporate
Affairs for Borden, Inc. from February 1994 until January 1997. He was Vice
President, Employee Relations at Philip Morris Companies, Inc. from 1992 until
1994 and Vice President, Human Resources at General Foods Corporation from 1988
until 1992. Mr. Kautto received a Bachelor of Science degree from Arizona State
University, after which he served as Captain and aviator in the U.S. Army,
including a tour in Vietnam.

Bruce S. Klein has served as our Senior Vice President, General Counsel
since December 1998. In April 1999, Mr. Klein became our Secretary. From April
1998 to November 1998, he was our General Counsel, Vice President. Mr. Klein
had previously been of counsel to the law firm of McCarthy, Fingar, Donovan,
Drazen & Smith, L.L.P, prior to which he was of counsel to the law firm of
Spitzer & Feldman P.C., in each case engaged in the general practice of law,
with experience in mergers and acquisitions and general corporate and business
law. Mr. Klein is admitted to practice law in New York and Massachusetts and
holds a bachelor's degree in business administration from Rutgers University
and a law degree from Western New England College School of Law.

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Jennifer J. Lawton has served as our Senior Vice President, Consulting and
Technology since February 1999. In March 2000, her title was changed to Senior
Vice President, ASP Solutions. From May 1992 until she joined us, Ms. Lawton
was the Chief Executive Officer of Net Daemons Associates, Inc., a provider of
Web development and system integration activity for Internet and IT Networks
which was acquired by Interliant in February 1999. Ms. Lawton is a co-founder
of Net Daemons Associates, Inc. Ms. Lawton holds a bachelor of science degree
in applied mathematics from Union College.

Kristian Nelson has served as our Senior Vice President, Operations since
March 1999. From July 1997 until he joined us, Mr. Nelson was Senior Vice
President, Operations of Interliant Texas and was responsible for the direction
and control of all operational aspects of Interliant Texas's business including
product development, customer service and application and data center services.
From June 1996 through May 1997, Mr. Nelson served as Vice President,
Operations at GST Telecommunications, a full-service telecommunications
provider. In this role, Mr. Nelson was responsible for the oversight and
control of GST Internet Inc., the Internet subsidiary of GST
Telecommunications. From June 1995 to January 1996, Mr. Nelson was a Senior
Management Consultant in the Technology Strategy Practice area at Gartner
Group, Inc., a company which provides IT advisory services and consulting,
where his responsibilities included providing technical consulting services to
Fortune 500 companies. From May 1986 to May 1995, Mr. Nelson was the Product
Assurance Information Technology Director at Lockheed Martin Corporation, a
diversified technology company. At Lockheed Martin, Mr. Nelson was responsible
for developing and implementing information technology strategic planning for
the Product Assurance Group. Mr. Nelson holds a bachelor of science degree in
management science from Orlando College.

Richard C. Rose has served as Senior Vice President, Sales since January
2000. He served as President of Telephonetics, our wholly owned subsidiary,
from September 1999 to January 2000. From June 1998 until August 1999, Mr. Rose
was a Vice President at Compucom, a large computer support company, where he
was responsible for sales in the company's Southeast region. Prior to that
time, Mr. Rose was Chairman and Chief Executive Officer of Dataflex
Corporation, a full service computer integrator, from 1984 until June 1998. Mr.
Rose attended the U.S. Naval Academy and holds a bachelor of science degree in
mathematics from the University of Miami.

William A. Wilson has served as our Chief Financial Officer since September
1998 and as our Treasurer since August 1999. During the period from February
1998 to July 1998, Mr. Wilson served as Vice President, Finance and Chief
Financial Officer at XCOM Technologies, Inc., a competitive local exchange
carrier. From October 1997 to February 1998, Mr. Wilson served as a consultant
to several private companies. From June 1997 to October 1997, Mr. Wilson served
as Senior Vice President, Finance and Chief Financial Officer of Computervision
Corporation, a software publishing and development company. Prior thereto, Mr.
Wilson was Executive Vice President and Chief Financial Officer of Arch
Communications Group, Inc., a wireless messaging company, from June 1996 to
June 1997 and was Vice President, Finance and Chief Financial Officer of Arch
Communications Group, Inc. from January 1989 to June 1996. Mr. Wilson received
a bachelor of arts degree from Luther College, a master of science degree from
Northeastern University and a masters degree in business administration from
Babson College. Mr. Wilson is a Certified Public Accountant.

Mr. Dircks has been one of our Directors since our formation in December
1997 and is a Managing Director of Charterhouse Group International, Inc.
("Charterhouse"). Mr. Dircks has been employed as an officer of Charterhouse
since 1983. He was previously employed as a Certified Public Accountant at a
predecessor of PricewaterhouseCoopers LLP. He holds a bachelor of science
degree in accounting and a masters degree in business administration from
Fordham University. He is also a director of a number of privately held
companies.

Mr. Gates has been one of our Directors since our formation in December 1997
and is a Senior Vice President of Charterhouse. He joined Charterhouse in 1994
as an Analyst. Mr. Gates was previously employed as a Senior Analyst in the
Financial Consulting Advisory Group of the accounting firm of Arthur Andersen
LLP. Prior to that he was an Assistant Treasurer at Bankers Trust Corporation.
He holds a bachelor of arts degree from the State University of New York at
Binghamton and a masters degree in business administration

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from New York University, Leonard N. Stern School of Business. He is also a
director of a number of privately held companies.

Mr. Halpern has been one of our Directors since our formation in December
1997 and is Chairman and Chief Executive of Charterhouse, which he founded in
1973. Mr. Halpern is a director of Microwave Power Devices, Inc. and United
Road Services, Inc., as well as several private companies. He received a
bachelor of science degree from Rutgers University and a masters degree in
business administration from Harvard University.

Mr. Landry has been one of our Directors since July 1999. Mr. Landry is
currently Chairman of AnyDay.com and has been Strategic Technology Consultant
to senior management of IBM Corporation since June 1995. In addition, from
October 1995 to January 1999, he was Chairman of the Board of Narrative
Communications Corporation, an Internet-based interactive advertising company.
In January 1999, Narrative was acquired by At Home Networks. From 1990 to 1995,
Mr. Landry was Senior Vice President and Chief Technology Officer of Lotus
Development Corporation, a provider of software products and services. Mr.
Landry is also a director of a number of privately held companies.

Mr. Lax has been one of our Directors since January 1999. He has been a
General Partner of SOFTBANK Technology Ventures IV, L.P. since November 1997.
From March 1996 to November 1997, Mr. Lax was a Vice President of SOFTBANK
Holdings Inc. He was previously a venture partner at Vimac Partners LLC, a
venture capital firm specializing in investments in the information technology
and Internet-related industry. Mr. Lax holds a bachelor of science degree from
Boston University. He is also a director of a number of privately held
companies.

Mr. Maggs is one of our co-founders. Mr. Maggs has been a Director since our
formation in December 1997. Mr. Maggs was our Treasurer from our formation
until July 1999 and our Vice Chairman from June through August 1999. Mr. Maggs
held the positions of Chief Executive Officer and President from our formation
in December 1997 until June 1999. From December 1993 to December 1996, Mr.
Maggs held a variety of senior management positions with AmeriData, including
serving as an Executive Vice President of Operations and Chairman of AmeriData
Canada. From February 1992 to December 1993, he was the owner of Mericom
Systems Inc., a reseller of computer equipment and provider of computer
consulting and other services, which was acquired by AmeriData in 1993. From
1984 to 1991, he held various executive positions at Inacom Information
Systems, a provider of information technology products and services. Mr. Maggs
received a bachelor of science degree from Hillsdale College and is a Certified
Public Accountant.

Ms. Riley has been one of our Directors since our formation in December
1997. Ms. Riley is a Managing Director of Charterhouse and has been an
executive officer with the firm since 1977. She is a graduate of the Advanced
Management Program at Harvard Graduate School of Business Administration and
received a bachelor of arts degree from Hunter College.

Committees of the Board of Directors.

The three standing committees of the Board are: Audit, Compensation and
Executive. Members of each committee, who are elected by the full Board, are
named below.

Audit Committee

The Audit Committee consists of Messrs. Dircks, Landry and Lax. Among other
functions, the Audit Committee makes recommendations to our Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, reviews
our financial statements and reviews and evaluates our internal control
functions.

48
<PAGE>

Compensation Committee

The Compensation Committee consists of Messrs. Dircks and Lax and Ms. Riley.
The Compensation Committee determines executive compensation and makes
recommendations to our Board of Directors concerning salaries and incentive
compensation for our employees and consultants. In addition, the Compensation
Committee has authorized a Grant Committee consisting of Mr. Dircks and either
a Co-Chairman or the Chief Executive Officer of Interliant. The Grant Committee
has the power and authority to review, approve and grant, in its discretion,
options to our employees on behalf of the Compensation Committee without any
further action or approval required of the Compensation Committee, provided
that such grants fall within guidelines established by the Compensation
Committee.

Executive Committee

The Executive Committee consists of Messrs. Dircks, Feld, Landry and Lax.
The Executive Committee is authorized to review and approve our 1999/2000
operating plan, to hear reports regarding our operations from our executive
officers, to review and approve acquisitions and to engage in certain other
limited activities.

Director Compensation

Our directors do not currently receive any cash compensation from us for
their service as members of the Board of Directors, although they are
reimbursed for reasonable travel and lodging expenses in connection with
attendance at Board and Committee meetings. Under our 1998 Stock Option Plan,
nonemployee directors are eligible to receive stock option grants at the
discretion of the Board of Directors or other administrator of the plan . See
"Stock Option Plans--1998 Stock Option Plan."

Director Nomination Rights.

SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology Advisors, L.P.
(the "SOFTBANK Purchasers"), who are principal stockholders, have the right to
nominate one person for election to our Board of Directors and have the Board
cause that director to be a member of the Compensation Committee and/or the
Audit Committee. Mr. Lax is currently serving as a director. He is also a
member of the Audit and Compensation Committees pursuant to these rights. See
"Related Party Transactions--Sale of Stock to the SOFTBANK Purchasers."

In addition, for so long as the persons who received shares of common stock
in the Interliant Texas acquisition, together with certain of our option
holders, own in the aggregate at least 5% of our outstanding common stock, they
are entitled to nominate one person to our Board of Directors. To date, these
rights have not been exercised.

Compensation Committee Interlocks and Insider Participation.

Mr. Dircks, Mr. Lax and Ms. Riley served as members of our Compensation
Committee during the year-ended December 31, 1999. During 1999, no Compensation
Committee member was an officer or employee of ours. In addition, no
interlocking relationship exists between our Board of Directors or our
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.

49
<PAGE>

Executive Compensation

The following table sets forth the total compensation for the years ended
December 31, 1998 and December 31, 1999, respectively, for the persons listed
below:

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------- -------------------------
Number of
Other Securities
Name and Current Annual Underlying All Other
Position Year Salary Bonus Compensation(1) Options/SARs Compensation
---------------- ---- -------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs(2)..... 1999 $180,673 -- -- 30,000 --
Director 1998 $130,232 -- -- -- --

Francis J. Alfano(3).... 1999 $164,583 $ 25,000 -- 25,000 --
Senior Vice President, 1998 $ 12,500(3) -- -- -- --
Mergers & Acquisitions

Bruce S. Klein(4)....... 1999 $187,500 $ 25,000 -- 25,000 --
Senior Vice President, 1998 $116,667 -- $15,635 -- --
General Counsel

James M. Lidestri(5).... 1999 $186,188 $117,500 -- 30,000 --
President 1998 N.A. N.A. -- N.A. N.A.

William A. Wilson(6).... 1999 $181,250 $ 75,000 -- 25,000 --
Chief Financial Officer 1998 $ 48,894 -- -- -- --
</TABLE>
--------
(1) In accordance with SEC rules, other compensation in the form of perquisites
and other personal benefits has been omitted in those instances where such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the executive
officer for each fiscal year.
(2) Mr. Maggs was our President and Chief Executive Officer from December 1997
until June 1999, when he became Vice Chairman. Effective January 1, 2000,
Mr. Maggs was no longer an employee.
(3) Mr. Alfano commenced his employment with us in December 1998.
(4) Mr. Klein commenced his employment with us in April 1998. Other annual
compensation represents amounts paid to Mr. Klein for services rendered as
a consultant prior to becoming an employee.
(5) Mr. Lidestri commenced his employment with us in March 1999. Effective
March 30, 2000, Mr. Lidestri was no longer an employee.
(6) Mr. Wilson commenced his employment with us in September 1998.

50
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth information regarding the option grants made
during the year ended December 31, 1999 to each of the executive officers named
in the Summary Compensation Table.

OPTION GRANTS

<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Individual Grant
Values at Assumed
Percent of Annual Rates of
Total Options Stock Price
Number of Granted to Exercise Appreciation for
Securities Employees in or Base Option Term
Underlying the Year Price Expiration -----------------
Name Options Ended 1999 ($/Share) Date 5% 10%
---- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs........ 30,000 2.1% $8.00 3/09 $150,935 $382,498
Francis J. Alfano....... 25,000 1.7% $8.00 3/09 $125,779 $318,748
Bruce S. Klein.......... 25,000 1.7% $8.00 3/09 $125,779 $318,748
James M. Lidestri....... 30,000 2.1% $8.00 3/09 $150,935 $382,498
William A. Wilson....... 25,000 1.7% $8.00 3/09 $125,779 $318,748
</TABLE>

The following table sets forth information regarding exercise of options and
the number and value of options held at December 31, 1999, by each of the
executive officers listed below.

YEAR END OPTION VALUES

<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Shares At December 31, 1999 At December 31, 1999(2)
Acquired on Value ------------------------- -------------------------
Exercise(#) Realized(1) Exercisable Unexercisable Exercisable Unexercisable
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Maggs........ N.A. N.A. 0 30,000 N.A. $540,000
Francis J. Alfano....... N.A. N.A. 0 25,000 N.A. $450,000
Bruce S. Klein.......... N.A. N.A. 0 25,000 N.A. $450,000
James M. Lidestri....... 245,289 $1,962,312 32,306 30,000 $835,756 $540,000
William A. Wilson....... N.A. N.A. 0 25,000 N.A. $450,000
</TABLE>
--------
(1) Based on the estimated fair value of our common stock on the date of
exercise.
(2) Based on the difference between the last sale price of our common stock on
December 31, 1999 of $26.00 as reported by the Nasdaq National Market and
the per share option exercise price, multiplied by the number of shares of
common stock underlying the options.

Limitations on Director Liability

Our certificate of incorporation provides that, to the fullest extent
permitted by the Delaware General Corporation Law, none of our directors will
be personally liable to us or our stockholders for monetary damages. Section
102(b)(7) of the Delaware General Corporation Law currently provides that a
director's liability for breach of fiduciary duty to a corporation may be
eliminated, except for liability:

. for any breach of the director's duty of loyalty to the corporation or
its stockholders;

. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. under Section 174 of the Delaware General Corporation Law, for unlawful
dividends or unlawful stock repurchases or redemptions; and

. for any transaction from which the director derives an improper personal
benefit.

51
<PAGE>

Any amendment to these provisions of the Delaware General Corporation Law
will automatically be incorporated by reference into our certificate of
incorporation without any vote on the part of our stockholders unless otherwise
required. Including this provision in our certificate of incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefit us and our stockholders.

Our By-laws provide that we will indemnify our directors and officers to the
fullest extent permitted by Delaware law. Generally, we are required to
indemnify our directors and officers for all:

. judgments and fines;

. settlements; and

. legal fees and other expenses

incurred in connection with pending or threatened legal proceedings because
of the director's or officer's position with us.

Stock Option Plans

1998 Stock Option Plan.

In 1998, our Board of Directors adopted and our stockholders approved the
Interliant 1998 Stock Option Plan, under which stock options may be granted to
our officers, employees and consultants and to officers, employees and
consultants of our subsidiaries. In December 1999, the stock option plan was
amended to permit grants of options to our non-employee directors and to permit
a broker-assisted cashless exercise program. As of March 2000, the Board
approved further amendments to the stock option plan to do the following:

. increase the maximum number of shares available for grant under the
stock option plan from 3,800,000 to 8,500,000;

. permit the granting of below fair market value options;

. establish a Grant subcommittee of our Compensation Committee in order to
make the award process more efficient; and

. provide that a maximum of 500,000 shares subject to options may be
granted to any optionee during the applicable calendar year.

In June 2000, our stockholders approved these amendments at our annual
meeting. As of March 31, 2000, our Board has granted a total of 3,927,890
options. Any options which have been granted but which expire or terminate
unexercised are returned to the Plan and may be granted at a later date to any
qualified recipient.

The Plan is administered by the Compensation Committee of the Board of
Directors. The Committee has the authority to determine:

. the persons to whom options will be granted;

. when options will be granted;

. the number of shares subject to each option;

. the exercise price of each option;

. the time or times at which the options will become exercisable;

. the duration of the exercise period; and

. provide for the acceleration of the exercise period.

52
<PAGE>

In addition, if we are involved in a merger, reorganization, stock split or
other type of corporate transaction that would diminish the value of our
outstanding options, the Compensation Committee may adjust the number of
options granted and/or the exercise price of such options in order to ensure
that option holders are treated equitably.

The Plan also permits the grant of stock options that qualify as incentive
stock options, or ISOs, under Section 422 of the Internal Revenue Code and
nonqualified stock options, or NSOs, which do not so qualify.

The maximum term of options granted under our stock option plan is 10 years
from the date of grant. ISOs granted to any employee who is a 10% shareholder
of Interliant are subject to special limitations relating to the exercise price
and term of the options. The value of common stock subject to ISOs that become
exercisable by any one employee in any one year is limited by the Internal
Revenue Code to $100,000. For this purpose, the value of common stock is
determined at the time of grant. Options granted under the Plan will generally
become vested and exercisable over a four-year period in equal annual
installments. However, if any of the events listed below occurs and provided
that no written provision has been made, in connection with any such event, for
(1) the continuation of the stock option plan and/or the assumption of all
outstanding options by a successor corporation, or (2) the substitution for
such options of new options covering the stock of a successor corporation then
each option that was not then vested prior to such event will become fully
vested and immediately exercisable:

. An acquisition by any person or group of related individuals of
beneficial ownership of 30% or more of either the outstanding shares of
our common stock or the combined voting power of our outstanding voting
securities;

. A change in the composition of our Board of Directors during any period
of two consecutive years which results in the directors in office at the
beginning of such period plus any newly elected or nominated directors
no longer constituting at least a majority of our Board of Directors;

. The approval by our stockholders of a merger, consolidation or
reorganization in which outstanding shares of our common stock are
converted into:

. shares of stock of another company, unless our stockholders end up
owning 80% or more of the voting power of such other company;

. other securities of our company or another company unless our
stockholders hold at least 80% of the voting power of our company or
such other company; or

. cash or other property;

. The approval by our stockholders of the sale or other disposition of all
or substantially all of our assets or our liquidation or dissolution; or

. The adoption by our Board of Directors of a resolution to the effect
that any person has acquired effective control of our business and
affairs.

All options granted under our stock option plan may not be transferred,
except upon the death of the optionholder in accordance with his will or
applicable law. In the event of an optionee's death or permanent and total
disability, outstanding options that have become exercisable will remain
exercisable for a period of one year, and the Compensation Committee will have
the discretion to determine the extent to which any unvested options shall
become vested and exercisable in connection with such death or disability. In
the case of any other termination of employment, except for a termination for
cause as described below, outstanding options that have previously become
vested will remain exercisable for a period of 90 days. All unexercised options
will be immediately forfeited by any employee who is terminated as a result of
any of the following:

. embezzlement or misappropriation of corporate funds;

. conviction for a felony;

53
<PAGE>

. misconduct resulting in material injury to us;

. significant activities harmful to our reputation of the reputation or
any of our subsidiaries;

. a significant violation of our corporate policies;

. willful refusal to perform, or substantial disregard of, the duties
properly assigned to the option holder; or

. a significant violation of any contractual, statutory or common law duty
of loyalty to us or any of our subsidiaries.

Under our stock option plan, the exercise price of an option is payable in
cash, in common stock or a combination of cash and common stock. An optionee
must satisfy all applicable tax withholding requirements at the time of
exercise.

Our stock option plan has a term of 10 years, and all options granted under
the Plan prior to its termination remain outstanding until they have been
exercised or are terminated in accordance with their terms. Our Board of
Directors may amend the Plan at any time.

2000 Employee Stock Purchase Plan.

In March 2000, the Board of Directors adopted our 2000 Employee Stock
Purchase Plan. This plan was approved by our stockholders at our annual meeting
in June 2000. The purchase plan will be effective July 1, 2000. We will reserve
up to 1,500,000 shares of common stock for issuance under this plan.

The employee stock purchase plan is intended to qualify under Section 423 of
the Internal Revenue Code. The first offering period will begin on July 1,
2000, and end on the last trading date on or before December 31, 2000.
Thereafter, offering periods will begin on January 1 and July 1, respectively,
and end on June 30 and on December 31, respectively of each calendar year. The
Board of Directors has the authority under the plan to set new offering or
purchase periods.

The Compensation Committee of our Board of Directors will administer the
2000 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan
permits eligible employees to purchase our common stock through payroll
deductions, which may not exceed 15% of an employee's compensation. The
purchase price is equal to the lower of 85% of the fair market value of our
common stock at the beginning of each offering period or at the end of each
purchase period. Our employees, including officers and employee directors, are
eligible to participate in this plan if they are employed by us for at least 20
hours per week and more than five months per year. Employees may end their
participation in the plan at any time, and participation ends automatically on
termination of employment.

The 2000 Employee Stock Purchase Plan limits the number of stock purchase
rights that can be granted to any single employee. An employee cannot be
granted rights to purchase stock under this plan if his or her rights accrue at
a rate which exceeds $25,000 worth of stock in any calendar year. In addition,
no employee may purchase more than 1,250 shares of common stock during any one
purchase period (equivalent to a maximum of 2,500 shares in any one calendar
year).

In the event of certain changes in our outstanding common stock or capital
structure, such as a stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, or corporate separation or division, or
change in the number of shares of our capital stock effected without receipt of
full consideration, the Compensation Committee will, in its discretion, make
appropriate adjustments or substitutions to reflect equitably the effects of
such changes to participants in the plan. The Compensation Committee will have
the power to amend or terminate the 2000 Employee Stock Purchase Plan and to
change or terminate offering periods as long as such action does not adversely
affect any outstanding rights to purchase stock thereunder.

54
<PAGE>

Employment Agreements

We have entered into employment agreements with some of our officers. A
description of certain terms contained in those agreements is set forth below:

Term and Compensation. In November 1999, we entered into an employment
agreement with William Wilson, our Chief Financial Officer, for a term of two
years at an annual base salary of $200,000, as well as a guaranteed annual cash
bonus of $40,000, payable on a quarterly basis in equal installments. In
December 1999, Leonard Fassler, our Co-Chairman, renewed his employment
agreement with us for a one year term from January 1, 2000 at an annual
compensation rate of $180,000.

In January 2000, we entered into an employment agreement with Herbert
Hribar, our President and Chief Executive Officer for a term of three years
from January 31, 2000 at an annual base salary of $350,0000. Mr. Hribar is also
eligible for an annual incentive bonus of up to $350,000 based on meeting
certain performance milestones. In addition, pursuant to his agreement, Mr.
Hribar was granted 1.5 million stock options, of which 500,000 have an exercise
price of $12.00 per share, 500,000 have an exercise price of $18.00 per share
and 500,000 have an exercise price of $24.00 per share. These options vest in
equal amounts over four years and vest immediately upon a change of control.

In general, the above employment agreements will renew automatically for a
period of time ranging from month-to-month to one year unless we or the
employee deliver a notice of non-renewal prior to termination of the term.

Severance. Our employment agreements with Messrs. Fassler, Hribar and Wilson
include provisions that are effective upon the termination of their employment
by us without "cause":

. Mr. Fassler is entitled to receive a payment equal to the amount of his
base salary yet to be paid for the unexpired portion of the term of the
agreement, discounted based on a specified published interest rate.

. Mr. Hribar is entitled to receive a payment equal to one year's worth of
base salary paid as and when such amounts would have been paid in the
case of continued employment.

. Mr. Wilson is entitled to receive a payment equal to two year's base
salary, discounted based on a specified published interest rate.

In addition, the agreements with the above employees provide that, in
general, in the event of termination due to death or disability for a specified
period of time, the employee or the estate of each employee, as applicable,
shall be entitled to receive a payment based on his salary and we will continue
to provide the employee, his spouse and minor children, as applicable, with
certain medical and other benefits through the end of the term of the
agreement.

Employee Covenants. Our agreements with Messrs. Fassler and Wilson prohibit
each of them during and for a period of twenty-four months after the end of his
individual employment, from:

. soliciting any customers which are in any way related to our business;

. competing with our business; or

. disclosing or enabling anyone else to use any information he obtains
during his employment.

These agreements, as well as our agreement with Mr. Hribar, also prohibit the
employees from:

. tortiously interfering or attempting to disrupt our business
relationship with customers or suppliers; or

. soliciting our employees.

In addition, each of our agreements with these employees include restrictive
covenants for the benefit of Interliant relating to non-disclosure by the
employee of Interliant's confidential business information and Interliant's
right to inventions and improvements of the employee.

55
<PAGE>

Consulting Agreements

Mr. Feld, through Intensity Ventures, Inc., entered into a one-year
consulting agreement with us effective January 1, 1999 with substantially
identical terms to the agreements described above, except that Mr. Feld is not
prohibited from competing with us and is not entitled to participate in our
employee benefit plans. His annual consulting fee of $180,000 will be paid to
Intensity Ventures, Inc. on a gross basis as an independent contractor. This
consulting agreement was renewed for a one-year period in December 1999.

Separation Agreement with Mr. Lidestri

On March 30, 2000, we entered into an agreement with Mr. Lidestri whereby
Mr. Lidestri resigned from all his positions as an officer of Interliant and
its subsidiaries. Under this separation agreement, (i) we paid Mr. Lidestri
$50,000 in lieu of paying the balance of a signing bonus payable to him under
his employment agreement with Interliant, (ii) we paid Mr. Lidestri a severance
payment in the amount of $250,000, payable in equal installments from the date
of the Separation Agreement through May 31, 2000, (iii) 30,000 unvested options
held by Mr. Lidestri were accelerated and (iv) Mr. Lidestri remains eligible to
participate in Interliant's customary benefit programs until March 1, 2001.

Until March 30, 2001, Mr. Lidestri is prohibited from engaging in the
following activities:

. Competing with us or any of our subsidiaries in any way, except as an
officer, director, stockholder or employee of ours or any of our
affiliates;

. Soliciting or interfering with, or attempting to hire:

. any person who was employed by us or one of our affiliates or
subsidiaries during the 12 months before the end of the agreement;

. any person who was a customer or client or requested or received a
proposal from us or one of our affiliates or subsidiaries during the
12 months before the end of the agreement;

. Using, disclosing or publishing any confidential material related to our
business or the business of any of our subsidiaries or affiliates which
he acquired while employed with us, unless the material is publicly
available, otherwise lawfully obtained or must be disclosed by law.

. Engaging in any act that is intended, or may be reasonably expected, to
harm the reputation, business, prospects or operations of Interliant.

RELATED PARTY TRANSACTIONS

Since our inception, SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Fund L.P., who we refer to as the SOFTBANK Purchasers and
WEB Hosting Organization LLC, who we refer to as WEB, have each purchased
securities from us.

Sale of Stock to the SOFTBANK Purchasers

On January 28, 1999, the SOFTBANK Purchasers purchased from us an aggregate
of 2,647,658 shares of our Redeemable Convertible Preferred Stock and warrants
to purchase 749,625 shares of our common stock for an aggregate purchase price
of $13.0 million. On April 19, 1999, the SOFTBANK Purchasers exercised their
warrants at an aggregate exercise price of $5.0 million and acquired 749,625
shares of our common stock. Upon the consummation of our initial public
offering in July 1999, all of the outstanding shares of Redeemable Convertible
Preferred Stock automatically converted into an equal number of shares of our
common stock. As a result, the SOFTBANK Purchasers own approximately 7.2% of
our outstanding common stock at March 31, 2000. Bradley A. Feld, our Co-
Chairman and director, is a general partner of the SOFTBANK Purchasers. The
SOFTBANK Purchasers have certain demand and incidental registration rights. A
majority in interest of the

56
<PAGE>

SOFTBANK Purchasers also have the right to nominate one person for election to
our Board of Directors and have the Board cause that director to be a member of
the Compensation Committee and/or the Audit Committee of the Board. Such
director is subject to removal by the SOFTBANK Purchasers at any time, with or
without cause and the SOFTBANK Purchasers have the right to call a special
meeting of stockholders at any time for the sole purpose of removing and
replacing such director. WEB Hosting Organization LLC has agreed to vote its
shares in a manner consistent with these terms. Mr. Charles R. Lax is currently
serving as a director and a member of the Audit and Compensation Committees of
our Board of Directors pursuant to such provisions.

Sale of Stock to WEB Hosting Organization LLC

WEB owns 25,200,000 shares, representing approximately 53.2%, of our
outstanding common stock at March 31, 2000. The shares were acquired for an
aggregate purchase price of $42.0 million in a series of six transactions in
December 1997, May 1998, June 1998, September 1998, December 1998 and February
1999, in each case at a price of $1.67 per share. The terms of the sale and
purchase of these shares are set forth in a subscription agreement dated
December 8, 1997 between WEB and us. The principal members of WEB are (1)
Charterhouse Equity Partners III, L.P., referred to as CEP III, which is an
affiliate of Charterhouse and (2) WHO Management LLC (CEP III and WHO
Management LLC are collectively referred to as the "WEB Members"), of which
Leonard J. Fassler and Bradley A. Feld are the member managers. The WEB Members
have agreed that WEB shall be under the exclusive direction of a management
committee comprised of seven members and will vote such member's interest in
WEB so that a majority of the members of such management committee will be
designees of Charterhouse. WEB has certain demand and incidental registration
rights with respect to its shares of our common stock.

Distributions by Our Significant Stockholder

Pursuant to the terms of the Limited Liability Company Agreement of WEB, the
WEB Members shall be entitled to receive a distribution of all cash funds or
other property of WEB available from any source other than the ordinary
operations of its subsidiaries, after payment of all expenses of WEB due at the
time of such distribution ("Total Proceeds"). The Total Proceeds shall be
distributed to the WEB Members in tranches with priority given to covering
members' federal tax liability, followed by return of capital and then as
necessary to achieve specified internal rates of return. Thereafter, portions
of the Total Proceeds will be distributed to WHO Management LLC.

Of the management distributions to WHO Management LLC, 70% are retained by
WHO Management LLC for distribution to our four co-founders, who include
Messrs. Fassler, Feld and Maggs and 30% are distributed to SMI Fund LLC, a New
York limited liability company, for distribution to its members.

As of March 31, 2000, there were 26 members of SMI, all of whom serve as
either Interliant executive officers, senior employees, employees who were
hired shortly after our formation or consultants. Of those 26 members, 6 are
presently members of our management team who collectively own 45% of SMI.

57
<PAGE>

The management distributions to WHO Management LLC increase as the WEB
Members realize specified internal rates of return on their investment in WEB.
The following diagram depicts the flow of the distribution of Total Proceeds to
the WEB Members. No Total Proceeds have been distributed to date.

----------------
INTERLIANT, INC.
----------------
|
|
------------------------
WEB
HOSTING ORGANIZATION LLC
------------------------
| |
| |
------- --------------
CEP III WHO
------- MANAGEMENT LLC
--------------
/ \
/ \
----------- ------------
CO-FOUNDERS SMI FUND LLC
----------- ------------

Fees Paid by Us to Our Significant Stockholders

During 1999 and 1998, in connection with certain of our acquisitions, we
paid or accrued transaction fees of approximately $361,000 and $337,000,
respectively, to Charterhouse, which is an affiliate of CEP III. Such fees were
paid pursuant to the terms of the WEB LLC Agreement, which requires WEB or its
affiliates, which includes us, to pay Charterhouse 2% of the total transaction
costs of each acquisition or investment by WEB or its affiliates, which
includes us, in which Charterhouse or any of its affiliates directly or
indirectly provide all or a portion of the equity financing therefor.
Charterhouse has not received any fees with respect to this arrangement since
prior to our initial public offering and is not entitled to receive any further
fees in the future.

Consulting Agreements with Our Co-founders

During the years ended December 31, 1999 and 1998, and for the period
December 8, 1997 (inception) to December 31, 1997, we paid consulting fees of
$197,000, $120,000 and $17,000, respectively, to Intensity Ventures Inc., whose
principal is Mr. Feld, pursuant to a consulting agreement with Mr. Feld.

58
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2000 by (1) each person or entity
known to us to own beneficially more than 5% of the outstanding shares of our
common stock, (2) each of our directors, (3) our five most highly compensated
officers during the year ended December 31, 1999 and Mr. Herbert Hribar, our
current President and Chief Executive Officer and (4) all directors and
executive officers as a group. Unless otherwise indicated below, to our
knowledge, all persons listed below have sole voting and investment power with
respect to their shares of common stock, except to the extent authority is
shared by spouses under applicable law.

<TABLE>
<CAPTION>
Shares
Beneficially Owned
(1)
------------------
Number Percent
---------- -------
<S> <C> <C>
Web Hosting Organization LLC(2).............................. 25,200,000 53.12%
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022
Charterhouse Group International, Inc.(2).................... 25,200,000 53.12
535 Madison Avenue
New York, NY 10022
Mathew Wolf(3)............................................... 3,712,090 7.83
1001 Fannin Street
Suite 2000
Houston, TX 77002
SOFTBANK Technology Ventures IV, L.P.(4)..................... 3,397,283 7.16
333 West San Carlos
Suite 1225
San Jose, CA
Leonard J. Fassler(5)(6)..................................... 25,211,500 53.14
Bradley A. Feld(5)(7)........................................ 28,607,371 60.29
Herbert R. Hribar............................................ -- *
Francis J. Alfano............................................ 7,250 *
James M. Lidestri(8)......................................... 308,595 *
Bruce S. Klein (9)........................................... 7,250 *
William A. Wilson(10)........................................ 10,250 *
Thomas C. Dircks(11)......................................... -- *
Jay M. Gates(11)............................................. -- *
Merril M. Halpern(11)........................................ -- *
John B. Landry............................................... 4,250 *
Charles R. Lax(12)........................................... 3,398,283 7.16
Stephen W. Maggs(5).......................................... 25,207,700 53.13
Patricia A.M. Riley(11)...................................... -- *
All directors and executive officers as a
group(5)(6)(7)(8)(9)(10)(11)(12)(12 persons)................ 29,419,593 61.82
</TABLE>
--------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares subject to options
currently exercisable within 60 days of March 31, 2000 are deemed
outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.

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<PAGE>

(2) The principal members of WEB are CEP III, an affiliate of Charterhouse and
WHO Management LLC. Their respective ownership interests in WEB are as
follows: Charterhouse Equity Partners: 95.2% and WHO Management LLC: 4.8%.
Leonard J. Fassler and Bradley A. Feld are the member managers of and
Stephen W. Maggs is a member of, WHO Management LLC. The general partner of
CEP III is CHUSA Equity Investors III, L.P., whose general partner is
Charterhouse Equity III, Inc., a wholly-owned subsidiary of Charterhouse.
As a result of the foregoing, all of the shares of Interliant held by WEB
would, for purposes of Section 13(d) of the Securities Exchange Act of 1934
be considered to be beneficially owned by Charterhouse.

(3) Includes 398,845 shares owned by the Ann Weltchek Wolf 1995 Marital Trust,
797,690 shares owned by the Mathew D. Wolf Children's Trust and 350,000
shares held in escrow until March 31, 2000. Mr. Wolf disclaims beneficial
ownership of all the shares owned by both of the trusts named above.

(4) Includes 63,869 shares held by SOFTBANK Technology Advisors Fund, L.P., an
affiliated entity.

(5) Includes 25,200,000 shares held by WEB. Messrs. Fassler, Feld and Maggs are
members of WHO Management LLC, which is a member of WEB. Each of Messrs.
Fassler, Feld and Maggs disclaim beneficial ownership of such shares other
than the shares attributable to each of them as a result of their
membership in WHO Management LLC.

(6) Includes 2,000 shares owned by Mr. Fassler's spouse. Mr. Fassler disclaims
beneficial ownership of these shares.

(7) Includes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P. and
63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Feld, a
Co-Chairman and Director of Interliant, is a general partner of each of
SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology Advisors
Fund, L.P. Mr. Feld disclaims beneficial ownership of such shares.

(8) Includes 1,000 shares owned by a trust for Mr. Lidestri's child. Mr.
Lidestri disclaims beneficial ownership of these shares.

(9) Includes 1,000 shares owned by Mr. Klein's spouse. Mr. Klein disclaims
beneficial ownership of these shares.

(10) Includes 2,000 shares owned by trusts for Mr. Wilson's children. Mr.
Wilson disclaims beneficial ownership of these shares.

(11) Excludes 25,200,000 shares held by WEB. Messrs. Halpern, Dircks, Gates and
Ms. Riley are directors and/or officers of Charterhouse. Charterhouse is
an affiliate of CEP III, which is a member of WEB. Each of Messrs.
Halpern, Dircks, Gates and Ms. Riley disclaims beneficial ownership of
these shares.

(12) Includes 3,333,414 shares held by SOFTBANK Technology Ventures IV, L.P.
and 63,869 shares held by SOFTBANK Technology Advisors Fund, L.P. Mr. Lax,
a director of Interliant, is a managing member of STV IV LLC, the general
partner of SOFTBANK Technology Ventures IV, L.P. Mr. Lax disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein

60
<PAGE>

SELLING SECURITYHOLDERS

Common Stock

The common stock was originally issued by us to the selling stockholders in
transactions exempt from the registration requirements of the Securities Act.
The selling stockholders may from time to time offer and sell the shares of
common stock that they hold that are covered in this prospectus.

The following table sets forth information with respect to the selling
stockholders and the number of shares beneficially owned by each selling holder
that may be offered under this prospectus. The information is based on
information provided by or on behalf of the selling stockholders. The selling
stockholders may offer all, some or none of the shares of common stock listed
below. Because the selling stockholders may offer all or some portion of the
common stock, no estimate can be given as to the amount of the common stock
that will be held by the selling stockholders upon termination of any sales. In
addition, the selling stockholders identified below may have sold, transferred
or otherwise disposed of all or a portion of their shares of stock since the
date on which they provided information to us regarding their holdings.

<TABLE>
<CAPTION>
Shares
Shares Beneficially Beneficially
Owned Prior to This Owned After This
Offering(1) Shares Offering(1)(2)
-------------------- Being -----------------
Number Percent(3) Sold Number Percent(3)
--------- ---------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Michael August.............. 21,908 * 21,908 -- *
Peter Hawtrey(4)............ 8,776 * 8,776 -- *
Barry H. Jacobson(5)........ 46,618 * 46,618 -- *
Patricia K. Jacobson(5)..... 46,618 * 46,618 -- *
Michael S. Kirschenbaum(5).. 15,983 * 15,983 -- *
Elizabeth W. Reiland........ 3,995 * 3,995 -- *
Brad D. Munroe(4)........... 75,933 * 75,933 -- *
Robert F. Munroe............ 161,987 * 161,987 -- *
Steven R. Munroe(4)......... 404,298 * 404,298 -- *
Russell Reynolds Associates,
Inc. ...................... 30,000 * 30,000 -- *
Mathew Wolf................. 2,440,375 5.1 2,440,375 -- *
Richard W. Weissberg(5)..... 46,618 * 46,618 -- *
Ann Weltchek Wolf 1995
Marital Trust.............. 357,595 * 357,595 -- *
Mathew D. Wolf Children's
Trust...................... 797,690 1.7 797,690 -- *
</TABLE>
--------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, based on factors including voting and
investment power with respect to shares. Shares subject to options
currently exercisable within 60 days of April 24, 2000 are deemed
outstanding for the purpose of computing the percentage of ownership of the
person holding such options, but are not deemed outstanding for computing
the percentage ownership of any other person.
(2) Assumes offer and sale of all shares, although selling stockholders are not
obligated to sell any shares of common stock.
(3) Based on 47,524,793 shares of our common stock outstanding at April 24,
2000.
(4) Each of Mr. Hawtrey, Brad Munroe and Steven Munroe are employees of Triumph
Technologies, Inc. and Triumph Development, Inc., which are wholly-owned
subsidiaries of Interliant.
(5) Each of Messrs. Jacobson, Kirschenbaum and Weissberg and Ms. Jacobson are
employees of The Jacobson Group, Inc., a wholly-owned subsidiary of
Interliant.

Except as set forth in the footnotes to the above table, none of the selling
stockholders nor any of their affiliates, officers, directors or principal
equity holders has held any position or has had any material relationship with
us within the past three years. Information concerning the selling stockholders
may change from time to time and any changed information will be set forth in
supplements to this prospectus if and when necessary.

61
<PAGE>

The Notes

The notes offered in this prospectus were originally issued by us to
Microsoft Corporation in a transaction exempt from the registration
requirements of the Securities Act. Microsoft Corporation, including its
transferees, pledgees or donees or successors, may from time to time offer and
sell pursuant to this prospectus any or all of the notes and common stock into
which the notes are convertible.

The following table sets forth information with respect to Microsoft
Corporation and the principal amount of notes beneficially owned by Microsoft
Corporation that may be offered under this prospectus. The information is based
on information provided by or on behalf of Microsoft Corporation. Microsoft
Corporation may offer all, some or none of the notes or common stock into which
the notes are convertible. Because Microsoft Corporation may offer all or some
portion of the notes or the common stock, no estimate can be given as to the
amount of the notes or the common stock that will be held by Microsoft
Corporation upon termination of any sales. In addition, Microsoft Corporation
may have sold, transferred or otherwise disposed of all or a portion of its
notes since the date on which it provided the information regarding its notes
in transactions exempt from the registration requirements of the Securities
Act.

<TABLE>
<CAPTION>
Principal Amount Common
of Notes Percent of Stock Common
Beneficially Owned Total Owned Prior Stock
and Offered Outstanding to the Note Offered
Hereby(1) Notes(2) Offering(3) Hereby(1)
NAME ------------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
Microsoft Corporation...... $10,000,000 100% 188,324 188,324
</TABLE>
--------
(1) Assumes offer and sale of all notes and shares, although Microsoft
Corporation is not obligated to sell any notes or shares of common stock.
(2) Based upon an aggregate amount of $10.0 million notes outstanding as of
April 30, 2000. This aggregate amount does not include the $154,825,000
million in aggregate principal amount of convertible notes that were sold
by us to initial purchasers in February 2000 which have substantially the
same terms as the notes offered herein and for which a separate
registration statement has been filed.
(3) Share amounts assume conversion of the notes, at an assumed conversion rate
of 18.8324 shares per $1,000 principal amount of notes.

Neither Microsoft Corporation nor any of its affiliates, officers, directors
or principal equity holders has held any position or office or has had any
material relationship with us within the past three years except that we and
Microsoft Corporation have entered into various commercial and other agreements
with each other. See "Business--Strategic Relations." Microsoft Corporation
purchased all of the notes in a private transaction on March 10, 2000. All of
the notes were "restricted securities" under the Securities Act prior to this
registration.

Information concerning Microsoft Corporation may change from time to time
and any changed information will be set forth in supplements to this prospectus
if and when necessary. In addition, the conversion rate and therefore, the
number of shares of common stock issuable upon conversion of the notes, is
subject to adjustment under certain circumstances. Accordingly, the aggregate
principal amount of notes and the number of shares of common stock into which
the notes are convertible may increase or decrease.

62
<PAGE>

DESCRIPTION OF NOTES

The notes were issued under the indenture (the "Indenture") between us and
The Chase Manhattan Bank, as trustee (the "Trustee").

We have summarized portions of the Indenture below. This summary is not
complete. We urge you to read the Indenture because it defines your rights as a
holder of the notes. Terms not defined in this description have the meanings
given them in the Indenture. In this section, "Interliant," "we," "our," and
"us" each refers only to Interliant, Inc. and not to any of its subsidiaries.

General

The notes are unsecured, subordinated obligations of Interliant in an
aggregate principal amount of $10,000,000, and will mature on February 16,
2005. The principal amount of each note is $1,000 and is payable at the office
of the Paying Agent, which currently is the Trustee, but may in the future be
an office or agency maintained by us for that purpose in the Borough of
Manhattan, The City of New York.

The notes bear interest at the rate of 7% per annum on the principal amount
from the date of issuance of the notes, or from the most recent date to which
interest has been paid or provided for until the notes are paid in full,
converted or funds are made available for payment in full of the notes in
accordance with the Indenture. Interest is payable at the date of maturity (or
earlier purchase, redemption or, in some circumstances, conversion) and
semiannually on February 16 and August 16 of each year (each an "Interest
Payment Date"), commencing on August 16, 2000, to holders of record at the
close of business on the February 1 and August 1 (whether or not a business
day) immediately preceding each Interest Payment Date (each a "Regular Record
Date"). Each payment of interest on the notes will include interest accrued
through the day before the applicable Interest Payment Date or the date of
maturity (or earlier purchase, redemption or, in some circumstances,
conversion), as the case may be. Any payment of principal and cash interest
required to be made on any day that is not a business day will be made on the
next succeeding business day. Interest will be computed on the basis of a 360-
day year composed of twelve 30-day months.

In the event of the maturity, conversion, purchase by us at the option of a
holder or redemption of a note, interest will cease to accrue on that note
under the terms and subject to the conditions of the Indenture. We may not
reissue a note that has matured or has been converted, redeemed or otherwise
cancelled, except for registration of transfer, exchange or replacement of that
note.

A holder of the notes may present the notes for conversion at the office of
the Conversion Agent and for exchange or registration of transfer at the office
of the Registrar. Each of these agents are currently the Trustee.

The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness (defined below)
or the issuance or repurchase of securities by us. The Indenture contains no
covenants or other provisions to protect holders of the notes in the event of a
highly leveraged transaction or a change in control, except to the extent
described below under "--Change in Control Permits Purchase of Notes at the
Option of the Holder."

Subordination

The notes are unsecured obligations and are subordinated in right of
payment, as provided in the Indenture, to the prior payment in full in cash or
other payment satisfactory to holders of Senior Indebtedness of all our
existing and future Senior Indebtedness.

At March 31, 2000, we had $4.1 million of Senior Indebtedness outstanding.
The Indenture does not restrict the incurrence by us or our subsidiaries of
indebtedness or other obligations.

63
<PAGE>

The term "Senior Indebtedness" means that the principal, premium, if any,
interest (including all interest accrued subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and all other amounts
owed in respect of all our Indebtedness (defined below), whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed, guaranteed
or in effect guaranteed by us, including all deferrals, renewals, extensions,
refinancings, replacements, restatements or refundings of, or amendments,
modifications or supplements to, the foregoing, except for:

. any such Indebtedness that is by its terms subordinated to or ranking
equal with the notes; and

. any Indebtedness between or among us and any of our subsidiaries, a
majority of the voting stock of which we directly or indirectly own, or
any of our affiliates, including all other debt securities and
guarantees in respect of those debt securities issued to any trust, or
trustees of any trust, partnership or other entity affiliated with us
that is, directly or indirectly, a financing vehicle used by us in
connection with the issuance by that financing vehicle of preferred
securities or other securities that rank equal with, or junior to, the
notes.

The term "Indebtedness" means, with respect to any person:

. all indebtedness, obligations and other liabilities, contingent or
otherwise, of that person for borrowed money (including obligations of
that person in respect of overdrafts, foreign exchange contracts,
currency exchange or similar agreements, interest rate protection,
hedging or similar agreements, and any loans or advances from banks,
whether or not evidenced by notes or similar instruments) or evidenced
by bonds, debentures, notes or similar instruments (whether or not the
recourse of the holder is to the whole of the assets of that person or
only to a portion thereof), other than any account payable or other
accrued current liability or current obligation, in each case not
constituting indebtedness, obligations or other liabilities for borrowed
money and incurred in the ordinary course of business in connection with
the obtaining of materials or services;

. all reimbursement obligations and other liabilities, contingent or
otherwise, of that person with respect to letters of credit, bank
guarantees, bankers' acceptances, security purchase facilities or
similar credit transactions;

. all obligations and liabilities, contingent or otherwise, in respect of
deferred and unpaid balances on any purchase price of any property;

. all obligations and liabilities, contingent or otherwise, in respect of
leases of that person required, in conformity with generally accepted
accounting principles, to be accounted for as capitalized lease
obligations on the balance sheet of that person and all obligations and
other liabilities, contingent or otherwise, under any lease or related
document, including, without limitation, the balance deferred and unpaid
on any purchase price of any property and a purchase agreement, in
connection with the lease of real property that provides that the person
is contractually obligated to purchase or cause a third party to
purchase the leased property and thereby guarantee a minimum residual
value of the leased property to the lessor and the obligations of that
person under that lease or related document to purchase or to cause a
third party to purchase that leased property;

. all obligations of that person, contingent or otherwise, with respect to
an interest rate or other swap, cap or collar agreement or other similar
instrument or agreement or foreign currency hedge, exchange, purchase or
similar instrument or agreement;

. all direct or indirect guarantees or similar agreements by that person
in respect of, and obligations or liabilities, contingent or otherwise,
of that person to purchase or otherwise acquire or otherwise assure a
creditor against loss in respect of indebtedness, obligations or
liabilities of another person of the kind described in the above
clauses;

64
<PAGE>

. recourse or repurchase obligations arising in connection with sales of
assets in transactions that are in the nature of asset-based financings,
whether or not such transactions are treated as sales under generally
accepted accounting principles or bankruptcy, tax or other applicable
laws, where such recourse or repurchase obligations arise out of the
failure of such assets to provide the economic benefit to which the
purchaser is entitled under the agreements relating to such
transactions;

. any indebtedness, or other obligations described in the above clauses
secured by any mortgage, pledge, lien or other encumbrance existing on
property that is owned or held by that person, regardless of whether the
indebtedness or other obligation secured thereby shall have been assumed
by that person; and

. any and all deferrals, renewals, extensions, refinancings, replacements,
restatements and refundings of, or amendments, modifications or
supplements to, or any indebtedness or obligation issued in exchange
for, any indebtedness, obligation or liability of the kind described in
the above clauses.

Any Senior Indebtedness will continue to be Senior Indebtedness and will be
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any of its terms.

By reason of the application of the subordination provisions, in the event
of dissolution, insolvency, bankruptcy or other similar proceedings, upon any
distribution of our assets:

. the holders of the notes are required to pay over their share of that
distribution to the trustee in bankruptcy, receiver or other person
distributing our assets for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all
holders of Senior Indebtedness in full, in cash or other payment
satisfactory to the holders of Senior Indebtedness; and

. our unsecured creditors may recover less, ratably, than holders of our
Senior Indebtedness, and may recover more, ratably, than the holders of
notes.

In addition, we may not pay the principal amount, the Change in Control
Purchase Price (defined below), any redemption amounts or interest with respect
to any notes, and we may not acquire any notes for cash or property, except as
provided in the Indenture, if:

. any payment default on any Senior Indebtedness has occurred and is
continuing beyond any applicable grace period (including any payment
default arising from acceleration of any Senior Indebtedness); or

. any default, other than a payment default, with respect to Senior
Indebtedness occurs and is continuing that permits the acceleration of
the maturity of that Senior Indebtedness and that default is either the
subject of judicial proceedings or we receive a written notice of that
default (a "Senior Indebtedness Default Notice").

Notwithstanding the foregoing, payments with respect to the notes may resume
and we may acquire notes for cash when:

. the default with respect to the Senior Indebtedness is cured or waived
or ceases to exist; or

. in the case of a Senior Indebtedness Default Notice, 179 or more days
pass after notice of the default is received by us, provided that the
terms of the Indenture otherwise permit the payment or acquisition of
the notes at that time.

If we receive a Senior Indebtedness Default Notice, then a similar notice
received within nine months after receiving that Senior Indebtedness Default
Notice relating to the same default on the same issue of Senior Indebtedness
will not be effective to prevent the payment or acquisition of the notes as
provided above. In addition, no payment may be made on the notes if any notes
are declared due and payable prior to their Stated Maturity by reason of the
occurrence of an Event of Default until the earlier of:

. 120 days after the date of acceleration of the notes; or

. the payment in full of all Senior Indebtedness;

but only if payment on the notes is then otherwise permitted under the terms of
the Indenture.

65
<PAGE>

Upon any payment or distribution of our assets to creditors upon any of our
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other similar
proceedings, the holders of Senior Indebtedness will first be entitled to
receive payment in full, in cash or other payment satisfactory to the holders
of Senior Indebtedness, of all amounts due or to become due on the Senior
Indebtedness, or payment of those amounts must have been provided for, before
the holders of the notes will be entitled to receive any payment or
distribution with respect to any notes.

The notes are effectively subordinated to all existing and future
liabilities of our subsidiaries. Any rights of ours to receive assets of any
subsidiary upon its liquidation or reorganization, and the consequent right of
the holders of the notes to participate in those assets, will be subject to the
claims of that subsidiary's creditors, including trade creditors, except to the
extent that we ourselves are recognized as a creditor of that subsidiary, in
which case our claims would still be subordinate to any security interests in
the assets of that subsidiary and any indebtedness of that subsidiary senior to
that held by us. As of March 31, 2000, our subsidiaries had approximately $.9
million of liabilities to which the notes would be effectively subordinated.

Conversion Rights

A holder of a note is entitled to convert it into shares of common stock at
any time on or prior to maturity, provided, that if a note is called for
redemption, the holder is entitled to convert it at any time before the close
of business on the last business day prior to the redemption date. A note in
respect of which a holder has delivered a Change in Control Purchase Notice (as
defined below) exercising that holder's option to require us to purchase that
holder's note, may be converted only if the Change in Control Purchase Notice
is withdrawn by a written notice of withdrawal delivered by the holder to the
Paying Agent prior to the close of business on the Change in Control Purchase
Date, in accordance with the terms of the Indenture.

The initial conversion price for the notes is $53.10 per share of common
stock, which is equal to a Conversion Rate of approximately 18.8324 shares per
$1,000 principal amount of notes. The Conversion Rate is subject to adjustment
upon the occurrence of some events described below. A holder otherwise entitled
to a fractional share of common stock will receive cash in an amount equal to
the market value of that fractional share based on the closing sale price on
the trading day immediately preceding the Conversion Date. A holder may convert
a portion of that holder's notes so long as that portion is $1,000 principal
amount or an integral multiple of $1,000.

To convert a note, a holder must:

. complete and manually sign the conversion notice on the back of the
note, or complete and manually sign a facsimile of the note, and deliver
the conversion notice to the Conversion Agent, initially the Trustee, at
the office maintained by the Conversion Agent for that purpose;

. surrender the note to the Conversion Agent;

. if required, furnish appropriate endorsements and transfer documents;
and

. if required, pay all transfer or similar taxes.

Under the Indenture, the date on which all of these requirements have been
satisfied is the Conversion Date.

Upon conversion of a note, except as provided below, a holder will not
receive any cash payment representing accrued interest on the note. Our
delivery to the holder of the fixed number of shares of common stock into which
the note is convertible, together with any cash payment to be made instead of
any fractional

66
<PAGE>

shares, will satisfy our obligation to pay the principal amount of the note,
and the accrued and unpaid interest to the Conversion Date. Thus, the accrued
but unpaid interest to the Conversion Date will be deemed to be paid in full
rather than cancelled, extinguished or forfeited. Notwithstanding the
foregoing, accrued but unpaid cash interest will be payable upon any conversion
of notes at the option of the holder made concurrently with or after
acceleration of the notes following an Event of Default described under "--
Events of Default" below. Notes surrendered for conversion during the period
from the close of business on any Regular Record Date next preceding any
Interest Payment Date to the opening of business on that Interest Payment Date,
except notes to be redeemed on a date within that period, must be accompanied
by payment of an amount equal to the interest on the surrendered notes that the
registered holder is to receive. Except where notes surrendered for conversion
must be accompanied by payment as described above, no interest on converted
notes will be payable by us on any Interest Payment Date subsequent to the date
of conversion. The Conversion Rate will not be adjusted at any time during the
term of the notes for accrued interest.

A certificate for the number of full shares of common stock into which any
note is converted, and any cash payment to be made instead of any fractional
shares, will be delivered as soon as practicable, but in any event no later
than the seventh business day following the Conversion Date. For a summary of
the U.S. federal income tax treatment of a holder receiving common stock upon
conversion, see "Certain United States Federal Income Tax Considerations--
Conversion of Notes."

The Conversion Rate is subject to adjustment in some events, including:

. the issuance of shares of our common stock as a dividend or a
distribution with respect to common stock;

. some subdivisions and combinations of our common stock;

. the issuance to all holders of common stock of rights or warrants
entitling them, for a period not exceeding 45 days, to subscribe for
shares of our common stock at less than the current market price as
defined in the Indenture;

. the distribution to holders of common stock of evidences of our
indebtedness, securities or capital stock, cash or assets, including
securities, but excluding common stock distributions covered above,
those rights, warrants, dividends and distributions referred to above,
dividends and distributions paid exclusively in cash and distributions
upon mergers or consolidations resulting in a reclassification,
conversion, exchange or cancellation of common stock covered in a
Transaction adjustment described below;

. the payment of dividends and other distributions on common stock paid
exclusively in cash, if the aggregate amount of these dividends and
other distributions, when taken together with:

-- other all-cash distributions made within the preceding 12 months not
triggering a Conversion Rate adjustment, and

-- any cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration payable
in respect of any tender or exchange offer by us or one of our
subsidiaries for the common stock concluded within the preceding 12
months not triggering a Conversion Rate adjustment,

exceeds 10% of our aggregate market capitalization on the date of the
payment of those dividends and other distributions. The aggregate market
capitalization is the product of the current market price of our common
stock as of the trading day immediately preceding the date of declaration
of the applicable dividend multiplied by the number of shares of common
stock then outstanding; and

. payment to holders of common stock in respect of a tender or exchange
offer, other than an odd-lot offer, by us or one of our subsidiaries for
common stock as of the trading day next succeeding the

67
<PAGE>

last date tenders or exchanges may be made pursuant to a tender or
exchange offer by us or one of our subsidiaries, which involves an
aggregate consideration that, together with:

-- any cash and the fair market value of other consideration payable in
respect of any tender or exchange offer by us or one of our
subsidiaries for the common stock concluded within the preceding 12
months not triggering a Conversion Rate adjustment, and

-- the aggregate amount of any all-cash distributions to all holders of
our common stock made within the preceding 12 months not triggering a
Conversion Rate adjustment,

exceeds 10% of our aggregate market capitalization.

However, adjustment is not necessary if holders may participate in the
transactions otherwise giving rise to an adjustment on a basis and with notice
that our Board of Directors determines to be fair and appropriate, or in some
other cases specified in the Indenture. In cases where the fair market value
of the portion of assets, debt securities or rights, warrants or options to
purchase our securities applicable to one share of common stock distributed to
stockholders exceeds the Average Sale Price (as defined in the Indenture) per
share of common stock, or the Average Sale Price per share of common stock
exceeds the fair market value of that portion of assets, debt securities or
rights, warrants or options so distributed by less than $1.00, rather than
being entitled to an adjustment in the Conversion Rate, the holder of a note
upon conversion of the note will be entitled to receive, in addition to the
shares of common stock into which that note is convertible, the kind and
amounts of assets, debt securities or rights, options or warrants comprising
the distribution that the holder of that note would have received if that
holder had converted that note immediately prior to the record date for
determining the stockholders entitled to receive the distribution. The
Indenture permits us to increase the Conversion Rate from time to time.

In the event that we become a party to any transaction, including, and with
some exceptions:

. any recapitalization or reclassification of the common stock;

. any consolidation of us with, or merger of us into, any other Person, or
any merger of another Person into us;

. any sale, transfer or lease of all or substantially all of our assets;
or

. any compulsory share exchange,

pursuant to which the common stock is converted into the right to receive
other securities, cash or other property (each of the above being referred to
as a "Transaction"), then the holders of notes then outstanding will have the
right to convert the notes only into the kind and amount of securities, cash
or other property receivable upon the consummation of that Transaction by a
holder of the number of shares of common stock issuable upon conversion of
those notes immediately prior to that Transaction.

In the case of a Transaction, each note will become convertible into the
securities, cash or property receivable by a holder of the number of shares of
the common stock into which the note was convertible immediately prior to that
Transaction. This change could substantially lessen or eliminate the value of
the conversion privilege associated with the notes in the future. For example,
if we were acquired in a cash merger each note would become convertible solely
into cash and would no longer be convertible into securities whose value would
vary depending on our future prospects and other factors.

In the event of a taxable distribution to holders of common stock that
results in an adjustment of the Conversion Rate, or in which holders otherwise
participate, or in the event the Conversion Rate is increased at our
discretion, the holders of the notes may, in some circumstances, be deemed to
have received a distribution subject to United States federal income tax as a
dividend. Moreover, in some other circumstances, the absence of an adjustment
to the Conversion Rate may result in a taxable dividend to holders of common
stock. See "United States Federal Income Tax Considerations--Adjustments to
Conversion Price."

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Provisional Redemption

We may redeem the notes, in whole or in part, at any time on or prior to
February 18, 2003, at a redemption price equal to $1,000 per $1,000 principal
amount of notes to be redeemed plus accrued and unpaid interest, if any, to the
provisional redemption date if (i) the closing price of our common stock has
exceeded 150% of the conversion price then in effect (as determined based on
the then effective Conversion Rate) for at least 20 trading days within a
period of 30 consecutive trading days ending on the trading day prior to the
date of mailing of the provisional redemption notice (which date shall be not
less than 10 nor more than 20 trading days prior to the provisional redemption
date) and (ii) the shelf registration statement covering resales of the notes
and the common stock issuable upon conversion of the notes is effective and
available for use and is expected to remain effective for the 30 days following
the provisional redemption date.

Upon any provisional redemption, we will make an additional payment in cash
with respect to the notes called for redemption to holders on the notice date
in an amount equal to 152.54 per $1,000 principal amount of notes, less the
amount of any interest actually paid on the notes prior to the notice date. WE
WILL BE OBLIGATED TO MAKE THIS ADDITIONAL PAYMENT ON ALL NOTES CALLED FOR
PROVISIONAL REDEMPTION, INCLUDING ANY NOTES CONVERTED AFTER THE NOTICE DATE AND
BEFORE THE PROVISIONAL REDEMPTION DATE.

Redemption of Notes At Our Option

There is no sinking fund for the notes. At any time after February 18, 2003,
we will be entitled to redeem the notes for cash as a whole at any time, or
from time to time in part, upon not less than 30 days' nor more than 60-days'
notice of redemption given by mail to holders of notes, unless a shorter notice
is satisfactory to the Trustee, at the redemption prices set out below plus
accrued cash interest to the redemption date. Any redemption of the notes must
be in integral multiples of $1,000 principal amount.

The table below shows redemption prices of a note per $1,000 principal
amount if redeemed during the periods described below.

<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
February 19, 2003 through February 15, 2004................... 102.8%
Thereafter.................................................... 101.4%
</TABLE>

If fewer than all of the notes are to be redeemed, the Trustee will select
the notes to be redeemed in principal amounts at maturity of $1,000 or integral
multiples of $1,000 by lot, pro rata or by another method that complies with
the requirements of any exchange on which the notes are listed or quoted and
that the Trustee shall deem fair and appropriate. If a portion of a holder's
notes is selected for partial redemption and that holder converts a portion of
those notes prior to the redemption, the converted portion will be deemed,
solely for purposes of determining the aggregate principal amount of the notes
to be redeemed by us, to be of the portion selected for redemption.

Change In Control Permits Purchase of Notes at the Option of the Holder

In the event of any Change in Control (as defined below) of Interliant, each
holder of notes will have the right, at the holder's option, subject to the
terms and conditions of the Indenture, to require us to purchase all or any
part of the holder's notes, provided that the principal amount must be $1,000
or an integral multiple of $1,000. Each holder of notes will have the right to
require us to make that purchase on the date that is 45 business days after the
occurrence of the Change in Control (the "Change in Control Purchase Date") at
a price equal to 100% of the principal amount of that holder's notes plus
accrued interest to the Change in Control Purchase Date (the "Change in Control
Purchase Price").

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We may, at our option, instead of paying the Change in Control Purchase
Price in cash, pay the Change in Control Purchase Price in our common stock
valued at 95% of the average of the closing sales prices of our common stock
for the five trading days immediately preceding and including the third day
prior to the Change in Control Date. We cannot pay the Change in Control
Purchase Price in common stock unless we satisfy the conditions described in
the Indenture.

Within 30 business days after the Change in Control, we will mail to the
Trustee, each holder, and beneficial owners as required by applicable law, a
notice regarding the Change in Control, which will state, among other things:

. the date of the Change in Control and, briefly, the events causing the
Change in Control;

. the date by which the Change in Control Purchase Notice (as defined
below) must be given;

. the Change in Control Purchase Date;

. the Change in Control Purchase Price;

. the name and address of the Paying Agent and the Conversion Agent;

. the Conversion Rate and any adjustments to the Conversion Rate;

. the procedures that holders must follow to exercise these rights;

. the procedures for withdrawing a Change in Control Purchase Notice;

. that holders who want to convert notes must satisfy the requirements
provided in the notes; and

. briefly, the conversion rights of holders of notes.

If we do not mail the notice within 30 business days after the Change in
Control, an Event of Default will occur under the Indenture without the lapse
of additional time.

We will cause a copy of the notice regarding the Change in Control to be
published in The Wall Street Journal or another daily newspaper of national
circulation.

To exercise the purchase right, the holder must deliver written notice of
the exercise of the purchase right (a "Change in Control Purchase Notice") to
the Paying Agent or an office or agency maintained by us for that purpose in
the Borough of Manhattan, The City of New York, prior to the close of business,
on the Change in Control Purchase Date. Any Change in Control Purchase Notice
must state:

. the name of the holder;

. the certificate numbers of the notes to be delivered by the holder of
those notes for purchase by us;

. the portion of the principal amount of notes to be purchased, which
portion must be $1,000 or an integral multiple of $1,000; and

. that the notes are to be purchased by us pursuant to the applicable
provisions of the notes.

A holder may withdraw any Change in Control Purchase Notice by a written
notice of withdrawal delivered to the Paying Agent prior to the close of
business on the Change in Control Purchase Date. The notice of withdrawal must
state the principal amount and the certificate numbers of the notes as to which
the withdrawal notice relates and the principal amount, if any, which remains
subject to a Change in Control Purchase Notice.

Payment of the Change in Control Purchase Price for a note for which a
Change in Control Purchase Notice has been delivered and not withdrawn is
conditioned upon delivery of the note, together with necessary endorsements, to
the Paying Agent or an office or agency maintained by us for that purpose in
the Borough of

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Manhattan, The City of New York, at any time, whether prior to, on or after the
Change in Control Purchase Date, after the delivery of the Change in Control
Purchase Notice. Payment of the Change in Control Purchase Price for the note
will be made promptly following the later of the business day following the
Change in Control Purchase Date and the time of delivery of the note. If (i) we
elect to pay the Repurchase Price by delivery of shares of our common stock and
satisfy the conditions to this election set forth in the Indenture or (ii) the
Paying Agent holds, in accordance with the terms of the Indenture, money
sufficient to pay the Change in Control Purchase Price of that note on the
business day following the Change in Control Purchase Date, then, immediately
after the Change in Control Purchase Date, that note will cease to be
outstanding and interest on that note will cease to accrue and will be deemed
paid, whether or not that note is delivered to the Paying Agent, and all other
rights of the holder will terminate, other than the right to receive the Change
in Control Purchase Price upon delivery of that note.

If any Senior Indebtedness is outstanding at the time of the occurrence of a
Change in Control, and such Senior Indebtedness prohibits our purchase of the
notes upon the occurrence of a Change in Control, we must, before mailing the
notice regarding the Change in Control, either repay in full all obligations
and terminate all commitments under or in respect of all such Senior
Indebtedness or offer to repay in full all obligations and terminate all
commitments under or in respect of all such Senior Indebtedness and repay such
Senior Indebtedness owed to each holder who has accepted such offer or obtain
the requisite consents under all such Senior Indebtedness to permit the
repurchase of the notes as described above. We must first comply with this
covenant before we will be required to purchase notes in the event of a Change
in Control. However, our failure to comply with this covenant within 30
business days after the occurrence of a Change in Control would constitute an
Event of Default. As a result of the foregoing, a holder of the notes may not
be able to compel us to purchase the notes unless we are able at the time to
refinance all of the obligations under or in respect of all Senior Indebtedness
or obtain requisite consents under all Senior Indebtedness.

Under the Indenture, "Change in Control" of Interliant is deemed to have
occurred upon the occurrence of any of the following events:

. any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")),
acquires the beneficial ownership (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, through a purchase, merger
or other acquisition transaction, of more than 50% of the total voting
power of our total outstanding voting stock other than an acquisition by
us, any of our subsidiaries, any of our employee benefit plans or one or
more Permitted Holders;

. we consolidate with, or merge with or into, another Person or convey,
transfer, lease or otherwise dispose of all or substantially all of our
assets to any Person, or any Person consolidates with or merges with or
into us, in any such event pursuant to a transaction in which our
outstanding voting stock is converted into or exchanged for cash,
securities or other property, other than where:

. our voting stock is not converted or exchanged at all, except to the
extent necessary to reflect a change in our jurisdiction of
incorporation, or is converted into or exchanged for voting stock,
other than Redeemable Capital Stock, of the surviving or transferee
corporation; and

. immediately after such transaction, no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act),
other than one or more Permitted Holders or one or more Persons who
were the "beneficial owner" (as described below), directly or
indirectly, of more than 50% of the total voting power of all of our
voting stock immediately before such transaction, is the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person will be deemed to have "beneficial ownership"
of all

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securities that such Person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total outstanding
voting stock of the surviving or transferee corporation;

. during any consecutive two-year period, individuals who at the beginning
of that two-year period constituted our Board of Directors (together
with (i) any new directors whose election to such Board of Directors, or
whose nomination for election by our stockholders, was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved and (ii) any
representatives of a Permitted Holder) cease for any reason to
constitute a majority of our Board of Directors then in office; or

. our stockholders pass a special resolution approving a plan of
liquidation or dissolution and no additional approvals of our
stockholders are required under applicable law to cause a liquidation or
dissolution.

"Permitted Holders" means Web Hosting Organization LLC, Charterhouse Group
International, Inc., WHO Management LLC, and their respective controlled
Affiliates (other than their other portfolio companies), including any Person
(other than their other portfolio companies) in which any of the foregoing,
individually or collectively, owns beneficially more than 50% of the total
voting power of the shares, interests, participations or other equivalents of
corporate stock, partnership or limited liability company interests or any
other participation, right or other interest in the nature of an equity
interest of such Person.

"Redeemable Capital Stock" means any class or series of capital stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
stated maturity of the notes or is redeemable at the option of the holder of
the notes at any time prior to such final stated maturity, or is convertible
into or exchangeable for debt securities at any time prior to such final stated
maturity. Redeemable Capital Stock will not include any common stock the holder
of which has a right to put to us upon some terminations of employment.

The definition of Change in Control includes a phrase relating to the lease,
transfer, conveyance or other disposition of "all or substantially all" of our
assets. There is no precise established definition of the phrase "substantially
all" under applicable law. Accordingly, the ability of a holder of notes to
require us to repurchase such notes as a result of a lease, transfer,
conveyance or other disposition of less than all of our assets may be
uncertain.

The Indenture does not permit our Board of Directors to waive our obligation
to purchase notes at the option of the holder in the event of a Change in
Control of Interliant.

We will not be required to make an offer to purchase the notes upon a Change
in Control if a third party makes an offer to purchase the notes in the manner,
at the times and otherwise in compliance with the requirements set forth in the
Indenture for the offer to purchase we would otherwise be required to make and
that third party purchases all notes validly tendered to it and not withdrawn.

We will comply with the provisions of any tender offer rules under the
Exchange Act which may then be applicable, and will file any schedule required
under the Exchange Act in connection with any offer by us to purchase notes at
the option of the holders of notes upon a Change in Control. In some
circumstances, the Change in Control purchase feature of the notes may make
more difficult or discourage a takeover of us and thus the removal of incumbent
management. The Change in Control purchase feature, however, is not the result
of management's knowledge of any specific effort to accumulate shares of common
stock or to obtain control of us by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the Change in Control purchase feature is
the result of negotiations between us and the initial purchasers of the notes.

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If a Change in Control were to occur, we cannot assure holders of the notes
that we would have funds sufficient to pay the Change in Control Purchase Price
for all of the notes that might be delivered by holders seeking to exercise the
purchase right, because we or our subsidiaries might also be required to prepay
some indebtedness or obligations having financial covenants with change of
control provisions in favor of the holders of that indebtedness or those
obligations. In addition, our other indebtedness or obligations may have cross-
default provisions that could be triggered by a default under the Change in
Control provisions thereby possibly resulting in acceleration of the maturity
of that other indebtedness or those obligations. In any of these circumstances,
the holders of the notes would be subordinated to the prior claims of the
holders of other indebtedness or obligations. In addition, our ability to
purchase the notes with cash may be limited by the terms of our then-existing
borrowing agreements. No notes may be purchased pursuant to the provisions
described above if there has occurred and is continuing an Event of Default
described under "--Events of Default" below (other than a default in the
payment of the Change in Control Purchase Price with respect to those notes).

Consolidation, Merger And Sale Of Assets

We, without the consent of any holders of outstanding notes, are entitled to
consolidate with or merge into, or transfer or lease our assets substantially
as an entirety to, any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof (each
a "Person"), and any Person is entitled to consolidate with or merge into, or
transfer or lease its assets substantially as an entirety to, us, provided
that:

. the Person, if other than us, formed by a consolidation or into which we
are merged, or the Person, if other than one of our subsidiaries, which
receives the transfer of our assets substantially as an entirety, is a
corporation, partnership, limited liability company or trust organized
and existing under the laws of any United States jurisdiction and
expressly assumes our obligations on the notes and under the Indenture;

. immediately after giving effect to the consolidation, merger, transfer
or lease, no Event of Default (as defined above), and no event which,
after notice or lapse of time or both, would become an Event of Default,
has happened and is continuing; and

. an officer's certificate and an opinion of counsel, each stating that
the consolidation, merger, transfer or lease complies with the
provisions of the Indenture, have been delivered by us to the Trustee.

Events Of Default

The Indenture provides that, if an Event of Default specified in the
Indenture occurs and is continuing, either the Trustee or the holders of not
less than 25% in aggregate principal amount of the notes then outstanding may
declare the principal amount of, and accrued interest to the date of that
declaration, on all the notes to be immediately due and payable. In the case of
some events of bankruptcy or insolvency, the principal of, and accrued interest
on, all the notes to the date of the occurrence of that event, will
automatically become and be immediately due and payable. Upon any acceleration
of the payment of principal and accrued interest with respect to the notes, the
subordination provisions of the Indenture will preclude any payment being made
to holders of notes until the earlier of:

. 120 days or more after the date of that acceleration; and

. the payment in full of all Senior Indebtedness.

but only if such payment is then otherwise permitted under the terms of the
Indenture. See "--Subordination."

Under some circumstances, the holders of a majority in aggregate principal
amount of the notes may rescind any acceleration with respect to the notes and
its consequences.

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Interest will continue to accrue and be payable on demand upon a default in:

. the payment of:

-- principal and interest when due,

-- redemption amounts, or

-- Change in Control Purchase Price;

. the delivery of shares of common stock to be delivered on conversion of
notes; or

. the payment of cash in lieu of fractional shares to be paid on
conversion of notes,

in each case to the extent that the payment of interest that is due is legally
enforceable.

Under the Indenture, Events of Default include:

. default in payment of the principal amount, interest when due (if that
default in payment of interest continues for 30 days), any redemption
amounts or the Change in Control Purchase Price with respect to any
note, when that principal amount, interest, redemption amount or Change
in Control Purchase Price becomes due and payable (whether or not that
payment is prohibited by the provisions of the Indenture);

. failure by us to deliver shares of common stock, together with cash
instead of fractional shares, when those shares of common stock, or cash
instead of fractional shares, are required to be delivered following
conversion of a note, and that default continues for 10 days;

. failure by us to give the notice regarding a Change in Control or to
perform the covenant requiring us to repay, or obtain certain consents
from the holders of, certain Senior Indebtedness upon the occurrence of
a Change in Control, in either case within 30 business days of the
occurrence of the Change in Control;

. failure by us to comply with any of our other agreements in the notes or
the Indenture, the receipt by us of notice of that default from the
Trustee or from holders of not less than 25% in aggregate principal
amount of the notes then outstanding and our failure to cure that
default within 60 days after our receipt of that notice;

. default under any bond, note or other evidence of indebtedness for money
borrowed by us having an aggregate outstanding principal amount in
excess of $10 million, which default shall have resulted in that
indebtedness being accelerated, without that indebtedness being
discharged or that acceleration having been rescinded or annulled within
60 days after our receipt of the notice of default from the Trustee or
receipt by us and the Trustee of the notice of default from the holders
of not less than 25% in aggregate principal amount of the notes then
outstanding, unless that default has been cured or waived; or

. some events of bankruptcy or insolvency.

The Trustee will, within 90 days after the occurrence of any default, mail
to all holders of the notes notice of all defaults of which the Trustee is
aware, unless those defaults have been cured or waived before the giving of
that notice. The Trustee may withhold notice as to any default other than a
payment default, if it determines in good faith that withholding the notice is
in the interests of the holders. The term default for the purpose of this
provision means any event that is, or after notice or lapse of time or both
would become, an Event of Default with respect to the notes.

The holders of a majority in aggregate principal amount of the outstanding
notes may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee, provided that the direction must not be in conflict with any
law or the Indenture and the direction is subject to some other limitations.
The Trustee may refuse to perform any duty or

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exercise any right or power or extend or risk its own funds or otherwise incur
any financial liability unless it receives indemnity satisfactory to it against
any loss, liability or expense. No holder of any note will have any right to
pursue any remedy with respect to the Indenture or the notes, unless:

. that holder has previously given the Trustee written notice of a
continuing Event of Default;

. the holders of at least 25% in aggregate principal amount of the
outstanding notes have made a written request to the Trustee to pursue
the relevant remedy;

. the holder giving that written notice has, or the holders making that
written request have, offered to the Trustee reasonable security or
indemnity against any loss, liability or expense satisfactory to it;

. the Trustee has failed to comply with the request within 60 days after
receipt of that notice, request and offer of security or indemnity; and

. the holders of a majority in aggregate principal amount of the
outstanding notes have not given the Trustee a direction inconsistent
with that request within 60 days after receipt of that request.

The right of any holder:

. to receive payment of principal, any redemption amounts, the Change in
Control Purchase Price or interest in respect of the notes held by that
holder on or after the respective due dates expressed in the notes;

. to convert those notes; or

. to bring suit for the enforcement of any payment of principal, any
redemption amounts, the Change in Control Purchase Price or interest in
respect of those notes held by that holder on or after the respective
due dates expressed in the notes, or the right to convert;

will not be impaired or adversely affected without that holder's consent.

The holders of a majority in aggregate principal amount of notes at the time
outstanding may waive any existing default and its consequences except:

. any default in any payment on the notes;

. any default with respect to the conversion rights of the notes; or

. any default in respect of the covenants or provisions in the Indenture
that may not be modified without the consent of the holder of each note
as described in "--Modification, Waiver and Meetings" below.

When a default is waived, it is deemed cured and will cease to exist, but
that waiver does not extend to any subsequent or other default or impair any
consequent right.

We will be required to furnish to the Trustee annually a statement as to any
default by us in the performance and observance of our obligations under the
Indenture. In addition, we will be required to file with the Trustee written
notice of the occurrence of any default or Event of Default within five
business days of our becoming aware of the occurrence of any default or Event
of Default.

Modification, Waiver And Meetings

The Indenture or the notes may be modified or amended by us and the Trustee
with the consent of the holders of not less than a majority in aggregate
principal amount of the notes then outstanding. The Indenture or the notes may
not be modified or amended by us without the consent of each holder affected
thereby, to, among other things:

. reduce the principal amount, Change in Control Purchase Price or any
redemption amounts with respect to any note, or extend the stated
maturity of any note or alter the manner of payment or rate of interest
on any note or make any note payable in money or securities other than
that stated in the note;

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. make any reduction in the principal amount of notes whose holders must
consent to an amendment or any waiver under the Indenture or modify the
Indenture provisions relating to those amendments or waivers;

. make any change that adversely affects the right of a holder to convert
any note;

. modify the provisions of the Indenture relating to the ranking of the
notes in a manner adverse to the holders of the notes; or

. impair the right to institute suit for the enforcement of any payment
with respect to, or conversion of, the notes.

Without the consent of any holder of notes, we and the Trustee may amend the
Indenture to:

. cure any ambiguity, defect or inconsistency, provided, however, that the
amendment to cure any ambiguity, defect or inconsistency does not
materially adversely affect the rights of any holder of notes;

. provide for the assumption by a successor of our obligations under the
Indenture;

. provide for uncertificated notes in addition to certificated notes, as
long as those uncertificated notes are in registered form for United
States federal income tax purposes;

. make any change that does not adversely affect the rights of any holder
of notes;

. make any change to comply with any requirement of the Securities and
Exchange Commission in connection with the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended;

. add to our covenants or our obligations under the Indenture for the
protection of holders of the notes; or

. surrender any right, power or option conferred by the Indenture on us.

Form, Denomination, Exchange, Registration, Transfer and Payment

The notes were initially issued in registered, certificated form. The notes
were issued in denominations of $1,000 and $1,000 multiples.

The principal, any premium and any interest on the notes will be payable,
without coupons, and the exchange of and the transfer of the notes will be
registrable, at our office or agency maintained for that purpose in the Borough
of Manhattan, The City of New York and at any other office or agency maintained
for that purpose.

Holders may present the notes for exchange, and for registration of
transfer, with the form of transfer endorsed on those notes, or with a
satisfactory written instrument of transfer, duly executed, at the office of
the appropriate securities registrar or at the office of any transfer agent
designated by us for that purpose, without service charge and upon payment of
any taxes and other governmental charges as described in the Indenture. We will
appoint the Trustee of the notes as securities registrar under the Indenture.
We may at any time rescind designation of any transfer agent or approve a
change in the location through which any transfer agent acts, provided that we
maintain a transfer agent in each place of payment for the notes. We may at any
time designate additional transfer agents for the notes.

All monies paid by us to a paying agent for the payment of principal, any
premium or any interest, on any note which remains unclaimed for two years
after the principal, premium or interest has become due and payable may be
repaid to us, and after the two-year period, the holder of that note may look
only to us for payment.

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In the event of any redemption, we will not be required to:

. issue, register the transfer of or exchange notes during a period
beginning at the opening of business 15 days before the day of the
mailing of a notice of redemption of notes to be redeemed and ending at
the close of business on the day of that mailing; or

. register the transfer of or exchange any note called for redemption,
except, in the case of any notes being redeemed in part, any portion not
being redeemed.

Notices

Except as otherwise provided in the Indenture, notices to holders of notes
will be given by mail to the addresses of holders of the notes as they appear
in the Security Register.

Replacement Of Notes

Any mutilated note will be replaced by us at the expense of the holder upon
surrender of that note to the Trustee. Notes that become destroyed, stolen or
lost will be replaced by us at the expense of the holder upon delivery to the
Trustee of notes or evidence of the destruction, loss or theft of the notes
satisfactory to us and the Trustee. In the case of a destroyed, lost or stolen
note, an indemnity satisfactory to the Trustee and us may be required at the
expense of the holder of that note before a replacement note will be issued.

Governing Law

The Indenture, the notes and the registration rights agreement will be
governed by, and construed in accordance with, the laws of the State of New
York.

Information Regarding The Trustee

The Chase Manhattan Bank is the Trustee, Securities Registrar, Paying Agent
and Conversion Agent under the Indenture.

Registration Rights of Holders of the Notes

We and Microsoft Corporation entered into a registration rights agreement
dated March 10, 2000.

Under the registration rights agreement, we generally agreed, for the
benefit of the holders of the notes and the shares of common stock issuable
upon conversion of the notes to:

. file, within 90 days after the date the notes were originally issued, a
shelf registration statement covering the notes and the common stock
issuable upon conversion of the notes;

. use our best efforts to cause the shelf registration to become effective
as promptly as practicable; and

. use our best efforts to keep the shelf registration statement effective
until the earlier of the sale of all the transfer restricted securities
or two years after the latest date of original issuance.

When we use the term "transfer restricted securities" in this section, we
mean the common stock issued upon conversion until the earlier of the following
events:

. the date the note or common stock issued upon conversion has been
effectively registered under the Securities Act of 1933 and sold or
transferred pursuant to the shelf registration statement;

. the date on which the note or common stock issued upon conversion is
distributed to the public pursuant to Rule 144 under the Securities Act
of 1933 or is available for sale pursuant to Rule 144(k) under the
Securities Act of 1933; or

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. the date the note or common stock issued upon conversion ceases to be
outstanding.

We will be required to pay predetermined liquidated damages if one of the
following "registration defaults" occurs:

. we do not file the shelf registration statement within 90 days after the
date the notes were originally issued;

. the Securities and Exchange Commission does not declare the shelf
registration statement effective within 180 days after the date the
notes were originally issued; or

. after it has been declared effective, the shelf registration statement
ceases to be effective or available for more than 90 days in any period
of 365 consecutive days.

If a registration default occurs, liquidated damages initially will accrue
(a) for the notes that are transfer restricted securities, at the rate of $0.05
per week per $1,000 principal amount of the notes and (b) for any common stock
issued on conversion of the notes that are transfer restricted securities, at
an equivalent rate based on the conversion price. If the registration default
has not been cured within 90 days, the liquidated damages rate will increase by
$0.05 per week per $1,000 principal amount of the notes that are transfer
restricted securities (and an equivalent amount for any common stock issued
upon conversion that are transfer restricted securities) for each subsequent
90-day non-compliance period, up to a maximum rate of $0.25 per week per $1,000
principal amount of the notes that are transfer restricted securities.
Liquidated damages, as calculated by us, generally will be payable at the same
time as interest payments on the notes.

We may suspend the use of the shelf registration statement in certain
circumstances described in the registration rights agreement upon notice to the
holders of the transfer restricted securities, subject to the rights of the
holders of transfer restricted securities to receive liquidated damages in
accordance with the registration rights agreement. We will provide copies of
the prospectus and notify holders of notes and common stock issued upon
conversion when the shelf registration statement is filed and when it becomes
effective.

We will give notice to all holders of the filing and effectiveness of the
shelf registration statement. We refer to this form of notice and questionnaire
as the "questionnaire." Holders of the notes are required to complete and
deliver the questionnaire prior to the effectiveness of the shelf registration
statement so that they can be named as selling stockholders in the prospectus.
Upon receipt of a completed questionnaire from a holder of the notes after the
effectiveness of the shelf registration statement, we will, as promptly as
practicable but in any event within five business days of receipt, file any
amendments or supplements to the shelf registration statement so that such a
holder may use the prospectus, subject to our right to suspend as set forth
above. We will pay liquidated damages to a holder of the notes if we fail to
make this filing in the required time. If this filing requires a post-effective
amendment to the shelf registration statement, we will pay liquidated damages
if this amendment is not declared effective within 45 business days of the
filing of the post-effective amendment. Under the registration rights
agreement, a holder of the notes is required to deliver a prospectus to
purchasers and will be bound by the provisions of the agreement.

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DESCRIPTION OF CAPITAL STOCK

Authorized Stock; Issued and Outstanding Shares

Our authorized capital stock consists of 200,000,000 shares of common stock,
par value $0.01 per share and 1,000,000 shares of undesignated preferred stock,
par value $0.01 per share.

Common Stock

As of March 31, 2000, 47,435,200 shares of common stock were issued and
outstanding. All of the issued and outstanding shares of common stock are fully
paid and nonassessable.

The following summarizes the rights of holders of our common stock:

. each holder of shares of common stock is entitled to one vote per share
on all matters to be voted on by stockholders generally, including the
election of directors;

. there are no cumulative voting rights;

. the holders of our common stock are entitled to dividends which may be
paid in cash, property or shares of our capital stock and other
distributions as may be declared from time to time by our Board of
Directors out of funds legally available for that purpose, if any;

. upon our liquidation, dissolution or winding up, the holders of shares
of common stock will be entitled to share ratably in the distribution of
all of our assets remaining available for distribution after
satisfaction of all our debts and liabilities and the payment of the
liquidation preference of any outstanding preferred stock; and

. the holders of common stock have no preemptive or other subscription
rights to purchase shares of our stock, nor will holders be entitled to
the benefits of any redemption or sinking fund provisions.

Preferred Stock

Our certificate of incorporation authorizes our Board of Directors to create
and issue one or more series of preferred stock and determine the rights and
preferences of each series within the limits set forth in our certificate of
incorporation and applicable law. Among other rights, our Board of Directors
may determine, without further vote or action by our stockholders:

. the number of shares constituting the series and the distinctive
designation of the series;

. the dividend rate on the shares of the series, whether dividends will be
cumulative and if so, from which date or dates and the relative rights
of priority, if any, of payment of dividends on shares of the series;

. whether the series will have voting rights in addition to the voting
rights provided by law and, if so, the terms of such voting rights;

. whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;

. whether or not the shares of the series will be redeemable or
exchangeable and if so, the dates, terms and conditions of redemption or
exchange, as the case may be;

. whether the series will have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of
the sinking fund; and

. the rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.

Unless otherwise provided by our Board of Directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although

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we have no present plans to issue any shares of preferred stock, any future
issuance of shares of preferred stock, or the issuance of rights to purchase
preferred shares, may have the effect of delaying, deferring or preventing a
change of control in our company or an unsolicited acquisition proposal. The
issuance of preferred stock also could decrease the amount of earnings and
assets available for distribution to the holders of common stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the common stock. Accordingly, the issuance of shares of preferred stock may
discourage bids for the common stock at a premium or may otherwise adversely
affect the market price of the common stock.

Section 203 of the Delaware General Corporation Law

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Under Section 203, business combinations between a Delaware
corporation whose stock is publicly traded or held of record by more than 2,000
stockholders and an interested stockholder are generally prohibited for a
three-year period following the date that such a stockholder became an
interested stockholder, unless:

. the corporation has elected in its original certificate of incorporation
not to be governed by Section 203, an election we did not make;

. the business combination was approved by the board of directors of the
corporation before the other party to the business combination became an
interested stockholder;

. upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction, excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not
have a confidential right to tender or vote stock held by the plan; or

. the business combination was approved by the board of directors of the
corporation and ratified by two-thirds of the voting stock not owned by
the interested stockholder.

The three-year prohibition also does not apply to some business combinations
proposed by an interested stockholder following the announcement or
notification of an extraordinary transaction involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of the majority
of the corporation's directors.

The term "business combination" is defined generally under Section 203 to
include mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested stockholder involving
the assets or stock of the corporation or its majority-owned subsidiaries and
transactions which increase an interested stockholder's percentage ownership of
stock. The term "interested stockholder" is defined generally under Section 203
as a stockholder who, together with affiliates and associates, owns or within
three years prior did own 15% or more of a Delaware corporation's voting stock.
Section 203 could prohibit or delay a merger, takeover or other change in
control of us and therefore could discourage attempts to acquire us.

Our Board of Directors approved both the acquisition of common stock by WEB
as part of their approval of the investment by such purchasers and the
acquisition of preferred stock and warrants by the SOFTBANK Purchasers as part
of their approval of the investment by such purchasers and, accordingly, the
prohibitions under Section 203 will not apply to any business combination with
either WEB or the SOFTBANK Purchasers.

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services L.L.C.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of certain United States federal tax
consequences relating to an investment in the notes. This discussion is based
on existing provisions of the Internal Revenue Code of 1986, as amended, or the
Code, Treasury regulations promulgated thereunder, judicial decisions and
administrative rulings, all of which are subject to change with possible
retroactive effect. This summary does not discuss any state, local or foreign
tax considerations, and does not address all federal income tax consequences
applicable to all categories of investors, some of which may be subject to
special rules, such as life insurance companies, tax-exempt organizations,
dealers in securities or currency, banks or other financial institutions,
investors whose functional currency is not the U.S. dollar, and investors that
hold notes as part of a hedge, straddle or conversion transaction. In addition,
this summary is generally limited to notes and common stock that are held as
"capital assets" within the meaning of the Code. Federal tax considerations for
Non-U.S. Holders are discussed separately below.

Interest on Notes. Holders will be required to recognize ordinary interest
income when interest on the notes is paid or accrued, in accordance with the
holders' regular method of tax accounting. In certain circumstances, we may be
obligated to pay holders of the notes amounts in excess of stated interest or
principal. For example, we would have to pay liquidated damages to holders of
the notes in certain circumstances described in "Description of Notes--
Registration Rights of Holders of the Notes." If we are required to pay
liquidated damages, we believe that these payments would be insignificant
relative to the total expected amount of remaining payments on the notes.
Therefore, we will treat the possible payment of liquidated damages as an
incidental contingency. If we exercise our conditional call right, it is likely
that holders of the notes would convert them into common stock. Therefore, we
believe that the possibility that we will pay the prescribed redemption premium
is remote. Our determination that these contingencies are incidental or remote
is binding on holders unless they disclose their contrary position. If we pay
liquidated damages on the notes the holders of the notes would be required to
recognize additional interest income. If we pay a redemption premium in
connection with its exercise of our conditional call right, the premium would
probably be treated as capital gain under the rules described under "Sale or
Exchange of Notes or Shares of Common Stock."

Constructive Dividends. Certain corporate transactions, such as
distributions of assets to holders of common stock, may be treated as deemed
distributions to holders of the notes if the conversion price of the notes is
adjusted to reflect such transaction. Adjustments to the conversion price,
however, made pursuant to a bona fide, reasonable adjustment formula which has
the effect of preventing dilution of the interest of the holders of notes,
generally will not be considered to result in a deemed distribution. Such a
deemed distribution will be taxable as a dividend, return of capital, or
capital gain in accordance with the rules discussed below under "Dividends on
Shares of Common Stock" and holders of the notes may recognize income as a
result even though they will receive no cash or property.

Sale or Exchange of Notes or Shares of Common Stock. In general, a holder of
notes will recognize gain or loss upon the sale, redemption, retirement or
other disposition of notes measured by the difference between (1) the amount of
cash and the fair market value of any property received (except to the extent
attributable to accrued interest, which will generally be taxable as ordinary
income) and (2) such holder's adjusted tax basis in the notes. In general, each
holder of our common stock into which the notes have been converted will
recognize gain or loss upon the sale, exchange, or other disposition of our
common stock measured by the difference between (1) the amount of cash and the
fair market value of any property received and (2) the holder's adjusted basis
in our common stock. (For a discussion of the basis and holding period of
shares of our common stock, see "--Conversion of Notes," below.) Subject to the
market discount rules discussed below, the gain or loss on the disposition of
notes or common stock will be capital gain or loss and will be long-term gain
or loss if the notes or shares of common stock have been held for more than one
year at the time of such disposition.

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Conversion of Notes. A holder of notes will not recognize gain or loss on
the conversion of the notes solely into common stock except with respect to
cash in lieu of fractional shares. The holder's tax basis in the shares of
common stock received upon conversion of the notes will be equal to the
holder's aggregate basis in the notes exchanged therefor (less any portion
thereof allocable to cash received in lieu of a fractional share of common
stock). The holding period of common stock will generally include the period
during which such holder held the notes prior to conversion. Under current
ruling policy of the Internal Revenue Service, cash received in lieu of a
fractional share of common stock should generally be treated as a payment in
exchange for such fractional share rather than as a dividend. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will equal the difference between the amount of cash received and the
amount of tax basis allocable to the fractional shares.

Market Discount. The notes may be affected by the "market discount"
provisions of the Code. For this purpose, the market discount on a note will
generally be equal to the amount, if any, by which the stated redemption price
at maturity of a note exceeds the holder's tax basis in the note immediately
after its acquisition. Subject to a de minimis exception, a holder of a note
acquired at a market discount will generally be required to treat as ordinary
income any gain recognized on the disposition of such note to the extent of the
accrued market discount on such note at the time of disposition. In general,
market discount will be treated as accruing on a straight-line basis over the
term of the note or, at the election of the holder, under a constant-yield
method. A holder of a note acquired at a market discount may be required to
defer the deduction of a portion of the interest on any indebtedness incurred
or maintained to purchase or carry such note until the note is disposed of in a
taxable transaction, unless the holder elects to include accrued market
discount in income currently. If a holder acquires a note at a market discount
and receives common stock upon conversion of the note, the amount of accrued
market discount through the date of conversion will be treated as ordinary
income upon the disposition of the common stock.

Dividends on Common Stock. Distributions on shares of common stock will
constitute dividends for United States federal income tax purposes to the
extent of our current or accumulated earnings and profits as determined under
United States federal income tax principles. Dividends paid to holders that are
United States corporations may qualify for the dividends-received deduction. To
the extent that a holder receives distributions on shares of common stock that
would otherwise constitute dividends for United States federal income tax
purposes but that exceed our current and accumulated earnings and profits, such
distributions will be treated first as a non-taxable return of capital reducing
the holder's basis in the shares of common stock. Any such distributions in
excess of the holder's basis in the shares of common stock will generally be
treated as capital gain.

Certain Federal Tax Considerations Applicable to Non-U.S. Holders.

For purposes of this summary, the term "U.S. Holder" means a beneficial
owner of notes or common stock that is (1) a citizen or resident of the United
States, (2) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any State thereof (including the
District of Columbia) or a partnership otherwise treated as a United States
person under applicable U.S. Treasury Regulations, (3) an estate the income of
which is subject to United States federal income taxation regardless of its
source, and (4) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one
or more U.S. persons have the authority to control all substantial decisions of
the trust. The term "Non-U.S. Holder" means a beneficial owner of notes or
common stock other than a U.S. Holder.

Interest on Notes. Generally, interest paid on notes to a Non-U.S. Holder
will not be subject to United States federal income tax if (1) such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Holder, (2) the beneficial owner of the notes
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (3) the
beneficial owner of the notes is not a controlled foreign corporation that is
related to Interliant, (4) the beneficial owner is not a bank for United States
federal income tax purposes whose receipt of interest on the notes is described
in Section 881(c)(3)(A) of the Code and (5) Interliant or paying agent receives

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certification that the beneficial owner of the note is not a U.S. Holder. The
beneficial owner can meet the requirement of this clause (5) by providing a
signed I.R.S. Form W-8BEN or substitute form to us or our paying agent. If the
beneficial owner holds a note through a securities clearing organization, bank,
other financial institution, or other agent acting on the owner's behalf, the
certification requirement will be met if the beneficial owner provides a signed
I.R.S. Form W-8BEN or substitute form to the agent and the agent provides a
signed I.R.S. Form W-8IMY or substitute form along with a copy of the
beneficial owner's signed I.R.S. Form W-8BEN or substitute form to us or our
paying agent. Each person acting as custodian, broker, nominee or otherwise as
an agent for a beneficial owner must provide certification on a W-8IMY. For
purposes of determining ownership of our stock, a Non-U.S. Holder of notes will
be deemed to own the common stock into which the notes could be converted. A
Non-U.S. Holder that is not exempt from tax under the rules described above
will generally be subject to United States federal withholding tax at a rate of
30% unless the interest is effectively connected with the conduct of a United
States trade or business, in which case the interest will be subject to the
United States federal income tax on net income that applies to United States
persons generally. Non-U.S. Holders should consult applicable tax treaties,
which may provide different rules.

Special Rules may apply if the Notes are held by a foreign partnership. In
conjunction with Regulations relating to non-U.S. holders of certain debt
instruments recently promulgated by the Treasury Department which are effective
on December 31, 2000 (the "New Regulations"), the Internal Revenue Service has
issued revised tax forms to replace Form W-8, as well as Forms 1001 and 4224
(discussed below) which were valid prior to January 1, 1999. Although the New
Regulations are not effective until December 31, 2000, beneficial owners may be
asked to provide such revised forms in addition to, or instead of, the existing
IRS forms prior to such effective date. Existing Forms W-8 which were valid on
or after January 1, 1999 will continue to be valid until they expire, or
December 31, 2000, whichever date is earlier. The foregoing is based on the
conclusion that the notes will be treated as debt for federal income tax
purposes.

Even if a Non-U.S. Holder cannot satisfy the requirements of eligibility for
the Portfolio Interest Exemption, interest (including OID) earned by such Non-
U.S. Holder will not be subject to 30% withholding tax if the beneficial owner
of the notes provides the Company or its paying agent, as the case may be, with
a properly executed (1) IRS Form W-8BEN (or prior or successor form) claiming
an exemption from withholding under the benefit of a U.S. income tax treaty or
(2) IRS Form W-8ECI (or prior or successor form) stating that interest paid on
the notes is not subject to withholding tax because it is effectively connected
with the beneficial owner's conduct of a trade or business in the United
States.

Sales or Exchange of Notes or Shares of Common Stock. A Non-U.S. Holder
generally will not be subject to United States federal income or withholding
tax on gain realized on the sale or exchange of notes or common stock unless
(1) the holder is an individual who was present in the United States for 183
days or more during the taxable year and (a) such holder has a "tax home" in
the United States or (b) the gain is attributable to an office or other fixed
place of business maintained in the United States by such holder, (2) the gain
is effectively connected with the conduct of a trade or business of the holder
in the United States, or (3) we are or have been a "United States real property
holding corporation" at any time within the shorter of the five-year period
preceding such disposition or such holder's holding period. If we become a
"United States real property holding corporation," gain recognized on a
disposition of notes or common stock would not be subject to federal income tax
if (1) the common stock is "regularly traded on an established securities
market" within the meaning of the Code and (2) either (A) the Non-U.S. Holder
disposing of common stock did not own, actually or constructively, at any time
during the five-year period preceding the disposition, more than 5% of the
common stock, or (B) in the case of a disposition of notes, the Non-U.S. Holder
did not own, actually or constructively, notes which, as of any date on which
such holder acquired notes had a fair market value greater than that of 5% of
the common stock.

Dividends on Shares of Common Stock. Generally, to the extent a distribution
with respect to common stock is treated as a dividend (as described above under
"Dividends on Common Stock"), a Non-U.S. Holder will be subject to United
States federal income tax withholding at a rate of 30% unless the dividend is

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effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Holder. If the dividend is effectively connected with
the conduct of a trade or business within the United States, the dividend will
be subject to the United States federal income tax on net income that applies
to United States persons generally (and, with respect to corporate holders, the
branch profits tax under certain circumstances). Non-U.S. Holders should
consult any applicable income tax treaties, which may provide for a lower rate
of withholding or other rules different from those described above. A Non-U.S.
Holder (and in the case of Non-U.S. Holders that are treated as partnerships or
otherwise fiscally transparent the partners, shareholders or other
beneficiaries of such Non-U.S. Holders) may be required to satisfy certain
certification requirements in order to claim a reduction of or exemption from
withholding under the foregoing rules.

Estate Tax. Notes held by an individual who at the time of death is not a
United States citizen or resident, as specially defined for United States
estate tax purposes, will not be subject to United States federal estate tax
provided (1) the notes were not held in connection with a United States trade
or business and (2) the individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of our stock entitled
to vote. Common stock owned by such an individual at the time of death, and in
certain circumstances transferred before death, will be includible in the
taxable estate and may be subject to United States federal estate tax unless
otherwise provided by an applicable tax treaty. Estates of nonresident aliens
are generally allowed a statutory credit which has the effect of offsetting
United States federal estate tax imposed on the first $60,000 of the taxable
estate.

Information Reporting and Backup Withholding

U.S. Holders. Information reporting and backup withholding may apply to
payments of interest or dividends on or the proceeds of the sale or other
disposition of the notes or shares of common stock made by us with respect to
certain noncorporate U.S. Holders. Such U.S. Holders generally will be subject
to backup withholding at a rate of 31% unless the recipient of such payment
supplies a taxpayer identification number, certified under penalties of
perjury, as well as certain other information, or otherwise establishes, in the
manner prescribed by law, an exemption from backup withholding. Any amount
withheld under backup withholding is allowable as a credit against the U.S.
Holder's federal income tax, upon furnishing the required information.

Non-U.S. Holders. Generally, information reporting and backup withholding of
United States federal income tax at a rate of 31% may apply to payments of
principal, interest and premium (if any) to Non-U.S. Holders if the payee fails
to certify that the holder is a non-U.S. person or if we or our paying agent
has actual knowledge that the payee is a United States person. The 31% backup
withholding tax generally will not apply to dividends paid to foreign holders
outside the United States that are subject to 30% withholding as discussed
above or that are subject to a tax treaty that reduces such withholding.
Special rules apply in case of foreign partnerships.

The payment of the proceeds on the disposition of notes or shares of common
stock to or through a United States office of a United States or foreign broker
will subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. Holder of notes or
shares of common stock to or through a foreign office of a broker will
generally not be subject to backup withholding. However, if such broker is a
U.S. person, a controlled foreign corporation for United States tax purposes,
or a foreign person 50% or more of whose gross income from all sources for
certain periods is effectively connected with a United States trade or
business, information reporting will apply unless such broker has documentary
evidence in its files of the Non-U.S. Holder's foreign status and has no actual
knowledge to the contrary or unless the Non-U.S. Holder otherwise establishes
an exemption. Both backup withholding and information reporting will apply to
the proceeds of such dispositions if the broker has actual knowledge that the
payee is a U.S. Holder.

Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against the beneficial owner's United States federal income
tax liability provided the required information is furnished to the IRS, within
the beneficial owner's period of limitation for claiming a refund of tax.

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THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER, TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES OR OTHER
TAX LAWS.

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PLAN OF DISTRIBUTION

The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the common stock, notes and
the common stock into which the notes are convertible directly to purchasers or
through underwriters, broker-dealers or agents, who may receive compensation in
the form of discounts, concessions or commissions from the selling holders or
the purchasers. These discounts, concessions or commissions as to any
particular underwriter, broker-dealer or agent may be in excess of those
customary in the types of transactions involved.

The common stock, notes and the common stock into which the notes are
convertible may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market prices, at varying prices determined at the time of sale, or
at negotiated prices. These sales may be effected in transactions, which may
involve crosses or block transactions:

. on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or the
common stock may be listed or quoted at the time of sale;

. in the over-the-counter market;

. in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

. through the writing of options, whether the options are listed on an
options exchange or otherwise; or

. through the settlement of short sales.

In connection with the sale of the common stock, notes and the common stock
into which the notes are convertible or otherwise, the selling holders may
enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the notes or the
common stock into which the notes are convertible in the course of hedging the
positions they assume. The selling holders may also sell the common stock,
notes or the common stock into which the notes are convertible short and
deliver these securities to close out their short positions, or loan or pledge
the common stock, notes or the common stock into which the notes are
convertible to broker-dealers that in turn may sell these securities.

The aggregate proceeds to the selling holders from the sale of the common
stock, notes or common stock into which the notes are convertible offered by
them will be the purchase price of the notes or common stock less discounts and
commissions, if any. Each of the selling holders reserves the right to accept
and, together with their agents from time to time, to reject, in whole or in
part, any proposed purchase of notes or common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering.

Our outstanding common stock is listed for trading on The Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on The Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.

In order to comply with the securities laws of some states, if applicable,
the common stock, notes and common stock into which the notes are convertible
may be sold in these jurisdictions only through registered or licensed brokers
or dealers. In addition, in some states the common stock, notes and common
stock into which the notes are convertible may not be sold unless they have
been registered or qualified for sale or an exemption from registration or
qualification requirements is available and is complied with.

The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock, notes and common stock into which
the notes are convertible may be "underwriters" within the meaning of Section
2(11) of the Securities Act. Any discounts, commissions, concessions or profit
they earn on any resale of the shares may be underwriting discounts and
commissions under the Securities Act. Selling holders who are "underwriters"
within the meaning of Section 2(11) of the Securities Act will be subject to
the prospectus delivery requirements of the Securities Act. The selling holders
have acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M.

86
<PAGE>

In addition, any securities covered by this prospectus that qualify for sale
pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule
144 or Rule 144A rather than pursuant to this prospectus. A selling holder may
not sell any notes or common stock described in this prospectus and may not
transfer, devise or gift these securities by other means not described in this
prospectus.

To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is a
part.

We entered into a registration rights agreement for the benefit of holders
of the notes to register their notes and common stock under applicable federal
and state securities laws under specific circumstances and at specific times.
The registration rights agreement provides for cross-indemnification of the
selling holders and us and their and our respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and the common stock, including liabilities under the
Securities Act. We will pay substantially all of the expenses incurred by the
selling holders incident to the offering and sale of the notes and the common
stock.

In February 2000, we sold $164.825 million in aggregate principal amount of
convertible notes to initial purchasers in a transaction exempt from
registration under Rule 144A. These notes have substantially the same terms as
the notes offered in this prospectus. We have filed a separate registration
statement covering the notes issued to these purchasers and the common stock
issuable upon conversion of those notes.

LEGAL MATTERS

The validity of the issuance the securities offered hereby will be passed
upon for us by Dewey Ballantine LLP, New York, New York.

EXPERTS

The consolidated financial statements of Interliant, Inc. (formerly known as
Sage Networks, Inc.) at December 31, 1998 and 1999, and for the period December
8, 1997 (inception) to December 31, 1997 and the years ended December 31, 1998
and 1999 appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and are included in reliance upon the
authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Sales Technology Limited at October
31, 1998, and for the year ended October 31, 1998, appearing in this prospectus
and registration statement, have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon the authority of such firm as experts in
accounting and auditing.

The balance sheet of Soft Link, Inc., as of December 31, 1998 and 1998 and
the related statements of operations and retained earnings, and cash flows for
the years then ended included in this prospectus have been so included in
reliance on the report of Smith Schafer & Associates, Ltd., independent
accountants given on the authority of said firm as experts in auditing and
accounting.

The financial statements of reSOURCE PARTNER, Inc., as of December 31, 1999
and for the year then ended included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and is included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

87
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION ABOUT US

We are currently subject to the informational requirements of the Exchange
Act and file reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the SEC at:

<TABLE>
<S> <C> <C>
Room 1024 Suite 1400
450 Fifth Street, N.W. Northwest Atrium Center 13th Floor
Judiciary Plaza 500 West Madison Street Seven World Trade Center
Washington, D.C. 20549 Chicago, Illinois 60661 New York, New York 10048
</TABLE>

Copies of material can be obtained at prescribed rates from the Public
Reference Section of the SEC at:

450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549

The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of the site is http://www.sec.gov.

Our common stock is quoted for trading on the Nasdaq National Market and
reports, proxy statements and other information concerning us also may be
inspected at the offices of the National Association of Securities Dealers at
9513 Key West Avenue, Rockville, Maryland 20850.

We provide Web hosting services to a customer whose primary residence is
located in Cuba, Mr. Osvaldo Martinez. Current information concerning business
between any person located in Cuba or the government of Cuba and Interliant
may be obtained from the Florida Department of Banking and Finance, Plaza
Level, The Capitol, Tallahassee, Florida 32399-0350, telephone number (904)
488-6311.

88
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
INTERLIANT, INC.
Report of Independent Auditors............................................ F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998 and March
31, 2000 (unaudited)................................................... F-3
Consolidated Statements of Operations for the Years ended December 31,
1999 and 1998 and the period December 8, 1997 (inception) to December
31, 1997 and the Three Months Ending March 31, 2000 and 1999
(unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity for the years Ended
December 31, 1999 and 1998 and the period December 8, 1997 (inception)
to December 31, 1997 and the Three Months Ending March 31, 2000
(unaudited)............................................................ F-5
Consolidated Statements of Cash Flows for the Year ended December 31,
1999 and 1998 and the period December 8, 1997 (inception) to December
31, 1997 and the Three Months Ending March 31, 2000 (unaudited)........ F-6
Notes to Consolidated Financial Statements................................ F-7

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Statement of Operations.......................... F-21
Notes to Pro Forma Consolidated Financial Statements.................... F-23

ACQUIRED COMPANY (SALES TECHNOLOGY LIMITED)
Independent Auditors' Report.............................................. F-25
Consolidated Balance Sheets as of October 31, 1998 and July 31, 1999
(unaudited)............................................................ F-26
Consolidated Profit and Loss Accounts for the Year Ended October 31,
1998 and for the Nine Months Ended July 31, 1998 and 1999 (unaudited).. F-27
Consolidated Statement of Cash Flows for the Year Ended October 31, 1998
and for the Nine Months Ended July 31, 1998 and 1999 (unaudited)....... F-28
Notes to Consolidated Financial Statements................................ F-29

ACQUIRED COMPANY (SOFT LINK, INC.)
Independent Auditor's Report.............................................. F-37
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998......................... F-38
Statements of Operations and Retained Earnings for the Years Ended
December 31, 1999 and 1998............................................. F-39
Statement of Cash Flows for the Years Ended December 31, 1999 and 1998.. F-40
Notes to Financial Statements............................................. F-41

ACQUIRED COMPANY (reSOURCE PARTNER, INC. AND SUBSIDIARY)
Independent Auditors' Report.............................................. F-47
Consolidated Balance Sheet as of December 31, 1999...................... F-48
Consolidated Statement of Operations for the Year Ended December 31,
1999................................................................... F-49
Consolidated Statement of Cash Flows for the Year Ended December 31,
1999................................................................... F-50
Consolidated Statement of Shareholders' Deficit for the Year Ended
December 31, 1999...................................................... F-51
Notes to Consolidated Financial Statements................................ F-52
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Interliant, Inc.

We have audited the accompanying consolidated balance sheets of Interliant,
Inc. (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1999 and for the period
December 8, 1997 (inception) to December 31, 1997. Our audits also included the
financial statement schedule. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Interliant,
Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999 and for the period December 8, 1997 (inception) to December
31, 1997, in conformity with accounting principles generally accepted in the
United States.

Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Boston, Massachusetts
January 31, 2000, except for Note 15, as to
which the date is March 2, 2000

F-2
<PAGE>

INTERLIANT, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1998 1999 2000
----------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $ 6,813,360 $ 27,608,039 $ 77,872,009
Restricted cash..................... 1,011,772 1,156,780
Short-term investments.............. 3,612,229 100,406,660
Accounts receivable, net of
allowance of $320,000, $1,378,000,
and $1,407,000 at December 31,
1998, 1999 and March 31, 2000,
respectively....................... 806,322 13,981,358 21,490,102
Prepaid expenses and other current
assets............................. 639,662 3,469,763 7,153,610
Payroll and benefit funds held for
customers.......................... 7,925,805
----------- ------------ ------------
Total current assets.............. 8,259,344 49,683,161 216,004,966
----------- ------------ ------------
Furniture, fixtures and equipment,
net.................................. 5,103,123 18,199,010 28,371,207
Intangibles, net...................... 12,612,228 93,636,201 143,926,980
Other assets.......................... 222,172 1,356,696 7,333,517
----------- ------------ ------------
Total assets...................... $26,196,867 $162,875,068 $395,636,670
=========== ============ ============

Liabilities and stockholders' equity
Current liabilities:
Notes payable and current portion of
long-term debt and capital lease
obligations........................ $ 1,211,835 $ 1,281,234
Accounts payable.................... $ 787,412 8,359,040 7,100,834
Accrued expenses.................... 2,301,507 7,342,551 16,246,915
Deferred revenue.................... 1,414,969 5,883,549 7,523,269
Payroll and benefit funds held for
customers.......................... 7,925,805
----------- ------------ ------------
Total current liabilities......... 4,503,888 22,796,975 40,078,057
----------- ------------ ------------
Long-term debt and capital lease
obligations, less current portion.... 2,503,211 2,859,341
Convertible subordinated notes........ 164,825,000

Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, 0
shares issued and outstanding......
Common stock, $.01 par value;
200,000,000 and 100,000,000 shares
authorized; 19,217,197, 44, 601,141
and 47,435,200 shares issued and
outstanding at December 31, 1998,
1999 and March 31, 2000,
respectively....................... 192,172 446,011 474,352
Additional paid-in capital............ 34,160,334 201,922,128 280,875,674
Deferred compensation................. (1,769,429)
Accumulated deficit................... (10,890,098) (64,822,097) (93,403,062)
Accumulated other comprehensive
income............................... 28,840 (72,692)
----------- ------------ ------------
Total stockholders' equity........ 21,692,979 137,574,882 187,874,272
----------- ------------ ------------
Total liabilities and
stockholders' equity.............. $26,196,867 $162,875,068 $395,636,670
=========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

INTERLIANT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Period Three Months Ended March
December 8, 1997 Year Ended December 31, 31,
(inception) to -------------------------- -------------------------
December 31, 1997 1998 1999 1999 2000
----------------- ------------ ------------ ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Service............... $ 4,905,027 $ 47,114,095 $ 5,434,162 $ 21,440,686
Product............... 5,417,481
------------ ------------ ----------- ------------
Total Revenue......... 4,905,027 47,114,095 5,434,162 26,858,167
------------ ------------ ----------- ------------
Costs and expenses:
Cost of service
revenues............. 3,236,385 27,513,710 3,250,703 13,926,954
Cost of product
revenue.............. 4,606,662
Sales and marketing... 2,555,035 17,236,121 1,896,357 7,999,118
General and
administrative
(exclusive of non-
cash compensation
shown below)......... $ 155,898 6,015,744 27,075,902 4,237,191 11,339,031
Non-cash
compensation......... 832,821 1,986,694 567,562 4,453,187
Depreciation.......... 1,850 696,039 6,051,296 699,552 2,466,533
Amortization of
intangibles.......... 2,439,426 22,068,815 2,594,330 9,316,043
---------- ------------ ------------ ----------- ------------
157,748 15,775,450 101,932,538 13,245,695 54,107,528
---------- ------------ ------------ ----------- ------------
Operating loss.......... (157,748) (10,870,423) (54,818,443) (7,811,533) (27,249,361)
Interest income
(expense) net of
$468,408 of interest
expense in 1999 and
$1,686,927 in 2000..... 138,073 886,444 53,912 (111,892)
---------- ------------ ------------ ----------- ------------
Loss before cumulative
effect of change in
accounting method...... (157,748) (10,732,350) (53,931,999) (7,757,621) (27,361,253)
Cumulative effect of
change in accounting
method................. (1,219,712)
---------- ------------ ------------ ----------- ------------
Net loss................ $ (157,748) $(10,732,350) $(53,931,999) $(7,757,621) $(28,580,965)
========== ============ ============ =========== ============
Basic and diluted loss
per share:
Loss before cumulative
effect of change in
accounting method...... $ (0.05) $ (1.22) $ (1.50) $ (0.31) $ (0.59)
Cumulative effect of
change in accounting
method................. (0.03)
---------- ------------ ------------ ----------- ------------
Net loss................ $ (0.05) $ (1.22) $ (1.50) $ (0.31) $ (0.62)
========== ============ ============ =========== ============
Weighted average shares
outstanding--basic and
diluted................ 3,000,000 8,799,432 35,837,523 24,769,890 45,989,468
========== ============ ============ =========== ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

INTERLIANT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
Comprehensive -------------------- Paid-in Deferred Accumulated Comprehensive Stockholders'
Income (Loss) Shares Par Value Capital Compensation Deficit Income Equity
------------- ---------- --------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of common
stock in private
placements...... 3,000,000 $ 30,000 $ 4,970,000 $ 5,000,000
Net loss......... $ (157,748) $ (157,748) (157,748)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $ (157,748)
============
Balance as of
December 31,
1997............ 3,000,000 30,000 4,970,000 (157,748) 4,842,252
Sales of common
stock in private
placements...... 15,600,000 156,000 25,884,000 26,040,000
Deferred
compensation.... 475,000 4,750 2,600,750 (2,602,250) 3,250
Amortization of
deferred
compensation.... 832,821 832,821
Issuance of
common stock in
connection with
acquisitions.... 142,197 1,422 705,584 707,006
Net loss......... (10,732,350) (10,732,350) (10,732,350)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $(10,732,350)
============
Balance as of
December 31,
1998............ 19,217,197 192,172 34,160,334 (1,769,429) (10,890,098) 21,692,979
Sales of common
stock in private
placements...... 6,600,000 66,000 10,934,000 11,000,000
Exercise of stock
options and
warrants........ 1,524,491 15,244 5,671,875 5,687,119
Common stock
issued and stock
options granted
in connection
with
acquisitions.... 6,561,795 65,618 65,735,891 65,801,509
Conversion of
preferred
stock........... 2,647,658 26,477 12,973,524 13,000,001
Initial public
offering of
common stock,
net of offering
costs........... 8,050,000 80,500 72,446,504 72,527,004
Amortization of
deferred
compensation.... 1,769,429 1,769,429
Foreign currency
translation
adjustment...... 28,840 28,840 28,840
Net loss......... (53,931,999) (53,931,999) (53,931,999)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $(53,903,159)
============
Balance as of
December 31,
1999............ 44,601,141 446,011 201,922,128 (64,822,097) 28,840 137,574,882
Sales of common
stock in private
placements...... 787,881 7,879 25,967,383 25,975,262
Exercise of stock
options and
warrants........ 750,120 7,501 851,003 858,504
Common stock
issued in
connection with
acquisitions.... 1,296,058 12,961 47,681,973 47,694,934
Amortization of
deferred
compensation.... 4,453,187 4,453,187
Foreign currency
translation
adjustment...... (101,532) (101,532) (101,532)
Net loss......... $(28,580,965) (28,580,965) (28,580,965)
------------ ---------- -------- ------------ ---------- ------------ -------- ------------
Total
comprehensive
income (loss)... $(28,628,497)
============
Balance as of
March 31, 2000
(unaudited)..... 47,435,200 $474,352 $280,875,674 $(93,403,062) $(72,692) $187,874,272
========== ======== ============ ========== ============ ======== ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

INTERLIANT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period Three Months
December 8, 1997 Year Ended Ended
(inception) to December 31, March 31,
December 31, -------------------------- ------------
1997 1998 1999 2000
---------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss............... $ (157,748) $(10,732,350) $(53,931,999) $(28,580,965)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Provision for
uncollectible
accounts............ 320,000 1,585,254 309,453
Depreciation and
amortization........ 1,850 3,135,465 28,120,111 11,782,576
Non-cash
compensation,
including
amortization of
deferred
compensation........ 832,821 1,986,694 4,453,187
Cumulative effect of
accounting change... 1,219,712
Other non-cash
items............... 129,957 (101,532)
Changes in operating
assets and
liabilities:
Restricted cash...... (1,011,772) (145,008)
Accounts receivable.. (980,391) (4,947,423) 394,778
Prepaid expenses and
other current
assets.............. (14,000) (602,457) (1,873,117) (2,238,759)
Other assets......... (90,527) (435,822)
Accounts payable..... 84,389 639,607 3,478,876 (6,431,196)
Accrued expenses..... 26,507 1,140,135 1,111,999 6,248,741
Deferred revenue..... 246,502 1,289,453 (190,247)
----------- ------------ ------------ ------------
Net cash used in
operating
activities............ (59,002) (6,000,668) (24,152,494) (13,715,082)
----------- ------------ ------------ ------------
Investing activities
Purchases of
furniture, fixtures
and equipment......... (28,913) (4,321,577) (12,084,072) (6,464,743)
Payments issued in
connection with non-
compete agreements.... (2,000,000)
Investments in long-
term assets........... (952,969)
Purchases of short-
term investments...... (3,612,229) (96,794,431)
Acquisitions of
businesses, net of
cash acquired......... (13,597,558) (27,809,253) (18,869,248)
----------- ------------ ------------ ------------
Net cash used in
investing
activities............ (28,913) (17,919,135) (46,458,523) (122,128,422)
----------- ------------ ------------ ------------
Financing activities
Proceeds from sale of
common stock, net of
offering costs of
$0.2 million, $7.9
million and $1.5
million in 1998, 1999
and 2000,
respectively.......... 1,000,000 29,821,078 83,527,004 25,975,262
Proceeds from sale of
convertible notes net
of offering costs of
$6.0 million.......... 158,848,179
Proceeds from issuance
of Series A
redeemable
convertible preferred
stock................. 13,000,001
Proceeds from exercise
of options and
warrants.............. 5,469,854 858,504
Proceeds from capital
lease financing....... 2,550,303 936,544
Repayment of debt...... (13,141,466) (511,015)
----------- ------------ ------------ ------------
Net cash provided by
financing
activities............ 1,000,000 29,821,078 91,405,696 186,107,474
----------- ------------ ------------ ------------
Net increase in cash
and cash
equivalents........... 912,085 5,901,275 20,794,679 50,263,970
Cash and cash
equivalents at
beginning of period... 912,085 6,813,360 27,608,039
----------- ------------ ------------ ------------
Cash and cash
equivalents at end of
period................ $ 912,085 $ 6,813,360 $ 27,608,039 $ 77,872,009
=========== ============ ============ ============
Supplemental Disclosures
of Non-cash Investing
and Financing Activities
Cash paid for
interest.............. $ 468,408 $ 81,208
Stock issued and
options granted for
acquisitions.......... $ 707,006 $ 65,801,509 $ 47,694,934
Stock issued for
compensation
agreements............ $ 2,602,250
Conversion of Series A
redeemable
convertible preferred
stock into common
stock................. $ 13,000,001
Debt assumed or issued
in acquisitions....... $ 22,250,186
Stock subscription
receivable............ $ 4,000,000
</TABLE>

F-6
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period from December 8, 1997 to December 31, 1997
and the years ended December 31, 1998 and 1999
and for the three months ended March 31, 1999 and 2000 (unaudited)

1. Business

Interliant, Inc. (the Company) is a leading Application Service Provider
(ASP), providing customers with a broad range of outsourced e-business
solutions. The Company's service offerings combine hosting infrastructure with
Internet professional service expertise, which enable the rapid design,
implementation, deployment and management of cost-effective e-business
solutions for customers.

The Company was organized under the laws of the State of Delaware on
December 8, 1997. Web Hosting Organization LLC (WEB), a Delaware Limited
Liability Company, is the majority and controlling shareholder of the Company.
WEB's investors comprise Charterhouse Equity Partners III, L.P. and Chef
Nominees Limited (collectively, CEP Members), and WHO Management, LLC (WHO).

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity (at date of purchase) of three months or less to be the
equivalent of cash. Cash equivalents, which consist primarily of money market
accounts and commercial paper, are carried at cost, which approximates market
value.

Short-term Investments

Short-term investments, which consist of commercial paper with maturities
ranging from three months to one year, are carried at cost, which approximates
market value.

Fair Value of Financial Instruments

Carrying amounts of financial instruments held by the Company, which include
cash equivalents, short-term investments, accounts receivable, accounts payable
and accrued expenses, approximate fair value due to their short duration.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk are comprised principally of cash, cash equivalents, short-term
investments and accounts receivable. As of December 31, 1999, the Company's
cash, cash equivalents and short-term investments are deposited with various
domestic and foreign financial institutions. With respect to accounts
receivable, the Company's customer base is dispersed across many geographic
areas. The Company monitors customer payment history, generally does not
require collateral and establishes reserves for uncollectible accounts as
warranted. In addition to individual customers, the Company also provides
services to resellers, who, in turn, provide services to their own customers.

F-7
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Use of Estimates

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, and
disclosure of contingent liabilities, at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are stated at cost. Major additions and
betterments are capitalized, while replacements maintenance and repairs that do
not improve or extend the life of the assets are charged to expense.
Depreciation and amortization has been provided using the straight-line method
over the estimated useful lives of the assets as follows:

<TABLE>
<C> <S>
Network software and equipment............ 3 years
Furniture, fixtures and office equipment.. 3 to 7 years
Leasehold improvements.................... Remaining lease term or useful
life, whichever is shorter
</TABLE>

Intangible Assets

Intangible assets consist primarily of customer lists, covenants not to
compete, assembled workforce, trade names and goodwill, all of which arose from
the acquisitions of 21 hosting and related Internet professional services
companies. Such assets are being amortized on a straight-line basis over
periods ranging from one to five years (see Note 4).

Impairment of Long-Lived Assets

The Company continually reviews amortization periods and the carrying value
of long-lived assets, including furniture, fixtures and equipment, and
intangible assets to determine whether there are any indications of reduction
in useful lives or impairment losses. With respect to intangible assets,
certain events that would cause the Company to conduct an impairment assessment
include significant losses of customers or acquired workforce, or if operating
results of acquired businesses continually failed to meet management's
performance expectations. If after conducting such assessment indications of
impairment are present in long-lived assets, the estimated future undiscounted
cash flows associated with the corresponding assets would be compared to its
carrying amount to determine if a change in useful life or a write-down to fair
value is necessary.

Revenue Recognition

The Company's revenues primarily are derived from Web hosting, application
hosting, and Internet professional services.

The Company sells its Web hosting services for contractual periods ranging
from one to twelve months. These contracts generally are cancelable by either
party without penalty. Revenues from these contracts are recognized ratably
over the contractual period as service is delivered. Incremental fees for
excess bandwidth usage and data storage are billed and recognized as revenues
in the period customers utilize such services. Payments received for billings
in advance of providing services are deferred until the period such services
are provided.

F-8
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Non-refundable set-up fees charged to Web hosting customers are separately
priced from hosting services and are recognized at the time a new customer
account is created. Set-up costs consist primarily of labor by technical
support personnel to activate the new Web site and are incurred at the time of
set-up. No future set-up costs are incurred, and there is no obligation of the
Company to perform any future set-up services. Following expiration of the
initial contract period and upon renewal of the contract by the customer, there
are no additional set-up charges and the renewal prices for Web hosting
services are generally unchanged from the original contract period.

Application hosting revenues comprise monthly usage fees, including
communications charges, and customization fees, all of which are recorded as
revenue at the time the services are used by the customer.

The Staff of the Securities and Exchange Commission has issued Staff
Accounting Bulletin No. 101 on the topic of revenue recognition, which the
Company adopted effective with the quarter beginning January 1, 2000. During
the first quarter of 2000, the Company changed its accounting method for set-up
fees and is amortizing such fees over one year which generally represents the
longer of the contractual period or expected life of the customer relationship.
In the first quarter of 2000, the Company recorded a cumulative effect charge
of $1.2 million to reflect the change in accounting method. The effect of
adopting the change was not material to the results of operations for the
quarter ended March 31, 2000. The estimated pro forma effect of this change was
not material to the results of operations for any of the periods presented.

Revenues from Internet professional services are recognized as the services
are rendered, provided that no significant obligations remain and collection of
the receivable is considered probable. Generally, contracts call for billings
on a time and materials basis; however, in instances when a fixed fee contract
is signed, revenue is recognized on a percentage-of-completion basis. In
connection with certain professional service arrangements, the Company provides
hardware and software to customers. Such products are purchased from third
party vendors as required. Revenue from the sale of products is generally
recorded over the period that the related professional services are performed.
Product revenues and cost of revenues were $3.4 million and $2.7 million for
the twelve months ended December 31, 1999, respectively.

Advertising Expenses

All advertising costs are expensed as incurred. Advertising expenses for the
year ended December 31, 1999 and 1998 were $6.0 million and $0.7 million,
respectively.

Income Taxes

The Company accounts for income taxes using the liability method under which
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.

Net Loss Per Share

Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic
net loss per share is computed based on the weighted average number of shares
of common stock outstanding. Diluted loss per share does not differ from basic
loss per share since potential common shares to be issued upon exercise of
stock options are anti-dilutive for the periods presented. As of December 31,
1999, the number of potentially dilutive shares of common stock were 2.5
million shares, based on the number outstanding stock options as of that date.

F-9
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock-Based Compensation

The Company accounts for its stock-based compensation plan utilizing the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). The Company has adopted the disclosure provisions
only of Statement of Financial Accounting Standards No. 123, Accounting For
Stock-Based Compensation (SFAS 123).

Foreign Currency Translation

The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with FASB Statement No. 52, Foreign Currency
Translation. The functional currency of the Company's foreign operating units
is the local currency in the country that the entity operates. All balance
sheet accounts have been translated using the exchange rate in effect at the
balance sheet date. Statement of operations amounts have been translated using
the average exchange rate for the period. Adjustments resulting from such
translation have been reported separately as a component of other comprehensive
income in stockholders' equity.

Interim Financial Information

The interim financial information as of March 31, 2000 and for the three
months ended March 31, 2000 and 1999 is unaudited and has been prepared on the
same basis as the audited consolidated financial statements. In the opinion of
management, such unaudited information includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
interim information.

Reclassifications

Certain 1998 amounts have been reclassified to conform to the 1999
presentation.

3. Furniture, Fixtures and Equipment

Furniture, fixtures and equipment consist of the following:

<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
---------- -----------
<S> <C> <C>
Network software and equipment.................... $5,213,879 $18,693,426
Furniture, fixtures and office equipment.......... 303,742 2,081,599
Leasehold improvements............................ 283,391 3,800,282
---------- -----------
5,801,012 24,575,307
Less accumulated depreciation and amortization.. 697,889 6,376,297
---------- -----------
$5,103,123 $18,199,010
========== ===========
</TABLE>

Assets financed under capital leases were $0 million and $3.9 in 1998 and
1999, respectively. Depreciation expense, including amortization of leasehold
improvements, amounted to $1,850, $0.7 million and $6.1 million for the years
ended 1997, 1998 and 1999, respectively.

4. Intangible Assets

The Company has allocated the purchase price of acquired companies to
identifiable tangible assets and liabilities and intangible assets based on the
nature and the terms of the various purchase agreements and evaluation of the
acquired businesses. Covenants not to compete are amortized over periods not to
exceed the term of the respective agreement. Values are assigned to covenants
not to compete in accordance with Accounting Principles Board Opinion No. 16
(APB 16), using the Company's estimate of fair value of the covenant. Amounts
not allocated to tangible assets and liabilities and identifiable intangible
assets have been recorded as goodwill.

F-10
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Intangible assets consist of the following:

<TABLE>
<CAPTION>
December 31,
------------------------ Amortization
1998 1999 Period
------------ ----------- ------------
<S> <C> <C> <C>
Covenants not to compete........... $ 3,759,202 $19,275,302 1-5 Years
Customer lists..................... 3,295,369 22,605,369 3 Years
Assembled work force............... 1,127,031 6,877,031 3 Years
Trade names........................ 573,982 6,773,983 3 Years
Goodwill........................... 6,296,070 62,610,535 5 Years
------------ -----------
15,051,654 118,142,220
Less accumulated amortization...... 2,439,426 24,506,019
------------ -----------
$ 12,612,228 $93,636,201
============ ===========
</TABLE>

Amortization expense amounted to $2.4 million and $22.1 million in 1998 and
1999, respectively.

5. Acquisitions

During 1999 and 1998, the Company acquired 21 businesses at an aggregate
cost of $118.6 million, excluding assumed liabilities. Each of the acquisitions
have been accounted for using the purchase method of accounting. The operations
of each of the acquired companies are included in the operating results of the
Company from their respective dates of acquisition.

The following is a summary of acquisitions:

1999 Acquisitions

In February 1999, the Company purchased the assets of Digiweb, Inc., a Web
hosting company. The purchase price consisted of cash of $5.0 million and
450,000 shares of the Company's common stock (Common Stock) valued at $6.67.
The agreement provides for contingent purchase consideration of $1.0 million,
which has been accrued and recorded as additional purchase price (goodwill) as
of December 31, 1999, due to the attainment of specified revenue and earnings
targets.

In February 1999, the Company purchased certain assets of Telephonetics
International, Inc., a provider of customized music and messages on hold
recording services to businesses utilizing on-hold telephone equipment. The
purchase price consisted of cash of $3.0 million and 140,000 shares of Common
Stock valued at $6.67 per share.

In February 1999, the Company purchased all of the outstanding stock of Net
Daemons Associates, Inc. (NDA), a provider of Web development and
Internetworking services. The purchase price consisted of cash of $0.5 million
and 425,000 shares of Common Stock valued at $6.67 per share. In addition, the
Company paid certain officers of NDA $2.4 million to induce them to enter into
non-compete agreements and paid approximately $0.4 million to cancel certain
NDA stock options. The agreement also provides for contingent purchase
consideration of $0.5 million in cash and 74,963 shares of Common Stock if
specified gross revenue and gross margin targets are achieved in the twelve-
month period following the acquisition. As of December 31, 1999, the Company
paid $0.3 million in cash and issued 37,481 shares of Common Stock, valued at
$10.91 per share, in connection with the attainment of specified targets. The
payment of contingent consideration has been recorded as additional purchase
price. The shares of stock and cash to be paid for the remaining contingent
purchase consideration have been deposited with an escrow agent.

F-11
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In March 1999, the Company purchased substantially all of the assets and
assumed specified liabilities of Interliant, Inc., a Texas corporation,
(hereinafter "Interliant Texas"), a provider of groupware hosting and
application outsourcing services. The purchase price consisted of $0.1 million
in cash and 4,091,642 shares of Common Stock valued at $6.67 per share, and
options to purchase up to 1,523,461 shares of Common Stock at $0.13 per share.
The difference between the fair value of the vested options at the date of
grant ($6.67 per share) and the exercise price has been included in the
purchase price allocation. In addition, at closing the Company paid $7.9
million on an outstanding note payable of Interliant Texas, and assumed a note
payable in the amount of $8.0 million, which was paid in full in July 1999 from
a portion of the proceeds from the Company's initial public offering of Common
Stock (IPO) (See Note 9).

In May 1999, the Company purchased certain assets and assumed specified
liabilities of Advanced Web Creations, Inc., a Web hosting company. The
purchase price consisted of cash of approximately $0.3 million, 225,000 shares
of Common Stock valued at $8.50 per share, and a promissory note in the amount
of $2.4 million, which was paid in full in July 1999 from a portion of the
proceeds from the Company's IPO (See Note 9). The agreement also provides for
contingent purchase consideration of $0.4 million, which has been accrued and
recorded as additional purchase price (goodwill) as of December 31, 1999, due
to the attainment of specified revenue targets.

In August 1999, the Company purchased substantially all of the assets of The
Daily-e Corporation, a provider of business process re-engineering and Web
development services. The purchase price consisted of 70,000 shares of the
Common Stock, valued at $11.13 per share. The agreement also provides for
contingent purchase consideration of up to $3.9 million, payable in cash,
Common Stock, or any combination thereof at the Company's option, if specified
net revenue and earnings targets are achieved for the twelve-month period
ending July 31, 2000. The payment of contingent consideration, if any, will be
recorded as additional purchase price. In 1999, contingent consideration of
$0.4 million was earned and paid in the form of Common Stock (38,952 shares).

In September 1999, the Company, through its wholly-owned subsidiary,
Interliant International, Inc., a Delaware corporation, acquired all of the
outstanding stock of Sales Technology Limited, a United Kingdom-based
professional services firm that provides Customer Relationship Management (CRM)
implementation solutions and groupware application services. The total
consideration consisted of cash of $0.4 million, 235,410 shares of Common Stock
valued at $11.23 per share, and assumed debt of $0.3 million. In addition,
contingent consideration of up to $3.6 million is payable in Common Stock, the
issuance of unsecured notes, or any combination thereof at the Company's
option, to certain sellers if specified revenue and earnings targets are
achieved during specified periods. The payment of contingent consideration, if
any, will be recorded as additional purchase price.

In November, 1999, the Company purchased all of the outstanding stock of
Triumph Technologies, Inc. and Triumph Development, Inc., an affiliated company
(collectively, "Triumph"), a provider of comprehensive Internet professional
services and e-business security solutions. The purchase price consisted of
cash of $3.2 million, 650,995 shares of Common Stock valued at $15.94 per
share, assumption of $2.0 million of bank debt which was paid shortly after
closing, and options to purchase 90,824 shares of Common Stock at $1.63 per
share. The difference between the fair value of the options at the date of
grant ($15.94 per share) and the exercise price has been included in the
purchase price allocation. The agreement also provides for contingent
consideration of up to $3.0 million in cash or shares of Common Stock, or any
combination thereof, if certain revenues and earnings targets are met for the
twelve month period from December 1, 1999 to November 30, 2000. The payment of
contingent consideration, if any, will be recorded as additional purchase
price.

In December, 1999, the Company purchased all of the outstanding stock of The
Jacobson Group, Inc., an Internet professional services firm specializing in
custom application development primarily using the Lotus

F-12
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Notes/Domino platform. The purchase price consisted of cash of $4.1 million and
159,832 shares of Common Stock valued at $24.50 per share. The agreement also
provides for contingent consideration up to $4.8 million if certain revenue and
earnings targets are met in the years ending December 31, 2000 and 2001. The
payment of contingent consideration, if any, will be recorded as additional
purchase price.

1998 Acquisitions

In February 1998, the Company purchased certain Web hosting assets of
Omnetrix, Inc., dba DirectNet, a Web hosting provider, for cash of
approximately $0.1 million.

In April 1998, the Company purchased the operating assets of Clever
Computers, Inc., a Web hosting company, for cash of approximately $2.5 million.
Pursuant to a three-year employment agreement, a shareholder of Clever received
150,000 shares of the Company's Common Stock, valued at $3.32 per share, which
vests and is being accounted for as compensation expense over the term of the
employment agreement.

In April 1998, the Company purchased certain Web hosting assets from
KnowledgeLink Interactive, Inc. for cash of approximately $0.6 million.

In May 1998, the Company purchased the operating assets of Tri Star Web
Creations, Inc., a Web hosting company, for cash of approximately $1.0 million
and 9,000 shares of Common Stock valued at $4.07 per share.

In June 1998, the Company purchased certain Web hosting assets of
HostAmerica, the Web hosting division of HomeCom Communications, Inc., for cash
of approximately $4.3 million.

In June 1998, the Company purchased the operating assets of All Information
Systems, Inc., a Web hosting company, for cash of approximately $0.2 million
and 115,707 shares of Common Stock valued at $5.00 per share.

In July 1998, the Company purchased certain Web hosting assets of Software
Business Technologies, Inc. for 12,000 shares of Common Stock valued at $5.00
per share.

In July 1998, the Company purchased certain Web hosting assets of DevCom,
the Web hosting division of Nextron, Inc., for cash of approximately $0.6
million.

In July 1998, the Company purchased certain Web hosting assets of BestWare,
Inc., dba Maikon, for cash of approximately $0.4 million and 5,490 shares of
Common Stock valued at $5.38 per share.

In August 1998, the Company purchased all of the outstanding stock of B.N.
Technology, Inc., dba ICOM, a Web hosting company, for cash of approximately
$2.0 million. The purchase agreement also provides for additional payments of
cash of up to $2.0 million to the shareholders of ICOM if certain earnings
targets are achieved. As of December 31, 1999, all of the earnings targets had
been achieved and $2.0 million has been paid. Pursuant to one-year employment
agreements, two shareholders of ICOM received a total of 300,000 shares of
Common Stock valued at $6.47 per share, which are vested as of December 31,
1999 and have been accounted for as compensation expense over the terms of the
agreements.

In September 1998, the Company purchased certain Web hosting assets of GEN
International, Inc. (GEN) for cash of $0.5 million and substantially all the
assets of Global Entrepreneurs Network, Inc. (a wholly-owned subsidiary of GEN)
for $0.3 million. Pursuant to a consulting agreement with a shareholder of GEN,
the Company issued 25,000 shares of Common Stock valued at $6.66 per share,
which is fully vested as of December 31, 1999 and has been accounted for as
compensation expense over the term of the consulting agreement.

F-13
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In December 1998, the Company purchased certain Web hosting assets of
Dialtone, Inc. a Web hosting company for cash of $0.4 million.

The allocation of purchase price for the acquisitions completed in 1999 as
reflected in the December 31, 1999 consolidated balance sheet is preliminary
based on the Company's initial assessment of the fair value of assets acquired.
The allocations may be modified between components of intangible assets as the
Company finalizes the purchase accounting for such acquisitions.

The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the acquisitions completed
through December 31, 1999 had occurred on January 1, 1998:

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Revenues...................................... $ 69,927,000 $ 80,074,000
Net loss...................................... (46,858,000) (65,630,000)
Net loss per share--basic and diluted......... $(2.73) $(1.74)
</TABLE>

6. Accrued Expenses

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Compensation and related costs...................... $ 226,641 $2,109,398
Communications costs................................ 121,000 376,343
Marketing and advertising........................... 758,101
Amounts due to former owners under contingent
consideration arrangements (see Note 5)............ 1,000,000 1,400,000
Other............................................... 953,866 2,698,709
---------- ----------
$2,301,507 $7,342,551
========== ==========
</TABLE>

7. Long-Term Debt and Capital Lease Obligations

At December 31, 1999 long-term debt consisted of the following:

<TABLE>
<S> <C>
Obligations related to the sale/leaseback of data center equipment,
approximate interest rate of 15%, payable in monthly installments
over 36 months.................................................... 2,350,102
Notes payable to former owners of acquired companies............... 1,031,684
Capital lease obligations and other debt........................... 333,260
----------
3,715,046
Less amounts included in current liabilities....................... 1,211,835
----------
$2,503,211
==========
</TABLE>

Maturities of long-term debt are as follows:

F-14
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Series A Redeemable Convertible Preferred Stock

In January 1999, the Company's Board of Directors and stockholders approved
an amendment to the Company's certificate of incorporation (Charter) to
authorize the issuance and sale of 2,647,658 shares of Preferred Stock, par
value $0.01 per share, all of which was designated as Series A Redeemable
Convertible Preferred Stock (Series A Preferred). In January 1999, pursuant to
a Securities Purchase Agreement (the Purchase Agreement), the Company sold to
SOFTBANK Technology Ventures IV L.P. and one of its affiliates (the SOFTBANK
Investors), 2,647,658 shares of its Series A Preferred at a price of $4.91 per
Series A Preferred share and issued warrants to purchase 749,625 shares of
Common Stock at $6.67 per share, for cash of $13.0 million. The warrants were
exercised in April 1999 for total proceeds of $5.0 million.

9. Stockholders' Equity

Preferred Stock

In May 1999, the Company's stockholders approved an amendment to the
Company's Charter to authorize the issuance of 1,000,000 shares of undesignated
preferred stock with a par value of $0.01 per share.

Common Stock

In May 1999, the Company's stockholders approved an amendment to the
Company's Charter to increase the number of authorized shares of Common Stock
to 200,000,000.

Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
the Company and WEB, WEB purchased 6,600,000 shares of Common Stock during
1999, and 18,600,000 shares during the period December 8, 1997 (inception) to
December 31, 1998, all at $1.67 per share.

In July 1999, the Company sold 8,050,000 shares of Common Stock, including
shares sold through the exercise of the underwriters' over-allotment option, in
an underwritten IPO for net proceeds of approximately $72.5 million, after
deducting underwriters' discounts and commissions and offering costs paid
directly by the Company. Upon the consummation of the IPO, all of the 2,647,658
outstanding shares of Series A Preferred were converted into an equal number of
share of Common Stock (See Note 8).

During 1999, 6,561,795 shares of Common Stock were issued in connection with
acquisitions (See Note 5).

Stock Option Plan

In February 1998, the Company adopted its 1998 Stock Option Plan (the Plan),
which is administered by the Board of Directors (the Committee). Under the
terms of the Plan, the Committee may grant stock options to officers, employees
and consultants of the Company. The Plan permits the grant of incentive stock
options (ISOs) and nonqualified stock options (NSOs). In December 1999, the
Board of Directors amended the Plan to include directors of the Company among
the class of persons eligible to receive grants. As of December 31, 1999, the
Company has reserved 3.8 million shares of Common Stock for issuance under the
Plan. The Plan provides that stock options may not be granted at less than fair
market value of the Common Stock on the date of the grant and may not expire
more than ten years from the date of the grant. Options granted under the Plan
generally will become exercisable over a four-year period in equal annual
installments unless the Committee specifies a different vesting schedule. In
the event of a change in control of the Company, each option becomes
immediately vested and exercisable, provided that no written provision has been
made, in connection with any such event, for (1) the continuation of the stock
option plan and/or the assumption of all outstanding options by a successor
corporation or (2) the substitution for such options of new options covering
the stock of a successor

F-15
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

corporation. The Plan has a term of ten years, subject to earlier termination
or amendment by the Committee, and all options under the Plan prior to its
termination remain outstanding until they have been exercised or terminated.

The following table sets forth the Plan activity for the years ended
December 31, 1998 and 1999:

<TABLE>
<CAPTION>
1998 1999
------------------- -----------------------
Number
of Number of
Shares Price Range Shares Range Price
------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Options outstanding, beginning
of year...................... 440,500 $1.67-$ 6.67
Options granted............... 440,500 $1.67-$6.67 2,998,815 $0.13-$29.50
Options exercised............. (768,867) $0.13-$ 6.67
Options terminated............ (135,850) $1.67-$14.00
------- ---------
Options outstanding, end of
year......................... 440,500 $1.67-$6.67 2,534,598 $0.13-$29.50
======= =========
</TABLE>

The weighted average exercise price of options granted was $5.61 and $4.11
in 1999 and 1998, respectively. In connection with certain acquisitions, the
Company granted options to purchase 1,523,461 shares of Common Stock at $0.13
per share in substitution for Interliant Texas vested options, and options to
purchase 90,824 shares of Common Stock at prices ranging from $1.63 to $3.79
per share in substitution for Triumph vested options. At December 31, 1999 and
1998, 1,030,385 and 0 options, respectively were vested.

Stock-Based Compensation

As discussed in Note 2, the Company applies APB 25 and related
interpretations in accounting for its stock option plan. During 1999, options
to purchase 40,250 shares of Common Stock were given accelerated vesting in
connection with termination arrangements, and as a result, the Company charged
approximately $0.3 million to compensation expense. During 1998, no
compensation expense was recognized relating to option grants in 1998.

As required under FAS 123, the following pro forma net loss and net loss per
share presentations reflect the amortization of the option grant fair value as
expense. For purposes of this disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows for the years ended December 31, 1999
and 1998:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Pro forma net loss........................... $(9,756,000) $(54,574,000)
Pro forma net loss per share--basic and
diluted..................................... $(1.11) $(1.52)
</TABLE>

The weighted average grant date value was $10.90 and $0.83 for stock options
issued in 1999 and 1998, respectively, and the weighted-average remaining
contractual life for options outstanding as of December 31, 1999 is 9.2 years.
Significant assumptions used in determining this value include a risk free
interest rate of 6.0%, expected life of the options of four years, and a
dividend rate of zero.

The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures in future years as
the period presented includes only two years of option grants under the Plan.

F-16
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Income Taxes

As of December 31, 1999, the Company has federal and state net operating
loss carryforwards of approximately $40.8 million. The net operating loss
carryforwards will expire at various dates beginning in the years 2003 through
2019 if not utilized.

Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes consist of the following at December 31,
1999:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........... $ 3,063,000 $ 16,270,000
Depreciation............................... (14,000) 49,000
Other, net (principally related to
amortization of intangible assets)........ 813,000 8,000,000
----------- ------------
Total deferred tax assets, net............... 3,862,000 24,319,000
Valuation allowance.......................... (3,862,000) (24,319,000)
----------- ------------
Net deferred tax asset....................... $ -- $ --
=========== ============
</TABLE>

The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realization of
the deferred tax assets such that a full valuation allowance has been recorded.
The Company will continue to assess the realization of the deferred tax assets
based on actual and forecasted operating results. The valuation allowance
increased by $20.5 million from 1998 to 1999.

11. Leases

The Company leases its data centers and certain office space under
noncancelable operating leases, which expire at various dates through April
2010. Some of the leases contain renewal options. Total rent expense for all
operating leases was approximately $3.4 million, $0.4 million and $7,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. In connection
with certain of the leases, the Company has given the landlords standby letters
of credit in the amount of approximately $0.8 million in lieu of security
deposits.

Future minimum lease commitments for noncancelable operating leases are as
follows at December 31, 1999:

<TABLE>
<S> <C>
2000............................. $ 3,932,000
2001............................. 3,768,000
2002............................. 3,275,000
2003............................. 2,883,000
2004............................. 2,731,000
Thereafter....................... 8,242,000
-----------
$24,831,000
===========
</TABLE>

12. Related-Party Transactions

In connection with the acquisitions of certain Web hosting assets of various
entities (see Note 5), the Company paid transaction fees of approximately
$361,000 and $337,000 for the years ended December 31, 1999 and 1998,
respectively, to Charterhouse Group International, Inc., a related party of
WEB. These fees are included in the respective purchase price allocations as
capitalized transaction costs.

F-17
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company received consulting services from Sage Equities, Inc. and
Intensity Ventures, Inc., whose principals are the co-chairmen of the Company
and members of WHO, for the purpose of identifying and executing potential
acquisitions as well as providing strategic management oversight. In 1999, the
principal of Sage Equities, Inc. was compensated as an employee of the Company.
For the year ended December 31, 1998, and for the period December 8, 1997
(inception) to December 31, 1997, the Company incurred costs of $120,000, and
$25,000, respectively, for Sage Equities, Inc. For the years ended December 31,
1999 and 1998, and for the period December 8, 1997 (inception) to December 31,
1997, the Company incurred costs of $338,000 (of which $141,000 were expenses),
$232,000 (of which $112,000 were expenses), and $17,000, respectively, for
Intensity Ventures.

13. Employee Benefit Plan

In 1998, the Company instituted a 401k Plan for all employees who have
attained age 19 and have been employed by the Company or by an acquired
business for one month. Participating employees may make contributions to the
plan up to 15% of their eligible compensation contributed to the 401k Plan. The
Plan provides that the Company may make discretionary contributions to the Plan
on behalf of participating employees. In 1999 the Company initiated a matching
contribution policy wherein it agreed to match the employee's contributions
100% up to 5% of the participating employee's compensation. The total amount
contributed by the Company during 1999 was $0.6 million, which was charged to
expense.

14. Segment Reporting

Pursuant to FAS 131, the Company has determined that it currently has three
reportable segments: Web hosting, application hosting, and Internet
Professional Services. For the year ended December 31, 1998 and the three
months ended March 31, 1999, the Company operated primarily in the Web hosting
segment. The results of operations for each of the segments is shown below.

Year ended December 31, 1999

<TABLE>
<CAPTION>
Internet
Application Professional
Web Hosting Hosting Services Other Total
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 16,892,000 $15,639,000 $11,493,000 $ 3,090,095 $ 47,114,095
Operating income
(loss)................. (17,302,000) (6,173,000) 755,000 (32,098,443) (54,818,443)
Segment assets.......... $ 7,716,000 $11,223,000 $11,704,000 $132,232,068 $162,875,068
</TABLE>

Three months ended March 31, 2000 (unaudited)

<TABLE>
<CAPTION>
Internet
Application Professional
Web Hosting Hosting Services Other Total
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 5,770,248 $ 6,394,104 $13,813,092 $ 880,723 $ 26,858,167
Operating income
(loss)................. (2,845,165) (4,200,593) 715,736 (20,919,339) (27,249,361)
Segment assets.......... 15,059,298 32,870,586 20,829,415 326,877,371 395,636,670
</TABLE>

The Company's management generally reviews the results of operations of each
segment exclusive of depreciation and amortization (aggregating $28.1 million
for the year ended December 31, 1999 and $11.8 million for the three months
ended March 31, 2000) and interest related to each segment. Accordingly, such
expenses are excluded from the segment operating loss and are shown under the
Other caption. In addition, all intangible assets and corporate expenses of the
Company are included in the Other caption.

The Company believes that the reportable segments may change in future
periods as management continues to broaden its outsourced e-business solutions.

F-18
<PAGE>

INTERLIANT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For the years ended December 31, 1999 and 1998, approximately 16% and 19%,
respectively, of revenues were from sources outside the United States,
primarily from Europe, Latin America and Asia.

15. Subsequent Events

In January and February 2000, the Company sold 787,881 shares of Common
Stock in private placements for total proceeds of $27.5 million. In connection
with the sales, the Company issued warrants to purchase 157,575 shares of
Common Stock at an average exercise price of $34.90 per share which
approximated the market price at the date of issuance. The warrants expire
December 31, 2000.

In January 2000, the Company entered into a four-year employment agreement
with a new Chief Executive Officer. In connection with this agreement, the
Company issued this employee options to purchase 1,500,000 shares of Common
Stock, at an average exercise price of $18.00 per share. Such options were not
issued pursuant to the Plan. The exercise price of the options were below the
fair value of the Common Stock as of the measurement date, and as a result, the
Company will recognize approximately $30.0 million as compensation expense over
the four-year vesting period of the options.

In February 2000, the Company sold $154.8 million of 7% Convertible
Subordinated Notes, including $4.8 million sold upon exercise of the
underwriters' over-allotment option. The notes are convertible at the option of
the holder, at any time on or prior to maturity into Common Stock at a
conversion price of $53.10 per share, which is equal to a conversion rate of
18.8324 shares per $1,000 principal amount of notes. Interest is payable semi-
annually, beginning August 2000. The notes mature on February 16, 2005. Upon
the occurrence of certain events the Company may redeem the notes prior to
maturity.

In February 2000, the Company and @viso Limited (@viso), a company
incorporated under the laws of England and Wales and owned 50% by Softbank
Holdings, Inc. and 50% by Vivendi S.A., agreed to form a corporation,
Interliant Europe B.V., to be owned 51% by the Company, and 49% by @viso.
Through Interliant Europe, the Company plans to launch Web hosting, application
hosting and related services in continental Europe. @viso has loaned the
Company the amount required to purchase its equity interest in Interliant
Europe (approximately $7.7 million). The Company has also agreed to license
some of its technology and intellectual property to and enter into a service
agreement with Interliant Europe.

The note underlying the @viso loan agreement bears interest at 8% per annum,
and is repayable in full at the earlier of a sale of Interliant Europe's common
stock in an initial public offering or February 2005. The Company intends to
consolidate the operations of Interliant Europe with the results of operations
of the Company with appropriate adjustments for the minority interest's share
of the income or loss of Interliant Europe.

In February 2000, the Company acquired all of the outstanding stock of Soft
Link, Inc., a provider of Enterprise Resource Planning (ERP) solutions based on
PeopleSoft software. The purchase price consisted of $18.2 million in cash,
subject to adjustment based on the net worth of Soft Link, Inc. as of the
closing date, and 254,879 shares of Common Stock valued at approximately $37.00
per share. The agreement provides for contingent consideration, not to exceed
$10.0 million, if specified revenues and earnings targets are met for the
calendar year 2000. The contingent consideration is payable 50% in cash, and
the remaining 50% in cash or Common Stock at the Company's option. The payment
of contingent consideration, if any, will be recorded as additional purchase
price.

In February 2000, the Company purchased substantially all of the assets and
assumed certain liabilities of reSOURCE PARTNER, Inc., a provider of hosting
services for outsourced human resources and finance solutions primarily using
PeopleSoft software. The purchase price consisted of $2.5 million in cash,
subject to adjustment based on the determination of closing net equity, and the
issuance of 1,041,179 shares of Common Stock valued at approximately $37.00 per
share.

F-19
<PAGE>

INTERLIANT, INC.

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed financial statements
are presented for illustrative purposes only and are not necessarily indicative
of the combined results of operations for future periods or the results of
operations that actually would have been realized had Interliant, Soft Link and
reSOURCE PARTNER and the businesses acquired in 1999 been a combined company
during the specified periods. The unaudited pro forma combined condensed
financial statements, including the related notes, are qualified in their
entirety by reference to, and should be read in conjunction with, the
historical consolidated financial statements and related notes thereto of
Interliant, included in its Annual Report on Form 10-K, filed on March 29,
2000, and Soft Link and reSOURCE PARTNER, included elsewhere in this filing.

The following unaudited pro forma combined condensed financial statements
give effect to the acquisitions of Soft Link and reSOURCE PARTNER using the
purchase method of accounting. The pro forma combined condensed financial
statements are based on the respective historical audited and unaudited
consolidated financial statements of Interliant, Soft Link and reSOURCE PARTNER
and the businesses acquired in 1999. The pro forma adjustments are preliminary
and based on management's estimates of the value of the tangible and intangible
assets acquired.

The actual adjustments may differ materially from those presented in these
pro forma financial statements. A change in the pro forma adjustments would
result in a reallocation of the purchase price affecting the value assigned to
the long-term tangible and intangible assets or, in some circumstances, result
in a charge to the statement of operations. The effect of these changes on the
statement of operations will depend on the nature and amounts of the assets and
liabilities adjusted.

The pro forma combined condensed statements of operations assume all of the
acquisitions completed through the date of this report took place as of January
1, 1999, and combines Interliant's audited consolidated statement of operations
for the year ended December 31, 1999, with Soft Link's and reSOURCE PARTNER'S
respective audited statements of operations for the year ended December 31,
1999 as well as the results of operations for acquisitions completed in 1999
from January 1, 1999 through their respective acquisition dates.

F-20
<PAGE>

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2000

<TABLE>
<CAPTION>
rs SOURCE
Interliant Soft Link PARTNER Pro Forma
Historical (1) (1) Adjustments Pro Forma
------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 26,858,167 $5,234,897 $ 3,718,914 $ (623,149)(5) $ 35,188,829
Costs and expenses:
Cost of revenues...... 18,533,616 4,080,013 5,072,251 (2,673,933)(4),(5) 25,011,947
Sales and marketing... 7,999,118 349,638 806,610 9,155,366
General and
administrative....... 15,792,218 278,685 584,723 2,038,721(4) 18,694,347
Depreciation.......... 2,466,533 30,819 267,541 2,764,893
Amortization of
intangibles.......... 9,316,043 2,411,692(6) 11,727,735
------------ ---------- ------------ ----------- ------------
Total costs and
expenses............... 54,107,528 4,739,155 6,731,125 1,776,480 67,354,288
------------ ---------- ------------ ----------- ------------
Operating income
(loss)................. (27,249,361) 495,742 (3,012,211) (2,399,629) (32,165,459)
Interest income
(expense).............. (111,892) 2,800 (109,092)
------------ ---------- ------------ ----------- ------------
Income (loss) before
cumulative effect of
change in accounting
method................. (27,361,253) 498,542 (3,012,211) (2,399,629) (32,274,551)
Cumulative effect of
change in accounting
method................. (1,219,712) (1,219,712)
------------ ---------- ------------ ----------- ------------
Net income (loss)....... $(28,580,965) $ 498,542 $ (3,012,211) $(2,399,629) $(33,494,263)
============ ========== ============ =========== ============
Net loss per share--
basic and diluted...... $(0.62) $(0.71)
Weighted-average shares
outstanding............ 45,989,468 46,853,507
</TABLE>

See accompanying notes to pro forma financial statements.

F-21
<PAGE>

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Year Ended December 31, 1999

<TABLE>
<CAPTION>
Companies Companies
Interliant Acquired in Acquired in Pro Forma
Historical 1999(2) 2000(3) Adjustments Pro Forma
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Service revenues........ $ 47,114,095 $ 32,960,172 $ 57,560,457 $ (4,595,994)(5) $ 133,038,730
Costs and expenses:
Cost of service
revenues............. 27,513,710 23,027,220 49,524,350 (13,658,623)(4),(5) 86,406,657
Sales and marketing... 17,236,121 3,181,832 5,221,351 25,639,304
General and
administrative....... 29,062,596 8,079,910 5,542,238 10,239,480 (4) 52,924,224
Depreciation.......... 6,051,296 943,252 2,372,000 (365,704)(5) 9,000,844
Amortization of
intangibles.......... 22,068,815 24,842,127 (6) 46,910,942
------------ ------------ ------------ ------------- -------------
Total costs and
expenses............... 101,932,538 35,232,214 62,659,939 21,057,280 220,881,971
------------ ------------ ------------ ------------- -------------
Operating income
(loss)................. (54,818,443) (2,272,042) (5,099,482) (25,653,274) (87,843,241)
------------ ------------ ------------ ------------- -------------
Interest income
(expense).............. 886,444 (145,426) (479,710) 669,297 (5) 930,605
Other income (expense).. (4,877) 493,883 (371,675)(5) 117,331
------------ ------------ ------------ ------------- -------------
Income (loss) before
income tax............. (53,931,999) (2,422,345) (5,085,309) (25,355,652) (86,795,305)
Provision for income
tax.................... 193,166 120,000 (313,166)(7) --
------------ ------------ ------------ ------------- -------------
Net income (loss)....... $(53,931,999) $ (2,615,511) $ (5,205,309) $ (25,042,486) $ (86,795,305)
============ ============ ============ ============= =============
Net loss per share--
basic and diluted...... $(1.50) $(2.22)
Weighted-average shares
outstanding............ 35,837,523 39,108,877
</TABLE>

See accompanying notes to pro forma financial statements.

F-22
<PAGE>

Notes To Pro Forma Condensed Combined Financial Information

The following adjustments were applied to Interliant's Consolidated
Financial Statements and the financial data of the companies acquired by
Interliant since January 1, 1999 to arrive at the unaudited Pro Forma Combined
Financial Information.

(1) Historical results of operations from January 1, 2000 to February 29, 2000,
the dates of acquisition of the two acquired businesses.

(2) The following table presents the statements of operations for acquisitions
completed during 1999 for the period January 1, 1999 through the respective
acquisition dates. Acquisitions that were deemed insignificant as per Rule
3-05 of Regulation S-X are aggregated in the Other Acquisitions column.

<TABLE>
<CAPTION>
Net Companies
Daemons Interliant Sales Other Acquired in
Telephonetics Digiweb Associates Texas Technology Acquisitions 1999
------------- -------- ---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues........ $331,182 $237,300 $836,289 $ 3,501,602 $1,205,887 $26,847,912 $ 32,960,172
Costs and expenses:
Cost of service reve-
nues................... 47,387 62,003 466,929 2,149,276 515,625 19,786,000 23,027,220
Sales and marketing..... 69,711 -- 12,122 1,508,576 -- 1,591,423 3,181,832
General and administra-
tive................... 201,261 82,979 285,395 1,289,018 674,679 5,546,578 8,079,910
Depreciation............ 6,000 25,000 16,206 532,192 50,000 313,854 943,252
Amortization of intangi-
bles................... --
-------- -------- -------- ------------ ---------- ----------- ------------
Total costs and ex-
penses................. 324,359 169,982 780,652 5,479,062 1,240,304 27,237,855 35,232,214
-------- -------- -------- ------------ ---------- ----------- ------------
Operating income
(loss)................. 6,823 67,318 55,637 (1,977,460) (34,417) (389,943) (2,272,042)
Interest income (ex-
pense)................. (1,873) (148,460) (26,903) 31,810 (145,426)
Other income (expense).. -- (4,877) (4,877)
-------- -------- -------- ------------ ---------- ----------- ------------
Income (loss) before in-
come tax............... 6,823 67,318 53,764 (2,125,920) (61,320) (363,010) (2,422,345)
Provision for income
tax.................... 13,313 179,853 193,166
-------- -------- -------- ------------ ---------- ----------- ------------
Net income (loss)....... $ 6,823 $ 67,318 $ 40,451 $ (2,125,920) $ (61,320) $ (542,863) $ (2,615,511)
======== ======== ======== ============ ========== =========== ============
</TABLE>

(3) The following table presents the statements of operations for acquisitions
completed during 2000 for the period January 1, 1999 through December 31,
1999.

<TABLE>
<CAPTION>
Companies
reSOURCE Acquired in
PARTNER Soft Link 2000
------------- ----------- ------------
<S> <C> <C> <C>
Service revenues....................... $ 25,113,669 $32,446,788 $ 57,560,457
Costs and expenses:
Cost of service revenues............... 27,097,363 22,426,987 49,524,350
Sales and marketing.................... 3,005,361 2,215,990 5,221,351
General and administrative............. 3,434,794 2,107,444 5,542,238
Depreciation........................... 2,372,000 2,372,000
Amortization of intangibles............ --
------------- ----------- ------------
Total costs and expenses............... 35,909,518 26,750,421 62,659,939
------------- ----------- ------------
Operating income (loss)................ (10,795,849) 5,696,367 (5,099,482)
Interest income (expense).............. (501,893) 22,183 (479,710)
Other income (expense)................. 371,675 122,208 493,883
------------- ----------- ------------
Income (loss) before income tax........ (10,926,067) 5,840,758 (5,085,309)
Provision for income tax............... 120,000 120,000
------------- ----------- ------------
Net income (loss)...................... $ (10,926,067) $ 5,720,758 $ (5,205,309)
============= =========== ============
</TABLE>
(4) To reclassify Interliant Texas customer service costs and reSOURCE PARTNER
general and administrative costs to conform to Interliant, Inc.'s
presentation.

F-23
<PAGE>

Notes To Pro Forma Condensed Combined Financial Information--(Continued)

(5) To carve-out results of operations and intercompany interest charges for
reSOURCE PARTNER businesses and intercompany liabilities which were not
acquired or assumed, respectively, but were included in the reSOURCE
PARTNER audited financial statements for the year ended December 31, 1999
and the unaudited financial statements for the period from January 1, 2000
to date of acquisition.

(6) To record amortization of intangibles arising as a result of acquisitions
for the period from January 1, 1999 to acquisition date based on
amortization periods ranging from one to five years.

(7) To record elimination of income tax provision due to consolidated pre-tax
loss.

F-24
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Sales Technology Limited

We have audited the accompanying consolidated balance sheet of Sales
Technology Limited as of 31 October 1998 and the related consolidated profit
and loss account and statement of cash flows for the year ended 31 October
1998. 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 audit.

We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sales
Technology Limited at 31 October 1998 and the consolidated results of its
operations and its consolidated cash flows for the year ended 31 October 1998,
in conformity with accounting principles generally accepted in the United
Kingdom.

/s/ Ernst & Young

London, England
November 22, 1999

F-25
<PAGE>

SALES TECHNOLOGY LIMITED

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
Audited as at Unaudited
31 October as at 31 July
Notes 1998 1999
----- ------------- -------------
(Pounds) (Pounds)
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets........................... 8 63,797 122,017
------- -------
CURRENT ASSETS
Debtors................................... 9 348,213 335,501
Cash at bank and in hand.................. 16,997 13
------- -------
365,210 335,514
CREDITORS: amounts falling due within one
year....................................... 10 269,575 345,395
------- -------
NET CURRENT ASSETS/(LIABILITIES)............ 95,635 (9,881)
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES....... 159,432 112,136
CREDITORS: amounts falling due after more
than one year.............................. 11 51,247 41,398
------- -------
108,185 70,738
======= =======
CAPITAL AND RESERVES
Called up share capital................... 17 562 562
Share premium............................. 18 137,702 137,702
Capital reserve........................... 18 14,626 14,626
Profit and loss account................... 18 (44,705) (82,152)
------- -------
SHAREHOLDERS' FUNDS......................... 18 108,185 70,738
======= =======
</TABLE>

The notes to the financial statements are an integral part of the financial
statements

F-26
<PAGE>

SALES TECHNOLOGY LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNTS

<TABLE>
<CAPTION>
Unaudited Unaudited
Audited 9 months 9 months
year ended ended ended
31 October 31 July 31 July
Notes 1998 1999 1998
----- ---------- --------- ---------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Turnover................................. 2 575,832 736,420 323,789
Cost of sales............................ 135,836 314,886 42,993
-------- ------- --------
Gross profit............................. 439,996 421,534 280,796
Administrative expenses.................. 726,962 442,552 475,564
-------- ------- --------
Operating loss........................... 3 (286,966) (21,018) (194,768)
Interest receivable...................... 557 -- 557
Interest payable......................... 6 (5,843) (16,429) (1,453)
-------- ------- --------
Loss on ordinary activities before
taxation ............................... (292,252) (37,447) (195,664)
Taxation................................. 7 22,363 -- --
-------- ------- --------
Loss for the financial year.............. (269,889) (37,447) (195,664)
======== ======= ========
</TABLE>

There were no recognised gains or losses other than those recorded above.

The notes to the financial statements are an integral part of the financial
statements.

F-27
<PAGE>

SALES TECHNOLOGY LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS
(all figures in (Pounds))

<TABLE>
<CAPTION>
Audited Nine Months Ended
Year Ended July 31,
October 31, -----------------------
Notes 1999 1999 1998
----- ----------- ----------- -----------
(unaudited) (unaudited)
----------- -----------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
NET CASH OUTFLOW FROM OPERATING
ACTIVITIES 3(b) (169,244) (73,802) (122,227)
-------- -------- --------
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Bank interest paid.............. (5,341) (14,647) (1,453)
Interest element of finance
lease rental payments.......... (502) (1,782) (376)
Interest received............... 557 -- 557
-------- -------- --------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF
FINANCE.......................... (5,286) (16,429) (1,272)
-------- -------- --------
TAXATION
Corporation tax paid............ (23,608) -- (23,608)
-------- -------- --------
TAX PAID (23,608) -- (23,608)
-------- -------- --------
CAPITAL EXPENDITURE
Payments to acquire tangible
fixed assets................... (65,110) (64,867) (60,524)
Proceeds from sale of tangible
fixed assets................... 2,702 3,031 --
-------- -------- --------
NET CASH OUTFLOW FROM CAPITAL
EXPENDITURE...................... (62,408) (61,836) (60,524)
-------- -------- --------
NET CASH OUTFLOW BEFORE
FINANCING........................ (260,546) (152,067) (207,631)
-------- -------- --------
FINANCING
Issue of share capital.......... 97,844 -- 97,844
Net movement in short term
borrowings..................... 62,576 95,100 --
Net movement in long term
borrowings..................... 32,508 -- --
Repayments of capital element of
finance lease rentals.......... (4,234) (1,780) (3,104)
-------- -------- --------
NET CASH INFLOW FROM FINANCING.... 188,694 93,320 94,740
-------- -------- --------
DECREASE IN CASH.................. 15 (71,852) (58,747) (112,891)
======== ======== ========
</TABLE>

The notes to the financial statements are an integral part of the financial
statements

F-28
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS

October 31, 1998

1. ACCOUNTING POLICIES

Accounting convention

The accounts are prepared under the historical cost convention, and in
accordance with applicable United Kingdom accounting standards.

Companies Act 1985

These financial statements do not comprise statutory accounts within the
meaning of section 240 of the Companies Act 1985 of Great Britain. Statutory
accounts for the year ended 31 October 1998 of Sales Technology Limited and
Sales Success Limited, have been delivered to the Registrar of Companies for
England and Wales. The auditors' reports on these accounts were unqualified.

Sales Technology Limited took advantage of exemptions for small groups
available under the Companies Act 1985 and did not prepare consolidated
statutory accounts for the year ended 31 October 1998.

Basis of consolidation

These financial statements consolidate the accounts of Sales Technology
Limited and its subsidiary undertaking, Sales Success Limited, drawn up to 31
October 1998.

The financial statements at 31 July 1999 and for the nine months ended 31
July 1999 and 1998 are unaudited but, in the opinion of the company's
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the nine months ended 31 July 1999 are not necessarily indicative
of the results that may be expected for the year ended 31 October 1999.

Goodwill

Negative goodwill arising on the acquisition of the company's wholly owned
subsidiary has been taken to a capital reserve.

Depreciation

Depreciation is provided on all tangible fixed assets at rates calculated to
write off the cost or valuation, less estimated residual value, of each asset
evenly over its expected useful life, as follows:

<TABLE>
<S> <C>
Leasehold land and buildings............................. over the lease term
Fixtures and fittings.................................... 25% on cost
Office equipment......................................... 33%--50% on cost
Motor vehicles........................................... 25% on cost
</TABLE>

The carrying values of tangible fixed assets are reviewed for impairment in
periods if events or changes in circumstances indicate the carrying value may
not be recoverable.

Leasing and hire purchase agreements

Assets held under finance leases and hire purchase contracts are capitalised
in the balance sheet and are depreciated over their useful lives.

F-29
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS--(Continued)

The interest element of the rental obligations is charged to the profit and
loss account over the period of the lease and represents a constant proportion
of the balance of capital repayments outstanding.

Rentals paid under operating leases are charged to income on a straight line
basis over the lease term.

Pensions

It is the policy of the company to contribute to defined contribution
pension schemes for certain employees by payment to insurance companies. The
assets of the scheme are held separately from those of the company. The
premiums payable are charged to the profit and loss account. Any difference
between amounts charged to the profit and loss account and contributions paid
is shown as a separately identified liability or asset in the balance sheet.

Deferred taxation

Deferred taxation is provided on the liability method on all timing
differences which are expected to reverse in the future without being replaced,
calculated at the rate at which it is estimated that taxation will be payable.

Advance corporation tax which is expected to be recoverable in the future is
deducted from the deferred taxation balance.

Deferred tax assets are only recognised if recovery without replacement by
equivalent debit balances is reasonably certain.

2. TURNOVER

Turnover, which is stated net of value added tax, represents amounts
invoiced to third parties in respect of the group's continuing activity, the
design and implementation of computerised sales management systems and computer
consultancy services.

All turnover arises from within the United Kingdom.

3. OPERATING LOSS

(a) This is stated after charging/(crediting):

<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Auditors' remuneration.......................................... 4,500
Depreciation of owned fixed assets.............................. 22,275
Depreciation of assets held under finance leases and hire
purchase contracts............................................. 3,011
Operating lease rentals--land and buildings..................... 34,868
Profit on sale of tangible fixed assets......................... (423)
======
</TABLE>

F-30
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS--(Continued)

(b) Reconciliation of operating loss to net cash outflow from operating
activities:

<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Operating loss.................................................... (286,966)
Depreciation...................................................... 25,286
Decrease in operating debtors and prepayments..................... 59,800
Increase in operating creditors and accruals...................... 32,636
--------
(169,244)
========
</TABLE>

4. DIRECTORS' REMUNERATION

<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Emoluments........................................................ 135,655
Compensation to directors for loss of office...................... 9,375
-------
145,030
=======
<CAPTION>
No.
----------
<S> <C>
Members of defined contribution pension schemes................... 1
=======
</TABLE>

5. STAFF COSTS

<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Wages and salaries................................................ 222,946
Social security costs............................................. 41,199
Other pension costs............................................... 2,400
-------
266,545
=======
</TABLE>

The average weekly number of employees during the year was

<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Operational....................................................... 9
Administration.................................................... 4
---
13
===
</TABLE>

F-31
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS--(Continued)

6. INTEREST PAYABLE

<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Interest on loans partially repayable within five years........... 5,341
Interest on finance leases........................................ 502
-----
5,843
=====
</TABLE>

7. TAXATION

<TABLE>
<CAPTION>
Year ended
31 Oct
1998
----------
(Pounds)
<S> <C>
Based on the loss for the year:
Corporation tax................................................. 22,363
======
</TABLE>

8. TANGIBLE FIXED ASSETS

<TABLE>
<CAPTION>
Short Fixtures
Leasehold and Motor Office
improvements fittings vehicles equipment Total
------------ -------- -------- --------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
Cost:
At 1 November 1997.... -- 4,046 26,559 49,335 79,940
Additions............. 4,586 24,376 -- 36,148 65,110
Disposals............. -- -- (14,515) -- (14,515)
----- ------ ------- ------ -------
At 31 October 1998.... 4,586 28,422 12,044 85,483 130,535
----- ------ ------- ------ -------
Depreciation:
At 1 November 1997.... -- 2,739 10,442 40,084 53,265
Provided during the
year................. 358 2,750 6,640 15,538 25,286
Disposals............. -- -- (11,813) -- (11,813)
----- ------ ------- ------ -------
At 31 October 1998.... 358 5,489 5,269 55,622 66,738
----- ------ ------- ------ -------
Net book value:
At 31 October 1998.... 4,228 22,933 6,775 29,861 63,797
===== ====== ======= ====== =======
At 1 November 1997.... -- 1,307 16,117 9,251 26,675
===== ====== ======= ====== =======
</TABLE>

The net book value of office equipment above includes an amount of
(Pounds)6,775 in respect of assets held under finance leases and hire purchase
contracts.

F-32
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS--(Continued)

9. DEBTORS

<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Trade debtors....................................................... 265,378
Other debtors....................................................... 42,534
Corporation tax..................................................... 22,363
Prepayments......................................................... 17,938
-------
348,213
=======
</TABLE>

Other debtors includes (Pounds)30,000 in respect of a rent deposit which is
repayable upon expiry of the lease under which it was paid. This is due to
expire in 2008.

10. CREDITORS: amounts falling due within one year

<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Bank loans (note 12).............................................. 62,576
Obligations under finance leases and hire purchase contracts (note
13).............................................................. 1,100
Trade creditors................................................... 53,757
Other taxes and social security costs............................. 40,689
Accruals and deferred income...................................... 111,453
-------
269,575
=======
</TABLE>

The bank loan is secured by a fixed and floating charge over all the assets
of Sales Success Limited. In addition the bank loan is secured by an unlimited
cross company guarantee between Sales Success Limited and Sales Technology
Limited.

11. CREDITORS: amounts falling due after more than one year

<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Bank loan (note 12)................................................. 32,508
Convertible loan stock.............................................. 7,950
Accruals and deferred income........................................ 10,789
------
51,247
======
</TABLE>

The convertible loan stock can be converted into 53 ordinary shares of
(Pounds)1 each at any time. Once issued, the shares will rank pari passu with
the existing ordinary shares in issue. The convertible loan stock does not
attract interest and cannot be repaid. The convertible loan stock is owned by
David Yuile, a director of the company.

F-33
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS--(Continued)

12. LOANS

<TABLE>
<CAPTION>
As at
31 Oct
1998
--------
(Pounds)
<S> <C>
Wholly repayable within five years:
Bank loan......................................................... 95,084
Less: included in creditors: amounts falling due within one year.. (62,576)
-------
32,508
=======
Amounts repayable:
in one year or less or on demand.................................. 62,576
between one and two years......................................... 12,576
between two and five years........................................ 19,932
-------
95,084
=======

13. OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE CONTRACTS

<CAPTION>
As at
31
October
1998
--------
(Pounds)
<S> <C>
Amounts payable:
within one year................................................... 1,160
Less: Finance charges allocated to future periods................. 60
-------
1,100
=======

14. DEFERRED TAXATION

Deferred tax amounts which have not been recognised are as follows:

<CAPTION>
As at
31
October
1998
--------
(Pounds)
<S> <C>
Capital allowances in arrears of depreciation..................... 627
Tax losses........................................................ 33,895
-------
34,522
=======
</TABLE>

F-34
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS--(Continued)

15. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS

<TABLE>
<CAPTION>
As at
31
October
1998
--------
(Pounds)
<S> <C>
DECREASE IN CASH................................................... (71,852)
Cash outflow from decrease in lease financing...................... 4,234
Loan repayments.................................................... 4,916
New loans.......................................................... (100,000)
--------
Change in net debt resulting from cash flows....................... (162,702)
--------
MOVEMENT IN NET DEBT IN THE YEAR................................... (162,702)
NET FUNDS AT 1 NOVEMBER............................................ 83,515
--------
NET DEBT AT 31 OCTOBER (NOTE 16)................................... (79,187)
========
</TABLE>

16. ANALYSIS OF NET FUNDS/(DEBT)

<TABLE>
<CAPTION>
At At
1 November Cash 31 October
1997 flow 1998
---------- -------- ----------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Cash at bank and in hand..................... 88,849 (71,852) 16,997
Bank loans due within one year............... -- (62,576) (62,576)
Bank loans due after one year................ -- (32,508) (32,508)
Finance leases............................... (5,334) 4,234 (1,100)
------ ------- -------
83,515 162,702 (79,187)
====== ======= =======
</TABLE>

17. SHARE CAPITAL

<TABLE>
<CAPTION>
Allotted, called
Authorised up
1998 and fully paid
No. 1998
---------- ----------------
(Pounds)
<S> <C> <C>
Ordinary shares of (Pounds)1 each................ 70,000 562
====== ===
</TABLE>

During the year the company issued 61 ordinary shares of (Pounds)1 each, at
a premium of (Pounds)1,603 per share, for cash consideration of (Pounds)97,843.
The shares were issued to fund the working capital of the business.

18. RECONCILIATION OF SHAREHOLDERS' FUNDS

<TABLE>
<CAPTION>
Profit
and
Short Share Capital loss
capital premium reserve account Total
-------- -------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
At 1 November 1997.............. 501 39,919 14,626 225,184 280,230
Share issue..................... 61 97,783 -- -- 97,844
Retained loss for the year...... -- -- -- (269,889) (269,889)
--- ------- ------ -------- --------
At 31 October 1998.............. 562 137,702 14,626 (44,705) 108,185
=== ======= ====== ======== ========
</TABLE>

The capital reserve relates to negative goodwill arising on the acquisition
of the company's wholly owned subsidiary, Sales Success Limited.

F-35
<PAGE>

SALES TECHNOLOGY LIMITED

NOTES TO FINANCIAL STATEMENTS--(Continued)

19. OTHER FINANCIAL COMMITMENTS

Annual commitments under non-cancellable operating leases are as follows:

<TABLE>
<CAPTION>
Land and
buildings as at
31 October 1998
---------------
(Pounds)
<S> <C>
Operating leases which expire:
over five years.............................................. 55,275
</TABLE>

20. TRANSACTIONS WITH DIRECTORS

During the year, a car was sold to S McQuillan, one of the directors, for
(Pounds)3,125. This is considered to be the market value of the vehicle.

B Raynes, a director, has options to subscribe for 100 ordinary shares of
(Pounds)1 each in the company. In addition there is an agreement for B Raynes
to be awarded shares based on the performance of the group over the first five
years. One ordinary share would be issued for every thousand pounds of profit
for the year up to a maximum of 250 ordinary shares. At 31 October 1998 B
Raynes had been awarded a total of 250 profit related options.

21. OTHER RELATED PARTY TRANSACTIONS

During the year, Sales Success Limited paid J Raynes, the wife of B Raynes,
a director, (Pounds)6,350 for accountancy services. This is considered to be
the open market value of the services.

Adding Information Limited is a company controlled by J Raynes. During the
year, Adding Information Limited charged Sales Success Limited (Pounds)5,375
for accountancy work. At the year end an amount of (Pounds)3,375 was owed to
Adding Information Limited by Sales Success Limited, and is included within
trade creditors. These amounts are considered the market value of the services
provided.

Included within trade debtors is an amount of (Pounds)1,346 due from Dowell
& Associates who are one of the shareholders of Sales Technology Limited.

F-36
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Soft Link, Inc.

We have audited the accompanying balance sheets of Soft Link, Inc. (an S
corporation) as of December 31, 1999 and 1998, and the related statements of
operations and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits of these statements in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audits 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Soft Link, Inc. as of
December 31, 1999 and 1998, and the results of its operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.

/s/ Smith Schafer & Associates,
Ltd.

Maplewood, Minnesota
February 7, 2000

F-37
<PAGE>

SOFT LINK, INC.

BALANCE SHEETS
December 31, 1998 and 1999

<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............................. $ 189,318 $ 794,651
Accounts receivable, net............................... 6,157,535 6,508,922
Prepaid expenses....................................... 158,027 372,391
---------- ----------
Total current assets................................. 6,504,880 7,675,964
---------- ----------
Property and equipment, net............................ 533,245 362,737
---------- ----------
Total assets......................................... $6,504,880 $8,038,701
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable....................................... $ 174,021 $ 96,943
Accrued wages.......................................... 1,470,282 1,455,233
Accrued liabilities.................................... 59,477 74,588
---------- ----------
Total current liabilities............................ 1,703,780 1,626,764
---------- ----------
Commitments and Contingencies (Note 8)
Stockholders' equity:
Common stock, no par value; 100,000 shares authorized;
1,000 shares issued and outstanding................... 1,000 1,000
Retained earnings...................................... 5,333,345 6,410,937
---------- ----------
Total stockholders' equity........................... 5,334,345 6,411,937
---------- ----------
Total liabilities and stockholders' equity........... $7,038,125 $8,038,701
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-38
<PAGE>

SOFT LINK, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(For the Years ended December 31, 1999 and 1998)

<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Services Revenue...................................... $24,218,730 $32,446,788
Cost of Services Revenue.............................. 16,913,234 22,426,987
----------- -----------
Gross Profit...................................... 7,305,496 10,019,801
----------- -----------
Operating Expenses
Sales and Marketing................................. 1,881,432 2,215,990
General and Administrative.......................... 1,563,050 2,107,444
----------- -----------
Total Operating Expenses.......................... 3,444,482 4,323,434
----------- -----------
Income from Operations................................ 3,861,014 5,696,367
----------- -----------
Other Income (Expense)
Other income........................................ -- 138,484
Interest income..................................... 11,689 22,183
Interest expense.................................... (807) --
Loss on disposal of fixed assets.................... -- (16,276)
----------- -----------
Total Other Income................................ 10,882 144,391
----------- -----------
Income Before Income Taxes............................ 3,871,896 5,840,758
Income Tax Provision.................................. 32,000 120,000
----------- -----------
Net Income............................................ 3,839,896 5,720,758
Retained Earnings, Beginning of Year.................. 3,255,023 5,333,345
Stockholder Distributions........................... (1,761,574) (4,643,166)
----------- -----------
Retained Earnings, End of Year........................ $ 5,333,345 $ 6,410,937
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-39
<PAGE>

SOFT LINK, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income.......................................... $ 3,839,896 $ 5,720,758
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense.............. 144,567 294,491
Loss on disposal of fixed assets................... -- 16,276
Changes in assets and liabilities:
Accounts receivable.............................. (2,709,189) (351,387)
Employee advances................................ 53,590 --
Prepaid expenses................................. (61,819) (214,364)
Accounts payable................................. 76,462 (77,078)
Accrued wages and accrued liabilities............ 563,862 62
----------- -----------
Net Cash Provided By Operating Activities...... 1,907,369 5,388,758
----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment................. (261,736) (140,259)
----------- -----------
Net Cash Used In Investing Activities.......... (261,736) (140,259)
Cash Flows From Financing Activities
Stockholder distributions.......................... (1,761,574) (4,643,166)
----------- -----------
Net Cash Used In Financing Activities.......... (1,761,574) (4,643,166)
Net Increase (Decrease) In Cash And Cash
Equivalents......................................... (115,941) 605,333
Cash and Cash Equivalents, Beginning Of Year......... 305,259 189,318
----------- -----------
Cash and Cash Equivalents, End Of Year............... $ 189,318 $ 794,651
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During The Year For:
Interest......................................... $ 807 $ --
Income taxes..................................... $ 38,977 $ 97,983
</TABLE>

F-40
<PAGE>

SOFT LINK, INC.

NOTES TO FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Soft Link, Inc. ("the Company") was incorporated in the state of Minnesota
in 1992. The Company provides information technology services, including
software implementation consulting for major providers of human resource and
financial management software. The Company is an implementation partner with
many software companies and is a service provider to Fortune 1000 and other
large and mid-sized companies.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company enters into arrangements to provide services, usually billed on
a time and materials basis. Services consist of system requirements definition,
system design and analysis, customization and installation services, system
enhancements and training. Services revenue is recognized as the services are
performed, primarily on a time and materials basis.

Revenue on fixed price contracts is recognized using the percentage-of-
completion method and is comprised of the portion of expected total contract
earnings represented by actual costs incurred to date as a percentage of the
contract's total estimated costs at completion. Provisions for anticipated
contract losses are recognized at the time that they become evident. There were
no fixed price contracts in process as of December 31, 1999 and 1998.

Deferred revenue consists of the unearned portion of billings on fixed price
contracts as well as deposits paid by customers prior to the performance of
services. There was no deferred revenue balance as of December 31, 1999 and
1998.

Unbilled receivables result from revenue that has been earned but not yet
billed. The unbilled receivables can be invoiced at contractually defined
intervals as well as upon completion of the contract.

Cost of Services Revenue

Cost of services revenue is comprised primarily of salaries and benefits.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
December 31, 1999 and 1998, the Company maintained a cash balance with a
financial institution that exceeded the $100,000 federally insured limit.
Additionally, the Company's cash balances exceeded the federally insured limit
at various times throughout 1999 and 1998.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three years for computer equipment and software, five or

F-41
<PAGE>

SOFT LINK, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

seven years for furniture and fixtures, and the shorter of the useful life or
term of the lease for leasehold improvements. Upon retirement or disposition of
property and equipment, the related gain or loss is reflected in the statement
of operations.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and accounts receivable.
The Company limits the amount of investment exposure in any one financial
investment and does not have any foreign currency investments nor does it
accept payment from customers in foreign currency. The Company sells services
to various companies without requiring collateral. However, the Company
routinely assesses the financial strength of its customers and maintains
allowances for anticipated losses.

There were two customers that represented 19% and 11%, respectively, of
total accounts receivable as of December 31, 1999 and no customers that
represented 10% or more of accounts receivable as of December 31, 1998.

One customer represented approximately 20% of revenue for the year ended
December 31, 1999. The same customer represented approximately 10% of revenue
for the year ended December 31, 1998.

For the years ended December 31, 1999 and 1998, over 90% of the Company's
revenues were derived from projects in which its consultants implemented or
provided training on software developed by a major provider of Enterprise
Resource Planning (ERP) software products.

Income Taxes

The Company, with the consent of its stockholders, has elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. In lieu of
corporate income taxes, the stockholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.

The majority of the states in which the Company does business recognize the
federal S election and the stockholders are liable for the state income taxes
in those states. However, certain states do not recognize the Company's status
as an S corporation and these states impose corporate level income taxes.
Certain states also impose minimum fees or other corporate level excise taxes
that have been included in the provision for income taxes. The amount of
corporate state income taxes included in the income tax provision for the year
ended December 31, 1999 and 1998 was $60,000 and $32,000, respectively.

In 1999, the Company became subject to Canadian nonresident withholding
taxes. The amount of Canadian income taxes included in the income tax provision
for the year ended December 31, 1999 is $60,000.

Comprehensive Income

The Company does not have any components of comprehensive income other than
net income.

Recent Accounting Pronouncements

In March 1998 the American Institute of Certified Professional Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The statement is effective
for the year ended December 31, 1999 and provides guidance for the costs of

F-42
<PAGE>

SOFT LINK, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

computer software developed or obtained for internal use. The Company's
adoption of this statement did not have a material impact on its financial
position or results of operations.

In 1998, the Company adopted SOP 97-2 "Software Revenue Recognition" and SOP
98-9 "Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions," which did not significantly affect existing revenue
recognition policies.

Reclassifications

Certain reclassifications have been made in the 1998 financial statements to
conform to classifications used in the 1999 financial statements.

3. CHANGE IN ACCOUNTING ESTIMATE

During 1999, the Company changed the period of depreciation and amortization
over certain asset classes within property and equipment to more accurately
represent the useful lives of the assets.

Computer hardware and equipment, previously depreciated over a five year
period, have been assigned a useful life of three years. Leasehold
improvements, previously depreciated over a period ranging from ten to forty
years, have been assigned a useful life of five years. This corresponds with
the term of the related operating leases.

The change in these estimated useful lives resulted in additional
depreciation and amortization expense of $78,265 for the year ended December
31, 1999. The effect of this change did not impact the reported results of
operations for the year ended December 31, 1998.

4. ACCOUNTS RECEIVABLE

Accounts receivable as of December 31, 1999 and 1998 consisted of the
following:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Billed receivables................................... $4,019,663 $3,727,043
Unbilled receivables................................. 2,515,335 2,447,333
---------- ----------
6,534,998 6,174,376
Less allowance for doubtful accounts................. (26,076) (16,841)
---------- ----------
Accounts receivable, net............................. $6,508,922 $6,157,535
========== ==========
</TABLE>

5. PREPAID EXPENSES

Prepaid expenses as of December 31, 1999 and 1998 consisted of the
following:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Prepaid insurance......................................... $ 43,317 $ 27,513
Prepaid health insurance.................................. 74,350 39,600
Prepaid rent.............................................. 10,593 10,871
Other prepaid expenses.................................... 244,131 80,043
-------- --------
Total prepaid expenses.................................. $372,391 $158,027
======== ========
</TABLE>

F-43
<PAGE>

SOFT LINK, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Other prepaid expenses consists primarily of prepurchased airline tickets,
annual software license and maintenance renewals, prepurchased training and
annual membership dues and advertising expenses.

6. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 1999 and 1998 consisted of the
following:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computer equipment and software........................ $ 547,496 $ 499,225
Office equipment, furniture and fixtures............... 276,086 235,377
Leasehold improvements................................. 42,677 26,408
--------- ---------
866,259 761,010
Less accumulated depreciation.......................... (503,522) (227,765)
--------- ---------
Property and equipment, net............................ $ 362,737 $ 533,245
========= =========
</TABLE>

Depreciation expense was $294,491 and $144,567 for the years ended December
31, 1999 and 1998, respectively.

7. ACCRUED WAGES

Accrued wages as of December 31, 1999 and 1998 consisted of the following:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Accrued wages and payroll taxes....................... $ 689,993 $ 511,136
Accrued bonuses....................................... 525,579 714,851
Accrued leave......................................... 239,661 244,295
---------- ----------
Accrued wages......................................... $1,455,233 $1,470,282
========== ==========
</TABLE>

The Company offers two alternative pay plans for its consulting employees.
It is generally the consulting employee's option to determine which pay plan to
utilize. Employees under an hourly pay plan receive a higher base rate of pay
but are ineligible for an annual bonus, travel bonus, or leave pay. Salaried
employees are eligible to receive travel bonus and leave pay. Certain salaried
employees that were employed before May 1998 are also eligible for an annual
bonus as long as they remain on the salaried pay plan. The annual bonus is
determined utilizing a specific performance--based formula that is paid in the
following year. In addition, all salaried employees accrue leave pay at the
rate of one hour for every eight hours worked. The Company accrues leave pay at
the average hourly rate of the employee. A majority of the Company's
consultants opt to utilize the hourly pay plan.

8. COMMITMENTS AND CONTINGENCIES

. Lease Obligations

The Company leases certain office facilities, automobiles and equipment
under noncancelable operating lease arrangements with expiration dates
extending through May 2004. The total lease expense for the years ended
December 31, 1999 and 1998 was $144,042 and $108,671, respectively.

. The Company entered into an operating lease for the new corporate
headquarters on November 1, 1997. The lease term began February 1, 1998
and ends January 31, 2003. Required monthly rental

F-44
<PAGE>

SOFT LINK, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

payments include base rent of $5,209 and an estimated monthly operating
expense of $2,083. Also, the Company entered into an operating lease
agreement for additional space at the same location on July 6, 1998.
The lease term began upon occupancy in May 1999 and ends April 30,
2004. Required monthly rental payments for the additional space include
base rent of $3,125 and an estimated monthly operating expense of
$1,250. Both lease agreements contain a renewal option for an
additional five-year period. The Company is responsible for the cost of
real estate taxes, insurance, utilities and other operating costs of
both facilities.

Future minimum lease payments under noncancelable operating leases as of
December 31, 1999 are:

<TABLE>
<S> <C>
2000................................................................ $168,083
2001................................................................ 157,606
2002................................................................ 147,931
2003................................................................ 59,792
2004................................................................ 17,500
--------
Total............................................................. $550,912
========
</TABLE>

The future minimum lease payments shown above include the estimated monthly
operating expenses as outlined in the leases for the Company's headquarters.

. Purchase Obligations

In September 1999, the Company entered into an agreement to have vendor-
provided training available for the Company's consultants. Under the terms of
the agreement, the Company is required to make annual payments of $23,552 until
the expiration of the agreement on September 28, 2002. The Company may, at its
option, cancel the agreement in whole prior to September 28, 2001 for a
cancellation fee of $2,355. An additional commitment to make annual payments of
$7,500 in 2000 and 2001 for web hosting services is cancelable at the option of
the Company after the first 12-month period.

9. LINE OF CREDIT

In December 1999, the Company obtained a $1,000,000 line of credit, maturing
on December 24, 2000. The line of credit bears interest at the financial
institution's prime rate (8.50% as of December 31, 1999). The line is
collateralized by a lien on all corporate assets. As of December 31, 1999,
there were no outstanding borrowings under this line of credit. Interest
expense was not incurred under this line of credit for the year ended December
31, 1999.

10. RETIREMENT PLAN

Effective May 1, 1995, the Company implemented a qualified profit sharing
plan ("the Plan"), that includes a 401(k) elective deferral feature. During
1999, the Company amended and restated its plan for a change in trustee and
asset custodian. All other provisions of the plan remained unchanged. Profit
sharing and salary deferral matched contributions to the Plan by the Company
are discretionary. No employer contributions were made to the Plan for the
years ended December 31, 1999 or 1998. The Plan covers substantially all of the
Company's employees.

F-45
<PAGE>

SOFT LINK, INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

11. SUBSEQUENT EVENTS

Sale of Company

In January 2000, the Company and the Company's shareholders signed a
nonbonding letter of intent to sell all of the Company's outstanding common
stock to a wholly-owned subsidiary of Interliant, Inc.

Stockholder Distributions

Distributions in the aggregate amount of $1,800,000 were made to the
principal stockholders in January 2000.

F-46
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
reSOURCE PARTNER, Inc.

We have audited the accompanying consolidated balance sheet of reSOURCE
PARTNER, Inc. (a subsidiary of Borden, Inc.) and its subsidiary as of December
31, 1999, and the related consolidated statements of operations, shareholders'
deficit, and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of reSOURCE PARTNER, Inc. and its
subsidiary at December 31, 1999, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

/s/ Deloitte & Touche LLP

Columbus, Ohio
February 11, 2000

F-47
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

As of December 31, 1999
(Dollars in thousands except per share amounts)

<TABLE>
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents....................................... $ 457
Trade accounts receivable.................................. $2,024
Affiliated accounts receivable............................. 1,100
Allowance for doubtful accounts............................ (633)
------
Total accounts receivable, net........................... 2,491
Prepaid maintenance contracts.............................. 466
Prepaid insurance and other current assets................. 697
--------
4,111
Payroll and benefit funds held for customers............... 4,156
--------
Total current assets..................................... 8,267
Equipment and Leasehold Improvements
Machinery and equipment.................................... 12,758
Leasehold improvements..................................... 1,227
--------
13,985
Less accumulated depreciation.............................. (7,631)
--------
6,354
--------
Other Assets................................................. 64
--------
TOTAL ASSETS................................................. $ 14,685
========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Accounts and drafts payable................................ $ 2,575
Affiliated payables........................................ 377
Affiliated borrowings...................................... 16,350
Other current liabilities.................................. 1,439
--------
20,741
Payroll and benefit funds held for customers................. 4,156
--------
Total current liabilities................................ 24,897
Other Liabilities
Postretirement benefit and other obligations............... 915
Pension benefit obligations................................ 653
--------
1,568
--------
Commitments and Contingencies (Note 7)
Shareholders' Deficit
Common stock -- $0.01 par value; 4,700,000 shares
authorized, 3,759,000 issued and 3,735,000 outstanding.... 38
Paid in capital............................................ 18,759
Accumulated deficit........................................ (30,508)
Common stock in treasury at cost -- 24,000 shares.......... (69)
--------
Total shareholders' deficit.................................. (11,780)
--------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT.................. $ 14,685
========
</TABLE>
See accompanying notes to consolidated financial statements.

F-48
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 1999
(Dollars in thousands, except per share amounts)

<TABLE>
<S> <C>
Net revenues
Affiliated........................................................ $ 15,931
Trade............................................................. 9,182
---------
Total net revenues................................................ 25,113
Cost of services.................................................... 27,097
---------
Gross margin (deficit).............................................. (1,984)
Sales and marketing expense......................................... 3,005
General and administrative expense.................................. 5,807
---------
Operating loss...................................................... (10,796)
Interest expense--affiliated........................................ (669)
Interest income..................................................... 167
---------
Loss before discontinued operations................................. (11,298)
Discontinued operations:
Loss from operations.............................................. (81)
Gain on disposal.................................................. 453
---------
Net loss............................................................ $ (10,926)
=========
Per Share Data
Loss before discontinued operations................................. $ (3.02)
Discontinued operations:
Loss from operations.............................................. (0.02)
Gain on disposal.................................................. 0.12
---------
Basic and diluted loss per common share............................. $ (2.92)
=========
Average number of common shares outstanding during the year......... 3,739,000
</TABLE>

See accompanying notes to consolidated financial statements.

F-49
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended December 31, 1999
(Dollars in thousands)

<TABLE>
<S> <C>
Cash Flows From (Used In) Operating Activities
Net loss............................................................ $(10,926)
Adjustments to reconcile net loss to net cash used in operating
activities:
Loss from discontinued operations.................................. 81
Gain on disposal of discontinued operations........................ (453)
Depreciation and amortization...................................... 2,372
Net change in assets and liabilities:
Accounts receivable, net......................................... 1,923
Prepaid maintenance contracts.................................... 93
Prepaid and other current assets................................. (566)
Other assets..................................................... 29
Accounts and drafts payable...................................... (713)
Affiliated payables.............................................. 59
Other current liabilities........................................ (294)
Postretirement and other liabilities............................. 399
Pension benefit obligations...................................... (70)
--------
(8,066)
Net cash used by discontinued operations........................... (3)
--------
Cash Flows From (Used In) Investing Activities (8,069)
--------
Capital expenditures............................................... (1,374)
Proceeds from sale of discontinued operations...................... 1,518
--------
144
--------
Cash Flows From (Used) In Financing Activities
Affiliated borrowings--net......................................... 8,150
--------
Increase in cash and equivalents................................... 225
Cash and equivalents at beginning of year.......................... 232
--------
Cash and equivalents at end of year................................ $ 457
========
Supplemental Disclosure of Cash Flow Information
Cash paid--affiliated interest..................................... $ 656
========
</TABLE>

See accompanying notes to consolidated financial statements.

F-50
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT

For the Year Ended December 31, 1999
(Dollars in thousands)

<TABLE>
<CAPTION>
Common Paid in Accumulated Treasury
Stock Capital Deficit Stock Total
------ ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998....... $38 $18,759 $(19,582) $(69) $ (854)
Net loss....................... (10,926) (10,926)
--- ------- -------- ---- --------
Balance, December 31, 1999....... $38 $18,759 $(30,508) $(69) $(11,780)
=== ======= ======== ==== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-51
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND NATURE OF OPERATIONS

reSOURCE PARTNER, Inc. ("the Company") is a subsidiary of Borden, Inc.
("Borden"). Borden beneficially owns 95% of the Company with key management
owning the remaining interest. The Company was formed to provide a broad range
of shared services primarily for affiliated businesses of Borden. The Company
owns an insurance brokerage company whose accounts are included in these
statements.

The Company owns a PeopleSoft Human Resource Management System (HRMS)
license and operates a PeopleSoft training center. The Company is a member in
the PeopleSoft Certified Outsourcing Partner Program and PeopleSoft Select
Alliance Partner Program.

The Company focuses its services in three related businesses linked together
by its applications and IT platform:

. Consulting, which includes design and integration of human resources and
financial systems, IT systems and payroll and benefit programs.

. Hosting, which includes application management of PeopleSoft HRMS and
financial systems and IT infrastructure--outsourcing management.

. Processing, which includes business process outsourcing for payroll, tax
and benefits and pension administration.

The Company's client base includes commercial clients and Borden related
entities ("affiliates") in the chemical and food manufacturing, health care,
hospitality, and information technology industries.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company operates as an independent division of Borden. The consolidated
financial statements include the accounts of the Company and its insurance
brokerage subsidiary, after elimination of intercompany accounts and
transactions.

The Company has incurred a $11,298 loss before discontinued operations and
used $8,069 of cash in operations during 1999. The ability of the Company to
continue to operate as a going concern is based on its ability to continue to
fund operations. Borden has agreed to fund the operations of the Company for a
reasonable period of time as long as it remains a subsidiary of Borden. As
discussed in Note 13, the Company has entered into a letter of intent to sell
substantially all of its assets and certain liabilities.

Cash and Equivalents

Cash and equivalents include cash on deposit and all highly liquid
investments purchased with an original maturity of three months or less.

Trade and Affiliated Accounts Receivable

Accounts receivable include amounts owed to the Company, by its customers,
for services rendered and contain balances owed by both trade and affiliated
customers. Affiliated receivables are for ongoing services provided by the
Company. Unbilled trade and affiliated revenues (included in accounts
receivable) of $559 and $169, respectively, at December 31, 1999 represent
revenues earned which have not yet been billed due to the timing of invoice
generation. The Company provides a reserve for uncollectible accounts.
Management believes such reserve is adequate at December 31, 1999.

F-52
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Prepaid Assets

Prepaid maintenance contracts and prepaid insurance are deferred and
expensed over the life of the agreements, which typically are for a one-year
term.

Payroll and Benefit Funds Held for Customers

As part of its payroll and payroll tax filing services, the Company collects
funds for federal, state and local employment taxes from its customers. The
Company also collects funds for medical claims and processes payments for its
customers. The Company receives deposits from customers for payroll tax
deposits and payment of benefit claims in advance of disbursing the funds.
Offsetting liabilities are recorded for funds held. All customer funds are held
in accounts separate from the Company's general operating funds.

Equipment and Leasehold Improvements

Equipment and leasehold improvements are stated at cost. Depreciation is
recorded on a straight-line basis over useful lives primarily ranging from 3 to
15 years. Major renewals and betterments are capitalized. Maintenance, repairs
and minor renewals are expensed as incurred. Depreciation expense for 1999 was
$2,372.

Financial Instruments

The carrying amount for cash and equivalents, receivables, accounts, drafts
and affiliated payables, affiliated short-term borrowings and other liabilities
approximates fair value due to the short maturities of these instruments.

Revenue Recognition

Affiliated and trade revenues are recognized when services are provided.
Amounts billed in advance are recorded as deferred revenue (included in other
current liabilities) and are recognized when services are provided, generally
the month subsequent to billing.

Cost of Services

Cost of goods sold includes the direct costs of providing services to
customers. Types of expenses included are salaries and benefits, rent,
depreciation, travel costs, outside fees and system costs associated with the
implementation and ongoing support of a customer. All costs relative to a
customer's implementation are expensed when incurred.

Sales and Marketing Expense

Production costs of future media advertising are expensed on the first
airdate or print release date of the advertising. All other advertising and
promotion expenses are expensed as incurred. Total advertising expense was $633
in 1999.

Pension and Retirement Savings Plan

The Company's employees are covered by a Borden pension plan. The Borden-
sponsored plan is accounted for under Statement of Financial Accounting
Standard ("SFAS") No. 87.

Substantially all of the Company's employees participate in Borden's
retirement savings plan. The Company's cost of providing the retirement savings
plan represents its matching of eligible contributions made by participating
employees and is recognized as a charge to income in the year the cost is
incurred.

F-53
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Non-pension Post Employment Benefits

The Company provides certain health and life insurance benefits for eligible
retirees and their dependents. The benefits are accounted for under SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
whereby the cost of postretirement benefits is accrued during the employees'
working careers. The Company provides certain other postemployment benefits to
qualified former and inactive employees. The benefits are accounted for under
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which
requires that the cost of benefits provided to former or inactive employees
after employment, but before retirement, be accrued when it is probable that a
benefit will be provided.

Income Taxes

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the use of liability method of accounting for deferred income taxes.
The Company is included in the consolidated tax return of Borden. The Company
accounts for income taxes on a separate return basis under a tax sharing
agreement with Borden. The provisions of the agreement provide that the Company
will only realize the tax benefit of the net operating losses to the extent it
pays income taxes. Due to the uncertainty of future taxable income, the Company
fully reserves for the value of deferred tax assets.

General Insurance

The Company has insurance policies to cover potential losses and liabilities
relating to workers' compensation, health and welfare claims, physical damage
to property, business interruption and comprehensive general and product
liability. These policies generally have deductibles. Losses are accrued for
the estimated aggregate liability for claims incurred using certain actuarial
assumptions and the Company's experience.

Earnings Per Share

Basic and diluted loss per common share for 1999 is computed by dividing net
loss by the weighted average number of common shares outstanding during 1999.
Options issued that enable the holder to obtain additional shares of stock were
not assumed exercised because they were anti-dilutive for 1999. The Company has
no other potentially dilutive securities.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and accounts
receivable. The Company invests most of its excess cash with Borden, which in
turn places the funds in temporary cash investments and marketable securities
with high quality institutions and performs ongoing evaluations of the
financial condition of the institutions. Borden, by policy, limits the amount
of credit exposure to any one institution. The Company generally does not
require collateral or other security to support customer receivables. The
Company monitors its exposure to credit losses and maintains allowances for
anticipated losses. Sales to the Company's largest customers, Borden Foods
Corporation and Borden Chemical, Inc. were $6,816 and $4,853, respectively for
1999.

Impairment

The Company periodically evaluates the recoverability of equipment and
leasehold improvements by assessing whether the carrying value can be recovered
over its remaining useful life through expected future undiscounted cash flows.
In the opinion of management, no such impairment existed at December 31, 1999.

F-54
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock Options

The Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company will continue to apply its current accounting policy of the intrinsic
value method under Accounting Principles Board Opinion No. 25 and will include
the additional disclosures required by SFAS No. 123.

Use of Estimates

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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

Recently Issued Accounting Statements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires all derivatives be
measured at fair value and be recorded on a company's balance sheet as an asset
or liability, depending upon the company's underlying rights or obligations
associated with the derivative instrument. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133." This statement
defers the effective date of SFAS No. 133 to fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company is currently considering the
impact of this pronouncement.

3. AFFILIATED BORROWINGS

The Company has a revolving loan agreement (the "Loan Agreement") to borrow
funds from Borden. The Loan Agreement, as informally amended, provides for a
revolving loan facility, at a variable interest rate equal to Borden's cost of
funds for 30 day LIBOR borrowings plus 0.50% and has no expiration date at this
time. A commitment fee of 0.10% is paid on the unused portion of the revolving
loan. The Company had $16,350 of borrowings under the revolving agreement at
December 31, 1999.

The Loan Agreement contains certain restrictions on the activities of the
Company and its subsidiary, including restrictions on liens, the incurrence of
indebtedness, mergers and consolidations, sales of assets, investments, payment
of dividends, changes in nature of business, prepayments of certain
indebtedness, transactions with affiliates, capital expenditures, changes in
control and the use of proceeds from asset sales.

4. PENSION AND RETIREMENT SAVINGS PLANS

All employees of the Company are covered under a non-contributory defined
benefit pension plan provided by Borden (the "Borden Plan"). The Borden Plan
provides benefits for employees based on eligible compensation and years of
credited service. Additionally, eligible employees may contribute up to 5% of
their pay (7% for certain longer service salaried employees) in a defined
contribution retirement savings plan, which is currently matched by the Company
at 50%. Charges to operations for matching contributions for the Company's
employees under the Borden's retirement savings plan in 1999 were $224.

A net pension liability of $653, which approximates the portion of the total
pension assets and liabilities of Borden that relates to the employees of the
Company, has been reflected in the Company's consolidated balance sheet. The
gross pension obligation was allocated to the Company based upon the
actuarially determined obligation relating to the Company's employees. The
pension expense allocated to the Company for Borden's Plan was $255 during
1999.

F-55
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Borden's funding of its pension plans equals or exceeds the minimum funding
requirements imposed by Federal and foreign laws and regulations. Plan assets
consist primarily of equity securities and corporate obligations.

For informational purposes, the funded status of the Borden Plan is as
follows:

<TABLE>
<CAPTION>
Borden Plan
1999
-----------
(in
millions)
<S> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year.......................... $351.0
Service cost..................................................... 5.0
Interest cost.................................................... 22.2
Actuarial losses................................................. (5.8)
Foreign currency exchange rate changes........................... 0.2
Benefits paid.................................................... (42.0)
Plan amendments.................................................. 2.0
Settlements...................................................... (0.3)
------
Benefit obligation at end of year................................ $332.3
======
Change in Plan Assets
Fair value of plan assets at beginning of year................... $347.7
Actual return on plan assets..................................... 75.4
Foreign currency exchange rate changes........................... 0.2
Employer contribution............................................ 0.7
Benefits paid.................................................... (42.0)
Settlements...................................................... (1.0)
------
Fair value of plan assets at end of year......................... $381.0
======
Funded Status--plan assets in excess of benefit obligation....... $ 48.7
Unrecognized net actuarial loss.................................. 73.3
Unrecognized initial transition loss............................. (0.4)
Unrecognized prior service cost.................................. 6.1
------
Prepaid pension asset............................................ $127.7
</TABLE>

The weighted average rates used to determine 1999 net pension expense were
as follows:

<TABLE>
<S> <C>
Discount rate........................................................... 6.8%
Rate of increase in future compensation levels.......................... 4.2%
Expected long-term rate of return on plan assets........................ 8.0%
</TABLE>

The Company has a recorded liability of $483 at December 31, 1999 for other
pension benefits provided under non-qualified plans, which do not meet the
reporting requirements of SFAS No. 87. In 1999, the Company recorded expenses
of $115 related to these plans.

F-56
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. NON-PENSION POSTRETIREMENT BENEFIT

The Company uses Borden sponsored plans to provide certain health and life
insurance benefits for eligible retirees and their dependents. The cost of
postretirement benefits is accrued during employees' service. Participants who
are not eligible for Medicare are provided with the same medical benefits as
active employees, while those who are eligible for Medicare are provided with
supplemental benefits. The postretirement medical benefits are contributory and
the postretirement life insurance benefits are noncontributory. Benefits are
funded on a pay-as-you-go basis.

For informational purposes, the change in benefit obligations of Borden is
as follows:

<TABLE>
<CAPTION>
Borden
1999
------------
(in millions)
<S> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year........................ $107.0
Interest cost.................................................. 6.7
Contributions by plan participants............................. 2.2
Actuarial losses............................................... 6.1
Benefits paid.................................................. (12.4)
Plan Amendment................................................. (6.5)
------
Benefit obligation at end of year.............................. 103.1
Unrecognized net actuarial gain................................ 32.0
Unrecognized prior service benefit............................. 32.4
------
Accrued postretirement obligation at end of year............... $167.5
======
</TABLE>

The weighted average discount rate used in determining the postretirement
benefit obligation at December 31, 1999 was 7.8%. For measurement purposes,
health care costs are assumed to increase 8.1% in 2000 grading down gradually
to a constant 5.8% annual increase for both pre-65 and post-65 benefits by the
year 2004.

Following are the components of Borden's net postretirement benefit
recognized for 1999:

<TABLE>
<CAPTION>
Borden 1999
-------------
(in millions)
<S> <C>
Interest cost on projected benefit obligation.................. $ 6.7
Amortization of prior service benefit.......................... (8.7)
Immediate recognition of initial obligation.................... 1.0
Recognized actuarial gain...................................... (2.7)
-----
Net postretirement benefit..................................... $(3.7)
=====
</TABLE>

Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects on the
Borden amounts:

<TABLE>
<CAPTION>
1% increase 1% decrease
----------- -----------
(in millions)
<S> <C> <C>
Effect on total service cost and interest cost
components....................................... $0.6 $(0.5)
Effect on postretirement benefit obligation....... 7.2 (6.5)
</TABLE>

F-57
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company has a recorded liability of $288 at December 31, 1999 for its
share of postretirement benefits provided by Borden. In 1999 the Company
recorded expenses of $23 related to these benefits.

6. INCOME TAXES

The Company is included in the consolidated income tax return of Borden. The
Company accounts for income taxes as if it were filing on a separate return
basis. The Company has a limited tax sharing agreement with Borden, whereby the
losses generated by the Company are utilized by Borden. The Company will not
receive benefit for such losses until and to the extent it pays income tax on
the separate return basis.

The Company did not provide any current or deferred United States federal,
state or foreign income tax provision or benefit because it experienced
operating losses since inception. The Company has provided a full valuation
allowance on the deferred tax asset, consisting of primarily net operating loss
carryforwards.

The tax effects of the Company's significant temporary differences and loss
carry forwards which comprise the deferred tax assets and liabilities at
December 31, 1999 follows:

<TABLE>
<S> <C>
Deferred tax assets:
Reserve for doubtful accounts...................................... $ 242
Employee benefits and related items................................ 417
General insurance.................................................. 97
Other long term liabilities........................................ 250
Loss carryforwards (under tax sharing agreement)................... 10,759
------
11,765
Valuation allowance................................................ (9,821)
------
Total deferred tax assets.......................................... 1,944
Deferred tax liabilities:
Prepaid and other assets........................................... 331
Equipment and leasehold improvements............................... 1,613
------
Total deferred tax liabilities..................................... 1,944
------
Net deferred tax asset............................................. $ 0
======
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

The Company leases office facilities and various types of equipment under
operating leases. Lease terms generally range from 3 to 5 years. A portion of
the Company's office space is through a sublease agreement with Borden.

Future minimum annual rentals under operating leases at December 31, 1999
are as follows:

<TABLE>
<CAPTION>
Non-
Affiliated Affiliated
---------- ----------
<S> <C> <C>
2000................................................... $ 1,374 $ 889
2001................................................... 1,446 687
2002................................................... 1,519 62
2003................................................... 1,591 59
2004................................................... -- 18
------- -------
Total................................................ $ 5,930 $ 1,715
======= =======
</TABLE>

Total rental expense in 1999 was $1,597, of which $1,446 was affiliated.

F-58
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. RELATED PARTIES

In addition to the affiliated borrowings, tax and lease agreements, the
Company is engaged in various transactions with Borden and its affiliated
companies in the ordinary course of business. Management believes costs
associated with these transactions are reasonable based on the agreements,
however, the amounts are not necessarily indicative of costs that would have
been incurred if the Company operated on a stand alone basis since the business
has historically been operated as a division of Borden. Although the Company is
a division of Borden, it operates independently. Management fees of $93 have
been allocated and are included in the Company's financial statements.

The Company provides certain administrative services to Borden and its
affiliated companies at negotiated fees. These services include: processing of
payroll as well as active and retiree group insurance claims, securing
insurance coverage for catastrophic claims and IT infrastructure outsourcing.

The Company is generally self-insured for general insurance claims and post-
employment benefits other than pensions; however, they do participate in Borden
sponsored plans with other affiliated businesses. The liabilities for these
obligations are included in the Company's financial statements.

The Company also invests excess cash funds held for customers with Borden in
one-day investments that totaled $2,750 at December 31, 1999. Interest income
from Borden for these one-day investments totaled $98 for 1999.

9. COMMON STOCK AND STOCK OPTIONS

The Company issued stock options under its Management Stockholders'
Agreement in which the fair value is determined by a formula (as defined) and
whereby the Company has the right to repurchase the stock and options at
certain determinable dates and events.

At December 31, 1999, the Company has granted options to purchase additional
574,655 shares of common stock at an exercise price of $5 per share. During
1999, options for 21,000 shares and 56,000 were cancelled and forfeited,
respectively, and 40,250 options were granted. The options expire 10 years from
the date of grant and vest ratably over 5 years. The options are generally not
transferable and exercisability of the options will accelerate upon a change of
control as defined.

The stock options have an exercise price of $5 per share (fair value at date
of grant) and a weighted average remaining life of 1.7 years. The fair value of
options at the grant date and at December 31, 1999 was less than the exercise
price for all options outstanding. Compensation expense for the Company's stock
option plan for 1999 based on the provisions of SFAS No. 123 is $106.

10. INSURANCE SUBSIDIARY

rSP Insurance Agency, Inc (a wholly owned subsidiary) handles the placement
of stop-loss, life and short-term disability insurance for selected customers
of the processing business. This subsidiary is a licensed insurance agency in
the State of Ohio. Commissions earned on the placement of policies were $694 in
1999.

11. DISCONTINUED OPERATIONS

In the first quarter of 1999, the Company sold its printing business for
cash proceeds of $1,518 resulting in a pretax gain of $453. This business was a
separate segment of the Company's business as defined by generally accepted
accounting principles and as such has been reclassified to discontinued
operations in the statements of operations and cash flows.

F-59
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. SEGMENT REPORTING

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires an enterprise to report financial and descriptive
information about its operating segments. In accordance with SFAS No. 131, the
Company determined its operating segments on the same basis that is used
internally to evaluate segment performance and allocate resources.

Each of the Company's operating segments offers different, but integrated,
services with different economic characteristics. The segments within the
Company include Consulting, Hosting and Processing services.

The remainder of the Company's results of operations represent general and
administrative and selling and marketing functions which are listed in the
"Administrative and other" category.

The results of the discontinued operations have not been included in the
segment reporting.

<TABLE>
<CAPTION>
1999
--------
<S> <C>
Affiliated Revenues
Consulting....................................................... $ 750
Hosting.......................................................... 11,443
Processing....................................................... 3,536
Other............................................................ 202
--------
Total............................................................ $ 15,931
========
Trade Revenues
Consulting....................................................... $ 2,241
Hosting.......................................................... 5,111
Processing....................................................... 1,724
Other............................................................ 106
--------
Total............................................................ $ 9,182
========
Gross Margin (Deficit)
Consulting....................................................... $ (1,741)
Hosting.......................................................... 753
Processing....................................................... (1,304)
Other............................................................ 308
--------
Total............................................................ $ (1,984)
========
Total Assets
Consulting....................................................... $ 1,664
Hosting.......................................................... 5,488
Processing....................................................... 5,545
Administrative and other......................................... 1,988
--------
Total............................................................ $ 14,685
========
Depreciation and Amortization
Consulting....................................................... $ 708
Hosting.......................................................... 1,008
Processing....................................................... 197
Administrative and other......................................... 459
--------
Total............................................................ $ 2,372
========
Capital Expenditures
Consulting....................................................... $ 194
Hosting.......................................................... 833
Processing....................................................... 249
Administrative and other......................................... 98
--------
Total............................................................ $ 1,374
========
</TABLE>

F-60
<PAGE>

reSOURCE PARTNER, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. SUBSEQUENT EVENTS

Subsequent to December 31, 1999, Borden entered into a letter of intent to
sell substantially all the assets and certain liabilities of the Company. The
transaction has not yet been finalized.

F-61
<PAGE>

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

No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.

[LOGO OF INTERLIANT]

7% Convertible Subordinated Notes due 2005
and 188,324 Shares of Common Stock
Issuable Upon Conversion of the Notes

4,458,394 Shares of Common Stock

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

P R O S P E C T U S

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

, 2000

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
common stock and notes offered hereby:

<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............. $21,043
Accountants' fees and expenses................................... 15,000
Legal fees and expenses.......................................... 15,000
Printing and engraving expenses.................................. 30,000
Transfer agent and registrar fees................................ 0
Miscellaneous.................................................... 8,957
-------
Total.......................................................... $90,000
=======
</TABLE>

Item 14. Indemnification of Directors and Officers

Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.

Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which the
court shall deem proper.

Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue, or matter therein, he shall be indemnified against any expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director,
officer, employee or agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his
status as such whether or not the corporation would have the power to indemnify
him against such liabilities under Section 145.

Section 102(b)(7) of the DGCL provides that a corporation in its original
certificate of incorporation or an amendment thereto validly approved by
stockholders may eliminate or limit personal liability of members of its board
of directors or governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act on good faith,

II-1
<PAGE>

engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was illegal or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for
breach of fiduciary duty. Interliant's Restated Certificate of Incorporation
contains such a provision.

Interliant's Certificate of Incorporation and By-Laws provide that
Interliant shall indemnify officers and directors and, to the extent permitted
by the Board of Directors, employees and agents of Interliant, to the full
extent permitted by and in the manner permissible under the laws of the State
of Delaware. In addition, the By-Laws permit the Board of Directors to
authorize Interliant to purchase and maintain insurance against any liability
asserted against any director, officer, employee or agent of Interliant arising
out of his capacity as such.

Item 15. Recent Sales of Unregistered Securities

In the three years preceding the filing of this Registration Statement,
Interliant has issued securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act") to a limited number of persons,
as described below.

Interliant believes that the transactions described below were exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, as transactions by an
issuer not involving public offering, or pursuant to Rule 701 promulgated under
Section 3(b) of the Securities Act, as transactions pursuant to written
compensatory benefit plans and contracts relating to compensation. The
recipients of securities in each of these transactions represented that they
were acquiring the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates issued in such transactions. All recipients
had adequate access, through their relationships with Interliant, to
information about Interliant, or were given an adequate opportunity to review
information about Interliant.

The following figures give effect to a three-for-one stock split of the
Common Stock of Interliant in July 1998.

(a) Issuance of Capital Stock.

Pursuant to a Stock Subscription Agreement dated December 8, 1997 between
Interliant and Web Hosting Organization LLC ("WEB"), Interliant issued to WEB,
for a purchase price of $5,000,000, 3,000,000 shares of common stock of
Interliant, $.01 par value and also granted WEB an option to purchase up to an
additional 6,600,000 shares of common stock at an exercise price of $1.67 per
share (the "Option").

On April 7, 1998, in connection with the acquisition of substantially all of
the assets of Clever Computers, Inc., ("Clever") and as consideration for
entering into an employment agreement with Interliant, Interliant issued
150,000 shares of common stock to the former president and founder of Clever,
Steven C. Dabbs.

On July 10, 1998, Interliant issued 9,000 shares of common stock to Jab Web,
Inc. (formerly Tri-Star Web Creations, Inc.), as part of the purchase price for
substantially all of the assets of Tri-Star Web Creations, Inc.

On July 10, 1998, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of common stock.

On July 10, 1998, Interliant issued 115,707 shares of common stock to All
Information Systems, Inc., as part of the purchase price for substantially all
of the assets of All Information Systems, Inc.

On July 10, 1998, Interliant issued 12,000 shares of common stock to
Software Business Technologies, Inc., as part of the purchase price for
substantially all of the Web hosting assets of Software Business Technologies,
Inc.

II-2
<PAGE>

On July 30, 1998, Interliant issued 5,490 shares of common stock to
BestWare, Inc. (dba "Maikon"), as part of the purchase price for substantially
all of the assets of BestWare, Inc. (dba "Maikon").

On August 31, 1998, in connection with the acquisition of B.N. Technology,
Inc. and as consideration for entering into employment agreements with
Interliant, Interliant issued 240,000 shares of common stock to Mr. Bernd
Neumann and Andrea Neumann, his wife and 60,000 shares of common stock to Mr.
Thomas Gorny.

On September 16, 1998, in connection with the acquisition of GEN
International Inc. and as consideration for entering into a consulting
agreement with Interliant, Interliant issued 25,000 shares of common stock to
Mr. Thomas Heimann and Patricia Karasy, his wife.

On September 18, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of common stock.

On December 4, 1998, Interliant issued to WEB, for a purchase price of
$7,500,000, 4,500,000 shares of common stock.

On January 28, 1999, Interliant issued 2,647,658 shares of Series A
Redeemable Convertible Preferred Stock, convertible into an equal amount of
shares of common stock and warrants to purchase 749,625 shares of common stock
to SOFTBANK Technology Ventures IV L.P. and one of its affiliates, SOFTBANK
Technology Advisors Fund, L.P. for a purchase price of $13,000,000.

On February 4, 1999, Interliant issued 450,000 shares of common stock to
DigiWeb, Inc. as part of the purchase price for substantially all of the assets
of DigiWeb, Inc.

On February 4, 1999, in connection with the acquisition of substantially all
of the assets of Telephonetics International, Inc., Interliant issued 140,000
shares of common stock to Telephonetics, International, Inc..

On February 4, 1999, Interliant issued to WEB, for a purchase price of
$11,000,000, 6,600,000 shares of common stock.

On February 17, 1999, in connection with the acquisition of Net Daemons
Associates, Inc., Interliant issued 425,000 shares of common stock to certain
stockholders of Net Daemons Associates, Inc.

On March 10, 1999, in connection with the acquisition of substantially all
of the assets of Interliant Texas, Interliant issued 2,748,555 shares of common
stock to Mathew Wolf, 398,845 shares of common stock to the Ann Weltchek Wolf
1995 Marital Trust, 797,690 shares of common stock to the Mathew D. Wolf
Children's Trust, 31,908 shares of common stock to Michael August and 114,644
shares of common stock to Broadview Holdings LLP.

On April 19, 1999, SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Fund, L.P. exercised their warrants to purchase 749,625
shares of the common stock of Interliant for an aggregate exercise price of
$5,000,000.

On May 4, 1999, in connection with the acquisition of Advanced Web
Creations, Inc. Interliant issued 52,500 to Advanced Web Creations, Inc., 2,250
shares of common stock to Santa Fe Capital Group of New Mexico, Inc., 53,417
shares of common stock to Gary Rudd, 53,416 shares of common stock to Stephen
Rudd, 53,417 shares of common stock to Mark Lichtenstein and 10,000 shares of
common stock to Kevin Paul.

On May 19, 1999, as consideration for entering into a licensing arrangement,
Interliant issued 6,000 shares of common stock to Greg Stipe.

On August 25, 1999, in connection with the acquisition of substantially all
of the assets of The Daily-e Corporation, Interliant issued 35,000 shares of
common stock to David O'Neill and 35,000 shares of common stock to Eric
Ginsburg.

II-3
<PAGE>

On September 14, 1999, in connection with the acquisition of Sales
Technology Limited, Interliant issued 113,256 shares of common stock to Brett
Raynes, 34,206 shares of common stock to Juliet Raynes, 30,085 shares of common
stock to David Yuile, 21,870 shares of common stock to Dowell and Associates
Advertising Limited, 12,077 shares of common stock to Alastair Morrison, 12,077
shares of common stock to Susannah Morrison, 6,827 shares of common stock to
Geoff Dowell and 5,014 shares of common stock to Sheena McQuillan.

On November 17, 1999, in connection with the acquisition of Triumph
Technologies, Inc. and Triumph Development, Inc., Interliant issued 404,298
shares of common stock to Steven R. Munroe, 161,987 shares of common stock to
Robert F. Munroe, 75,933 shares of common stock to Brad D. Munroe and 8,776
shares of common stock to Peter Hawtrey

On December 21, 1999, in connection with the acquisition of The Jacobson
Group, Inc., Interliant issued 46,618 shares of common stock to Patricia K.
Jacobson, 46,618 shares of common stock to Barry H. Jacobson, 46,618 shares of
common stock to Richard W. Weissberg, 15,983 shares of common stock to Michael
S. Kirschenbaum and 3,995 shares of common stock to Elizabeth W. Reiland.

In January and February 2000, Interliant sold an aggregate of 787,881 shares
of common stock to three strategic partners for a total purchase price of $27.5
million. In connection with this sale and with related commercial agreements
entered into at the same time with these strategic partners, Interliant issued
warrants to purchase an aggregate of 157,575 shares of common stock with a
weighted average exercise price of $34.90 per share.

In February 2000, Interliant sold an aggregate principal amount of $154.8
million of 7% Convertible Subordinated Notes to the initial purchasers and in
March 2000, Interliant sold an aggregate principal amount of $10.0 million of
the same 7% Convertible Subordinated Notes to Microsoft Corporation.

On February 29, 2000, in connection with the acquisition of Soft Link, Inc,
Interliant issued, as partial consideration, 254,879 shares of common stock to
certain stockholders of SoftLink, Inc.

On February 29, 2000, in connection with the purchase of substantially all
of the assets and assumption of certain liabilities of reSOURCE PARTNER, Inc.,
Interliant issued, as partial consideration, 1,041,179 shares of common stock
to certain stockholders of reSOURCE PARTNER, Inc.

In June 2000, we issued 1,649 shares of common stock to Eric Ginsburg and
1,649 shares of common stock to David O'Neill in connection with earnout
payments relating to the acquisition of The Daily-e Corporation in August 1999.

On June 13, 2000, in connection with the acquisition of Knowledge Systems,
Inc., Interliant issued, as partial consideration, 17,403 shares of common
stock to Robert Mellinger, 17,403 shares of common stock to Jeffrey Entwisle,
9,281 shares of common stock to Alain Carr and 2,320 shares of common stock to
John Koch.

(b) Grants of Stock Options.

The Interliant, Inc. 1998 Stock Option Plan was adopted by Interliant's
Board of Directors on February 1, 1998. As of March 31, 2000, options to
purchase up to an aggregate 3,927,890 shares of common stock at prices ranging
from $0.13 to $42.88 per share, had been granted to employees of Interliant, of
which options to purchase up to an aggregate of 1,520,414 shares of common
stock, at a weighted average exercise price of $0.85 per share, were
outstanding as of such date.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<C> <S>
2.1 --Asset Purchase Agreement among Sage Networks Acquisition Corp., Sage
Networks, Inc., Interliant, Inc. and the shareholders of Interliant,
Inc., dated March 8, 1999.*

2.2 --Agreement to Deliver Shares between Interliant, Inc., Sage Networks
Acquisition Corp. and Sage Networks, Inc., dated as of March 10, 1999.*

2.3 --Agreement and Plan of Merger by and among Net Daemons, Inc., the
Shareholders Party hereto and Sage Networks, Inc. and Sage NDA
Acquisition Corp., dated as of February 17, 1999.*
</TABLE>

II-4
<PAGE>

<TABLE>
<C> <S>
2.4 --Asset Purchase Agreement between DigiWeb, Inc., a Delaware
corporation, Yi Wen Chung, Diane X. Chen and DigiWeb, Inc., a Maryland
corporation, dated February 4, 1999.*

2.5 --Asset Purchase Agreement between Telephonetics International, Inc.,
Alan Kvares and Telephonetics, Inc., dated February 4, 1999.*

2.6 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Thomas Heimann and GEN International Inc., dated September 16, 1998.*

2.7 --Asset Purchase Agreement between Global Entrepreneurs Network, Inc.
and Sage Networks Acquisition Corp., dated as of September 16, 1998.*

2.8 --Stock Purchase Agreement among B.N. Technology, Inc., Bernd Neumann,
Annedore Somber and Sage Networks, Inc., dated August 31, 1998.*

2.9 --Asset Purchase Agreement between Sage Networks, Inc. and HomeCom
Communications, Inc. dated June 10, 1998.*

2.10 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Bonnie Shimel, William Nicholson and James Kucharski, Alan Shimel and
Tri-Star Web Creations, Inc., dated May 1, 1998.*

2.11 --Asset Purchase Agreement between Sage Networks Acquisition Corp.,
Steven C. Dabbs and Clever Computers, Inc., dated April 7, 1998.*

2.12 --Share Purchase Agreement and certain related documents pertaining to
the acquisition of the entire issued share capital of Sales Technology
Limited, between Brett Raynes and others, and Interliant, Inc., and
Interliant International, Inc., dated September 14, 1999.**

2.13 --Stock Purchase Agreement pertaining to the acquisition of all of the
outstanding shares of Soft Link Inc., between Gretchen Artig-Swomley
and Dale Swomley, and Interliant, Inc., and its wholly owned
subsidiary Soft Link Holding Corp., dated February 29, 2000.***

2.14 --Asset Purchase Agreement dated February 29, 2000 pertaining to the
purchase of assets and assumption of certain liabilities of reSOURCE
PARTNER, Inc. by reSOURCE PARTNER Acquisition Corp., a wholly owned
subsidiary of Interliant, Inc.***

3.1 --Form of Amended and Restated Certificate of Incorporation of the
Registrant.*

3.2 --Form of Amended and Restated By-Laws of the Registrant.*

4.1 --Specimen Certificate for common stock of the Registrant.*

4.2 --Investors Agreement, dated as of January 28, 1999, by and among Sage
Networks, Inc., SOFTBANK Technology Ventures IV, L.P. and SOFTBANK
Technology Advisors Funds, L.P.*

4.3 --Securities Purchase Agreement between Sage Networks, Inc. and SOFTBANK
Technology Ventures IV, L.P. and SOFTBANK Technology Advisors Funds,
L.P. dated January 28, 1999.*

4.4 --Registration Rights Agreement, dated as of December 8, 1997, by and
between Sage Networks, Inc. and Web Hosting Organization LLC.*

4.5 --Shareholders Agreement by and among Sage Networks, Inc. and each of
the Stockholders of Sage Networks, Inc., dated as of March 10, 1999.*

4.6 --Letter Agreement, dated November 26, 1997, between Leonard J. Fassler,
Bradley A. Feld, Chef Nominees Limited and Charterhouse Equity
Partners III L.P. (Agreement has now been terminated.)*

4.7 --Piggyback Registration Rights Agreement, dated as of January 27, 2000
among Interliant, Inc. and the signatories thereto.+

4.8 --Indenture for the 7% Convertible Subordinated Notes due 2005, dated as
of February 16, 2000, by and between Interliant, Inc. and The Chase
Manhattan Bank, as trustee including the form of 7% Convertible
Subordinated Note due 2005.+

4.9 --Registration Rights Agreement, dated as of February 16, 2000, by and
among Interliant, Inc. and the Initial Purchasers.+
</TABLE>

II-5
<PAGE>

<TABLE>
<C> <S>
4.10 --Indenture for the 7% Convertible Subordinated Notes due 2005, dated as
of February 16, 2000, by and between Interliant, Inc. and The Chase
Manhattan Bank, as trustee including the form of 7% Convertible
Subordinated Note due 2005.+

4.11 --Registration Rights Agreement, dated as of March 10, 2000, by and
among Interliant, Inc. and Microsoft Corporation.+

5.1 --Opinion of Dewey Ballantine LLP.+++

10.1 --Professional Services Agreement by and between Sage Networks, Inc. and
Portal Software, Inc., dated as of July 31, 1998.*

10.2 --Software License and Support Agreement by and between Sage Networks,
Inc. and Portal Software, Inc., dated as of July 31, 1998.*

10.3 --The Vantive Corporation Software License and Support Agreement by and
between Interliant Networks, Inc. and The Vantive Corporation, dated
as of September 29, 1998.*

10.4 --Addendum to The Vantive Corporation Software License and Support
Agreement by and between Sage Networks, Inc. and The Vantive
Corporation, dated as of September 29, 1998.*

10.5 --Master Discounted Internet Services Agreement by and between UUNET
Technologies, Inc. and Sage Networks, Inc., dated February 17, 1999.*

10.6 --Joint Development Agreement between Lotus Development Corporation and
Interliant, Inc., dated as of April 27, 1998.*

10.7 --Sage Networks, Inc. 1998 Stock Option Plan.*

10.8 --Form of ISO Award Agreement.*

10.9 --Form of Incentive Stock Option Award Agreement between Sage Networks,
Inc. and the individual Optionee.*

10.10 --Form of Nonqualified Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.*

10.11 --Employment Agreement by and between Sage Networks, Inc. and Leonard J.
Fassler, dated January 1, 1999.*

10.12 --Consulting Agreement by and between Sage Networks, Inc. and Intensity
Ventures, Inc., dated January 1, 1999.*

10.13 --Employment Agreement by and between Sage Networks, Inc. and Stephen W.
Maggs, dated January 1, 1999.*

10.14 --Employment Agreement by and between Sage Networks, Inc. and Rajat
Bhargava, dated January 1, 1999.*

10.15 --Employment Agreement between Sage Networks, Inc. and James M.
Lidestri, dated March 3, 1999.*

10.16 --Deed of Lease by and between Westwood Center, LLC and Sage Networks,
Inc., dated February 11, 1999.*

10.17 --Sublease Agreement by and between Southern Company Services, Inc. and
Sage Networks, Inc., dated May 29, 1998.*

10.18 --First Amendment to Sublease Agreement by and between Southern Company
Services, Inc. and Sage Networks, Inc., dated December 15, 1998.*

10.19 --Sublease Agreement by and between Leuko Site, Inc. and Sage Networks,
Inc., dated November 17, 1998.*

10.20 --Agreement for Terminal Facilities Collocation Space by and between
Comstor Corporation and Sage Networks, Inc., dated as of July 2,
1998.*
</TABLE>

II-6
<PAGE>

<TABLE>
<C> <S>
10.21 --Standard Lease Agreement, dated June 11, 1995, between LaSalle
Partners Management Limited (as agent for Fannin Street Limited
Partnership) and Wolf Communications Company.*

10.22 --First Amendment to Standard Lease, dated January 18, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street
Limited Partnership) and Wolf Communications Company.*

10.23 --Second Amendment to Standard Lease, dated August 8, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street
Limited Partnership) and Wolf Communications Company.*

10.24 --First Amendment to Lease Agreement, between Westwood Center, L.L.C.
and Interliant, Inc., dated June 28, 1999.*

10.25 --Master Lease Agreement between Leasing Technologies International,
Inc. and Interliant, Inc., dated June 9, 1999.*

10.26 --Agreement of Lease between Purchase Corporate Park Associates and
Courtaulds United States Inc., dated August 23, 1991.*

10.27 --Sublease, by and between Akzo Nobel Courtalds United States, Inc. and
Interliant, Inc., dated as of May 11, 1999.*

10.28 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant I).*

10.29 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant II).*

10.30 --Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant III).*

10.31 --Employment Agreement by and between Sage Networks, Inc. and Jennifer
A. Lawton, dated February 17, 1999.****

10.32 --Second Amendment to Sublease Agreement, dated as of October 31, 1999,
between Interliant, Inc. and Southern Company Services, Inc.****

10.33 --Employment Agreement by and between Interliant, Inc. and William A.
Wilson, dated November 5, 1999.****

10.34 --Employment Agreement by and between Interliant, Inc. and Kristian
Nelson, dated as of January 1, 2000.****

10.35 --Employment Agreement by and between Interliant, Inc. and Herbert R.
Hribar, dated January 14, 2000.****

10.36 --Second Amendment to Lease Agreement, dated as of February 3, 2000,
Westwood Center L.L.C. and Interliant, Inc.****

10.37 --Third Amendment to Sublease Agreement, dated as of February 10, 2000,
by and between EOP-Perimeter Center, L.L.C. and Interliant, Inc.****

10.38 --Assignment and Consent of Sublease, dated as of February 29, 2000, by
and among reSOURCE Partner, Inc., reSOURCE Partner Acquisition Corp.
and Borden, Inc.+

10.39 --Interliant, Inc. Amended and Restated 1998 Stock Option Plan.+

10.40 --Interliant, Inc. Employee Stock Purchase Plan.+

21.1 --List of Subsidiaries.+++

23.1 --Consent of Ernst & Young LLP with respect to the financial statements
of Interliant, Inc.+++

23.2 --Consent of Ernst & Young with respect to the financial statements of
Sales Technology Limited+++

23.3 --Consent of Deloitte & Touche LLP.+++

23.4 --Consent of Smith Schafer & Associates, Ltd.+++

24.1 --Power of Attorney.++

25.1 --Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Chase Manhattan Bank, as Trustee under the
Indenture included as Exhibit 4.8.+
</TABLE>

II-7
<PAGE>

<TABLE>
<C> <S>
25.2 --Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The Chase Manhattan Bank, as Trustee under the
Indenture included as Exhibit 4.10.+
</TABLE>
--------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 333-74403.
** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 14, 1999, and incorporated by reference herein.
*** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 16, 2000, and incorporated by reference herein.
**** Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 and incorporated by reference herein.
+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1, File No. 333-37156 and incorporated by reference herein.

++ Previously filed

+++ Filed herewith

(b) Consolidated Financial Statement Schedules

Schedule II Valuation and qualifying accounts

All other schedules have been omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.

Item 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;

II-8
<PAGE>

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by Section 10(a)(3) of the Act need not
be furnished, provided, that the registrant includes in the prospectus, by
means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.

II-9
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 28, 2000.

INTERLIANT, INC.

By: /s/ Herbert R. Hribar
----------------------------------
Herbert R. Hribar
President and Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on June 28,
2000 in the capacities indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Leonard J. Fassler Co-Chairman of the Board June 28, 2000
___________________________________________
Leonard J. Fassler

/s/ Bradley A. Feld Co-Chairman of the Board June 28, 2000
___________________________________________
Bradley A. Feld

/s/ Herbert R. Hribar President, Chief Executive June 28, 2000
___________________________________________ Officer and Director
Herbert R. Hribar

/s/ William A. Wilson Chief Financial Officer June 28, 2000
___________________________________________ (Chief Financial and
William A. Wilson Accounting Officer)

/s/ Thomas C. Dircks Director June 28, 2000
___________________________________________
Thomas C. Dircks

/s/ Jay M. Gates Director June 28, 2000
___________________________________________
Jay M. Gates

/s/ Merril M. Halpern Director June 28, 2000
___________________________________________
Merril M. Halpern

/s/ John P. Landry Director June 28, 2000
___________________________________________
John P. Landry

/s/ Charles R. Lax Director June 28, 2000
___________________________________________
Charles R. Lax

</TABLE>

II-10
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Stephen W. Maggs Director June 28, 2000
___________________________________________
Stephen W. Maggs

/s/ Patricia A.M. Riley Director June 28, 2000
___________________________________________
Patricia A.M. Riley

</TABLE>

* /s/ Bruce S. Klein
_____________________________________

Bruce S. Klein

(Attorney-in-fact)

II-11
<PAGE>

Schedule II Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
Additions
Balance at ------------------------- Balance at
Beginning of Charged to Charged to End of
Classification Period Expense Other accounts Deductions Period
-------------- ------------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Allowance for
uncollectible
accounts............ $320,000 $1,585,254 $507,078(1) $1,034,332 $1,378,000
Year ended December 31,
1998
Allowance for
uncollectible
accounts............ $ 320,000 $ 320,000
</TABLE>
--------
(1) includes allowances of acquired companies

II-11
<PAGE>

EXHIBIT INDEX

<TABLE>
<C> <S>
2.1 --Asset Purchase Agreement among Sage Networks Acquisition Corp., Sage
Networks, Inc., Interliant, Inc. and the shareholders of Interliant,
Inc., dated March 8, 1999.*

2.2 --Agreement to Deliver Shares between Interliant, Inc., Sage Networks
Acquisition Corp. and Sage Networks, Inc., dated as of March 10,
1999.*

2.3 --Agreement and Plan of Merger by and among Net Daemons, Inc., the
Shareholders Party hereto and Sage Networks, Inc. and Sage NDA
Acquisition Corp., dated as of February 17, 1999.*

2.4 --Asset Purchase Agreement between DigiWeb, Inc., a Delaware
corporation, Yi Wen Chung, Diane X. Chen and DigiWeb, Inc., a Maryland
corporation, dated February 4, 1999.*