INTERLAND INC, 424B1, 2000-07-25

INTERLAND INC
424B1, 2000-07-25

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration Number 333-32556

PROSPECTUS
5,000,000 SHARES

(INTERLAND LOGO)

COMMON STOCK

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

This is an initial public offering of 5,000,000 shares of common stock of
Interland, Inc. We are selling all of the shares of common stock offered under
this prospectus.

Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "ILND."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 ABOUT RISKS YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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

<TABLE>
<CAPTION>
Per
Share Total
----- -----------
<S> <C> <C>
Public offering price....................................... $12.00 $60,000,000
Underwriting discount....................................... $ 0.84 $ 4,200,000
Proceeds, before expenses, to us............................ $11.16 $55,800,000
</TABLE>

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

The underwriters may purchase up to an additional 750,000 shares of common stock
from us at the initial public offering price less the underwriting discount to
cover over-allotments.

The underwriters expect to deliver the shares against payment in New York, New
York on July 28, 2000.

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

BEAR, STEARNS & CO. INC. THOMAS WEISEL PARTNERS LLC

PAINEWEBBER INCORPORATED
The date of this prospectus is July 25, 2000.
<PAGE> 2

[Inside Front Cover]

The inside of the front cover begins with the Interland logo. Below the logo is
a graphic depicting a globe surrounded by images of some of our customers' web
pages. At the bottom of the page is the sentence, "We make the web work for
you."

<PAGE> 3

PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all the information that you should
consider before investing. You should read the entire prospectus carefully,
including the section entitled "Risk Factors" and our financial statements and
the accompanying notes included elsewhere in this prospectus.

Interland provides a broad range of web and applications hosting and other
related web-based business solutions specifically designed to meet the needs of
small to medium-sized businesses. Our solutions are secure, reliable,
affordable, and we can easily upgrade them to provide additional capacity and
functions. Our web hosting services include the computer hardware, software,
network technology and systems management necessary to support our customers'
web sites. Through our application hosting services, we deploy, configure and
support various software applications that our customers can access over the
Internet. We base our services mainly on the Microsoft NT and Red Hat Linux
operating systems, providing diversity and flexibility to our customers. We
generally sell our services to customers under fully pre-paid contracts that are
typically between three months and two years in length. We are committed to
supporting all of our services with superior customer service.

Our web hosting business began in September 1997 and as of March 31, 2000
had 61,442 customer accounts, an increase of approximately 269% compared to
March 31, 1999. Our revenues have grown from approximately $1.4 million in 1998
to over $9.1 million in 1999, and from $1.0 million for the three months ended
March 31, 1999 to $6.3 million for the three months ended March 31, 2000,
representing increases of over 550% and 521%, respectively. We have achieved
this growth without making any acquisitions and with less than $6.8 million of
total invested cash capital until December 1999, when we closed a $25.0 million
round of venture financing. We experienced net losses of approximately $16.8
million for the year ended December 31, 1999 and $10.8 million for the quarter
ended March 31, 2000 and we anticipate continuing and increasing losses. Key
factors that we believe will continue to drive our growth include:

- Providing a broad and growing range of high quality services for small to
medium-sized businesses.

- Key strategic relationships with Microsoft, Network Solutions, Bell
Atlantic, and Road Runner.

- State-of-the-art data centers.

- Global expansion with initial efforts focused in Europe.

- A creative, highly aggressive multimedia advertising campaign designed to
establish our brand.

- An experienced direct sales force.

- Our proprietary customer management system that allows our salespeople to
activate a web site or provide other services for a customer during the
order process -- that is, in "real-time."

OUR SOLUTION

For a number of small and medium-sized businesses, many of whom do not have
internal technical resources dedicated to Internet services, establishing a
presence on the Internet has proven to be a complicated and time consuming task.
We are dedicated to providing small to medium-sized businesses with a
comprehensive bundle of services, which enables them to quickly, easily and
affordably capitalize on the benefits of the Internet. We provide the following
benefits to our customers:

- A broad range of high-quality web and applications hosting and other
related web-based solutions;

- Services which are affordable, quick to deploy, and easy to use;

- State-of-the-art security and reliability; and

- Personalized customer service and technical support available 24 hours a
day, seven days a week.

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<PAGE> 4

OUR STRATEGY

Our strategy has the following key components:

Provide a Broad Range of Services on Multiple Operating Systems. We
currently provide a wide range of services and intend to continue to
provide additional services so that we can serve the expanding needs of our
existing customers and attract new customers.

Expand Sales Capabilities and Distribution Channels. We intend to
increase our revenue through the expansion of our direct sales force, our
reseller network and our strategic relationships.

Expand International Presence. In April 2000, we opened a sales and
customer service center in Amsterdam which will enable us to sell and
support our services throughout Western Europe from a centrally based
location. We also intend to pursue opportunities to expand our reach to
other parts of the world, including Asia and Latin America.

Increase Brand Awareness and Market Presence. We intend to continue
to build our brand recognition by continuing to implement our aggressive
multimedia advertising campaign.

Take Advantage of Innovative and Proprietary Technology. We intend to
continue to develop specialized technology and systems to give us
advantages in delivering high-quality, price competitive services to our
customers.

Pursue Additional Strategic Alliances and Relationships. We will seek
to expand our services, our technological capabilities and our customer
base through the formation of additional strategic relationships and
acquisitions.

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

We incorporated our company as a Georgia corporation on August 21, 1985,
and we capitalized our business and commenced web hosting operations in
September 1997. The address of our principal executive offices is 101 Marietta
Street, Suite 200, Atlanta, Georgia 30303, and our telephone number is (404)
720-8301. Our web site address is www.interland.net. We do not intend for the
information on our web site to be a part of this prospectus.

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<PAGE> 5

THE OFFERING

Common stock offered................ 5,000,000 shares

Common stock to be outstanding after
the offering........................ 46,647,628 shares

Use of proceeds..................... We intend to use the net proceeds from
this offering to enhance and expand our
network infrastructure and for other
capital expenditures, to build our
brand through marketing and advertising
activities, both domestically and
internationally, and to fund operating
losses, working capital requirements
and general corporate purposes.

Nasdaq National Market symbol....... ILND

We have calculated the number of shares that will be outstanding after this
offering based on the 24,935,546 shares outstanding as of June 30, 2000, plus:

- 5,000,000 shares of common stock we are selling in this offering;

- 14,337,082 shares of common stock we will issue when all of our
outstanding convertible preferred stock converts into common stock at the
closing of this offering; and

- 625,000, 500,000 and 1,250,000 shares of common stock that Microsoft,
Network Solutions, and Bell Atlantic, respectively, have agreed to
purchase at the time of this offering.

The number of shares of common stock that will be outstanding after this
offering excludes:

- 750,000 shares of common stock that we will issue if the underwriters
exercise the over-allotment option in full;

- 5,725,620 shares of common stock that we may issue upon the exercise of
outstanding options having a weighted average exercise price of $4.59 as
of June 30, 2000;

- 2,266,380 shares of common stock reserved in connection with future
grants under our stock option plan as of June 30, 2000;

- 540,000 shares of common stock reserved under our employee stock purchase
plan;

- up to 1,453,133 shares of common stock that we may issue under the
exercise of currently outstanding warrants having a weighted average
exercise price of $6.72 per share. We have issued five-year, fully vested
warrants to purchase a total of 918,893 shares of our common stock to
Microsoft and Network Solutions in connection with their investments in
our company. We have also issued a warrant to purchase up to 376,920
shares of our common stock to Road Runner in connection with a
co-marketing agreement. Of the shares subject to this warrant, 108,000
vested immediately upon the execution of our co-marketing agreement on
January 27, 2000 and the balance vests in equal increments on June 30,
2000, September 30, 2000, December 31, 2000, and December 31, 2001,
subject to performance criteria. We have also issued a warrant to
purchase up to 21,600 shares of our common stock at $8.33 per share and
warrants to purchase up to 135,720 shares of our common stock at $11.11
per share to Compaq and Hewlett-Packard in connection with equipment
financing transactions; and

- up to 985,416 shares of common stock that we may issue under the exercise
of additional warrants that we have agreed to grant to Microsoft, Network
Solutions, Compaq, and Hewlett-Packard at the time of this offering at an
exercise price of $12.00 per share. The issuance of the warrants to
Compaq and Hewlett-Packard are conditioned upon increases in equipment
financing lines of credit with each of them.

3
<PAGE> 6

The number of shares outstanding after the offering also excludes any
shares that we may issue under a warrant that we may also grant to Bell Atlantic
to purchase up to 3,132,000 shares of common stock as part of our proposed
strategic relationship. As reflected in a letter of intent relating to this
relationship, we expect the exercise price per share for the common stock
underlying this warrant will equal 150% of the actual per share public offering
price of the common stock sold in this offering, or $18.00 per share.

We have retroactively adjusted all share information in this prospectus to
reflect a 1.08 for one stock split that we have implemented on July 24, 2000.

4
<PAGE> 7

SUMMARY FINANCIAL DATA

The following table shows our summary financial data for the period from
inception (September 18, 1997) to December 31, 1997, for the years ended
December 31, 1998 and 1999 and for the three months ended March 31, 1999 and
2000. We have derived the financial data for the period from inception
(September 18, 1997) to December 31, 1997 and for the years ended December 31,
1998 and 1999 from financial statements that Arthur Andersen LLP, independent
public accountants, has audited. We derived the financial data for the three
months ended March 31, 1999 and March 31, 2000 from our unaudited financial
statements. In our opinion this data includes all adjustments consisting of only
normal and recurring adjustments necessary for a fair presentation of the
information. The financial data may not necessarily be an indicator of our
results for the year ending December 31, 2000. You should read this data
together with "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our financial statements and
accompanying notes and the other financial data included elsewhere in this
prospectus. The following data is in thousands, except per share, share, web
site, customer, and average monthly revenue per customer data.

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION THREE MONTHS ENDED
(SEPTEMBER 18, YEAR ENDED YEAR ENDED -----------------------
1997) TO DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
DECEMBER 31, 1997 1998 1999 1999 2000
----------------- ------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ 5 $ 1,387 $ 9,121 $ 1,009 $ 6,268
Operating expenses........ (119) (3,708) (25,891) (2,434) (17,308)
----------- ----------- ----------- ---------- ----------
Operating loss............ (114) (2,321) (16,770) (1,425) (11,040)
Interest income (expense),
net..................... -- (18) (14) (11) 251
----------- ----------- ----------- ---------- ----------
Net loss.................. (114) (2,339) (16,784) (1,436) (10,789)
Preferred stock beneficial
conversion and
dividends............... -- -- (9,559)(1) -- (586)
----------- ----------- ----------- ---------- ----------
Net loss applicable to
common shareholders..... $ (114) $ (2,339) $ (26,343) $ (1,436) $ (11,375)
=========== =========== =========== ========== ==========
Basic and diluted net loss
per common share........ $ (0.01) $ (0.13) $ (1.23) $ (0.07) $ (0.48)
=========== =========== =========== ========== ==========
Shares used in computing
net loss per share...... 17,631,191 18,316,449 21,461,161 19,654,296 23,936,350

OTHER DATA:
Adjusted EBITDA(2)........ $ (114) $ (2,206) $ (12,221) $ (1,213) $ (9,048)
Net cash used in operating
activities.............. (110) (30) (2,397) (54) (2,645)
Net cash used in investing
activities.............. (2) (1,102) (8,752) (682) (7,785)
Net cash provided by
financing activities.... 139 1,811 34,953 966 4,859
Number of web sites....... 0 10,611 45,731 16,658 61,442
Number of customers....... 0 6,796 27,173 10,186 36,469
Average monthly revenue
per customer............ $ 0 $ 34.26 $ 45.49 $ 39.73 $ 65.66
</TABLE>

---------------
(1) This amount consists of approximately $9.4 million associated with the
beneficial conversion of our preferred stock into common stock and
approximately $150,000 in an accrued preferred stock dividend. The
beneficial conversion is a result of the difference between the initial
purchase price paid by the preferred stock holders and the actual conversion
price of the preferred stock into common stock.

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<PAGE> 8

(2) Adjusted EBITDA consists of net loss excluding interest income (expense),
net, and depreciation and amortization, as further adjusted to exclude
non-cash stock compensation expense and non-cash operating expenses incurred
as a result of the issuance of equity securities to third parties in the
total amount of $3.6 million, $101,000 and $1.4 million for the year ended
December 31, 1999, and the three months ended March 31, 1999 and 2000,
respectively. Adjusted EBITDA does not represent funds available for
discretionary use and is not intended to represent cash flow from operations
as measured under generally accepted accounting principles. Adjusted EBITDA
should not be considered as an alternative to net loss or net cash used in
operating activities, but may be useful to investors as an indication of
operating performance. Our calculations of Adjusted EBITDA may not be
consistent with similarly titled calculations used by other companies.

We present the following balance sheet data:

- on a pro forma basis to reflect the conversion of all convertible
preferred stock outstanding at March 31, 2000 into 13,137,083 shares of
common stock at the time we complete this offering.

- on a pro forma, as adjusted basis to reflect the sale of 1,199,999 shares
of our preferred stock to Bell Atlantic (and the later conversion to
common stock at the time we complete this offering), the recording of the
related beneficial conversion feature of approximately $4.4 million in
the form of a dividend, the payment in cash of $1.5 million of preferred
stock dividends accrued through the closing date, the sale of 625,000,
500,000 and 1,250,000 shares of our common stock at a price of $12.00 per
share to Microsoft, Network Solutions and Bell Atlantic, respectively at
the time of this offering, the grant of warrants to purchase up to
843,750 shares of common stock to Microsoft and Network Solutions at the
time of this offering, the exercise on April 14, 2000 of an option to
purchase 540,000 shares of our common stock, the issuance on May 15, 2000
of 32,400 shares of our common stock valued at $12.00 per share and the
sale of 5,000,000 shares of our common stock we are offering under this
prospectus, after deducting the underwriting discount and estimated
offering expenses that we will pay.

<TABLE>
<CAPTION>
MARCH 31, 2000
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $18,939 $ 18,939 $112,082
Total assets................................................ 42,717 42,717 136,248
Working capital............................................. 1,555 1,555 95,645
Total long-term liabilities................................. 4,994 4,994 4,994
Preferred stock............................................. 40,630 -- --
Other shareholders' equity.................................. (28,959) 11,671 106,149
</TABLE>

We have derived the following summary financial and operating data for our
most recent five quarters in part from our unaudited consolidated financial
statements.

<TABLE>
<CAPTION>
THREE MONTHS ENDED(1)
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1999 1999 1999 1999 2000
--------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT WEB SITE, CUSTOMER DATA AND
AVERAGE MONTHLY REVENUE PER CUSTOMER)
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ 1,009 $ 1,688 $ 2,582 $ 3,842 $ 6,268
Operating expenses.............................. 2,434 5,280 7,457 10,720 17,308
Net loss........................................ (1,436) (3,610) (4,887) (6,851) (10,789)
Number of web sites............................. 16,658 24,235 33,705 45,731 61,442
Number of customers............................. 10,186 14,357 19,822 27,173 36,469
Average monthly revenue per customer............ $ 39.73 $ 45.86 $ 50.36 $ 54.50 $ 65.66
</TABLE>

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

(1) The operating results for any quarter are not necessarily an indicator of
results for any future period. See "Risk Factors -- Our quarterly and annual
results may fluctuate, resulting in fluctuations of the price of our common
stock" and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Selected Quarterly Operating Results."

6
<PAGE> 9

RESULTS FOR THE THREE MONTHS AND THE SIX MONTHS ENDED JUNE 30, 2000

Our revenues for the three months ended June 30, 2000 increased to
approximately $8.2 million, or to approximately $14.4 million for the six months
ended June 30, 2000, as compared to revenues of $1.7 million and $2.7 million
for the three months and the six months ended June 30, 1999. Our net loss for
the three months ended June 30, 2000 increased to approximately $18.0 million,
or to approximately $29.0 million for the six months ended June 30, 2000, as
compared to a net loss of $3.6 million and $5.0 million for the three months and
the six months ended June 30, 1999. The information for the three months and six
months ended June 30, 2000 is unaudited and includes all adjustments that we
consider necessary to present a fair statement of the results of operations for
these periods.

RECENT OTHER DATA

Adjusted EBITDA was negative $15.8 million and negative $24.8 million for
the three months and the six months ended June 30, 2000, compared to negative
$2.2 million and $3.4 million for the three months and six months ended June 30,
1999. For a discussion of the calculation of Adjusted EBITDA and cautionary
language about its use, see note 2 to Summary Financial Data and note 2 to
Selected Financial Data.

7
<PAGE> 10

RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below and all
other information contained in this prospectus before deciding to purchase
shares of our common stock. While we have described all risks and uncertainties
that we believe to be material to our business, it is possible that other risks
and uncertainties that affect our business will arise or become material in the
future.

If we are unable to effectively address these risks and uncertainties, our
business, financial condition or results of operations could suffer, the trading
price of our common stock could decline and you could lose part or all of your
investment.

OUR BUSINESS AND PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED
OPERATING HISTORY AND OUR BUSINESS MODEL IS STILL EVOLVING.

We began operations as a web hosting business in September 1997. As a
result, we have a limited operating history and our business model is still
evolving. Our limited operating history therefore makes predicting our future
results difficult and makes it difficult to evaluate the execution of our
business model thus far. You should consider our ability to execute our plans
and our prospects in light of the risks, expenses and difficulties that
companies in the new and rapidly evolving market for web hosting and
applications hosting services encounter. We may not achieve a significant rate
of future revenue growth and may not achieve or sustain profitability in future
quarterly or annual periods.

WE HAVE A HISTORY OF SIGNIFICANT LOSSES AND EXPECT THESE LOSSES TO CONTINUE IN
THE FORESEEABLE FUTURE.

We have experienced operating losses and negative cash flows from
operations in each quarterly and annual period since we began operations as a
web hosting business in 1997. As of March 31, 2000, our accumulated losses since
September 17, 1997 have amounted to approximately $30.0 million. We had net
losses of $16.8 million for the year ended December 31, 1999 and $10.8 million
for the three months ended March 31, 2000. While our revenues have grown in
recent periods, future growth will depend upon the success of our expansion
plans. In connection with our expansion plans, we anticipate making significant
investments in sales, marketing, technical and customer support personnel, as
well as in our data centers and related equipment. As a result of our expansion
plans, we expect our net losses and negative cash flow from operations to
continue for the foreseeable future.

WE MAY NOT EFFECTIVELY EXECUTE OUR STRATEGY AND AS A RESULT, OTHERS MAY SEIZE
THE MARKET OPPORTUNITY THAT WE HAVE IDENTIFIED.

If we fail to execute our strategy in a timely or effective manner, our
competitors may be able to seize the opportunity we have identified to address
web hosting needs of small and medium-sized businesses. Our business strategy is
complex and requires that we successfully and simultaneously complete many
tasks, and the failure to complete any one of these may jeopardize our strategy
as a whole. Execution of our strategy may be more difficult because our
management team has worked together for less than six months. In order to be
successful, we will need to:

- market our services and build our brand name effectively;

- provide reliable and cost-effective services that can be expanded to meet
the demands of our customers;

- continue to grow our infrastructure to accommodate additional customers
and increased use of our network bandwidth;

- expand our channels of distribution and our international operations;

- continue to respond to competitive developments; and

- attract, retain and motivate qualified personnel.

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<PAGE> 11

WE OPERATE IN AN EXTREMELY COMPETITIVE MARKET, AND OUR BUSINESS WILL SUFFER IF
WE ARE UNABLE TO COMPETE EFFECTIVELY.

The web hosting and applications hosting markets are highly competitive and
are becoming more so. There are few substantial barriers to entry, and we expect
that we will face additional competition from existing competitors and new
market entrants in the future. We may not have the resources, expertise or other
competitive factors to compete successfully in the future.

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, 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; and

- devote greater resources to the marketing and sale of their services and
adopt more aggressive pricing policies than we can.

In an effort to gain market share, some of our competitors have offered web
hosting services similar to ours at lower prices than ours or with incentives
not matched by us, including free start-up and domain name registration, periods
of free service, low-priced Internet access or free software. In addition, some
of our competitors may be able to provide customers with additional benefits,
including reduced communications costs, which could reduce the overall costs of
their services relative to ours. We may not be able to reduce the pricing of our
services or offer incentives in response to the actions of our competitors
without harming our business. Because of the fierce competition in the web
hosting and applications hosting industry, the number of competitors could lead
to a surplus in service providers, leading to further reductions in the prices
of services. We also believe that the market in which we compete is likely to
consolidate in the near future, which could result in increased price and other
competition that could damage our business.

Our current and potential competitors in the market include web hosting
service providers, applications hosting providers, Internet service providers,
telecommunications companies, large information technology firms that provide a
wide array of information technology services and computer hardware suppliers.
Our competitors may operate in one or more of these areas and include companies
such as AT&T Corp., Concentric Network Corporation, Data Return Corp., Dell
Computer Corporation, Digex Corporation, EarthLink, Inc., Exodus Communications,
Inc., Gateway, Inc., Globix Corporation, and Navisite, Inc. See
"Business -- Competition."

OUR QUARTERLY AND ANNUAL RESULTS MAY FLUCTUATE, RESULTING IN FLUCTUATIONS IN THE
PRICE OF OUR COMMON STOCK.

As our business develops and expands, we may experience significant
quarterly fluctuations in our results of operations. Because of these
fluctuations, comparisons of our operating results from period to period are not
necessarily meaningful and you should not rely on them as an indicator of future
performance. We expect to continue to experience significant fluctuations in our
quarterly and annual results of operations due to a variety of factors, many of
which are outside our control. These factors include:

- demand for and market acceptance of our services;

- introductions of products or services or enhancements by us and our
competitors;

- the mix of services we sell;

- customer retention;

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<PAGE> 12

- the timing and success of our advertising and marketing efforts and
introductions of new services to customers and the timing and success of
the marketing efforts and introductions of new services to customers of
our resellers;

- the timing and magnitude of capital expenditures, including construction
costs relating to the expansion of operations;

- increased competition in the web hosting and applications hosting
markets;

- changes in our pricing policies and the pricing policies of our
competitors;

- gains or losses of key strategic relationships; and

- other general and industry-specific economic factors.

In addition, a relatively large portion of our expenses is fixed in the
short-term, and therefore our results of operations are particularly sensitive
to fluctuations in revenues. Also, if we were unable to continue using
third-party products in our services offerings, our service development costs
could increase significantly.

WE MAY NEED ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH,
AND WE MAY NOT BE ABLE TO OBTAIN IT ON TERMS ACCEPTABLE TO US OR AT ALL.

We believe that our existing capital resources, including the anticipated
proceeds of this offering plus an additional $28.5 million in proceeds from
sales of our common stock to parties with whom we have strategic relationships
that will be received at the time of this offering, will enable us to implement
our current business plan through at least the end of 2001. However, we may
require additional funds during or after that period. Any required financing may
not be available or may be available only on terms that are not favorable to us.
Further, sales of our equity securities to raise additional funds would dilute
the percentage ownership of our shareholders. Any new equity securities may have
rights, preferences or privileges senior to those of our common stock. The
failure to generate sufficient cash flows or to raise sufficient funds may
require us to delay or abandon some or all of our development and expansion
plans or otherwise forego market opportunities and may make it difficult for us
to respond to competitive pressures, any of which could harm our business.

THE INTERNATIONAL MARKET FOR OUR SERVICES IS UNPROVEN, AND AS A RESULT, THE
REVENUE GENERATED BY ANY CURRENT OR FUTURE INTERNATIONAL OPERATIONS MAY NOT BE
ADEQUATE TO OFFSET THE EXPENSE OF ESTABLISHING AND MAINTAINING THOSE OPERATIONS.

The international market for web site and applications hosting and
management services is unproven, and we may not be able to market, sell and
provide our services successfully to small and medium-sized businesses outside
the United States. In addition, our particular approach to providing hosting
services is unproven in international markets and may not be successful outside
the United States. In fiscal 1999, we derived approximately 8% of our revenues
from customers located outside the United States, and we are seeking to expand
our presence overseas. In April 2000, we opened a sales and support center in
Amsterdam as part of our plan to expand our European operations. Our continued
success depends in part on expanding our international customer base and
successfully operating data centers in foreign markets.

IF WE ARE UNABLE TO EXPAND OUR NETWORK INFRASTRUCTURE TO MEET INCREASING DEMAND,
WE COULD LOSE CUSTOMERS AND WE MAY NOT BE ABLE TO SUSTAIN OR INCREASE OUR
REVENUES.

We must continue to expand and adapt our network infrastructure to meet the
increase in the number of users and the amount of information they wish to
transport and to meet changing customer requirements. The expansion and
adaptation of our telecommunications infrastructure will require substantial
financial, operational and management resources as we negotiate for access to
telecommunications systems with existing and other network infrastructure
suppliers. Significant and rapid expansion of our network due to increased usage
will place additional stress upon our network hardware and traffic

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<PAGE> 13

management systems. The ability of our network to connect and manage a
substantially larger number of customers at high transmission speeds is as yet
unknown. In addition, our ability to expand our network to its expected customer
levels while maintaining superior performance is unknown.

IF WE ARE UNABLE TO CONTINUE TO OBTAIN SUFFICIENT TELECOMMUNICATIONS NETWORK
CAPACITY AT REASONABLE COSTS, WE MAY NOT BE ABLE TO PROVIDE OUR SERVICES AT
PRICES ACCEPTABLE TO OUR CUSTOMERS, THEREBY REDUCING DEMAND FOR OUR SERVICES.

Our success will depend upon the capacity, ease of expansion, reliability
and security of our network infrastructure, including the capacity leased from
our telecommunications network suppliers. Our operating results depend, in part,
upon the pricing and availability of telecommunications network capacity from a
limited number of providers. If capacity is not available to us as our
customers' usage increases, our network may not be able to achieve or maintain
sufficiently high data transmission capacity, reliability or performance. In
addition, our business would suffer if our network suppliers increased the
prices for their services and we were unable to pass along any increased costs
to our customers. Any failure on our part or the part of our third-party
suppliers to achieve or maintain high data transmission capacity, reliability or
performance could significantly reduce customer demand for our services, damage
our business reputation and increase our costs.

WE MAY NOT BE ABLE TO DELIVER OUR SERVICES IF OUR THIRD-PARTY SUPPLIERS DO NOT
PROVIDE US WITH KEY COMPONENTS OF OUR NETWORK INFRASTRUCTURE ON REASONABLE TERMS
OR AT ALL.

We depend on other companies to supply key components of our network
infrastructure. Any failure to obtain needed products or services in a timely
fashion or at an acceptable cost could adversely affect our business. We have no
guaranteed supply arrangements with our vendors and do not carry significant
inventories. In the event of equipment failure, we may not have the necessary
hardware or parts on hand and may not be able to obtain them from our suppliers
in a timely manner. Our inability or failure to obtain the necessary hardware or
parts on a timely basis could result in sustained equipment failure and a loss
of revenue due to customer loss or claims for service credits under our
guaranteed levels of service. In addition, the inability to obtain equipment or
technical services on terms acceptable to us would force us to spend time and
money selecting and obtaining new equipment, training our personnel to use
different equipment and deploying alternative components needed to integrate the
new equipment.

WE DEPEND ON OUR RESELLER SALES CHANNEL TO MARKET AND SELL MANY OF OUR SERVICES.
WE DO NOT CONTROL OUR RESELLERS, AND IF WE FAIL TO DEVELOP OR MAINTAIN GOOD
RELATIONS WITH RESELLERS, WE MAY NOT ACHIEVE THE GROWTH IN CUSTOMERS AND
REVENUES THAT WE EXPECT.

An element of our strategy for growth is to continue to develop our use of
third parties who resell our services. Many of our resellers are web development
or web consulting companies that also sell our web hosting services, but that
generally do not have established customer bases to which they can market our
services. Therefore, in those markets where we do not focus our direct marketing
efforts -- mainly international markets -- we are dependent on third parties to
stimulate demand for our services. Although we attempt to provide our resellers
with incentives such as price discounts on our services that the resellers seek
to resell at a profit, the failure of our services to be commercially accepted
in some markets, whether as a result of a reseller's performance or otherwise,
could cause our current resellers to discontinue their relationships with us,
and we may not be successful in establishing additional reseller relationships
as needed.

BECAUSE WE OPERATE IN A NEW AND EVOLVING MARKET WITH UNCERTAIN PROSPECTS FOR
GROWTH, WE MAY BE UNABLE TO SUSTAIN GROWTH IN OUR CUSTOMER BASE.

The market for web hosting and applications hosting services for small and
medium-sized businesses has only recently begun to develop and is evolving
rapidly. Our future growth, if any, will depend upon the willingness of small
and medium-sized businesses to outsource web hosting and applications hosting
services and our ability to increase our average revenue per customer and our
customers' willingness to
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execute long-term contracts for hosting services. The market for our services
may not develop further, consumers may not widely adopt our services, and
significant numbers of businesses or organizations may not use the Internet for
commerce and communication. If this market fails to develop further or develops
more slowly than expected, or if our services do not achieve broader market
acceptance, we will not be able to grow our customer base.

In addition, we must be able to differentiate ourselves from our
competition through our service offerings and brand recognition in order to
attract customers and to grow our average revenue per customer. These activities
may be more expensive than we anticipate, and we may not be successful in
differentiating ourselves, achieving market acceptance of our services or
selling additional services to our existing customer base. We may also
experience difficulties that could delay or prevent the successful development,
introduction or marketing of these services. If we are unable, for technical or
other reasons, to develop and introduce new services or products or enhancements
to existing services in a timely manner, or if new services do not achieve
market acceptance in a timely manner or at all, it would be difficult for us to
attract customers or to grow our average revenue per customer.

WE MAY NOT BE ABLE TO ADAPT TO EVOLVING TECHNOLOGIES AND CUSTOMER DEMANDS.

In the web and applications hosting industry, service providers must keep
pace with evolving technologies in order to offer relevant, sophisticated
services on a timely basis to meet rapidly changing customer demands. Our future
success will depend, in part, upon our ability to offer services that
incorporate leading technologies, address the increasingly sophisticated and
varied needs of our current and prospective web and applications hosting
customers and respond to technological advances and emerging industry standards
and practices on a timely and cost-effective basis. The market for our services
is characterized by rapidly changing and unproven technologies, evolving
industry standards, changes in customer needs, emerging competition and frequent
introductions of new services. To be successful, we must continually improve the
performance, features and reliability of our services, including our proprietary
technologies, and modifying our business strategies accordingly. We could also
incur substantial costs if we need to modify our services or infrastructure in
order to adapt to these changes. Technological advances may have the effect of
encouraging some of our current or future customers to rely on in-house
personnel and equipment to furnish the services that we currently provide.

IF WE ARE UNABLE TO MAINTAIN THE COMPATIBILITY OF OUR SERVICES WITH PRODUCTS
OFFERED BY OUR VENDORS, WE COULD LOSE OR FAIL TO ATTRACT CUSTOMERS.

We believe that our ability to compete successfully also depends upon the
continued compatibility of our services with products offered by various
vendors. Enhanced or newly developed third-party products may not be compatible
with our infrastructure, and such products may not adequately address the needs
of our customers. Although we currently intend to support emerging standards,
industry standards may not be established, and, even if they are established, we
may not be able to conform to these new standards in a timely fashion in order
to maintain a competitive position in the market. Our failure to conform to the
prevailing standard, or the failure of a common standard to emerge, could cause
us to lose customers or fail to attract new customers. In addition, products,
services or technologies developed by others could render our services
noncompetitive or obsolete.

OUR RECENT GROWTH HAS STRAINED OUR RESOURCES, AND IF WE ARE UNABLE TO MANAGE OUR
ANTICIPATED GROWTH, WE MAY NOT BE ABLE TO MAINTAIN THE QUALITY OF OUR SERVICES
AND OPERATIONS OR CONTROL OUR COSTS EFFECTIVELY.

We are currently experiencing a period of rapid expansion of our customer
base. In addition, the number of our employees increased from 17 on March 31,
1998 to 549 on June 30, 2000. This growth has placed and, if it continues, will
place a significant strain on our financial, management, operational and other
resources. In addition, we must manage relationships with a growing number of
third parties as we seek to complement our service offerings and increase our
indirect sales efforts. Our management,

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personnel, systems, procedures and controls may not be adequate to support our
existing and future operations. Our ability to manage our growth effectively
will require us to continue:

- enhancing management information systems and forecasting procedures;

- further developing our operating, administrative, financial, billing, and
accounting systems and controls;

- maintaining close coordination among our engineering, accounting,
finance, marketing, sales and operations organizations;

- expanding, training and managing our employee base; and

- expanding our finance, administrative and operations staff.

The failure to manage our growth effectively could adversely affect the
quality of our services, our business and our financial condition. We may not be
able to maintain the quality of our operations, to control our costs and to
expand our internal systems in order to support our desired growth.

IF INTERNET USAGE DOES NOT CONTINUE TO INCREASE OR IF THE INTERNET FAILS TO
PERFORM RELIABLY, WE MAY NOT BE ABLE TO ATTRACT CUSTOMERS.

Use of the Internet for retrieving, sharing and transferring information
among businesses, consumers, suppliers and partners has recently begun to
increase rapidly. The adoption of the Internet for information retrieval and
exchange, commerce and communications, particularly by those enterprises that
have historically relied upon alternative means of information gathering,
commerce and communications, generally requires the adoption of a new medium of
conducting business and exchanging information. If the Internet as a commercial
or business medium fails to develop further or develops more slowly than
expected, we would not be able to grow our customer base as quickly as desired
and our customers would be less likely to require more complex, higher revenue
services from us.

As a web and applications hosting company, our success depends in large
part on continued growth in the use of the Internet. The lack of continued
growth in the usage of the Internet would adversely affect our business because
we would not gain additional customers and our existing customers might not have
any further use for our services. Internet usage and growth may be inhibited for
a number of reasons, such as:

- inadequate network infrastructure;

- security concerns;

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

- inconsistent quality of service;

- lack of availability of cost-effective, reliable, high-speed service; and

- failure of Internet use to expand internationally.

If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. For example, web sites have experienced interruptions
in 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.

WE COULD EXPERIENCE SYSTEM FAILURES WHICH COULD HARM OUR REPUTATION, CAUSE
CUSTOMERS TO SEEK REIMBURSEMENT FOR SERVICES, AND CAUSE CUSTOMERS TO SEEK
ANOTHER PROVIDER FOR SERVICES.

We must be able to operate the systems that manage our network around the
clock without interruption. Our operations depend upon our ability to protect
our network infrastructure, equipment and customer files against damage from
human error, fire, earthquakes, hurricanes, floods, power loss,
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telecommunications failures, sabotage, intentional acts of vandalism and similar
events. Despite precautions we have taken, and plan to take, we do not have a
formal disaster recovery plan and the occurrence of a natural disaster or other
unanticipated problems at our data centers could result in interruptions in our
services. Although we have attempted to build redundancy into our network, our
network is currently subject to various points of failure, and a problem with
one of our routers (devices that move information from one computer network to
another) or switches could cause an interruption in our services to a portion of
our customers. In the past we have experienced periodic interruptions in
service. In addition, failure of any of our telecommunications providers to
provide the data communications capacity we require, as a result of human error,
a natural disaster or other operational disruption, could result in
interruptions in our services. Any future interruptions could:

- cause customers or end users to seek damages for losses incurred;

- require us to replace existing equipment or add redundant facilities;

- damage our reputation for reliable service;

- cause existing customers to cancel their contracts; or

- make it more difficult for us to attract new customers.

We currently offer to all customers a 99.9% service level warranty. Under
this policy, we guarantee that each customer's Web site will be available at
least 99.9% of the time in each calendar month for as long as the customer is
using our web hosting services. If we were to experience widespread system
failures, we could incur significant costs under this warranty.

OUR DATA CENTERS AND NETWORKS MAY BE VULNERABLE TO SECURITY BREACHES.

A significant barrier to electronic commerce and communications is the need
for secure transmission of confidential information over public networks. Some
of our services rely on security technology licensed from third parties that
provides the encryption and authentication necessary to effect the secure
transmission of confidential information. Despite our design and implementation
of a variety of network security measures, unauthorized access, computer
viruses, accidental or intentional actions and other disruptions could occur. In
the past, we have experienced and may in the future experience delays or
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. In addition,
inappropriate use of the network by third parties could also potentially
jeopardize the security of confidential information, such as credit card and
bank account numbers stored in our computer systems. These security problems
could result in our liability and could also cause the loss of existing
customers and potential customers. In addition, third parties could interfere
with the operation of our customers' web sites through intentional attacks
including causing an overload of traffic to these web sites.

Although we intend to continue to implement industry-standard security
measures, third parties may be able to overcome any measures that we implement.
The costs required to eliminate computer viruses and alleviate other security
problems could be prohibitively expensive and the efforts to address such
problems could result in interruptions, delays or cessation of service to our
customers, and harm our reputation and growth. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet, especially as a means of conducting commercial transactions.

DISRUPTION OF OUR SERVICES CAUSED BY UNKNOWN SOFTWARE DEFECTS COULD HARM OUR
BUSINESS AND REPUTATION.

Our service offerings depend on complex software, including our proprietary
software tools and software licensed from third parties. Complex software often
contains defects, particularly when first introduced or when new versions are
released. We may not discover software defects that affect our new or current
services or enhancements until after they are deployed. Although we have not
experienced any material software defects to date, it is possible that defects
may occur in the software. These defects could

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cause service interruptions, which could damage our reputation or increase our
service costs, cause us to lose revenue, delay market acceptance or divert our
development resources.

PROVIDING SERVICES TO CUSTOMERS WITH CRITICAL WEB SITES AND WEB-BASED
APPLICATIONS COULD POTENTIALLY EXPOSE US TO LAWSUITS FOR CUSTOMERS' LOST PROFITS
OR OTHER DAMAGES.

Because our web hosting and applications hosting services are critical to
many of our customers' businesses, any significant interruption in our services
could result in lost profits or other indirect or consequential damages to our
customers. Although the standard terms and conditions of our customer contracts
disclaim our liability for any such damages, a customer could still bring a
lawsuit against us claiming lost profits or other consequential damages as the
result of a service interruption or other web site or application problems that
the customer may ascribe to us. A court might not enforce any limitations on our
liability, and the outcome of any lawsuit would depend on the specific facts of
the case and legal and policy considerations even if we believe we would have
meritorious defenses to any such claims. In such cases, we could be liable for
substantial damage awards. Such damage awards might exceed our liability
insurance by unknown but significant amounts, which would seriously harm our
business.

WE MAY NOT BE ABLE TO SUCCESSFULLY SUSTAIN OUR GROWTH IF WE ARE UNABLE TO
ATTRACT AND RETAIN ADDITIONAL HIGHLY SKILLED PERSONNEL.

We are currently experiencing rapid growth and intend to continue
expanding. Since beginning our operations as a web hosting business in September
1997, we have grown to 549 employees as of June 30, 2000. We believe that we
will need to hire approximately 200 additional personnel in all areas of our
business over the next 12 months. Our future success will also depend on our
ability to attract, train, retain and motivate highly qualified technical,
marketing, sales and management personnel. Competition for qualified personnel
among Internet-related businesses is intense, and we may not be able to attract
and retain key personnel.

IF OUR MANAGEMENT TEAM, WHICH HAS WORKED TOGETHER FOR ONLY A BRIEF TIME, IS
UNABLE TO WORK TOGETHER EFFECTIVELY, WE MAY NOT BE ABLE TO IMPLEMENT OUR PLANS
SUCCESSFULLY.

We have recently hired key employees and officers, including our Executive
Vice President -- Operations, Chief Financial Officer, Senior Vice
President -- Sales, Marketing and Business Development, General Counsel, and
Chief Technical Officer. As a result, our management team has worked together
for only a brief time. Our success depends in significant part upon the
continued services of our senior management personnel. Any of our officers or
employees can terminate his or her relationship with us at any time. We
currently have employment agreements with only our most senior management
personnel and we carry key-man life insurance only for our President and Chief
Executive Officer.

IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS COULD NEGATIVELY AFFECT THE
REPUTATION OF OUR BRAND OR COULD ALLOW COMPETITORS TO MINIMIZE ANY ADVANTAGE
THAT OUR PROPRIETARY TECHNOLOGY GIVES US.

We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect proprietary
rights in our services, particularly including the name "Interland" and our
proprietary customer management system. We have filed trademark registration
applications in the U.S. that, even if granted, may not fully protect our
ability to use these trademarks in all areas of the U.S. In addition, we have
spent and expect to continue to invest significant amounts to build brand
recognition of our name, and we could lose the return on this significant
marketing investment if we were to lose or be restricted in the use of the
Interland name to market our services. Third parties may object to our use of
some of our trademarks, service marks, trade names, slogans or other devices,
which could require that those indicia be changed or altered. At this point, we
have no patented technology that would preclude or inhibit competitors from
entering our market. While we believe that we may file several patent
applications on particular aspects of our technology, we cannot be sure that we
will receive any patents. We have entered into confidentiality and other
agreements with our employees and contractors, including agreements in which
they assign their rights in inventions to us. We have also
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entered into nondisclosure agreements with our suppliers, distributors and some
of customers in order to limit access to and disclosure of our proprietary
information. These contractual arrangements or the other steps we have taken to
protect our intellectual property may not prove sufficient to prevent illegal
use of our technology or to deter independent third-party development of similar
technologies. The laws of some foreign countries may not protect our services or
intellectual property rights to the same extent as do the laws of the United
States. For example, there may be potential conflicts with the use of our name
in other countries. We do not know what the impact of being unable to use our
name in other countries may be, although this inability may cause us to incur
significant additional expenses to build brand recognition in those countries.

We also rely on several 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.

WE MAY BE ACCUSED OF INFRINGING THE PROPRIETARY RIGHTS OF OTHERS, WHICH COULD
SUBJECT US TO COSTLY AND TIME CONSUMING LITIGATION.

In addition to the technologies we develop or have developed, we license
technologies from third parties and may license additional technologies in the
future. To date, we have not been notified that our services infringe on the
proprietary rights of any third parties, but third parties could claim that we
have infringed on their technology with respect to current or future services.
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. These royalty or
licensing agreements might not be available on terms acceptable to us or at all.
In addition, third parties may change the terms of their license agreements in
ways that would prevent us from using technologies licensed from them on
commercially reasonable terms or that would prevent us from using them at all.
We may not be able to replace those technologies with technologies that have the
same features or functions on commercially reasonable terms or at all.

WE COULD FACE LIABILITY FOR INFORMATION DISTRIBUTED THROUGH OUR NETWORK.

The law relating to the liability of on-line services companies for
information carried on or distributed through their networks is currently
unsettled. On-line services companies could be subject to claims under both
United States and foreign law for defamation, negligence or copyright or
trademark infringement, or other theories based on the nature and content of the
materials distributed through their networks. Several private lawsuits seeking
to impose such liability upon other entities are currently pending against other
companies. In addition, we may become subject to proposed legislation that would
impose liability for or prohibit the transmission over the Internet of some
types of information. Other countries may also enact legislation or take action
that could impose liability on us or cause us not to be able to operate in those
countries. The imposition upon us and other on-line services of potential
liability for information carried on or distributed through our systems could
require us to implement measures to reduce our exposure to such liability, which
may require us to expend substantial resources, or to discontinue service
offerings. The increased attention focused upon liability issues as a result of
these lawsuits and legislative proposals also could affect the growth of
Internet use.

OUR BUSINESS MAY BE IMPACTED BY GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES.

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 access to,
or commerce on, the Internet. Due to the increasing popularity and use of the
Internet, however, laws and regulations with respect to the Internet may be
adopted at 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
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convergence of traditional telecommunications services with Internet
communications. We cannot fully predict the nature of future legislation and the
manner in which government authorities may interpret and enforce. As a result,
we and our customers could be subject to potential liability under future
legislation which in turn could have a material adverse effect on our business,
results of operations and financial condition. For example, if legislation that
makes transacting business over the Internet, such as e-commerce, less favorable
or otherwise curtails the growth of the Internet is adopted in the U.S. or
internationally, our business would suffer. 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 or increase the cost of doing business or
in some other manner harm 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. These laws
generally pre-date the advent of the Internet and related technologies and, as a
result, do not consider or address the unique issues of the Internet and related
technologies. Changes to laws intended to address these issues could create
uncertainty in the marketplace that could reduce demand for our services or
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 a material
adverse effect on our business, results of operations and financial condition.
In addition, because our services are available over the Internet virtually
worldwide, and because we facilitate sales by our customers to end users located
in multiple states and foreign countries, such jurisdictions may claim that we
are required to qualify to do business as a foreign corporation in each such
state or that we have a permanent establishment in each such foreign country.

WE FACE RISKS INHERENT IN DOING BUSINESS IN INTERNATIONAL MARKETS THAT COULD
ADVERSELY AFFECT THE SUCCESS OF OUR INTERNATIONAL OPERATIONS.

Although we have historically derived a portion of our revenues from
foreign sales, we have just recently commenced business in our first foreign
location and must now deal more directly with the risks inherent in doing
business in international markets. These risks include different regulatory
requirements, trade barriers, challenges in staffing and managing foreign
operations, currency risk, different tax structures which may adversely impact
earnings, and foreign political and economic instability, any of which could
adversely affect the success of our international operations. We also expect
that many of the costs of staffing and managing our international operations
will be greater than for comparable U.S. based operations, including higher
employee costs, longer accounts receivable collection periods and greater
difficulty in collecting accounts receivable.

In addition, as a web and applications hosting company, we face challenges
in offering these services to customers in foreign markets that can differ
significantly from the challenges we face in the United States, such as:

- different Internet access fees;

- different technology standards;

- different privacy, censorship and liability standards and regulations;
and

- less protective intellectual property laws.

Any of these risks could adversely affect our ability to operate or expand
internationally, which would limit the growth of our business. In addition, we
could suffer significant operating losses if the revenue generated by our
current sales and support center or any future international data center or
other operations is not adequate to offset the expense of establishing and
maintaining those international operations.

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WE HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS OFFERING AND
IF WE FAIL TO USE THE NET PROCEEDS EFFECTIVELY, WE MAY NOT BE SUCCESSFUL IN OUR
EFFORTS TO GROW OUR BUSINESS AND REVENUES.

As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds we will receive from this offering. We
currently intend to apply the net proceeds from the offering as described under
"Use of Proceeds" in this prospectus, but our management will have broad
discretion in the application of the net proceeds. If our management fails to
apply these funds effectively, we may not be successful in our efforts to grow
our business and revenues.

OUR PRINCIPAL SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS WILL OWN
APPROXIMATELY 68% OF OUR COMMON STOCK, WHICH MAY ALLOW THEM TO EXERT INFLUENCE
OVER US OR TO PREVENT A CHANGE OF CONTROL.

After this offering our shareholders who currently own over 5% of our
common stock, our directors and our executive officers will beneficially own
approximately 68% of our outstanding common stock. These shareholders will be
able to exercise significant influence over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also delay or
prevent a change in control of us even if beneficial to our shareholders.

SOME PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DISCOURAGE
TAKEOVERS THAT YOU MAY BELIEVE ARE IN YOUR INTEREST.

Our articles of incorporation and bylaws contain some provisions that may
delay, discourage or prevent an attempted acquisition or change in control. Our
articles and bylaws establish:

- the authority of the board of directors to issue series of preferred
stock with special powers, preferences and rights without shareholder
approval;

- the authority of the board of directors to consider constituencies other
than the shareholders -- including employees, customers, suppliers and
the community -- in making decisions, including decisions regarding
control of Interland;

- the right of the board of directors to alter our bylaws without prior
shareholder approval; and

- the right of the board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors.

In addition, our bylaws establish three classes of directors to serve three year
staggered terms. These provisions of our articles of incorporation and bylaws
could discourage tender offers or other transactions that might otherwise result
in your receiving a premium over the market price for your common stock. See
"Description of Capital Stock" in this prospectus for more information about our
articles of incorporation and bylaws.

We have adopted a shareholder rights plan. This plan entitles our
shareholders to acquire additional shares of our preferred stock when a third
party acquires 15% of our common stock or commences or announces its intent to
commence a tender offer for at least 15% of our common stock. This plan could
delay, deter, or prevent a change of control.

YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price of our common stock is substantially
higher than the net tangible book value of our common stock. Therefore, if you
purchase our common stock in this offering, you will incur immediate dilution of
approximately $9.72 in the net tangible book value per share of common stock
from the initial public offering price of $12.00 per share. You will also
experience additional dilution upon the exercise of outstanding stock options
and warrants at prices below the initial public offering price.

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APPROXIMATELY 41,000,000, OR OVER 98%, OF OUR SHARES OUTSTANDING PRIOR TO THE
COMPLETION OF THIS OFFERING ARE RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD
INTO THE MARKET IN THE NEAR FUTURE, WHICH COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK.

After this offering is completed, there will be 46,647,628 issued and
outstanding shares of our common stock, assuming no exercise of the
underwriters' over-allotment option. All of the shares of our common stock sold
in this offering will be freely tradable except for shares that our "affiliates"
may purchase. In connection with this offering, our officers, directors and some
of our shareholders who together own in excess of 41,000,000 shares of our
common stock agreed to refrain from selling any shares of our common stock for a
period of 180 days after the date of this prospectus. However, the underwriters
may waive these restrictions in some circumstances. The market price of our
common stock could drop due to sales of a large number of shares of our common
stock in the market after this offering or the perception that these sales could
occur. These factors could also make it more difficult for us to raise funds
through future offerings of our common stock.

As soon as practicable after this offering, we intend to register for
resale 8,100,000 shares of our common stock reserved under our stock plans, of
which options for 5,293,620 shares of common stock were outstanding as of June
30, 2000. Options for 742,118 shares were currently exercisable as of July 1,
2000.

THE RELIABILITY OF MARKET DATA INCLUDED IN THIS PROSPECTUS IS UNCERTAIN. WE HAVE
NOT INDEPENDENTLY VERIFIED THIS DATA, AND IF IT IS INACCURATE THE GROWTH
POTENTIAL OF OUR BUSINESS AND MARKETS MAY BE LESS THAN ANTICIPATED.

Since we operate in a new and rapidly changing market, we have included
market data from industry publications. The reliability of these data cannot be
assured. Market data used throughout this prospectus were obtained from internal
company surveys and industry publications. Industry publications generally state
that the information contained in these publications has been obtained from
sources believed to be reliable, but that its accuracy and completeness is not
guaranteed. Although we believe market data used in this prospectus to be
reliable, it has not been independently verified. Similarly, internal company
surveys, which we believe to be reliable, have not been verified by any
independent sources.

FORWARD-LOOKING STATEMENTS

This prospectus contains statements about future events and expectations
which we refer to as forward-looking statements. We have based these
forward-looking statements on our management's beliefs, assumptions and
expectations of our future economic performance, taking into account the
information currently available to them. These statements are not statements of
historical fact. Forward-looking statements involve risks and uncertainties that
may cause our actual results, performance or financial condition to differ
materially from the expectations of future results, performance or financial
condition we express or imply in any forward-looking statements. Factors that
could contribute to these differences include those discussed in "Risk Factors"
and in other sections of this prospectus. The words believe, may, will, should,
anticipate, estimate, expect, intend, objective, seek, strive or similar words,
or the negatives of these words, identify forward-looking statements. We qualify
any forward-looking statements entirely by these cautionary factors.

19
<PAGE> 22

USE OF PROCEEDS

We estimate that our net proceeds from the sale of our common stock in this
offering will be approximately $54.7 million, based on an initial public
offering price of $12.00 per share, after deducting the estimated underwriting
discount and our estimated offering expenses. If the underwriters exercise their
over-allotment option in full, we estimate that our net proceeds will be
approximately $63.0 million.

We expect to use the net proceeds from this offering as follows:

- approximately $45.0 million over the next two years to enhance and
expand our network infrastructure and for other capital
expenditures;

- approximately $5.0 million over the next two years, to build our
brand through marketing and advertising both domestically and
internationally; and

- to fund operating losses, working capital requirements and general
corporate purposes.

The actual amounts of proceeds used for these purposes may differ
significantly from the above estimates. Our management will retain broad
discretion in the allocation of the net proceeds of this offering. Although we
may use a portion of the net proceeds to pursue possible acquisitions or
strategic investments in complementary businesses, technologies or products in
the future, there are no current plans, agreements or commitments with respect
to any acquisitions or investments of this type. Until we use the proceeds of
this offering for the above purposes, we intend to invest the funds in
short-term, investment grade, interest-bearing securities.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. We anticipate that
we will retain earnings to support operations and to finance the growth and
development of our business. Therefore, we do not expect to pay cash dividends
in our foreseeable future.

20
<PAGE> 23

CAPITALIZATION

The following table shows our capitalization as of March 31, 2000:

- on an actual basis;

- on a pro forma basis to reflect the conversion of all convertible
preferred stock outstanding at March 31, 2000 into 13,137,083 shares of
common stock at the time we complete this offering; and

- on a pro forma, as adjusted basis to reflect the sale of 1,199,999 shares
of our preferred stock to Bell Atlantic (and the later conversion to
common stock at the time we complete this offering), the recording of the
related beneficial conversion feature of approximately $4.4 million in
the form of a dividend, the payment in cash of $1.5 million of preferred
stock dividends accrued through the closing date, the sale of 625,000,
500,000 and 1,250,000 shares of our common stock at a price of $12.00 per
share to Microsoft, Network Solutions and Bell Atlantic, respectively, at
the time of this offering, the grant of warrants to purchase up to
843,750 shares of common stock that will be issued to Microsoft and
Network Solutions at the time of this offering, the exercise on April 14,
2000 of an option to purchase 540,000 shares of our common stock, the
issuance on May 15, 2000 of 32,400 shares of our common stock valued at
$12.00 per share and the sale of 5,000,000 shares of our common stock we
are offering under this prospectus, after deducting the underwriting
discount and estimated offering expenses that we will pay.

You should read the following capitalization data together with "Use of
Proceeds," "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the financial statements and
accompanying notes and the other financial data included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 18,939 $ 18,939 $112,082
======== ======== ========
Long-term capital lease obligation.......................... $ 2,935 $ 2,935 $ 2,935
-------- -------- --------
Shareholders' equity:
Preferred stock; no par value, 25,000,000 shares
authorized; 13,137,083 shares issued and outstanding,
actual; no shares issued and outstanding, pro forma and
pro forma, as adjusted................................. 40,630 -- --
Common stock; no par value, 100,000,000 shares authorized
(200,000,000 shares authorized as of May 9, 2000);
24,363,154 shares issued and outstanding, actual;
37,500,239 shares issued and outstanding, pro forma;
and 46,647,628 shares issued and outstanding, pro
forma, as adjusted..................................... 7,022 47,652 142,700
Warrants.................................................. 5,242 5,242 11,285
Deferred product development costs(1)..................... (2,026) (2,026) (5,383)
Deferred marketing costs(1)............................... (4,603) (4,603) (7,289)
Deferred compensation..................................... (4,568) (4,568) (4,568)
Accumulated deficit....................................... (30,026) (30,026) (30,596)
-------- -------- --------
Total shareholders' equity............................. 11,671 11,671 106,149
-------- -------- --------
Total capitalization.............................. $ 14,606 $ 14,606 $109,084
======== ======== ========
</TABLE>

---------------
(1) These amounts relate to the value of equity securities issued to Microsoft
and Network Solutions. For further discussion see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."

21
<PAGE> 24

DILUTION

As of March 31, 2000, our net tangible book value was approximately $11.7
million or $0.48 per share of outstanding common stock. Our pro forma net
tangible book value as of March 31, 2000 was $11.7 million, or $0.31 per share
of outstanding common stock, after giving effect to the conversion of all
convertible preferred stock outstanding at March 31, 2000 into common stock at
the time we complete this offering. The pro forma net tangible book value per
share represents our total tangible assets less total liabilities, divided by
the total number of shares of common stock outstanding on a pro forma basis
before this offering. Net tangible book value has also been adjusted to reflect
the adjustments shown in the pro forma as adjusted column under
"Capitalization," which include the effect of the sale of 1,199,999 shares of
our preferred stock to Bell Atlantic (and the later conversion to common stock
at the time we complete this offering), the recording of the related beneficial
conversion feature of approximately $4.4 million in the form of a dividend, the
payment in cash of $1.5 million of preferred stock dividends accrued through the
closing date, the sale of 625,000, 500,000 and 1,250,000 shares of our common
stock at a price of $12.00 per share to Microsoft, Network Solutions and Bell
Atlantic, respectively at the time of this offering, the grant of warrants to
purchase up to 843,750 shares of common stock that will be issued to Microsoft
and Network Solutions at the time of this offering, the exercise on April 14,
2000 of an option to purchase 540,000 shares of our common stock, the issuance
of 32,400 shares of our common stock on May 15, 2000 valued at $12.00 per share
and the sale of 5,000,000 shares of our common stock we are offering under this
prospectus, after deducting underwriting discount and estimated offering
expenses that we will pay. Dilution per share represents the difference between
the amount per share paid by investors in this offering and the pro forma as
adjusted net tangible book value per share after this offering. After giving
effect to this offering, our adjusted pro forma as adjusted net tangible book
value as of March 31, 2000 would have been $106.1 million, or $2.28 per share.
This represents an immediate increase in net tangible book value of $1.97 per
share to existing shareholders and an immediate dilution in net tangible book
value of $9.72 per share to new investors. The following table illustrates the
per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Net tangible book value per share at March 31, 2000....... $ 0.48
Change in net tangible book value due to pro forma
conversion of preferred stock.......................... (0.17)
Change in net tangible book value due to other
adjustments............................................ 1.97
------
Pro forma as adjusted net tangible book value per share
after this offering....................................... 2.28
------
Dilution per share to new investors......................... $ 9.72
======
</TABLE>

The following table summarizes, on a pro forma, as adjusted basis as of
June 30, 2000, the difference between existing shareholders and new investors
with respect to the number of shares of common stock purchased, the total
consideration paid and the average price per share paid. These amounts do not
include estimated underwriting discount and offering expenses that we will pay.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 41,647,628 89.2% $ 88,040,000 59.5% $ 2.12
New investors........................... 5,000,000 10.8 60,000,000 40.5 $12.00
---------- ---- ------------ -----
Total......................... 46,647,628 100% $148,040,000 100%
========== ==== ============ =====
</TABLE>

The table above assumes no exercise of stock options or warrants. As of
June 30, 2000, there were options outstanding to purchase 5,725,620 shares of
common stock at a weighted exercise price of $4.59 per share, and warrants to
purchase up to 1,453,133 shares of our common stock at a weighted average
exercise price of $6.72 per share. We have also agreed to grant additional
warrants to Microsoft and Network Solutions at the time of this offering. To the
extent outstanding options and warrants are exercised, there will be further
dilution to new investors.

22
<PAGE> 25

SELECTED FINANCIAL DATA

The following table shows our selected financial data for the period from
inception (September 18, 1997) to December 31, 1997, for the years ended
December 31, 1998 and 1999 and for the three months ended March 31, 1999 and
2000. We have derived the financial data for the period from inception
(September 18, 1997) to December 31, 1997 and for the years ended December 31,
1998 and 1999 from our audited financial statements, which Arthur Andersen LLP,
independent public accountants has audited. We have derived the financial data
for the three months ended March 31, 1999 and March 31, 2000 from our unaudited
financial statements. In our opinion, this data includes all adjustments
consisting of only normal and recurring adjustments necessary for a fair
presentation of the information. The financial data may not necessarily be an
indicator of our results to be expected for the year ended December 31, 2000.

You should read the following selected financial data together with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the consolidated financial statements and accompanying
notes and the other financial data included elsewhere in this prospectus. The
following data is in thousands, except per share, share, web site, customer and
average monthly revenue per customer data.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION THREE MONTHS ENDED
(SEPTEMBER 18, YEAR ENDED YEAR ENDED -------------------------
1997) TO DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
DECEMBER 31, 1997 1998 1999 1999 2000
------------------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 5 $ 1,387 $ 9,121 $ 1,009 $ 6,268
Operating expenses.................... (119) (3,708) (25,891) (2,434) (17,308)
----------- ----------- ----------- ----------- -----------
Operating loss........................ (114) (2,321) (16,770) (1,425) (11,040)
Interest income (expense), net........ -- (18) (14) (11) 251
----------- ----------- ----------- ----------- -----------
Net loss.............................. (114) (2,339) (16,784) $ (1,436) $ (10,789)
Preferred stock beneficial conversion
and dividends....................... -- -- (9,559)(1) -- (586)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
shareholders........................ $ (114) $ (2,339) $ (26,343) $ (1,436) $ (11,375)
=========== =========== =========== =========== ===========
Basic and diluted net loss per common
share............................... $ (0.01) $ (0.13) $ (1.23) $ (0.07) $ (0.48)
=========== =========== =========== =========== ===========
Shares used in computing net loss per
share............................... 17,631,191 18,316,449 21,461,161 19,654,296 23,936,350
OTHER DATA:
Adjusted EBITDA(2).................... $ (114) $ (2,206) $ (12,221) $ (1,213) $ (9,048)
Net cash used in operating
activities.......................... (110) (30) (2,397) (54) (2,645)
Net cash used in investing
activities.......................... (2) (1,102) (8,752) (682) (7,785)
Net cash provided by financing
activities.......................... 139 1,811 34,953 966 4,859
Number of web sites................... 0 10,611 45,731 16,658 61,442
Number of customers................... 0 6,746 27,173 10,186 36,469
Average monthly revenue per
customer............................ $ 0 $ 34.26 $ 45.49 $ 39.73 $ 65.66
</TABLE>

---------------
(1) This amount consists of approximately $9.4 million associated with the
beneficial conversion feature of our preferred stock into common stock and
approximately $150,000 in an accrued preferred stock dividend. The
beneficial conversion is a result of the difference between the initial
purchase price paid by the preferred stock holders and actual conversion
price of the preferred stock into common stock.

(2) Adjusted EBITDA consists of net loss excluding interest income (expense),
net, and depreciation and amortization, as further adjusted to exclude
non-cash stock compensation expense and non-cash operating expenses incurred
as a result of the issuance of equity securities to third parties in the
total amount of $3.6 million, $101,000 and $1.4 million for the year ended
December 31, 1999, and the three months ended March 31, 1999 and 2000,
respectively. Adjusted EBITDA does not represent funds available for
management's discretionary use and is not intended to represent cash flow
from operations as measured under generally accepted accounting principles.
Adjusted EBITDA should not be considered as an alternative to net loss or
net cash used in operating activities, but may be useful to investors as an
indication of operating performance. Our calculations of Adjusted EBITDA may
not be consistent with similarly titled calculations used by other
companies.

23
<PAGE> 26

We present the following balance sheet data:

- on a pro forma basis to reflect the conversion of all convertible
preferred stock outstanding at March 31, 2000 into 13,137,083 shares of
common stock at the time we complete this offering; and

- on a pro forma as adjusted basis to reflect the sale of 1,199,999 shares
of our Series A Preferred Stock to Bell Atlantic (and later conversion to
common stock at the time we complete this offering, the recording of the
related beneficial conversion feature of approximately $4.4 million in
the form of a dividend, the payment in cash of $1.5 million of preferred
stock dividends accrued through the closing date, the sale of 625,000,
500,000 and 1,250,000 shares of our common stock at a price of $12.00 per
share to Microsoft, Network Solutions and Bell Atlantic, respectively at
the time of this offering, the grant of warrants to purchase up to
843,750 shares of common stock that will be issued to Microsoft and
Network Solutions at the time of this offering, the exercise on April 14,
2000 of an option to purchase 540,000 shares of our common stock, the
issuance on May 15, 2000 of 32,400 shares of our common stock valued at
$12.00 per share and the sale of 5,000,000 shares of our common stock we
are offering under this prospectus, after deducting the underwriting
discount and estimated offering expenses that we will pay.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, 2000
1997 1998 ----------------------------------
------------ ------------ DECEMBER 31, PRO FORMA
ACTUAL ACTUAL 1999 ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------ -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $28 $ 706 $ 24,510 $ 18,939 $18,939 $112,082
Total assets................ 30 1,781 35,976 42,717 42,717 136,248
Working capital............. 24 (1,627) 13,250 1,555 1,555 95,645
Total long-term
liabilities............... -- 350 4,004 4,994 4,994 4,994
Preferred stock............. -- -- 34,423 40,630 -- --
Other shareholders'
equity.................... 26 (938) (16,928) (28,959) 11,671 106,149
</TABLE>

24
<PAGE> 27

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

The following discussion of our financial condition and results of
operations should be read together with the financial statements and the
accompanying notes included elsewhere in this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in those
forward-looking statements as a result of certain factors, including, but not
limited to, those described under and included in other portions of the
prospectus.

OVERVIEW

We provide a broad range of web hosting and applications hosting and other
related web-based business solutions specifically designed to meet the needs of
small and medium-sized businesses. Our business is rapidly evolving and we have
limited operating history. As a result, we believe that period-to-period
comparisons of our revenue and operating results, including our cost of revenue
and other operating expenses as a percentage of total revenue, are not
meaningful and should not be relied upon as indicators of future performance. We
do not believe that our historical growth rates are an indication of future
results. See "Risk Factors" beginning on page 7 for a discussion of risks
related to buying shares of our common stock.

Currently, we derive a substantial majority of our revenues from shared and
dedicated hosting services. We also derive revenue from applications hosting and
consulting services. Our strategy is to grow our customer base and revenues by
marketing value-added services to small and medium-sized businesses. We expect
that our number of customer accounts will grow rapidly, and that the revenue
from the sale of higher margin services, such as dedicated hosting, applications
hosting and consulting services, will increase more rapidly than our base shared
hosting revenue. Currently, most of our hosting revenues are generated from
recurring monthly fees. The remainder is derived from one-time-set-up fees for
installation. We currently sell our services under agreements having terms of
three months to two years. Most of our customer agreements may be canceled
within the first thirty days. We receive payment in advance typically for the
full contract amount by direct charges to credit or debit cards. We recognize
all revenues, including set-up fees, ratably over the term of the contract.

Our expenses consist of:

- Cost of revenue, which is mainly comprised of compensation and
related expenses for technical operations, internet connectivity and
other related telecommunications expense, lease expense in
particular related to our data centers, and depreciation of
equipment;

- Sales and marketing, which is mainly comprised of compensation costs
and costs associated with marketing our products and services.
Compensation costs include salaries and related benefits,
commissions and bonuses. Our marketing expenses include the costs of
direct mail, advertising and other mass market programs; and

- General and administrative, which is mainly comprised of
compensation and related expenses, occupancy costs, and non-cash
stock compensation expense, which relates to stock and options
granted before March 31, 2000 at exercise prices less than the fair
market value of our common stock at the time of grant.

We have incurred significant losses and experienced negative cash flow from
operations since our inception and, as of March 31, 2000, had an accumulated
deficit of approximately $30.0 million. We intend to invest heavily in sales and
marketing, the continued development of our network infrastructure and
technology, and the expansion of our international operations. We expect to
expand our operations and workforce, including our network operations, technical
support, sales, marketing and administrative resources. We expect to continue to
incur substantial losses for the foreseeable future. Our ability to achieve
profitability and positive cash flow from operations will be dependent upon our
ability to grow our revenues substantially and achieve operating efficiencies.

25
<PAGE> 28

RESULTS OF OPERATIONS

The following table shows percentage of revenue data for the years ended
December 31, 1998 and 1999 and for the three months ended March 31, 1999 and
2000.

<TABLE>
<CAPTION>
% OF REVENUES
-----------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
------------------------------------- -------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1999 MARCH 31, 1999 MARCH 31, 2000
----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues............................ 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of revenue................... 79.0 86.6 85.3 106.6
Sales and marketing............... 130.0 86.6 88.8 89.0
General and administrative........ 58.3 110.7 67.1 80.5
------ ------ ------ ------
Operating loss...................... (167.3) (183.9) (141.2) (176.1)
Interest income................... 0.1 2.3 .7 5.6
Interest expense.................. (1.4) (2.4) (1.8) (1.6)
------ ------ ------ ------
Net loss.................. (168.6)% (184.0)% (142.3)% (172.1)%
====== ====== ====== ======
</TABLE>

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000

Revenues

Our revenues increased $5.3 million, or 521%, to $6.3 million during the
three months ended March 31, 2000 from $1.0 million during the three months
ended March 31, 1999. This increase was due mainly to the growth of our business
and number of customers served.

Cost of revenue

Our cost of revenue increased $5.8 million to $6.7 million, or 106.6% of
revenue, during the three months ended March 31, 2000 from $861,000, or 85.3% of
revenue during the three months ended March 31, 1999, due to the growth of our
business and related expenses, including $1.8 million in increased salary
expense related to data center and customer support personnel, non-cash expense
of $810,000, increased telecommunication and internet connection costs of
$612,000, increased depreciation expense of $302,000, increased lease expense of
$582,000, and increased license fee payments of $850,000. The non-cash expense
largely relates to deferred expenses associated with our strategic relationships
with Microsoft and Network Solutions. We expect our cost of revenue to continue
to increase as our overall business expands.

Sales and marketing

Sales and marketing expenses increased $4.7 million to $5.6 million, or
89.0% of revenues, during the three months ended March 31, 2000 from $896,000,
or 88.8% of revenues, during the three months ended March 31, 1999. This
increase was due mainly to a $757,000 increase in salary expense from a higher
number of sales personnel and a $3.9 million increase in advertising expense. We
intend to significantly increase our sales and marketing expenditures in 2000.

General and administrative

General and administrative expense increased $4.4 million to $5.0 million,
or 80.5% of revenue, during the three months ended March 31, 2000 from $677,000,
or 67.1% of revenue, for the three months ended March 31, 1999. The main factors
contributing to this increase include an increase in salary expense of $1.6
million, a $238,000 increase in travel expenses, a $494,000 increase in non-cash
compensation charges and increased consulting and professional fees. The
non-cash charges largely relate to amortization of deferred compensation arising
from stock options granted to employees and consultants. We expect to

26
<PAGE> 29

significantly increase our general and administrative expenditures in the future
to support a higher level of operations.

We recorded non-cash stock compensation expense of $596,000 during the
three months ended March 31, 2000 in connection with the grant of stock options
to employees. This amount relates to the difference between the fair market
value of our common stock (as calculated consistent with applicable accounting
principles) and the exercise price of the options granted on the dates the
options were granted. During the three months ended March 31, 2000 we granted
options to purchase 1,544,940 shares of our common stock to employees at
exercise prices ranging from $5.37 to $8.33 per share. We recorded deferred
compensation expense of approximately $4.2 million to additional paid in
capital, which will be amortized over the vesting period of the options, which
is generally three years. Upon completion of this offering, 241,120 of these
options will vest immediately. As a result, we expect to recognize non-cash
stock compensation expense of $1.4 million, $1.0 million, $1.1 million and
$720,000, in the years ending December 31, 2000, 2001, 2002 and 2003,
respectively.

From March 31, 2000 to June 30, 2000, we granted options to purchase shares
of our common stock to employees at exercise prices ranging from $3.00 to $8.33
per share. For the six months ending June 30, 2000, we will record additional
deferred compensation expense of approximately $2.7 million to additional paid
in capital, which will be amortized over the vesting period of the options,
which is generally three years. As a result, we expect to recognize additional
non-cash stock compensation expense of $637,000, $947,000, $866,000 and $252,000
in the years ending December 31, 2000, 2001, 2002 and 2003, respectively, for
the issuance of these options.

Interest income (expense), net

Interest income (expense), net consists primarily of interest income on our
cash balances and interest expense on our capital lease obligations. Interest
earned on our cash and cash equivalents increased $343,000 to $350,000 during
the three months ended March 31, 2000 from $7,000 during the three months ended
March 31, 1999. This increase was primarily due to the closing of private
placements of equity securities in December 1999, which resulted in higher cash
balances available for investment. During the three months ended March 31, 2000
we incurred interest expense in the amount of $99,000 on capital lease
obligations.

Income taxes

No provision for federal income taxes has been recorded as we have incurred
net operating losses from inception through March 31, 2000. We have recorded a
valuation reserve for all our net deferred tax benefit in the three month
periods ended March 31, 2000 and 1999 due to uncertainty that we will generate
sufficient taxable income during the carry forward period to realize the benefit
of our net deferred tax asset.

Net Loss

Our net loss increased $9.4 million to $10.8 million during the three
months ended March 31, 2000 from $1.4 million during the three months ended
March 31, 1999. Our net loss increased mainly as a result of increased cost of
revenues, sales and marketing, and general and administrative expense. These
increases were partially offset by an increase in revenue of $5.3 million to
$6.3 million during the three months ended March 31, 2000 from $1.0 million
during the three months ended March 31, 1999.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1999

Revenues

Our revenues increased $7.7 million, or 557.6%, to $9.1 million during 1999
from $1.4 million during 1998. This increase was mainly due to the growth of our
business and number of customers served. The number of customer accounts
increased from 10,611 at December 31, 1998 to 45,731 at December 31, 1999.
Approximately 42% of our fiscal 1999 revenue was recognized in the fourth
quarter.

27
<PAGE> 30

Cost of revenue

Our cost of revenue increased $6.8 million to $7.9 million, or 86.6% of
revenue, during 1999 from $1.1 million, or 79.0% of revenue during 1998, due to
the growth of our business and related expenses, including increased salary
costs of $3.2 million related to additional systems and customer support
personnel, increased telecommunication and Internet connection costs of $1.3
million, higher depreciation and lease expense of $1.2 million and increased
license fee payments of $655,000. We expect our cost of revenue to continue to
increase as we increase capacity to meet customer demand. We anticipate,
however, that these costs will decline as a percentage of revenues as we expand
our facilities and achieve a more cost-effective scale of operations.

Sales and marketing

Sales and marketing expenses increased $6.1 million to $7.9 million, or
86.6% of revenues, during 1999 from $1.8 million, or 130.0% of revenues during
1998. This increase was largely due to a $1.8 million increase in salary expense
due to an increase in the number of sales personnel at higher compensation
levels and increased placement of advertising of $4.0 million. We intend to
significantly increase our sales and marketing expenditures in 2000.

General and administrative

General and administrative expense increased $9.3 million to $10.1 million,
or 110.7% of revenue, during 1999 from $809,000, or 58.3% of revenue, during
1998. This increase was mostly due to increased salary expense of $2.0 million,
increased professional fees of $401,000 and travel costs of $419,000, as well as
severance expense of $660,000 related to the termination of an officer.

We also recorded non-cash deferred stock compensation expense in 1999 of
$4.5 million in connection with the grant of stock options and issuance of
common stock to consultants and employees. In the case of stock option grants,
this amount represents the difference between the fair market value of our
common stock (as calculated consistent with applicable accounting principles)
and the exercise price of the options granted on the dates the options were
granted. In those cases where common stock was issued, this amount represents
the fair market value of our common stock on the date of issuance as determined
by our board of directors. This amount is included as a reduction of
shareholders' equity and is being amortized ratably over the vesting period. For
the year ended December 31, 1999 we recorded $3.6 million in non-cash stock
compensation expense, as general and administrative expense, leaving $954,000 to
be recognized over the remaining vesting periods of the stock options.

There were no stock based compensation awards before 1999 and accordingly
there was no non-cash stock compensation expense in 1998. We expect to
significantly increase our general and administrative expenditures in the future
to support anticipated higher levels of operations.

Interest income (expense), net

Interest expense, net consists of interest income on our cash balances less
interest expense on our capital lease obligations. Interest earned on our cash
and cash equivalents increased $204,000 to $206,000 during 1999 from $2,000
during 1998. This increase was mainly due to the closing of private placements
of preferred stock in December 1999, which resulted in higher cash balances
available for investment. During the year ended December 31, 1999 we incurred
interest expense of $220,000, compared to $20,000 in 1998.

Income taxes

No provision for federal income taxes has been recorded as we have incurred
net operating losses from inception through December 31, 1999. As of December
31, 1999, we had approximately $19.8 million of federal net operating loss
carry-forwards available to offset future taxable income which expire in varying
amounts beginning in 2013. We have recorded a valuation reserve for all our net
deferred tax

28
<PAGE> 31

benefit for the period ended December 31, 1999 due to uncertainty that we will
generate sufficient taxable income during the carry-forward period to realize
the benefit of our net deferred tax asset.

Net Loss

Our net loss increased $14.5 million to $16.8 million during 1999 from $2.3
million during 1998. Our net loss increased mainly as a result of increased cost
of revenues, sales and marketing, and general and administrative expense in 1999
from 1998. These increases were partially offset by an increase in revenue of
$7.7 million to $9.1 million for 1999 from $1.4 million for 1998.

COMPARISON OF THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1997) TO DECEMBER 31,
1997 AND THE YEAR ENDED DECEMBER 31, 1998

We did not conduct any significant operations or realize any significant
revenue for the period from inception (September 18, 1997) to December 31, 1997.
During this period we incurred general and administrative expenses of
approximately $119,000, consisting mainly of rent and salaries, as we commenced
operations.

No comparison of the period from inception (September 18, 1997) to December
31, 1997 to the year ended December 31, 1998 is provided as it would not be
meaningful due to the startup nature of our operations and the insignificance of
the related expenses during 1997.

SELECTED QUARTERLY OPERATING RESULTS

The following table shows unaudited statement of operations data for each
of the five quarters in the period ended March 31, 2000, as well as the
percentage of our revenue represented by each item. This data has been derived
from unaudited interim financial statements prepared on the same basis as the
audited financial statements contained in this prospectus. The interim financial
statements include all adjustments, consisting of normal recurring adjustments,
that we consider necessary for a fair presentation of such information when read
together with our financial statements and notes thereto appearing elsewhere in
this prospectus. The operating results for any quarter should not be considered
as an indicator of the results for any future period. The following data is in
thousands, except web site, customer, and average monthly revenue per customer
data. For a definition of Adjusted EBITDA and related cautionary language, see
note (2) on page 6 and note (2) on page 22.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1999
----------------- ----------------- ------------------- -----------------
% OF % OF % OF % OF
$ REVENUE $ REVENUE $ REVENUE $ REVENUE
------- ------- ------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 1,009 100.0% $ 1,688 100.0% $ 2,582 100.0% $ 3,842 100.0%
------- ------ ------- ------ ------- ------ ------- ------
Operating expenses:
Cost of revenues................ 861 85.3 1,484 87.9 2,177 84.3 3,375 87.8
Sales and marketing............. 896 88.8 1,504 89.1 2,371 91.8 3,130 81.5
General and administrative...... 677 67.1 2,292 135.8 2,909 112.7 4,215 109.7
------- ------ ------- ------ ------- ------ ------- ------
Total operating
expenses................. 2,434 241.2 5,280 312.8 7,457 288.8 10,720 279.0
------- ------ ------- ------ ------- ------ ------- ------
Operating loss................... (1,425) (141.2) (3,592) (212.8) (4,875) (188.8) (6,878) (179.0)
Other income (expense):
Interest income................. 7 0.7 14 0.8 30 1.2 155 4.0
Interest expense................ (18) (1.8) (32) (1.9) (42) (1.6) (128) (3.3)
------- ------ ------- ------ ------- ------ ------- ------
Net loss.................. $(1,436) (142.3)% $(3,610) (213.9)% $(4,887) (189.2)% $(6,851) (178.3)%
======= ====== ======= ====== ======= ====== ======= ======
Adjusted EBITDA.................. $(1,213) $(2,182) $(3,316) $(5,510)
======= ======= ======= =======
Number of web sites.............. 16,658 24,325 33,705 45,731
Number of customers.............. 10,186 14,357 19,822 27,173
Average monthly revenue per
customer........................ $ 39.73 $ 45.86 $ 50.36 $ 54.50

<CAPTION>
QUARTER ENDED
------------------
MARCH 31, 2000
------------------
% OF
$ REVENUE
-------- -------
<S> <C> <C>
Revenues......................... $ 6,268 100.0%
-------- ------
Operating expenses:
Cost of revenues................ 6,685 106.6
Sales and marketing............. 5,579 89.0
General and administrative...... 5,044 80.5
-------- ------
Total operating
expenses................. 17,308 (276.1)
-------- ------
Operating loss................... (11,040) (176.1)
Other income (expense):
Interest income................. 350 5.6
Interest expense................ (99) (1.6)
-------- ------
Net loss.................. $(10,789) (172.1)
======== ======
Adjusted EBITDA.................. $ (9,048)
========
Number of web sites.............. 61,442
Number of customers.............. 36,469
Average monthly revenue per
customer........................ $ 65.66
</TABLE>

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<PAGE> 32

Revenues increased 41.5% during the quarter ended March 31, 1999, 67.3%
during the quarter ended June 30, 1999, 53.0% during the quarter ended September
30, 1999, 48.8% during the quarter ended December 31, 1999 and 63.1% for the
quarter ended March 31, 2000, as the number of new customers rose significantly
during each quarter. Cost of revenue increased in each quarter relatively
proportional to the increased revenue. Sales and marketing and general and
administrative increased quarter over quarter mainly due to the addition of
personnel as our business increased.

We expect to experience significant fluctuations in our future results of
operations due to a variety of factors, many of which are outside of our
control, including:

- demand for and market acceptance of our products and services may decline
or fail to increase enough to offset our costs;

- introductions of new products and services or enhancements by us and our
competitors may increase our costs or make our existing products and
services obsolete;

- the mix of products and services we sell may change, and the new mix may
generate less revenue and gross margin;

- the gain or loss of a significant number of customers;

- the timing and success of advertising, marketing efforts and
introductions of new services, both by us and our resellers;

- the timing and magnitude of our capital expenditures, including
construction costs related to the expansion of operations, may vary from
quarter to quarter;

- the prices we charge our customers may decline due to price competition;

- utilization of our network may increase beyond our capacity and we may
incur expenses to increase our capacity;

- the availability and cost of bandwidth may reduce our ability to increase
bandwidth as necessary, reducing our revenue;

- the gain or loss of a key strategic relationship; and

- conditions specific to the Internet industry and other economic factors
may affect the prices we can charge or the expenses we incur.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations to date mainly through private equity
placements and capital leases from vendors. At March 31, 2000 we had an
accumulated deficit of $30.0 million and unrestricted cash and cash equivalents
of $18.9 million. This balance of cash and cash equivalents is largely the
result of our raising net proceeds of $23.4 million from the sale of preferred
stock in the fourth quarter of 1999 and an additional $4.0 million from the sale
of preferred stock in the first quarter of 2000.

During the quarter ended March 31, 2000 and the years ended December 31,
1999 and 1998, we used cash to fund operations of $2.6 million, $2.4 million and
$30,000, respectively. The increase in cash used in operations was due mainly to
working capital requirements and net losses, offset by increases in accounts
payable, deferred revenue and accrued expenses. Net cash used in investing
activities was $7.8 million for the quarter ended March 31, 2000 and $8.8
million for the year ended December 31, 1999 and is comprised mainly of
equipment purchases of $7.6 million and $7.8 million, respectively. Net cash
provided by financing activities was $4.9 million during the quarter ended March
31, 2000 and $35.0 million during the year ended December 31, 1999 and is
related mainly to the sale of our Series A preferred stock and common stock, as
well as borrowings under capital leases. Total borrowings under our capital
lease obligations as of March 31, 2000 were approximately $4.5 million.

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<PAGE> 33

On December 24, 1999, we entered into a stock purchase agreement with
Microsoft Corporation. In connection with this financing transaction, we issued
2,484,000 shares of Series A preferred stock to Microsoft, at a purchase price
of $2.02 per share. We also issued a warrant to Microsoft to purchase 546,480
shares of common stock at an exercise price of $5.37 per share. In addition,
under the stock purchase agreement, on the day following the effective date of
the registration statement of which this prospectus is a part, we will issue
625,000 shares of common stock to Microsoft, at a purchase price of $12.00 per
share. In connection with this issuance, we will issue an additional warrant to
purchase up to 468,750 shares of common stock at an exercise price of $12.00 per
share. In connection with this investment, we entered into a five-year
co-marketing agreement with Microsoft. We recorded deferred development costs
for the value of the warrant issued on December 24, 1999 of approximately $2.1
million. We will also record additional deferred expense for the value of the
warrants to be issued upon the second closing of approximately $3.4 million.
This deferred expense will be amortized over the five-year term of the
co-marketing agreement to cost of revenue. Other than payments we will make to
Microsoft in connection with the sale of software that we have licensed to
Microsoft, we do not have any further financial obligations during the term of
the co-marketing agreement.

On January 28, 2000, we issued a warrant to purchase up to 376,920 shares
of our common stock to Road Runner whose cable affiliates include Time Warner,
Media One, and Cox Communications, in connection with a co-marketing agreement.
Of the shares subject to this warrant, 108,000 vested immediately upon the
execution of our co-marketing agreement and the balance vest in equal
installments on June 30, 2000, September 30, 2000, December 31, 2000 and
December 31, 2001, subject to performance criteria. In January 2000, we recorded
expense of approximately $650,000 associated with the vested portion of the
warrant. We will record additional expense to cost of revenue in the future
based on the fair value of the portion of the warrant that has been earned and
that vests in each period based on meeting the performance criteria. We do not
have any further financial obligations to Road Runner during the term of the
co-marketing agreement.

On March 15, 2000, we entered into a stock purchase agreement with Network
Solutions. In connection with this financing transaction, we issued 744,827
shares of Series A preferred stock to Network Solutions, at a purchase price of
$5.37 per share, for a total proceeds of $4.0 million. We also issued a warrant
to Network Solutions to purchase 372,413 shares of common stock at an exercise
price of $5.37 per share. In addition, under the stock purchase agreement, on
the day following the effective date of the registration statement of which this
prospectus is a part, we will issue 500,000 shares of common stock to Network
Solutions at a purchase price of $12.00 per share. In connection with this
issuance, we will issue an additional warrant to purchase up to 375,000 shares
of common stock at an exercise price of $12.00 per share. In connection with
this investment, we entered into a four year premier program agreement with
Network Solutions. We will record deferred expense of approximately $2.5 million
for the value of the warrant issued on March 15, 2000 and deferred expense of
approximately $2.2 million for the difference between the purchase price of
$5.37 per share and the fair value of our common stock on that date of $8.33 per
share. We will also record additional deferred expense for the value of the
warrants to be issued upon the second closing of approximately $2.7 million.
This deferred expense will be amortized over the four year term of the premier
program agreement to cost of revenue. We do not have any further financial
obligations during the term of the premier program agreement.

On May 8, 2000 we entered into a stock purchase agreement with a subsidiary
of Bell Atlantic Corporation. In connection with this financing transaction, we
issued 1,199,999 shares of Series A preferred stock to Bell Atlantic, at a
purchase price of $8.33 per share, for total proceeds of $10 million. As a
result of this sale of preferred stock at a conversion price below the fair
market value, determined as of May 8, 2000 to be equal to $12.00 per share of
common stock, we recorded a preferred stock dividend of approximately
$4,404,000. The net income applicable to common shareholders in our statement of
operations has been adjusted to reflect the dividend. In addition, under the
stock purchase agreement, on the third day following the effective date of the
registration statement of which this prospectus is a part, we will sell to Bell
Atlantic 1,250,000 shares of common stock at a purchase price of $12.00 per
share.

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<PAGE> 34

We also executed a letter of intent with Bell Atlantic to enter into
co-marketing and service provider relationships with minimum initial terms of
three years. We have finalized and entered into the co-marketing agreement. If
the service provider relationship is also finalized, in return for access to
Bell Atlantic's customer base and for other consideration, we would issue a
warrant to Bell Atlantic to purchase 3,132,000 shares of our common stock. This
warrant would vest immediately and be priced at an exercise price of $18.00 per
share. The letter of intent is non-binding and is subject to the negotiation and
execution of definitive agreements and other conditions. We therefore cannot be
sure that we will reach a definitive agreement concerning the service provider
relationship with Bell Atlantic.

We would record additional deferred expense in the future based upon the
fair value of the warrant to purchase 3,132,000 shares of our common stock. This
deferred expense would be amortized over the initial three-year term of the
business agreement to cost of revenue.

We are pursuing an aggressive internal growth strategy that we anticipate
will require significant additional funding before we begin to generate positive
cash flow. We believe that our current cash and cash equivalent balances, $28.5
million in additional proceeds from the strategic alliances discussed above that
will be received at the time of this offering, and the proceeds of this offering
will be sufficient to fund execution of our current business plan at least
through the end of 2001. However, the execution of our business plan may require
additional capital to fund our operating losses, working capital needs, sales
and marketing expenses, lease payments and capital expenditures. In view of
future expansion plans, we will consider our financing alternatives, which may
include the incurrence of debt, additional public or private equity offerings,
or an equity investment by a strategic partner. Actual capital requirements may
vary based upon the timing and success of the expansion of our operations. Our
capital requirements may also change based upon technological and competitive
developments. In addition, several factors may affect our capital requirements:

- demand for our services or our anticipated cash flow from operations
being less than expected;

- our development plans or projections proving to be inaccurate;

- our engaging in strategic relationships or acquisitions; and

- our acceleration of, or otherwise altering, the schedule of our expansion
plan.

At March 31, 2000 we have made commitments of approximately $5.0 million in
capital expenditures outstanding for expanded network and facilities. The
expansion of our network and facilities began in 1999 and was completed during
the second quarter of 2000. The assets were classified as construction in
progress as of December 31, 1999 and March 31, 2000. On May 15, 2000, we
executed a loan agreement in the amount of $3.0 million to finance a portion of
these capital expenditures. The loan is secured by the related assets, bears
interest at 16.1% per year and has a three year term.

On June 30, 2000, we executed an amendment to a master lease and financing
agreement with Compaq Financial Services Corporation. This amended agreement
initially provides for the lease of equipment in an amount not to exceed $19.5
million until December 31, 2000. This amount may be increased to $29.5 million
if we are able to complete the sale of equity securities in an amount greater
than or equal to $30.0 million. Additionally, on June 30, 2000, we executed an
agreement with Hewlett-Packard Corporation for a commitment for the purchase of
equipment and software from Hewlett-Packard. This agreement initially provides
for a commitment from Hewlett-Packard in the amount of $5.0 million. This amount
may be increased to $12.0 million if we are able to complete certain quarterly
milestones. If we complete an initial public offering prior to August 30, 2000,
the amount is automatically increased to $12.0 million and the milestones are no
longer effective.

If additional funds are raised through the sale of equity or convertible
securities, the percentage ownership of our shareholders will be reduced and our
shareholders may experience additional dilution. There can be no assurance that
additional financing, if required, will be available on satisfactory terms, or
at all. If we do not obtain additional financing, we believe that our existing
cash balances may be adequate to continue expanding the operations on a reduced
scale.

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<PAGE> 35

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 established accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
is effective for fiscal years beginning after June 15, 2000. We do not believe
the adoption of SFAS 133 will have a material effect on our results of
operations or financial condition.

IMPACT OF YEAR 2000

In late 1999 we completed our remediation and testing of systems for the
Year 2000 problem. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. Expenses in connection with
remediating our systems were not significant. We are not aware of any material
problems resulting from Year 2000 issues, either with our products, our internal
systems, or the products and services of third parties. We will continue to
monitor our mission critical computer applications and those of our suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

All of our customer contracts are currently denominated in U.S. dollars,
and we do not currently invest in derivative financial instruments. However, we
invest our excess cash balances in cash equivalents and are therefore subject to
market risk related to changes in interest rates. We believe, but cannot be
certain, that the effect on our financial position, results of operations and
cash flows of any reasonably likely changes in interest rates would not be
material.

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<PAGE> 36

BUSINESS

Interland provides a broad range of web and applications hosting and other
related web-based business solutions specifically designed to meet the needs of
small to medium-sized businesses. Since beginning operations as a web hosting
business in September 1997, we have experienced growth in the number of our
customer accounts and revenue. The following are among the key factors that we
believe will continue to drive our growth:

- A broad and expanding range of high quality services designed to enable
us to provide one-stop shopping for the specific hosting and related
needs of small to medium-sized businesses. Our goal is to deliver a
bundle of services that not only meets a customer's needs today, but that
also can easily and seamlessly be augmented to provide greater capacity
and functions to address the customer's growing needs in the future. In
so doing, we expect to maintain our high customer retention rate, while
continuing to increase our average revenue per customer.

- Key strategic relationships with Microsoft, Network Solutions and Bell
Atlantic, all of which have made equity investments in Interland, and
with Road Runner, which holds a warrant to purchase shares of our common
stock. Microsoft has invested $5.0 million in our convertible preferred
stock and has agreed to invest an additional $7.5 million in our common
stock at the time of this offering. Network Solutions has invested $4.0
million in our convertible preferred stock and has agreed to invest an
additional $6.0 million in our common stock at the time of this offering.
Bell Atlantic has invested $10.0 million in our convertible preferred
stock and has agreed to invest an additional $15.0 million in our common
stock at the time of this offering. All of the preferred stock issued to
these investors will convert into common stock upon completion of this
offering. We have also issued warrants to Microsoft and Network Solutions
to purchase shares of our common stock in connection with these
investments. In addition we have strong business relationships with
leading technology providers including Cisco, Cobalt Networks,
Hewlett-Packard, Red Hat and Road Runner.

- State-of-the-art data centers that provide a secure operating environment
and facilitate the delivery of high quality, reliable services. In
addition, because our current data centers are located in close proximity
to the major access points of our Internet connectivity providers, we are
able to provide our customers with greater data speeds while we enjoy
lower overall connectivity costs.

- Global expansion to serve foreign small and medium-sized businesses in
Europe, Asia and South America. We believe the web hosting market in
these areas represents a significant growth opportunity. To take
advantage of this opportunity, we have opened our first international
sales and customer service center in Amsterdam and will continue to
evaluate other locations as well as foreign strategic relationships and
acquisition candidates.

- A creative, highly aggressive multimedia advertising campaign designed to
establish Interland as the first commonly recognized brand in the hosting
industry.

- An experienced, direct sales force that is motivated to meet quotas,
trained in consultative selling and skilled in assessing the needs of
small and medium-sized businesses. Once a customer makes contact with an
Interland salesperson, that salesperson is the primary ongoing contact
for the customer. Through a continuing dialogue, the salesperson assesses
the customer's needs and works with the customer to create tailored
solutions. The salesperson will continually monitor the customer's
account to proactively offer additional products and services as the
customer's needs change and expand. In addition, we also have created a
growing network of resellers who provide us with a highly effective
distribution channel for our services. Our current largest private label
reseller is Road Runner, whose cable affiliates include Time Warner,
Media One, and Cox Communications. Under our exclusive private label
agreement with Road Runner, we have agreed to provide web hosting
services to the customers of Road Runner under Road Runner's name.

- Our proprietary customer management system that allows our salespeople,
during the order process, to activate a web site or provide other
services for a customer in real time. This system also
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<PAGE> 37

supports and integrates our internal functions such as customer
relationship management, administration of accounts, billing and
reporting. We believe these systems allow us to activate and support our
customers at a lower cost compared to our competitors, and enables us to
sell additional and more complex services to our existing customer base.

THE INDUSTRY

The Internet

The Internet continues to experience significant growth. International Data
Corporation (IDC) estimates that the number of Internet users world-wide will
grow from approximately 239.6 million at the end of 1999 to 602.4 million by the
end of 2003. This represents a compound annual growth rate of 25.9%. The number
of Internet users in the United States is predicted to increase from
approximately 101.5 million at the end of 1999 to 197.2 million by the end of
2003, a 18.1% compound annual growth rate. This indicates that the international
market is expected to grow faster than the United States market.

One of the many reasons for the overall growth in Internet users has been
the rapid emergence of the Internet as a global business-to-business and
business-to-consumer commerce medium. Since the commercialization of the
Internet in the early 1990s, businesses have rapidly established web sites as a
means to expand customer reach and improve communications and operational
efficiency. As businesses become more familiar with the Internet as a
communications and commerce platform, an increasing number of businesses have
begun to implement more complex and critical applications over the Internet.
These applications include sales, customer service, customer acquisition and
retention programs, communication tools such as e-mail and messaging, and
business-to-business and business-to-consumer e-commerce.

The increasing reliance on the Internet and the growing complexity of web
sites and the number of functions available on web sites has made the management
and maintenance of web sites an increasingly complex task. As a result, many
businesses, particularly small and medium-sized businesses, have elected to
contract with third parties for the implementation and management of their web
sites. We believe that the practice of contracting with third parties to provide
key services, also known as outsourcing, can provide a business with a number of
benefits including:

- Lower start-up and operating costs;

- Faster time to market;

- Greater security and reliability; and

- Less attention diverted from a company's core business activities.

Web Hosting Market

IDC predicts that the United States market for web hosting will grow from
$806 million in 1998 to $17.7 billion in 2003, representing a compound annual
growth rate of 85.4%. IDC also estimates that the international market for web
hosting services will grow at a faster rate, from $16.5 million in 1998 to $1.3
billion in 2003, a compound annual growth rate of 138.7%.

According to IDC, small businesses, those with less than 100 employees,
accounted for 46% of the total web hosting market in 1998 in the U.S., and IDC
predicts this percentage will grow to 61% by 2003, at which time small
businesses are projected to account for $10.7 billion of the total $17.7 billion
U.S. web hosting market. In addition, IDC predicts that the small business
segment of the market will grow at a compound annual growth rate of
approximately 96% between 1998 and 2003, versus 73% for medium and 78% for the
large business segments. According to IDC, at the end of 1998 only 17% of an
estimated 7.4 million small businesses in the U.S. had web sites. IDC predicts
that by the end of 2003, the number of small businesses in the U.S. will grow to
8.2 million, 62% of which are estimated to have web sites.

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<PAGE> 38

Applications Hosting Market

Applications hosting enables software applications to be deployed, managed,
supported and upgraded from an applications service provider's centrally located
servers, rather than on individual desktop computers. Applications service
providers typically rent software applications over the Internet to customers
for a monthly fee. Advantages of applications hosting to customers include
reduced upfront capital expenditures, lower operating costs and faster
applications implementation. Due to these advantages, the applications hosting
market is growing rapidly. Forrester Research, Inc. projects that the
applications services market will grow to over $11.3 billion in 2003 from less
than $1 billion in 1999 and that e-commerce applications will account for 42% or
$4.7 billion of this market in 2003. In particular, Forrester predicts that the
application services market for small businesses will grow to over $3.8 billion
in 2003 from $316 million in 1999 while the market for medium-sized businesses
will grow to over $6.6 billion in 2003 from $562 million in 1999. Forrester also
projects that 22% of all U.S.-based applications revenue will flow through
applications service providers in 2003.

Current Market Fragmentation

Both the web and applications hosting markets today are fragmented and
consist of the following types of providers:

- Small web hosting providers who do not have the capital, resources and
focus to develop and offer a broad selection of high quality services and
support at competitive prices;

- Large providers whose core service offerings tend to be geared toward
large businesses or only toward those businesses which seek to implement
or maintain the most complex types of web sites;

- National and local Internet service providers or ISPs whose core business
focus centers around the provision of Internet connectivity rather than
hosting; and

- Web design and consulting firms for which hosting is not their core
expertise.

OUR OPPORTUNITY

We believe that small to medium-sized businesses, while representing a
large and rapidly growing segment of the market, have traditionally been
underserved by web and applications hosting companies. For a number of small and
medium-sized businesses, many of whom do not have internal technical resources
dedicated to Internet services, establishing a presence on the Internet and
realizing the various benefits of the Internet has proven to be a complicated
and time consuming task. In addition, many small and medium-sized businesses
have not had access to the type and quality of Internet-based services that
larger, more sophisticated companies currently enjoy. We therefore believe that
a significant market opportunity exists for us to deliver a comprehensive and
easy-to-use suite of services designed to address the specific needs of the
small and medium-sized business customer.

OUR SOLUTION

We are dedicated to providing small to medium-sized businesses with a
comprehensive bundle of services, which enables them to quickly, easily and
affordably capitalize on the benefits of the Internet. The key elements of our
solution include:

- A full suite of high-quality web and applications hosting and other
related services;

- Solutions which are affordable, quick to deploy, and easy to use;

- State-of-the-art security and reliability; and

- Personalized customer service and technical support that is available 24
hours a day, seven days a week.

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<PAGE> 39

OUR STRATEGY

Our goal is to become the leading global provider of web and applications
hosting and related business solutions to the small and medium-sized business
market. Our strategy for achieving our goal is comprised of the following key
components:

Provide a Broad Range of Services on Multiple Operating Systems. A key
element of our growth to date has been our ability to provide and support a wide
variety of hosting services on multiple hardware and software platforms.
Currently, we have four key service areas comprised of shared hosting, dedicated
hosting, applications hosting and e-commerce solutions, and consulting services.
Within these service categories, we believe we have a solution which can
effectively address the web hosting and related needs of most small and
medium-sized businesses, both now and as their needs evolve and expand. For
example, many of our customers may outgrow the capabilities of shared hosting
services and may ultimately need a dedicated service. When this need arises, we
are able to provide this service for them with relative ease. In addition, a
business that begins a relationship with us as a dedicated hosting customer may
desire access to the applications we host or the e-commerce services we provide.
We intend to continue to provide additional services in order to better serve
our existing customers and further enhance our ability to attract new customers.
We have also developed the technical expertise to provide our services on
multiple operating systems, including Microsoft Windows NT and Red Hat Linux. We
can therefore offer our customers additional flexibility in deploying their web
sites and applications. In short, our goal is to ensure that a customer or
potential customer need never look beyond Interland to fulfill any hosting or
e-commerce need.

Expand Sales Capabilities and Distribution Channels. We intend to grow our
revenue through the continued expansion of our sales and distribution channels.
Our sales efforts currently occur through a number of channels, including our
direct sales force, active resellers and strategic relationships we have
developed. We will expand all of these efforts. Specifically, we will continue
to hire new sales employees for our internal direct sales efforts. To complement
our direct sales efforts, we will also distribute our services through a network
of over 100 active resellers. These resellers typically offer our services under
the Interland brand name to their existing and new customers and retain
responsibility for most of their clients' customer service needs. We believe
this reseller network, which accounted for 16% of our revenue for the year ended
December 31, 1999, is a highly effective distribution channel for our services
with minimal cost to us. Some of our most valued resellers offer our services
under their own private label brand names. Our recent agreement with Road
Runner, which provides access to the Internet through the cable operations of
Time Warner, Cox Communications, Media One and other cable operators, is an
example of this strategy. We will also continue to seek strategic relationships
that enable us to reach new customers. For example, our marketing arrangements
with Hewlett-Packard, Microsoft, Network Solutions, and Bell Atlantic allow us
to introduce our services to potential customers that we might not otherwise
reach. All of these efforts should increase the exposure of our service
offerings to potential customers.

Expand International Presence. For the year ended December 31, 1999, we
derived approximately 8% of our revenues from customers outside the United
States. We believe that the hosting services needs of many foreign small and
medium-sized businesses located outside the U.S. are not being adequately served
and therefore represent a significant growth opportunity. In order to capitalize
on these opportunities, we opened a sales and customer service center in
Amsterdam in April 2000. This facility will be staffed with multilingual
professionals enabling us to sell and support our services throughout Western
Europe from a centrally based location. Initially, we intend to host web sites
and applications for our European customers from our servers located in the U.S.
As a result of this arrangement, we expect to have lower operating costs than
companies that have data centers and connection to the Internet in Europe. We
also expect to be able to defer significant capital expenditures associated with
building additional international data centers, and to offer our services at
lower prices than our competitors in Europe. We will, however, continually
reassess the need for a data center in Europe. In addition, we intend to
identify suitable foreign acquisition candidates and will strive to develop
relationships in other international markets. To date, we have been able to
retain international resellers in over 50 countries

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without a significant marketing effort. We believe that all of these efforts
could potentially lead to a significant expansion in our customer base in
international markets.

Increase Brand Awareness and Market Presence. We believe that we have a
unique opportunity to be one of the first hosting providers to establish a
meaningful brand name in the web and applications hosting industry. We intend to
continue to build our brand recognition by continuing to implement our intensive
multimedia advertising campaign. We also intend to take advantage of our
strategic co-marketing relationships with industry leaders such as Microsoft,
Hewlett-Packard, Network Solutions and Road Runner. We believe these programs
will enable us to continue to expand our customer base and assist us in our
customer retention efforts.

Take Advantage of Innovative and Proprietary Technology. We have developed
proprietary technology that assists in our customer support efforts and our
internal processes. For example, an internally developed tool provides an
auto-provisioning function that allows our customers to alter their sites
through the Internet without having to contact us. We have also developed a
platform for complex web sites that allows our customers to incorporate
sophisticated Internet functions into their web sites easily, including
e-commerce, merchant capabilities, on-line transactions and e-mail. We believe
these technologies help us attract and support our customers at a lower cost
compared to our competitors. Our integrated customer manager system supports our
internal processes with features such as customer relationship management,
automated installation and provisioning of services, administration of accounts,
billing, and reporting. We also use these tools to offer additional services to
our existing customer base. We will continue to develop specialized technology
and systems to give us advantages in delivering quality and price competitive
services to our customers.

Pursue Additional Strategic Alliances and Relationships. We will continue
to pursue strategic alliances and acquisitions that will enable us to expand our
services, our technological capabilities and our customer base. In December
1999, we entered into a license, development and marketing agreement with
Microsoft. In January 2000, we entered into an agreement with Road Runner to
provide web hosting services for the cable customers of its affiliates. In March
2000, we entered into a premier program agreement with Network Solutions. In May
2000, we entered into a non-binding letter of intent with Bell Atlantic to enter
into co-marketing and service provider relationships. We finalized the
co-marketing agreement on July 5, 2000 and continue to negotiate the definitive
service provider agreement. We intend to seek additional opportunities like
these as well as to explore possible acquisitions.

OUR SERVICES

We offer an integrated suite of web and applications hosting and related
business services designed to specifically address the needs of small and
medium-sized businesses. These services include:

- shared hosting;

- dedicated hosting (including high availability hosting);

- applications hosting; and

- consulting services.

During the three month period ended March 31, 2000, we derived 66% of revenues
from our shared services, 19% from dedicated services and 15% from applications
hosting and consulting services.

Shared Hosting. Shared hosting services are entry-level service plans
designed for web sites with relatively low volumes of traffic. Our shared
hosting packages minimize the cost for customers by providing hosting services
for multiple customers on a single shared server, spreading the cost of the
service over many users. Shared hosting is particularly attractive to small to
medium-sized businesses looking to build their presence on the web. Our shared
hosting service plans also include many standard features and more complex
options for database support, e-commerce support, multi-media services and
extensive e-mail support. The large majority of our customers currently use our
shared hosting services. Our intention is to reassess continually the needs of
our shared hosting customers and, when appropriate, to encourage them
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to add capacity and the ability to provide additional functions to their web
sites by migrating to dedicated and high availability hosting services.

Dedicated Hosting. Dedicated hosting services are designed for customers
with complex requirements and high traffic volumes. Web sites on dedicated
servers typically have database driven content that requires multiple
applications and database servers to operate. Our dedicated service plans
provide each customer with a complete web site hosting solution including all of
the hardware, software, network equipment and support necessary to run the web
site. These service plans offer a number of advantages to our customers in
addition to those received in our shared hosting packages, including:

- Capacity -- the customer receives greater processing and storage
resources;

- Reliability -- the customer's web site is located on its own server
reducing the possibility of server related difficulties;

- Flexibility -- we can custom configure a specific customer's server or
servers to optimize performance and enhance security; and

- Speed -- dedicated servers can reduce response time and increase
processing speed of the customer's web site, allowing for faster access
to the web sites information and services and an improved experience for
the end-user.

We also offer our high availability, dedicated services to customers whose
web sites typically require sophisticated databases for critical application
needs or typically experience high user traffic volumes. This service allows
customers to use multiple servers and is designed to allow our customers'
applications to continue operating in the event of a server failure. The use of
multiple servers therefore provides enhanced reliability and performance to our
customers so that they may securely and efficiently distribute web site content
and related data. Our high performance, high availability dedicated hosting
service plans provide each customer with hardware, software, network equipment
and high-end customer support necessary to run the web site.

As our customer base continues to migrate from shared hosting to more
sophisticated, higher margin services such as dedicated hosting, we believe our
average revenues per customer will continue to increase.

Applications Hosting. Our applications hosting services allow our
customers to outsource to us the deployment, configuration, hosting, management
and support of various software applications. Our applications hosting services
allow our customers to deploy a software application more quickly and with
reduced up-front costs. In addition, many small and medium-sized businesses do
not have the internal technical resources to support multiple software
applications. We therefore believe that outsourcing these functions to us is a
desirable and increasingly preferred alternative for these businesses. The types
of applications we host for our customers include collaboration tools, business
tools, mail-service tools, and e-commerce applications. Currently, the
applications we host consist mainly of Microsoft Exchange Server, Office Server
Extension and various e-commerce and security products.

Consulting Services. Our consulting and professional services provide
assistance to customers with unique requirements. These services include:

- web site design and re-modeling or enhancement of existing sites to
optimize performance;

- e-commerce enabling;

- system configuration and integration; and

- provisioning of customized applications.

Our consulting engagements typically range from a few hours to a few days
depending upon the complexity of the services needed. Because many of our
customers are new to the Internet, we believe these services are critical to the
success of our customers and are necessary for us to be a complete hosting
services provider. We bill most of the services on an hourly basis that we
pre-package and price in standard blocks.
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Pricing

We sell our services under contracts which typically range from three
months to two years in length. We typically require payment for the full
contract amount at the initiation of the service. Our web site hosting offerings
and prices for new installations as of May 10, 2000 are generally described in
the table below.

<TABLE>
<CAPTION>
SERVICE TYPE SERVICE LEVEL SET-UP FEE MONTHLY FEE(1)
------------ ---------------------------- --------------------- ---------------------
<S> <C> <C> <C>
Shared Hosting Services Feature Plan $40.00 $19.95-$29.95
Feature Plus $40.00 $39.95-$49.95
Business Plan $149.95-$199.95 $149.95-$199.95
Enterprise Plan $349.95-$699.95 $399.95
Dedicated Hosting
Services.............. Basic Business $599.00-$699.00 $499.00
Select Business $699.00-$899.00 $799.00
Select Business Plus $1,199.00-$1,399.00 $999.00
Corporate Business $2,299.00-$2,499.00 $1,499.00
Corporate Business Plus $2,799.00-$2,999.00 $1,999.00
High Availability Silver $3,499.00-$6,599.00 $3,999.00-$7,599.00
High Availability Platinum $14,599.00-$17,599.00 $15,599.00-$18,599.00
</TABLE>

---------------
(1) The monthly fees listed above are for short-term contracts. We typically
offer our customers discounts for longer-term contracts.

Our applications hosting services are also provided on a monthly basis. The
fees for these services vary depending on the applications being provided.

To further simplify the purchasing process for our customers, we describe
all web hosting service plans, including features and prices, on our web site.
This enables our customers to evaluate the various service offerings before
contacting one of our sales representatives, which in turn shortens our selling
cycle, reduces our customer acquisition costs and ultimately enhances customer
satisfaction by making readily available the necessary technical and business
information for choosing the appropriate service level. We upgrade our web site
regularly to provide more product information and enhanced purchasing
capabilities for our existing and prospective customers.

ADVERTISING AND MARKETING

We actively advertise and market our comprehensive hosting services to
small and medium-sized businesses in the U.S. and intend to increase the
frequency of our advertising and marketing into other countries. Our advertising
strategy is based on the primary foundation of building brand recognition and
increasing market share. In addition to our internal advertising and marketing
efforts, we have engaged the services of a leading technology advertising firm.
This firm is helping us plan, design and execute an integrated advertising and
marketing communication plan. Our current marketing campaign incorporates:

- Advertising (print, on-line, outdoor, TV and radio);

- Direct marketing by mail and telephone;

- Public relations;

- Product/service promotions;

- Product/service literature;

- Trade show/event marketing; and

- Web/electronic marketing.

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Our product marketing team supports the direct advertising and marketing
activities that we conduct. The focus of this team is to develop and launch a
range of products and services that will meet our customer's needs. Product
marketing activities include product strategy and definition, pricing,
competitive analysis, product launch, channel program management and product
life cycle management. By aligning the product marketing organization around our
four key services, we are able to focus and deliver product and services
quickly.

SALES AND DISTRIBUTION

We utilize multiple sales and distribution channels in an effort to
maximize our market share. These channels include direct sales through sales
professionals, indirect sales through reseller and private-label arrangements,
co-marketing relationships, and other channels.

Direct Sales

Our direct sales efforts are carried out by two primary groups, in-bound
and out-bound sales professionals.

In-Bound Sales Force. Our in-bound sales force responds to incoming
inquiries about our services. Our sales force is trained in a relationship
selling methodology that allows them to better assess the needs of customers and
to recommend tailored solutions. This methodology gives our customers a
one-on-one consultative relationship with a sales professional in which the
specific desires of the customer are appropriately addressed. As this
relationship develops and our customer grows, the salesperson can assess the
customer's needs and work to provide the customer with tailored services. The
salesperson can also carefully monitor the customer's account to make sure that
we are proactive in offering additional products and services as the customer's
needs change and expand.

Out-Bound Sales Force. Our out-bound sales force generates sales leads
through direct contact with potential customers. These sales specialists
generate new business through telemarketing, direct mail and Internet contact.
These sales specialists are also provided specific training so that they can
effectively consult and sell to potential customers.

In addition to initial training, every sales specialist must attend two
hours per week of on-going training. This training helps to educate all of our
sales personnel about our technological advances and our latest service
offerings.

Resellers and Private Label Relationships

We currently have a network of resellers consisting of businesses including
system integrators, value added hardware and software resellers, web developers
and web consulting companies and Internet service providers. These resellers
allow us to cost-effectively address a large customer audience that we could not
otherwise reach.

One of the recent additions to our reseller channel is Road Runner. Road
Runner provides Internet access through several cable companies including the
cable operations of Time Warner, Cox Communications, Media One and other cable
operators. We have agreed to provide shared and dedicated web hosting services
for customers of Road Runner under the Road Runner brand name. Road Runner has
designated us as the exclusive provider of these services, although Road Runner
may end the exclusive nature of our relationship at any time.

Other Sales and Distribution Channels

We also pursue sales through a number of other indirect channels, including
Internet marketing, customer referrals, and industry referrals.

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Internet Marketing. A portion of our new customers come to us through
on-line registrations. Our Internet marketing sales programs offer an automated
on-line sales interface to potential customers. This enables our customers to
purchase services at any time from our web site.

Customer Referrals. We believe that customer referrals are an excellent
source of new customers. Many new customers have come to us through referrals
from other customers who have had a good relationship with us. While we reward
our customers for these referrals with discounts on their services, we also
believe that our reputation for excellent customer service leads to many of
these referrals.

Industry Referrals. We received many referral customers from other
providers of Internet related services, including web designers. Web designers
and other Internet industry professionals who work with us on a regular basis
have experience and knowledge of our services that make them a valuable source
of new customers.

Customer Manager System

All of our sales efforts are supported by our customer manager system, a
proprietary system that helps us manage our entire relationship with our
customers. After a customer has initiated service with us, the customer manager
system automatically provisions the service on the web server the customer has
selected, verifies correct setup, e-mails the customer its contract and service
information, prints a label to mail the new customer information (including a 30
page manual), and queues the customer for future billing. All calls for customer
service and any invoicing are also stored inside the customer manager system,
along with usage statistics, referral information, and other pertinent customer
information. The system automatically invoices, debits checking accounts and
credit cards, generates late notices, initiates human follow-up calls, and
cancels delinquent accounts. The system also provides us with useful information
to spot troubled servers, estimate cost of customer acquisitions by advertising
medium or lead source, and spot abusive users, among dozens of other reports.

KEY STRATEGIC RELATIONSHIPS

We have established and will continue to forge strategic relationships with
leading technology providers, including major software, hardware, development
and Internet marketing organizations, to enhance our products and services.
These relationships enable us to gain quicker access to innovative technologies,
provide more creative solutions for our customers, and allow us to offer our
customers many of the same resources that would otherwise be prohibitively
expensive for them to acquire. We are also able to build upon the research and
development and expertise of these companies in developing and launching new
products. We therefore believe that these relationships will enable us to
continue to provide our customers with the necessary tools to create, host and
maintain a successful web presence and have access to sophisticated e-commerce
and applications solutions. These relationships also provide us with unique
marketing and sales opportunities to customers to which we might not otherwise
have access.

Microsoft Corporation

We are a Microsoft Certified Solution Partner and are currently engaged in
several initiatives with Microsoft. We recently entered into a development,
license and co-marketing agreement with Microsoft. We agreed to develop software
and related materials that will enable the installation of packaged hosted
service on Microsoft's Windows NT platform and have granted Microsoft a
perpetual, irrevocable license to the software. We will pay Microsoft five
percent of the total gross revenues that we receive from licensing or otherwise
exploiting the software for five years following Microsoft's acceptance of the
software. In return, Microsoft will provide us with an opportunity to be
involved in beta programs and training initiatives for Microsoft's IIS program
and the Windows 2000 and Exchange Server products. In addition, Microsoft has
agreed to include us at trade show events. The agreement will continue until
terminated by either party for cause or by Microsoft if we fail to deliver the
software or related documentation. At the same time we entered into this
agreement, Microsoft invested $5.0 million in our convertible preferred stock
and agreed to invest an additional $7.5 million in our common stock at the

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time of this offering. We have also issued warrants to Microsoft to purchase
shares of our common stock in connection with these investments.

We have also entered into a separate co-marketing agreement in which
Microsoft agreed to include a special offer advertisement in every FrontPage
2000 product box that is packaged for retail sale. FrontPage 2000 is a software
product which enables a company to design its web site. The agreement also
allows us to distribute a CD that includes a 45-day trial version of FrontPage
2000, packaged with our set-up software and other useful tools. Our CD is
periodically mailed to prospective customers and enables them to design a web
site and host it with us.

Other initiatives include:

- Application Services. We have entered into an application services
agreement which establishes the framework by which we can obtain and
license various Microsoft products to use in our applications hosting
services. Under this framework we have licensed server software,
including Exchange Server and Office Server Extension. Depending upon the
specific software we license, we pay a license fee on either a per server
or per user basis. The term of this agreement is through June 30, 2000,
although we can extend it for two years to allow us to continue to
provide our customers access to hosted software.

- Microsoft Big Day. Microsoft has chosen us to be the exclusive hosting
service partner for the Microsoft Big Day Seminars, a series of seminars
that will travel to 230 cities over 6 months. The average seminar
attracts 130 small business owners. The purpose of the seminar is to
educate small business owners as to Microsoft Technology, the Internet,
how to build a web site, and how to take advantage of the new ASP model.
We will be the direct resource for web hosting, web site maintenance,
database management, and domain registrations for these seminars. Compaq
and Softchoice are also involved in this project.

Network Solutions

We have entered into a strategic alliance with Network Solutions, the
premier domain registration entity. We have entered a premier program agreement
with Network Solutions whereby Network Solutions will process domain names that
we request for our customers, license access to their domain name servers and
databases to us, and promote us as a member of their program. In return, we will
use Network Solutions as our exclusive registrar of second-level domain names
and promote Network Solutions' services. We will each pay referral fees to the
other when customers sign up for the other's services. The term of the agreement
is for four years and will renew automatically for one year terms. We also use
the services of Image-Cafe and ID Names, both of which are owned by Network
Solutions. Image-Cafe gives our customers access to a variety of web design
templates. Through ID Names, our customers can search for and secure worldwide
domain registrations, including country code top level domain services to our
customers.

In addition, Network Solutions has recently invested $4.0 million in our
convertible preferred stock and has agreed to invest $6.0 million in our common
stock at the time of this offering. We have also issued warrants to Network
Solutions to purchase shares of our common stock in connection with these
investments.

Road Runner

We have recently entered into an exclusive relationship with Road Runner.
Road Runner is a joint venture among affiliates of Time Warner Inc., Media One
Group, Inc., Microsoft, Compaq and Advance/Newhouse. Road Runner provides
high-speed Internet access through the cable television infrastructure,
including through the cable television operations of Time Warner, Media One, Cox
Communications, Bend Cable, and Cable Atlantic. One of the services Road Runner
offers to its customers is web hosting. Pursuant to our agreement, Road Runner
has engaged us as the exclusive provider of these services. These services will
be branded under the Road Runner brand, but we will be

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providing all web hosting and support services. Road Runner is responsible for
the collection of payments from its customers and will pay us with respect to
each of its customers. We will also provide training for the sales and support
representatives of Road Runner. The term of this agreement is for two years, but
may be terminated by either party upon 120 days written notice. In connection
with this relationship, we have granted a warrant to Road Runner to purchase up
to 376,920 shares of our common stock based on its achievement of performance
criteria.

Hewlett-Packard

Hewlett-Packard manufactures hardware equipment, including servers that we
utilize in our hosting operations. We have entered into several arrangements
with Hewlett-Packard, including an Electronic Services Strategic Alliance
Agreement. Under this agreement, Hewlett-Packard provides us its Millennium
Commerce Solution, which consists of a package of hardware and software
products. We market this package as a complete e-commerce solution, with
redundancy, firewall protection, web-based configuration, complete reporting,
instantaneous credit card processing, and high availability services. The
arrangement enables us to provide our customers with the type of sophisticated
e-commerce services that would generally be prohibitively expensive for the
small to medium-sized business. We offer this package to our customers whose web
sites and other applications run on Linux platforms and we pay Hewlett-Packard a
percentage of the fees we receive from our customers when they use these
services. In addition, Hewlett-Packard has agreed to fund 50% of the advertising
cost allocated towards this project and provide all hardware and software at no
cost to us. The term of the agreement is for three years and automatically
renews for additional one-year terms, unless terminated by either of the parties
sixty days before the end of the initial or any renewal term.

Bell Atlantic

In May 2000, we signed a letter of intent to enter into a business
relationship with Bell Atlantic, Inc., a leading provider of communications and
information services. As contemplated in the letter of intent, the business
relationship is intended to consist of a marketing channel relationship and a
service provider relationship. On July 5, 2000 we entered into the marketing
channel relationship. Under the marketing channel relationship, we will jointly
market and promote a co-branded version of our products and services to some of
Bell Atlantic's customers. In return for Bell Atlantic's identification of
customers, we will pay Bell Atlantic 12.5% of revenue received by us under the
marketing channel relationship. Under the service provider relationship, Bell
Atlantic would have the right to market and sell a co-branded version of our
products and services to its business customers. In addition, we would be the
only shared web hosting service provider with which Bell Atlantic would enter
into a co-branded marketing arrangement, other than Bell Atlantic's existing
arrangements. The terms of the business relationship would be for three years
and would automatically renew for three year terms. The letter of intent is a
non-binding agreement and is subject to the negotiation and execution of
definitive agreements and other conditions. In connection with our business
relationship, we intend to issue a warrant to Bell Atlantic to purchase
3,132,000 shares of our common stock.

In addition, Bell Atlantic has purchased $10.0 million of our convertible
preferred stock and has agreed to purchase an additional $15.0 million of our
common stock at the time of this offering.

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Other Co-Marketing and Supplier Arrangements

We have entered into a number of other co-marketing and supplier
relationships. Some of these relationships include:

<TABLE>
<CAPTION>
CO-MARKETING RELATIONSHIPS SUPPLIER RELATIONSHIPS REFERRAL RELATIONSHIPS
-------------------------- ---------------------- ----------------------
<S> <C> <C>
E-Commerce Exchange Allaire (Software -- Cold Fusion) International Webmasters
Netscape Communications Cisco (Hardware) Association
(At Web) Cobalt Networks (Hardware) Small Business Alliance
Stamps.com Elemental Software (Elemental World Organization of
Drumbeat 2000) Webmasters
Red Hat (Linux platform)
SoftQuad Software Inc.
(Software -- HotMetal Pro 6.0)
</TABLE>

The nature of these relationships is generally to enable us to further promote
our brand identity while seeking cost-effective access to a larger addressable
market. Some of these relationships impose mutual minimum levels of advertising
expenditure commitment.

CUSTOMERS

We began our operations in the web solutions market in September 1997. As
of March 31, 2000 we were delivering services to approximately 61,442 customer
web sites. A large majority of our customers are located in the United States
and are traditional small and medium-sized businesses. Less than 10% of our
customers are in other countries with some of them being local Internet service
providers in their countries.

The number of our customer web sites grew from 10,611 at December 31, 1998
to 61,442 at March 31, 2000, a growth of 479%. This growth resulted from the
internal development of our customer base through advertising and reseller
efforts. We believe that a significant percentage of our new customers switched
to us from our competitors and we tend to lose relatively few customers.

We enter into contracts with customers, the majority of which range from
three months to two years. As of March 31, 2000, we had contracts with an
average length of 11.6 months and approximately 64% of our contracts have a
length of at least 12 months. These contracts are typically prepaid at the time
they are initiated. If the contract is canceled in the first thirty days we give
the customer a full refund.

CUSTOMER SERVICE AND SUPPORT

We believe customer service and support is critical to our future success
and growth. We offer superior customer service by understanding the technical
requirements and business objectives of our customers and by fulfilling their
needs proactively on an individual basis. Our customer service staff is focused
on direct and indirect customer service and support. We provide customer support
24 hours a day, seven days a week, 365 days a year, and have developed a
customized, life-cycle support management approach to our operations.

In servicing and supporting our customers, we utilize a number of
sophisticated automated systems, including a problem resolution and
trouble-ticketing system, an enterprise system monitoring platform,
sophisticated telephone system, on-line trouble management system, and workforce
management system. We also conduct customer satisfaction surveys on a regular
basis to help us improve our support and product offerings. We believe that our
approach to customer service and our ability to respond rapidly to customer
needs provides us with a significant competitive advantage.

NETWORK AND TECHNOLOGY INFRASTRUCTURE

We designed our high performance server network to provide superior
availability and reliability for our customers' hosting operations. The network
currently consists of two data centers in Atlanta connected

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by a high performance network to the Internet. Within the data centers, a
virtual local-area-network provides redundant, high-speed internal connectivity.

Data Centers

Our two data centers are secure, redundant, and high-speed hosting
facilities. Due to the current growth of our business, we opened our second data
center in Atlanta in March 2000. As with our first data center, the new data
center is in close proximity to all major carrier network centers. This new data
center is a secure, redundant, fault tolerant, high-speed network capable of
supporting any of the current and future products we plan to deploy. We maintain
two backup systems for each component of the hosting process ranging from backup
servers to multiple access lines. Additionally, we have purchased several power
generators to ensure that even in the event of a power failure, our facilities
will continue to operate. Our server computer rooms have cooling and fire
suppression systems. We remove all tape backups to a remote facility for storage
in a fireproof facility. We also have a highly trained and experienced technical
staff that continually monitors the operations of the network and servers on a
24 hours a day, seven days a week basis through our network operations center.
We plan to have third data center in Amsterdam, Netherlands, in the next 12
months and may consider opening a data center in the western U.S. in the future.

Customer Load Balancing

We maintain a customer ratio on our shared servers that allows quick access
to our shared customers' web sites, even under heavy loads. More importantly, as
our customer's web sites become more interactive, our customer ratio will allow
the web server to handle the additional loads without further hardware
investment. We believe that this future planning will offer significant
advantages over competitors who have higher customer ratios and central
processing unit utilization. We believe these competitors will have to purchase
additional hardware and move customers onto multiple web servers as the sites
become more interactive, and thus more central processing unit intensive.

Proprietary Technology

We have developed various proprietary technologies that address the
back-end processing and customer interface components of our services, allowing
customers to order, change and manage their web hosting accounts easily
regardless of their level of technical expertise. We designed our auto-provision
technology to let customers make modifications to their sites from the Internet
without having to contact one of our support staff members. For example, we
provide customers with the ability to change passwords, protect specific
directories, and create database sources without interacting with one of our
representatives. The technology allows us to provide graphical statistics free
to all customers. These statistics provide detailed reports on web site usage,
including categories such as top referring sites, number of unique web hits,
origin of web hits, and periods of highest usage. In sum, our proprietary
technology allows us to provide flexibility to our customers and help them
create the services they need.

Our proprietary technology also results in greater operational efficiency
for us. We have developed innovative billing technology that simplifies the
accounting process and leads to effective cash management.

Connectivity

We utilize multiple DS-3 connections to the Internet. Our data centers are
provisioned directly off Packet of Sonet interconnections to the major Internet
carriers. Our new facility opened in March 2000 with multiple OC3 connections,
and we are planning for the addition of multiple OC12 connections in the next
two months.

We designed our high-speed network and high-speed Internet backbone to have
sufficient capacity to assure that our customers' web site traffic is processed
as quickly as possible. By utilizing top tier

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connectivity, we are able to offer highly resilient, redundant, and high-speed
connectivity between the Internet and our data centers.

Location Advantage

An important component of our connectivity is our Atlanta location. We use
multiple connectivity providers, including UUnet, Qwest, and Digex, to prevent
any single failure point. We are in the process of adding another connectivity
provider to build in further redundancy.

Our proximity to our connectivity providers provides us with several
benefits. First, it enhances the connection speed to the Internet as the
distance to the providers has been reduced. Second, the cost of connecting to
our connection points of our major providers is minimized. Third, we are able to
add capacity to our connections to Internet access providers more quickly as our
needs expand. We therefore believe that our location provides us with a
competitive advantage over hosting companies located in remote locations,
relative to major Internet connection points. These competitors may experience
delays in adding capacity to handle increased demand and will probably pay
premiums to have the capacity delivered to their locations.

Network Operations Center

We fully staff our Atlanta network operations center 24 hours a day, seven
days a week with technical experts in Windows NT and Linux operating platforms.
The network operations center personnel monitor each piece of equipment,
including routers, switches, and servers. The design and systems used in the
network operations center allow our systems engineers and administrators and
support staff to be promptly alerted to problems. We have documented procedures
for rapidly resolving any technical problems that arise. The network operations
center and our customer care center are fully integrated and have documented
communication and escalation procedures. Our network operations center is also
responsible for monitoring all Internet and communication connections to make
sure they are functional and properly loaded.

Network Security

Our network incorporates host-based security with Cisco router access
control lists, as well as SecurID token-based authentication. In addition to
these physical security measures, we have a formal security policy in place,
including employee training, that governs all facets of our business and
guidelines governing internal and external access to information housed in our
network system.

COMPETITION

The markets in which we compete are highly competitive. Because there are
no substantial barriers to entry, we expect that we will face competition from
both existing competitors and new market entrants in the future. We believe that
participants in these markets must grow rapidly and achieve a significant
presence to compete effectively. We believe that the primary competitive factors
determining success in our markets include:

- Technical expertise in developing advanced web hosting solutions;

- Internet system engineering and technical expertise;

- Quality of service, including speed, network capability, expansion
capability, reliability, security and ability to support multiple
functions;

- Brand name recognition;

- Competitive pricing;

- Ability to maintain and expand distribution channels;

- Customer service and support;
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<PAGE> 50

- Broad geographic presence;

- A complete range of services and products;

- Timing of introductions of new and enhanced services and products;

- Network security and reliability;

- Financial resources; and

- Conformity with industry standards.

As a developing company, we may lack the financial and other resources,
expertise or capabilities to capture increased market share in this environment
in the future.

Our current and prospective competitors include:

- Web site hosting and related services providers, including Digex
Corporation, Globix Corporation, Interliant, Inc., Data Return Corp.,
Navisite, Inc. and USinternetworking, Inc. and a large number of local
and regional hosting providers;

- Application-specific hosting service providers such as Critical Path;

- Co-location providers such as AboveNet Communications, Inc., Exodus,
Digital Island and Frontier GlobalCenter Inc.;

- National and regional Internet service providers, including Concentric
Network Corporation, EarthLink, Inc., PSINet Inc., UUnet, and Verio,
Inc.;

- Customized Internet application service providers, including AppNet
Systems, Inc., CORIO, Inc., USinternetworking, Inc. and USWeb/CKS;

- Application developers and Internet application software vendors,
including Open Market, Inc., DoubleClick Inc. and Broadcast.com, inc.;

- Large system integrators and information technology outsourcing firms,
including Electronic Data Systems Corporation and International Business
Machines Corporation;

- Global telecommunications companies, including AT&T Corp., MCI WorldCom,
Inc. and Sprint Corporation, and regional and local telecommunications
companies, including MediaOne Group, Inc. and regional Bell operating
companies; and

- Computer hardware providers, including Dell Computer Corporation,
Gateway, Inc., Compaq Computer Corporation and Micron Technology.

Although it is impossible to quantify our relative competitive position in
our market, many of these 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 have. As a result, many 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 acquisitions, consolidation
opportunities 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 trademark, service mark, copyright and trade
secret laws and contractual restrictions to establish and protect our
proprietary rights and promote our reputation and the growth of our business. We
do not own any patents that would prevent or inhibit competitors from using our
technology or entering our market although we are evaluating whether to apply
for patent protection on
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<PAGE> 51

aspects of our technology and business. While it is our practice to require all
of our employees to enter into agreements containing non-disclosure,
non-competition and non-solicitation restrictions and covenants, and while our
agreements with some of our customers and suppliers include provisions
prohibiting or restricting the disclosure of proprietary information, we can not
assure you that these contractual arrangements or the other steps taken by us to
protect our proprietary rights will prove sufficient to prevent illegal use of
our proprietary rights or to deter independent, third-party development of
similar proprietary assets. In addition, we provide our services in other
countries where the laws may not afford adequate protection for our proprietary
rights.

We license or lease many technologies used in our Internet application
services. Our technology suppliers may become subject to third-party
infringement claims which could result in their inability or unwillingness to
continue to license their technology to us. The loss of some of our technologies
could impair our ability to provide services to our customers or require us to
obtain substitute technologies of lower quality or performance standards or at
greater cost. We expect that we and our customers increasingly will be subject
to third-party infringement claims as the number of web sites and third-party
service providers for web-based businesses grows. Although we do not believe
that our technologies or services otherwise infringe the proprietary rights of
any third parties, we cannot assure you that third parties will not assert
claims against us in the future or that these claims will not be successful. Any
infringement claim as to our technologies or services, regardless of its merit,
could be time-consuming, result in costly litigation, cause delays in service,
installation or upgrades, adversely impact our relationships with suppliers or
customers or require us to enter into royalty or licensing agreements.

GOVERNMENT REGULATION

We are not currently subject to direct federal, state or local government
regulation, other than regulations applicable to businesses generally. There is
currently only a limited body of laws and regulations directly applicable to
businesses that provide access or commerce on the Internet.

The "Digital Millennium Copyright Act" became effective in October 1998 and
provides a limitation on liability of on-line service providers for copyright
infringement for transmitting, routing or providing connections, transient
storage, caching or storage at the direction of a user, if the service provider
had no knowledge or awareness that the transmitted or stored material was
infringing and meets other conditions. Since this law is new and does not apply
outside of the United States, we are unsure of how it will be applied to limit
any liability we may face in the future for any possible copyright infringement
or copyright-related issues. This new law also requires service providers to
follow "notice and take-down" procedures and to meet other conditions in order
to be able to take advantage of the limitation on liability. We have recently
implemented the procedures and believe we meet the conditions to qualify for the
protection provided by the Digital Millennium Copyright Act. Moreover, our
customers are subject to an acceptable use policy which prohibits them from
transmitting, storing or distributing material on or through any of our services
which, in our sole judgment is (1) in violation of any United States local,
state or federal law or regulation, or infringes on the copyright of a third
party (2) fraudulent on-line marketing or sales practices or (3) fraudulent
customer information, including identification and payment information. Although
this policy is designed to promote the security, reliability and privacy of our
systems and network, we cannot be certain that our policy will accomplish this
goal or effectively limit our liability.

Despite enactment of the Digital Millennium Copyright Act, the law relating
to the liability of on-line services companies and Internet access providers for
information carried on or distributed through their networks remains largely
unsettled. It is possible claims could be made against on-line services
companies and Internet access providers under both United States and foreign law
for defamation, obscenity, negligence, copyright or trademark infringement, or
other theories based on the nature and content of the materials distributed
through their networks. Several private lawsuits seeking to impose such
liability upon on-line services companies and Internet access providers are
currently pending.

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<PAGE> 52

Although sections of the Communications Decency Act of 1996 that 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, in
October 1998, Congress passed the Child Online Privacy Protection Act, which
sought to make it illegal to communicate, for commercial purposes, information
that is harmful to minors. In February 1998, the United States District Court
judge issued a preliminary injunction against the enforcement of the Child
Online Protection Act on constitutional grounds. An appeal from the District
Court's ruling is pending. While we cannot predict the ultimate outcome of this
proceeding, even if the Child Online Protection Act is ruled unconstitutional,
similar laws may be proposed, adopted, or upheld in the future. 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 harm our business. The adoption of any of these
types of laws or regulations might decrease the growth of the Internet, which in
turn could decrease the demand for our services or increase our cost of doing
business or in some other manner harm our business.

The Children's Online Privacy Protection Act of 1998, and the rules
promulgated by the Federal Trade Commission implementing the provisions of the
act, regulate the collection, use or disclosure of personally identifiable
information from and about children on the Internet by operators of web sites or
on-line services directed to children, and operators of general audience web
sites who knowingly collect information from children. The act and the FTC rules
require the operators of such web sites and on-line services to (1) provide
notice of its information collection, use, and disclosure practices, (2) obtain
parental consent before any collection, use or disclosure of personal
information collected from children, (3) provide an opportunity for parental
review of personal information collected from children and the right to prohibit
further use or maintenance of that information, (4) not condition a child's
participation in any on-line activity on disclosing more personal information
than is necessary, and (5) to establish and maintain reasonable procedures to
protect the confidentiality, security and integrity of personal information
collected from children. An operator will be deemed to be in compliance with the
requirements of the act and the FTC rules if the operator complies with any
industry self-regulatory guidelines approved by the FTC. The FTC is authorized
to bring enforcement actions and impose civil penalties for violations of the
FTC rule. We may operate web sites that are directed to children on behalf of
some of our customers. The Children's Online Privacy Protection Act and the FTC
rules implementing it went into effect on April 21, 2000. We have not yet taken
affirmative steps to adopt or comply with any FTC-approved industry self-
regulatory guidelines.

In February 1995, the European Union adopted Directive 95/46/EC on the
protection of individuals with regard to the processing of personal data and on
the free movement of such data. As a result of this directive the 15 member
countries of the European Union are required to pass specific privacy protection
legislation by October 1998 regarding the collection and use of personally
identifiable information. One section of the directive requires member states to
ensure that personally identifiable information is only transferred outside of
the EU to countries with adequate privacy protection. In response to the
directive, the U.S. Department of Commerce has proposed seven "Safe Harbor"
principles designed to serve as guidelines for United States companies. In light
of the "Safe Harbor" principles, the EU announced in the fall of 1998 that it
would avoid disrupting the exchange of information with the United States by
allowing its member countries to transfer information to the U.S. so long as it
continues good faith negotiations with the EU. However, if an EU member country
determines that a web site administered by a U.S. company has a significant
presence in the country and is in violation of the Safe Harbor Principles, it
may nonetheless prosecute and sanction the U.S. company through its regulatory
agency for improper data collection. Most EU member countries, including the
United Kingdom, have enacted legislation consistent with the directive that has
forced some U.S. companies to take actions to comply with the directive.
Although we currently provide services over the Internet in the United Kingdom
and other countries that are members of the EU, we have not taken affirmative
steps to comply with the "Safe Harbor" principles announced by the Department of
Commerce.

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While there currently are relatively few laws or regulations directly
applicable to the Internet or to applications hosting providers, due to the
increasing popularity of the Internet and Web-based applications it is likely
that such laws and regulations may be adopted. These laws may cover a variety of
issues including, for example, user privacy and the pricing, characteristics and
quality of products and services. The adoption or modification of laws or
regulations relating to commerce over the Internet could substantially impair
the future growth of our business or expose us to unanticipated liabilities.
Moreover, the applicability of existing laws to the Internet and Internet
application service providers is uncertain. These existing laws could expose us
to substantial liability if they are found to be applicable to our business. For
example, we provide services over the Internet in many states in the United
States and in the United Kingdom, and we facilitate the activities of our
customers in those jurisdictions. As a result, we may be required to qualify to
do business, be subject to taxation or be subject to other laws and regulations
in these jurisdictions, even if we do not have a physical presence or employees
or property there. The application of existing laws and regulations to the
Internet or our business, or the adoption of any new legislation or regulations
applicable to the Internet or our business, could materially adversely affect
our financial condition and operating results.

EMPLOYEES

As of June 30, 2000, we had 549 employees, of which 149 were in sales,
distribution and marketing, 26 were in programming, 291 were in customer service
and technical support and 83 were in finance, billing and administration. None
of our employees is represented by a labor union, and management believes that
employee relations are good.

FACILITIES

Our executive offices and new data center are located in Atlanta, Georgia
and consist of approximately 72,400 square feet leased under an agreement that
expires in July 2009. Our original data center and our network operations center
are located in a nearby building in Atlanta and consists of approximately 17,000
square feet leased under agreements that expire in the year 2009. We have
recently entered into a lease for additional office space in Atlanta, Georgia
that consists of approximately 51,000 square feet under an agreement that
expires in May 2010. We have an option for an additional 124,000 square feet of
space under this lease. We also lease a facility in Amsterdam that serves as a
sales and customer service center for our European operations.

In addition, we are currently planning to lease an additional facility in
Amsterdam that will serve as a redundant network operations center and data
center. This facility should be open and operational in the first part of 2001.

LEGAL PROCEEDINGS

We are not currently a party to any legal proceedings that we believe are
likely to have a material adverse affect on our results of operations or
financial condition.

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<PAGE> 54

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES

The following contains information concerning our directors and executive
officers as of July 15, 2000:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Kenneth Gavranovic......................... 30 Chairman of the Board, President and Chief
Executive Officer
David N. Gill.............................. 45 Executive Vice President, Chief Financial
Officer and Director
Rahim Shah................................. 38 Executive Vice President -- Operations and
Director
H. Christopher Covington................... 50 Senior Vice President, General Counsel and
Secretary
Mark K. Alexander.......................... 35 Senior Vice President -- Sales, Marketing
and Business Development
Robert Malally............................. 29 Senior Vice President -- Chief Technology
Officer
Clyde A. Heintzelman....................... 61 Director
Andrew E. Jones............................ 36 Director
Gregg A. Mockenhaupt....................... 30 Director
William E. Whitmer......................... 67 Director
Frederick W. Field......................... 48 Director
OTHER KEY EMPLOYEES:
Maryjane Stevens........................... 43 Senior Vice President, Finance
Richard Coleman............................ 34 Vice President of Engineering
Chris Rogers............................... 27 Vice President of Sales, North America
E. Dean Holland............................ 46 Vice President of Operations
Fabrice Klein.............................. 32 Vice President of Corporate Development
</TABLE>

EXECUTIVE OFFICERS AND DIRECTORS

Kenneth Gavranovic has served as our Chairman of the Board of Directors
since March 2000, President and Chief Executive Officer since December 1999, a
director since September 1997, and is one of our co-founders. During his ten
years of technology related entrepreneurial experience, Mr. Gavranovic served as
Vice President with Worldwide Internet Publishing Corporation, a web hosting
company that he co-founded, from 1995 to 1997. From 1992 to 1994, he founded and
served as Vice President with Interactive Media Solutions, a telecommunications
software company.

David N. Gill has served as our Executive Vice President, Chief Financial
Officer and a director since February 2000. Mr. Gill served as Chief Financial
Officer from July 1996 to February 2000 and as Chief Operating Officer from
February 1997 to February 2000 of Novoste Corporation, a publicly traded medical
device company. From August 1995 to June 1996, he served as Chief Financial
Officer of SPEA Software AG before its sale to Diamond Multimedia, Inc. From
1992 to 1995, Mr. Gill served as President and director of Dornier Medical
Systems, Inc., a medical device company and a member of the Daimler Benz Group,
and from 1990 to 1992 he served as Dornier's Vice President of Finance. Mr. Gill
received an M.B.A. from Emory University and a B.S. degree in Accounting from
Wake Forest University, and is a Certified Public Accountant.

Rahim Shah has served as our Executive Vice President -- Operations since
October 1999 and a director since December 1999. Mr. Shah previously served as
the Director of Enterprise Resource Management and Director of Mass Market and
Business Customer Operations for the Internet division of BellSouth from
November 1997 to October 1999. From November 1996 to November 1997, he served as

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the Director of Customer Service and Sales for the Long Distance Division of
Frontier Corporation. From 1989 to 1996, Mr. Shah served in various capacities
with MCI Communication Corporation, including Managing Director of Quality
Management Consulting. Mr. Shah received a B.S. in Civil Engineering and an MBA
in Finance and Marketing from Southern Illinois University at Edwardsville.

H. Christopher Covington has served as our Senior Vice President, General
Counsel and Secretary since February 2000. From October 1990 to February 1999,
Mr. Covington served in various capacities for Vanstar Corporation, a publicly
traded seller of computer products and services. These capacities included
Senior Vice President, General Counsel and Secretary from August 1994 to
February 1999, Vice President from March 1993 to August 1994 and Assistant
General Counsel from November 1990 to August 1994. Mr. Covington received a B.A.
degree in Political Science from the University of California at Santa Barbara,
a J.D. from the University of the Pacific, McGeorge School of Law and an L.L.M.
from the University of the Pacific, McGeorge School of Law.

Mark K. Alexander has served as our Senior Vice President -- Sales,
Marketing and Business Development since April 2000. From October 1998 to April
2000, he was employed by the international division of BellSouth Corporation as
the Vice President of Marketing from December 1999 to April 2000 and Executive
Director of Marketing from October 1998 to November 1999. Before joining
BellSouth, Mr. Alexander was employed by Scientific-Atlanta from August 1994 to
October 1998. At Scientific-Atlanta, Mr. Alexander served as the Managing
Director of the Asia Pacific region from July 1995 to October 1998 and the
Regional Sales Director of the Europe, Middle East and Africa region from August
1994 to July 1995. Mr. Alexander received a B.S. in Management from the Georgia
Institute of Technology and an MBA from Emory University.

Robert Malally has served as our Chief Technology Officer since February
2000 and as Senior Vice President since July 2000. From March 1999 to February
2000 he was employed by Sprint Paranet as Chief Network Architect. From March
1997 to March 1999, Mr. Malally served as Senior WAN Technical Consultant for
Sun Data, Inc. In addition, from December 1996 to March 1997, he was employed by
Universal Data Consultants as WAN technical consultant and from August 1994 to
December 1996, Mr. Malally was employed by IBM as a network specialist. Mr.
Malally received a B.S. in Applied Physics from Auburn University.

Clyde A. Heintzelman has served as a director since December 1999. Mr.
Heintzelman has served as the President of Net2000 Communications, Inc., a
publicly traded telecommunications company, since November 1999. Mr. Heintzelman
has been a director of Net2000 since March 1997. From December 1998 to November
1999, Mr. Heintzelman served as President and Chief Executive Officer of SAVVIS
Communications Corporation, a national Tier 1 Internet service provider. From
May 1995 to September 1997, he was President and Chief Operating Officer of
DIGEX Incorporated, an Internet service provider providing service to markets
among the 50 largest metropolitan areas in the U.S. In mid-1997, DIGEX was sold
to Intermedia Communications, Inc., a national CLEC, and from October 1997 to
November 1998, he served as a retained business consultant to Intermedia. In
addition, from 1964 to 1992, Mr. Heintzelman was in several executive capacities
with Bell Atlantic Corporation and its predecessor companies (AT&T). Mr.
Heintzelman also serves on the boards of directors of Optelecom, Inc., a fiber
optic device company, and SAVVIS Communications. Mr. Heintzelman received a B.A.
in Marketing from University of Delaware and attended graduate school at
Wharton, the University of Pittsburgh, and the University of Michigan.

Andrew E. Jones has served as a director since December 1999. Mr. Jones is
a General Partner of Boulder Ventures Limited, a venture capital investing firm.
Before joining Boulder Ventures in January 1999, Mr. Jones was an Investment
Analyst with Grotech Capital Group from March 1996 through December 1998. Before
joining Grotech, Mr. Jones was a manager with the telecommunications practice of
Deloitte & Touche Consulting Group from 1992 through 1996. Before working at
Deloitte & Touche, Mr. Jones was with Andersen Consulting from 1990 through
1992. Mr. Jones currently serves on several private company boards of directors.
Mr. Jones received a B.S. in Electrical Engineering from Cornell

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<PAGE> 56

University, a Master of Electrical Engineering from Cornell University, and an
MBA from the University of Chicago.

Gregg A. Mockenhaupt has served as a director since December 1999. Since
March 1996, Mr. Mockenhaupt has served as a Managing Director of Crest
Communications Holdings, LLC, a private investment firm that was formed in 1996
to focus on communications-related investments and which is the manager of Crest
Communications Partners, L.P. and Crest Entrepreneurs Fund, L.P. Before joining
Crest in March 1996, Mr. Mockenhaupt was an Associate in the Mergers &
Acquisitions Group of Smith Barney Inc. from June 1994 to March 1996. Mr.
Mockenhaupt currently serves on several private company boards of directors. Mr.
Mockenhaupt received a B.S. in Economics from the Wharton School of the
University of Pennsylvania.

William E. Whitmer has served as a director since March 2000. He retired in
1992 as a Certified Public Accountant and management consultant. From 1989 until
his retirement in 1992, he was a partner of Ernst & Young, having served as the
Associate Managing Director of that firm's southern United States management
consulting group. From 1968 through 1989, Mr. Whitmer was a partner of Arthur
Young & Company, having served as the Managing Partner of its East and Southeast
United States regions of the management consulting practice from 1975 through
1989. Mr. Whitmer has served on the board of directors of Novoste Corporation, a
medical device company, since October 1992. Mr. Whitmer received a B.A. in
Economics from Denison University.

Frederick W. Field has been elected to serve as a director effective June
14, 2000. Currently, Mr. Field serves as Chairman of the Board and Chief
Executive Officer of Radar Pictures, Inc., a film production company. From 1990
to 2000, Mr. Field served as Co-Chairman of Interscope Records, a music
production company. From 1979 to 1997, Mr. Field served as Chairman of the Board
and Chief Executive Officer of Interscope Communications, Inc. Additionally, Mr.
Field serves on the board of directors of several privately held companies.

OTHER KEY EMPLOYEES

Maryjane Stevens has served as our Senior Vice President, Finance since
March 1999 and as a director from December 1999 to March 2000. From August 1996
to February 1999, she was employed by Vanstar Corporation in the roles of
Finance Director, Mergers and Acquisitions and Internal Audit Director. Before
her employment with Vanstar, from 1983 to 1994, Ms. Stevens served in a number
of financial positions with Digital Equipment Corporation. Ms. Stevens received
a B.S. in Accounting from Bentley College in Waltham, Massachusetts.

Richard Coleman has served as our Vice President of Network Operations
since January 1999, and is responsible for managing the Company's network of
UNIX web servers. From October 1994 to January 1998, Mr. Coleman served as the
Network Administrator at the Georgia Institute of Technology. He has also been
employed as a Software Engineer at General Electric Aerospace. Mr. Coleman
received a B.S. and M.S. in Applied Mathematics from Georgia Institute of
Technology.

Chris Rogers has served as our Vice President of Sales since January 2000
and as our Director of Sales from May 1999 to January 2000. Mr. Rogers joined
Interland as a sales representative in October 1998. Before that time, Mr.
Rogers served as the director of sales for Profession Management Technologies,
Inc., a technology consulting firm providing network solutions to law firms from
August 1996 to October 1998. Mr. Rogers had previously served as an independent
technology consultant to law firms. Mr. Rogers received a B.A. from Georgia
Southern University.

E. Dean Holland has served as our Vice President of Operations since
December 1999. Before joining us, Mr. Holland was employed by the Internet
division of BellSouth Corporation from October 1995 to December 1999. At
BellSouth.net, Mr. Holland served as the Senior Manager of Provisioning
Engineering from February 1997 to December 1999 and the Network Operation Center
Manager from 1995 to 1997. From 1975 to 1995, Mr. Holland was employed in
various capacities with The Southern Company,

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<PAGE> 57

including as the Manager of the Network Operations Center from 1991 to 1995. Mr.
Holland attended DeKalb Community College in Atlanta, Georgia and has received
numerous industry certifications.

Fabrice Klein has served as our Vice President of Corporate Development
since March 2000. Before joining Interland, Mr. Klein was a Vice President in
Chase H&Q's Global Telecom and Media group where he focused on the Internet
sector. Before joining Chase Securities in 1998, Mr. Klein managed the
development of Internet banking services in Chase.com's Electronic Commerce
group. From 1994 to 1997, Mr. Klein was with Coopers & Lybrand Consulting,
focusing on Internet strategy for clients in the media and telecom industries.
Mr. Klein previously served in the French Army as a Lieutenant. Mr. Klein
graduated with honors from the Institut Superieur de Gestion in Paris, France,
and received an MBA from the Yale School of Management.

EXECUTIVE COMPENSATION

The table below provides information concerning the total compensation of
our Chief Executive Officer who is the only executive officer whose total salary
and bonus for 1999 exceeded $100,000. In addition, we have provided information
for our Executive Vice President who commenced employment on October 26, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------- ------------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION AWARD(S) OPTIONS SATION
--------------------------- ---- -------- ------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth Gavranovic,.............. 1999 $142,154 $23,190 -- -- 324,000 --
Chief Executive Officer and
President
Rahim Shah,...................... 1999 $ 25,385 -- $12,000(1) -- 189,000 --
Executive Vice President
</TABLE>

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

(1) Mr. Shah's employment with us commenced on October 26, 1999. We paid Mr.
Shah a signing bonus of $12,000.

The following table shows information concerning stock option grants to
each of the named officers during the fiscal year ended December 31, 1999.

STOCK OPTION GRANTS IN 1999 (1)

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
-------------------------------------------------------------------- ---------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES PUBLIC
OPTION IN FISCAL EXERCISE OFFERING EXPIRATION
NAME GRANTED YEAR PRICE PRICE DATE 5% 10%
---- ------------ ----------------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth Gavranovic........ 324,000(3) 10.7% $2.78 $ 12.00 7/1/09 $495,178 $1,364,236
Rahim Shah................ 81,000(3) 2.7 2.78 12.00 11/1/09 123,794 341,059
108,000(4) 3.6 2.78 12.00 12/1/09 165,059 454,745
</TABLE>

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

(1) We granted options to purchase 3,037,500 shares of our common stock under
our Stock Incentive Plan in the year ended December 31, 1999. The options
expire ten years after the date of the grant.

(2) Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until expiration of the ten-year term. These numbers are calculated
based on SEC requirements and do not reflect our projection or estimate of
future stock price growth. Potential realizable values are computed by
multiplying the number of shares of common stock subject to a given

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<PAGE> 58

option by the fair market value of the common stock on the date of grant,
determined to be $2.78 as of July 1, 1999, November 1, 1999, and December 1,
1999, and assuming that the aggregate stock value derived from that
calculation compounds at the annual 5% or 10% rate shown in the table for
the entire ten-year term of the option and subtracting from that result the
aggregate option exercise price. The fair market value of our common stock
on each date of grant was determined by the board of directors based in part
on the per share sales price of common stock that we issued in substantially
concurrent private transactions. Actual realizable value, if any, will be
dependent on the future price of the common stock on the actual date of
exercise, which may be earlier than the stated expiration date.

(3) These options vest in 33 1/3% increments beginning at the earlier of July 1,
2000 or the closing of this offering and continuing thereafter on the
anniversary date of the earlier of July 1, 2000 or closing of this offering.

(4) These options vest beginning one year from the date of grant in 33 1/3%
increments on the anniversary of the date of grant.

The following table shows information concerning stock options held by each
of the named officers at December 31, 1999. There were no option exercises in
1999.

1999 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth Gavranovic........................... -- 324,000 -- $839,160
Rahim Shah................................... -- 189,000 -- 489,510
</TABLE>

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

(1) Calculated using $5.37 per share, the fair market value of our common stock
at December 31, 1999 as determined by our board of directors based on the
facts and circumstances in light of the completion of negotiations of our
strategic relationship with Microsoft.

STOCK PLANS

Stock Incentive Plan

In July 1999, we adopted our Stock Incentive Plan to provide our key
employees, officers, directors, contractors and consultants an opportunity to
own our common stock and to provide incentives for these persons to promote our
financial success. Awards under the Stock Incentive Plan may be structured in a
variety of ways, including as "incentive stock options" as defined in Section
422 of the Internal Revenue Code, as amended, non-qualified stock options,
restricted stock, stock awards, stock appreciation rights, and performance share
awards. Incentive stock options may be granted only to our employees (including
officers). Other awards may be granted to any person employed by or performing
services for us, including directors and consultants. The Stock Incentive Plan
provides for the issuance of options and awards for up to 7,560,000 shares of
common stock.

Incentive stock options are also subject to limitations prescribed by the
Internal Revenue Code, including the requirement that such options may not be
granted to employees who own more than 10% of the combined voting power of all
classes of our voting stock, unless the option price is at least 110% of the
fair market value of the common stock subject to the option, and may be
exercised for no more than five years from the grant date. Our board of
directors (or a committee designated by the board) otherwise generally has
discretion to interpret and administer the plan and to set the terms and
conditions of options and other awards, including the term, exercise price and
vesting conditions, if any, to select the persons who receive such grants and
awards.

As of June 30, 2000 we had granted options to purchase an aggregate of
5,560,056 shares of common stock under the Stock Incentive Plan, including
options for 324,000 shares to Mr. Gavranovic, 189,000 shares to Mr. Shah,
486,000 shares to Mr. Gill, 216,000 shares to Mr. Covington, 189,000 shares to
Mr. Alexander, and 135,000 shares to Mr. Malally. The options to Mr. Gavranovic
and Mr. Shah are exercisable at $2.78 per share, the options to Mr. Gill, Mr.
Covington, and Mr. Malally are exercisable at $5.37 per share, and the options
to Mr. Alexander are exercisable at $8.33 per share.

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<PAGE> 59

Employee Stock Purchase Plan

On March 15, 2000 we adopted an Employee Stock Purchase Plan under which
qualified employees will have the right to purchase shares of our common stock
on a quarterly basis through payroll deductions by the employee. The
compensation committee of our board of directors will administer the plan. The
price per share of common stock under the plan is 85% of the fair market value
of a share of common stock at the beginning or the end of each quarterly
purchase period, whichever is lower. The amount of any participant's payroll
deductions or cash contributions made under the stock purchase plan may not
exceed 10% of the participant's total annual compensation and may not exceed
$25,000 per year. We may issue up to 540,000 shares of common stock under the
plan. The board of directors may terminate or amend the plan. The board cannot,
however, amend the plan so as to disqualify the stock purchase plan under
Section 423 of the Internal Revenue Code or without the consent of a
participant, materially impair the rights of the participant with respect to any
shares of common stock previously purchased for him or her under the plan.

Under applicable tax rules, participants will not recognize income when
they acquire shares under the plan. With some exceptions, when a participant
disposes of shares, he or she will recognize a capital gain equal to the
difference between the acquisition price and the amount realized on such
disposition. We will not receive deductions with respect to any shares
transferred to a participant under the plan.

EMPLOYMENT AGREEMENTS

We have entered into employment agreements with Kenneth Gavranovic, our
Chairman, President and Chief Executive Officer; David N. Gill, our Executive
Vice President and Chief Financial Officer; Rahim Shah, our Executive Vice
President; H. Christopher Covington, our Senior Vice President, General Counsel
and Secretary; Mark K. Alexander, our Senior Vice President, Sales, Marketing
and Business Development; and Robert Malally, our Chief Technology Officer. Each
agreement is for a three-year term. In addition to the specific terms of each
agreement that are described below, each of the agreements provides for
participation in benefits of the type normally provided to our key executives,
including participation in our Stock Incentive Plan. Specific terms of each
executive's employment agreement are as follows:

- Mr. Gavranovic's agreement, which expires December 2, 2002, provides for
a base salary of $250,000. In addition, Mr. Gavranovic's agreement
provides for an annual stock option bonus for a minimum number of shares
of common stock equal to $200,000 divided by the fair market value of our
common stock on the date of grant.

- Mr. Gill's agreement, which expires February 16, 2003, provides for an
initial base salary of $250,000. Mr. Gill's agreement provides for an
annual bonus of up to 20% of his base salary, and a one-time grant of an
option to purchase 486,000 shares of our common stock.

- Mr. Shah's agreement, which expires November 1, 2002, provides for an
initial base salary of $150,000, which was increased to $200,000
effective March 1, 2000. Mr. Shah's agreement provides for an annual
bonus of up to 15% of his base salary, and in connection with the
commencement of his employment, Mr. Shah was also granted an option for
189,000 shares of our common stock.

- Mr. Covington's agreement, which expires February 14, 2003, provides for
an initial base salary of $200,000. Mr. Covington's agreement provides
for an annual bonus of up to 15% of his base salary, and a one-time grant
of an option to purchase 216,000 shares of our common stock.

- Mr. Alexander's agreement, which expires April 1, 2003, provides for an
initial base salary of $175,000. Mr. Alexander's agreement provides for
an annual bonus of up to 20% of his base salary, and a one-time grant of
an option to purchase 189,000 shares of our common stock.

- Mr. Malally's agreement, which expires February 15, 2003, provides for an
initial base salary of $150,000. Mr. Malally's agreement provides for an
annual bonus of up to 15% of his base salary, and a one-time grant of
option to purchase 135,000 shares of common stock.

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<PAGE> 60

Under each agreement, if the executive's employment is terminated without
cause, or is terminated by the executive as a result of disability or other good
reason as described in the agreement, the executive will continue to receive
payment of his base salary for the greater of one year or the unexpired portion
of the term of the agreement. Each executive also has agreed not to compete with
us during the term of their respective agreements, and for a period of one year
following the termination of their employment. The agreements contain customary
proscriptions against solicitation of our employees and the misuse of our
confidential information, and contain work-for-hire provisions addressing works,
inventions or other ideas developed by each executive during their respective
terms of employment.

DIRECTOR COMPENSATION

Directors who are employees or affiliated with principal shareholders
receive no additional compensation for their services as directors. We plan to
compensate other directors as follows: $1,000 for each Board or committee
meeting attended in person, and $500 for each Board or committee meeting
attended by telephone. We reimburse all of our directors for the travel and
other expenses they incur in connection with attending Board or committee
meetings. Non-employee directors are also eligible to participate in our Stock
Incentive Plan at the discretion of the full board of directors. We have granted
Messrs. Heintzelman, Whitmer and Field options to purchase 56,700 shares of our
common stock at $5.37, $8.33 and $8.33 per share, respectively. These options
vest monthly over the first 24 months after the date of grant.

BOARD COMPOSITION

In connection with the sale of our Series A preferred stock, all our
founding shareholders and the purchasers of the Series A preferred stock entered
into a shareholders agreement. This agreement provides for, among other things,
the nomination of and voting for a total of eight directors of Interland, as
follows:

- two representatives designated jointly by Boulder Ventures III, L.P.,
Crest Communications Partners, L.P., and Crest Entrepreneurs Fund,
L.P. -- these representatives are Messrs. Jones and Mockenhaupt;

- four representatives designated by the management of Interland -- these
representatives are Messrs. Gavranovic, Shah, Gill, and Whitmer; and

- two representatives designated by the management of Interland who are not
employees of Interland -- these representatives are Mr. Heintzelman and
Mr. Field.

The shareholders agreement requires each stockholder to vote all securities
over which they have voting control and to take all other necessary or desirable
action within their control to effect the preceding election of directors. The
provisions of the shareholders agreement regarding the nomination and election
of directors automatically terminate upon the closing of this offering.

Our board of directors is divided into three classes, each of whose members
will serve for a staggered three-year term. Messrs. Jones and Shah will serve as
Class I directors whose terms will expire at the annual meeting of shareholders
held in 2001. Messrs. Whitmer, Mockenhaupt and Field will serve as Class II
directors whose terms will expire at the annual meeting of shareholders held in
2002. Messrs. Gavranovic, Heintzelman and Gill will serve as Class III directors
whose terms will expire at the annual meeting of shareholders held in 2003.

BOARD COMMITTEES

Our board of directors has appointed an audit committee, a compensation
committee and an executive committee.

The audit committee will review, act on and report to the board of
directors on various auditing and accounting matters, including the
recommendation of our independent auditors, the scope of the annual audits, fees
to be paid to the independent auditors, the performance of our independent
auditors and our

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<PAGE> 61

accounting practices. The members of the audit committee are William E. Whitmer,
Gregg A. Mockenhaupt and Andrew E. Jones. Mr. Whitmer has been designated as the
chairman of the audit committee.

The compensation committee will determine the salaries and benefits for our
employees, consultants, directors and other individuals compensated by our
company. The compensation committee will also administer our stock incentive
plan, including determining the stock option grants for our employees,
consultants, directors and other individuals, however, the entire board of
directors will determine stock option grants to our executive officers. The
members of the compensation committee are Kenneth Gavranovic, Gregg A.
Mockenhaupt and Clyde A. Heintzelman.

The executive committee is authorized to consider any matter that may be
brought before a meeting of the full board of directors, subject to restrictions
under Georgia law. The members of the executive committee are Kenneth
Gavranovic, David N. Gill and Gregg A. Mockenhaupt.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

We did not have a compensation committee of our board of directors during
1999. Instead, our entire board of directors, including our present Chief
Executive Officer, who is also a director, determined the compensation of our
executive officers.

As noted above, the members of our compensation committee are now Messrs.
Gavranovic, Mockenhaupt, and Heintzelman. Mr. Gavranovic is our Chairman,
President and Chief Executive Officer. Mr. Mockenhaupt is a Managing Director of
Crest Communications Holdings, LLC, which is the manager of Crest Communications
Partners, L.P. and Crest Entrepreneurs Fund L.P., which purchased a total of
3,963,303 shares of our Series A Preferred Stock on December 2, 1999 for $8.0
million.

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<PAGE> 62

PRINCIPAL SHAREHOLDERS

The following table presents information regarding the beneficial ownership
of common stock as of June 30, 2000 by (1) each of our directors and named
executive officers; (2) each person who beneficially owns more than 5% of our
common stock; and (3) all current executive officers and directors as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission.

To our knowledge, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with regard to all shares beneficially owned. The number of
shares and the applicable percentage ownership for each shareholder before the
offering is based on 39,272,628 shares of common stock outstanding as of June
30, 2000 after giving effect to the conversion of all of our outstanding shares
of convertible preferred stock into common stock. The conversion will occur
automatically upon completion of this offering. The applicable percentage
ownership for each shareholder after the offering gives effect to the issuance
of 5,000,000 shares in this offering and the purchase of an aggregate of
2,375,000 shares of our common stock that are committed to be purchased at the
time of this offering, at a price of $12.00 per share.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF SHAREHOLDERS BENEFICIALLY OWNED OFFERING OFFERING
-------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Kenneth Gavranovic(1)....................................... 9,110,523 23.13% 19.49%
Rahim Shah.................................................. -- -- --
David N. Gill(2)............................................ 162,000 * *
Andrew E. Jones(3).......................................... 1,733,945 4.42% 3.72%
Clyde A. Heintzelman(4)..................................... 18,904 * *
Gregg A. Mockenhaupt(5)..................................... 3,963,302 10.09% 8.50%
William E. Whitmer(6)....................................... 14,172 * *
Frederick W. Field(7)....................................... 9,452 * *
Waldemar Fernandez(8)....................................... 9,272,523 23.45% 19.76%
Crest Partners II, LLC(9)................................... 3,963,302 10.09% 8.50%
Microsoft Corporation(10)................................... 3,030,480 7.61% 8.64%
BancBoston Ventures Inc.(11)................................ 2,477,064 6.31% 5.31%
Bell Atlantic Investments, Inc.(12)......................... 1,199,999 3.06% 5.13%
All Executive Officers and Directors as a group (11
persons)(13).............................................. 15,115,798 38.09% 32.12%
</TABLE>

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

* Less than one percent.
(1) Includes 108,000 shares of common stock issuable pursuant to options
exercisable upon the closing of this offering and within 60 days of the
date of this prospectus. Does not include an aggregate of 21,600 shares of
common stock issuable to Mr. Gavranovic's mother pursuant to options
exercisable within the 60-day period following the date of this prospectus,
with respect to which Mr. Gavranovic disclaims beneficial ownership. Does
not include an aggregate of 11,666 shares of common stock issuable to Mr.
Gavranovic's fiancee, pursuant to options exercisable within the 60-day
period following the date of this prospectus, with respect to which Mr.
Gavranovic disclaims beneficial ownership. Mr. Gavranovic's address is 101
Marietta Street, Suite 200, Atlanta, GA 30303.
(2) Includes 162,000 shares of common stock issuable pursuant to options
exercisable upon the closing of this offering and within 60 days of the
date of this prospectus.
(3) Includes 1,733,945 shares of common stock beneficially owned by BV Partners
III, L.L.C., of which Andrew E. Jones is a general partner, and with
respect to which he disclaims beneficial ownership. The 1,733,945 shares
consist of 1,634,595 shares of common stock held by Boulder Ventures III,
L.P. and 99,350 shares of common stock held by Boulder Ventures III
(Annex), L.P. BV Partners III, L.L.C. serves as the general partner of both
Boulder Ventures III, L.P. and Boulder Ventures III (Annex), L.P.

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<PAGE> 63

(4) Includes 18,904 shares of common stock issuable pursuant to options
exercisable upon the closing of this offering and within 60 days of the
date of this prospectus.

(5) Includes 3,963,302 shares of common stock beneficially owned by Crest
Partners II, LLC, of which Mr. Mockenhaupt is a Managing Director. Crest
Partners II, LLC is the general partner of Crest Communications Partners
L.P., which owns 3,851,432 shares, and Crest Entrepreneurs Fund L.P., which
owns 111,870 shares. Mr. Mockenhaupt disclaims beneficial ownership of the
shares of common stock held by these funds, except to the extent of his
proportionate pecuniary interest in such funds.

(6) Includes 14,172 shares of common stock issuable pursuant to options
exercisable upon the closing of this offering and within 60 days of the
date of this prospectus.

(7) Includes 9,452 shares of common stock issuable pursuant to options
exercisable upon the closing of this offering and within 60 days of the
date of this prospectus.

(8) Includes 270,000 shares of common stock issuable pursuant to options
exercisable upon the closing of this offering and within 60 days of the
date of this prospectus, 6,936,000 shares owned by a family limited
partnership, of which Mr. Fernandez serves as the general partner and
83,399 shares owned by a trust for the benefit of Mr. Fernandez and certain
members of his family. Does not include an aggregate of 216,000 shares of
common stock owned by Mr. Fernandez' daughter, with respect to which Mr.
Fernandez disclaims beneficial ownership. Mr. Fernandez' address is 6268
Jericho Turnpike, Commack, New York 11725.

(9) The 3,963,302 shares of common stock consists of 3,851,432 shares of common
stock held by Crest Communications Partners L.P. and 111,870 shares of
common stock held by Crest Entrepreneurs Fund L.P. Crest Partners II, LLC
serves as the sole general partner of both Crest Communications Partners
L.P. and Crest Entrepreneurs Fund L.P. Gregg A. Mockenhaupt, who is a
Managing Director of Crest Partners II, LLC, may be deemed to be a
controlling person of Crest Communications Partners L.P. and Crest
Entrepreneurs Fund L.P. Mr. Mockenhaupt disclaims beneficial ownership of
the shares of common stock held by these funds, except to the extent of his
proportionate pecuniary interest in such funds. The address of Crest
Partners II, LLC is 320 Park Avenue, New York, New York 10022.

(10) The 3,030,480 shares of common stock beneficially owned by Microsoft
Corporation consist of 2,484,000 outstanding shares and 546,480 shares of
common stock subject to a warrant that is exercisable within the 60-day
period following the date of this prospectus. At the time of this offering,
in exchange for $7.5 million in cash from Microsoft, we will issue a
625,000 shares of common stock to Microsoft at a purchase price of $12.00
per share. In connection with this issuance, we will also issue an
additional warrant to purchase 468,750 shares of common stock at an
exercise price of $12.00 per share. The address of Microsoft Corporation is
One Microsoft Way, Redmond, WA 98052-6399.

(11) BancBoston Ventures, Inc. is a wholly-owned subsidiary of Bank Boston,
N.A., which is a wholly-owned subsidiary of Fleet Boston Corporation. The
address of BancBoston Ventures, Inc. is 100 Federal Street, Boston, MA
02110.

(12) At the time of this offering, in exchange for $15.0 million in cash from
Bell Atlantic, we will issue 1,250,000 shares of common stock to Bell
Atlantic at a purchase price of $12.00 per share. Bell Atlantic
Investments, Inc. is a wholly-owned subsidiary of Bell Atlantic, Inc. The
address of Bell Atlantic Investments, Inc. is 1095 Avenue of the Americas,
New York, NY 10036.

(13) Includes an aggregate of 416,028 shares of common stock issuable pursuant
to options exercisable upon the closing of the offering and within 60 days
of the date of this prospectus.

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<PAGE> 64

CERTAIN TRANSACTIONS

LOANS

In December 1998, we loaned $25,000, and in May 1999, we loaned $200,000 to
each of Kenneth Gavranovic, our President and Chief Executive Officer, and
Waldemar Fernandez, our former Chairman and one of our principal shareholders.
Each loan is evidenced by a full-recourse promissory note which bears interest
at the rate of 10% per annum. The principal balances of Mr. Gavranovic's notes
are payable on demand, the principal balance of Mr. Fernandez' $25,000 note is
payable on demand and the principal balance of Mr. Fernandez' $200,000 note is
payable at the earlier of 6 months after the effective date of the registration
statement of which this prospectus is a part, and November 19, 2004. Interest on
each of the notes is payable quarterly on the first day of the calendar month
following the quarter in which it accrues. The rate of interest payable under
each promissory note may be increased upon the occurrence of any event of
default, as specified in the notes.

Each note is secured by a separate stock pledge agreement, whereby Mr.
Gavranovic and Mr. Fernandez each pledged 432,000 of his shares of common stock
to secure his obligations under his respective notes. The stock pledge
agreements permit us to dispose of the pledged shares upon the occurrence of an
event of default, as that term is described in the stock pledge agreements. The
proceeds of any disposition will be applied first to any unpaid balance due
under the respective note, and any remaining surplus will be distributed to the
respective borrower.

SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK FINANCINGS

On December 2, 1999, our board of directors designated shares of our
authorized but unissued preferred stock as Series A convertible participating
preferred stock and Series A-1 convertible participating preferred stock.
Additionally, on that date we issued 9,908,256 shares of our Series A stock at a
stated value per share of $2.02 for total cash consideration to us of
approximately $20.0 million. In this transaction, we sold 3,851,432 shares to
Crest Communications Partners L.P., 111,870 shares to the Crest Entrepreneurs
Fund L.P., 1,634,595 shares to Boulder Ventures III, L.P., 99,350 shares to
Boulder Ventures III (Annex), L.P., 2,477,064 shares to BancBoston Ventures,
Inc., and 1,733,945 shares to Private Equity Co-Invest Ltd. Gregg A.
Mockenhaupt, one of our directors, is a Managing Director of Crest Partners, II,
LLC, which is the sole general partner of both Crest Communications Partners,
L.P. and Crest Entrepreneurs Fund L.P. Andrew E. Jones, one of our directors, is
a general partner of BV Partners III, L.L.C., the general partner of Boulder
Ventures III, L.P. and Boulder Ventures III (Annex), L.P.

On December 24, 1999, we entered into a Stock Purchase Agreement with
Microsoft Corporation. In connection with this financing transaction, we issued
2,484,000 shares of our Series A preferred stock to Microsoft, at a purchase
price of $2.02 per share. We also issued a warrant to Microsoft to purchase
546,480 shares of our common stock at an exercise price of $5.37 per share,
subject to customary anti-dilution provisions. Microsoft may exercise its rights
under the warrant, in whole or in part, at any time until December 24, 2004. In
the alternative, Microsoft may surrender the warrant in exchange for a number of
shares of our common stock equal to quotient obtained by dividing (1) the
product of (a) the total number of shares issuable under the warrant and (b) the
difference between the fair market value of our common stock and the exercise
price per share under the warrant by (2) the fair market value of our common
stock. The number of shares subject to the warrant may be adjusted to prevent
dilution, and each warrant will expire five years after its date of issuance.
Shares purchased by Microsoft under the warrant are subject to a lock-up
agreement, and may not be sold until 180 days after the date of this offering.
Microsoft paid a total of $5.0 million for the Series A preferred stock and the
warrant.

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<PAGE> 65

468,750 shares of common stock at an exercise price of $12.00 per share. The
warrant will be subject to the same terms as the warrant we issued in connection
with Microsoft's initial investment.

On March 15, 2000, we entered into a stock purchase agreement with Network
Solutions. In connection with this financing transaction, we issued 744,827
shares of our Series A preferred stock to Network Solutions, at a purchase price
of $5.37 per share. We also issued a warrant to Network Solutions to purchase
372,413 shares of our common stock at an exercise price of $5.37 per share,
subject to customary anti-dilution provisions. Network Solutions may exercise
its rights under the warrant, in whole or in part, at any time until March 15,
2005. In the alternative, Network Solutions may surrender the warrant in
exchange for a number of shares of our common stock equal to quotient obtained
by dividing (1) the product of (a) the total number of shares issuable under the
warrant and (b) the difference between the fair market value of our common stock
and the exercise price per share under the warrant by (2) the fair market value
of our common stock. The number of shares subject to the warrant may be adjusted
to prevent dilution and each warrant will expire five years after its issuance.
Shares purchased by Network Solutions under the warrant are subject to a lock-up
agreement, and may not be sold until 180 days after the date of this offering.
Network Solutions paid a total of $4.0 million for the Series A preferred stock
and the warrant.

In addition, under the Stock Purchase Agreement, on the day following the
effective date of the registration statement of which this prospectus is a part,
in exchange for an additional $6.0 million in cash from Network Solutions, we
will issue 500,000 shares of common stock to Network Solutions at a purchase
price of $12.00 per share. In connection with this issuance, we will also issue
an additional warrant to purchase up to 375,000 shares of common stock to
Network Solutions at an exercise price equal of $12.00 per share. The warrant
will be subject to the same terms as the warrant we issued in connection with
Network Solution's initial investment.

On May 8, 2000, we entered into a stock purchase agreement with a
subsidiary of Bell Atlantic. In connection with this financing transaction, we
issued 1,199,999 shares of our Series A preferred stock to Bell Atlantic, at a
purchase price of $8.33 per share. The shares purchased by Bell Atlantic are
subject to a lock-up agreement, and may not be sold until 180 days after the
date of this offering. Bell Atlantic paid a total of $10.0 million for the
Series A preferred stock.

In addition, under the stock purchase agreement, on the day following the
effective date of the registration statement of which this prospectus is a part,
in exchange for an additional $15.0 million in cash from Bell Atlantic, we will
issue 1,250,000 shares of common stock to Bell Atlantic at a purchase price of
$12.00 per share.

Holders of our Series A preferred stock will receive dividends at a rate of
9% compounded annually, payable on a semi-annual basis in additional shares of
Series A-1 preferred stock or in cash at our option. The Series A preferred
stock will also participate on an as-converted basis in any common stock
dividends or distributions. The shares of Series A preferred stock rank senior
to any other series or class of the Company's capital stock, whether now
existing or created after the issuance of the Series A preferred stock, except
for any series of preferred stock that is established by the our board of
directors with a rank that is senior to the Series A preferred stock, with
respect to rights upon liquidation, winding up, dissolution, and redemption and
distribution rights. As such, the holders of shares of the Series A

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<PAGE> 66

preferred stock are generally entitled to the return of an amount equal to the
stated value per share plus any accrued and unpaid dividends before any
distribution, redemption or liquidation, and may also participate in such
distribution, redemption or liquidation on an as-converted basis. Each holder of
preferred stock votes with the holders of common stock on an on-converted basis.
In addition, the holders of the Series A preferred stock also possess a veto
power to prevent some transactions that effect the shares of the Series A
preferred stock, but we may override any such veto by converting the shares of
the Series A preferred stock into either three or four times (determined by the
date on the which the transaction takes place) the number of shares of common
stock into which they might otherwise be converted. Under the conversion rate
set forth in the terms of the preferred stock, the preferred stock was
originally convertible into common stock on a one-for-one basis. However, to the
extent we implement a stock split before this offering, the conversion rate will
automatically adjust to take into account the split.

Immediately before the completion of this offering, the outstanding shares
of Series A stock issued in these transactions will automatically convert on a
one-to-one basis into 14,337,082 shares of our common stock. At that time,
rights and restrictions applicable to the Series A stock, including special
voting rights, will terminate and be of no further force and effect. Holders of
the Series A stock will be entitled to "piggy-back" and demand registration
rights with respect to the shares of common stock into which the shares of
Series A stock are converted. For additional information, see "Description of
Capital Stock."

OPTION GRANTS TO NEW EXECUTIVES

In February 2000, we granted an option to purchase 216,000 shares of our
common stock to H. Christopher Covington, our Senior Vice President, General
Counsel and Secretary, in connection with his employment with us. In February
2000, we granted an option to purchase 135,000 shares of our common stock to
Robert Malally, our Chief Technology Officer, in connection with his employment
with us. In March 2000, we granted an option to purchase 486,000 shares of
common stock to David Gill, our Executive Vice President, Chief Financial
Officer and a director, in connection with his employment with us. In April
2000, we granted an option to purchase 189,000 shares of our common stock to
Mark K. Alexander, our Senior Vice President, Sales, Marketing and Business
Development, in connection with his employment with us. These options are
exercisable at an exercise price of $5.37 per share, except for the option to
Mr. Alexander which is exercisable at an exercise price of $8.33 per share.

SEPARATION AGREEMENT WITH FORMER CHAIRMAN

In connection with the resignation of Waldemar Fernandez as chairman of our
board of directors, we entered into a separation agreement with Mr. Fernandez on
November 19, 1999. Under the agreement, we initially paid Mr. Fernandez
$330,000, have made a second payment of $165,000 to Mr. Fernandez, and will make
a final payment of $165,000 on the second anniversary of the agreement as
severance and consideration for the releases and non-competition covenants from
him and the termination of all obligations by us in connection with Mr.
Fernandez' employment. In addition, Mr. Fernandez was granted registration
rights under the agreement, including piggy-back registration rights effective
after the completion of this offering, and we agreed to accelerate the vesting
of Mr. Fernandez' options such that they will become fully exercisable as of the
effective date of this offering.

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DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

Our articles of incorporation authorize the issuance of up to 200,000,000
shares of common stock and 25,000,000 shares of preferred stock, the rights and
preferences of which may be established from time to time by our board of
directors. As of June 30, 2000 immediately before this offering, 24,935,546
shares of common stock and 14,337,082 shares of preferred stock were issued and
outstanding. Upon completion of this offering, 46,647,628 shares of common stock
and no shares of preferred stock will be outstanding. As of June 30, 2000, we
had 239 holders of common stock and 9 holders of preferred stock.

The following summary of our capital stock does not purport to be complete.
It is qualified in its entirety by reference to our amended and restated
articles of incorporation and our its amended and restated bylaws, filed as
exhibits to the registration statement of which this prospectus forms a part,
and the applicable provisions of the Georgia Business Corporation Code.

COMMON STOCK

Holders of common stock are entitled to one vote per share on any issue
submitted to a vote of the shareholders and do not have cumulative voting rights
in the election of directors. Accordingly, the holders of a majority of the
outstanding shares of common stock voting in an election of directors can elect
all of the directors then standing for election, if they choose to do so. All
shares of common stock are entitled to share equally in any dividends our board
of directors may, in its discretion, declare out of sources legally available
therefor. If Interland dissolves, liquidates or winds up, holders of common
stock are entitled to receive on a ratable basis all of our assets available for
distribution, in cash or in kind, after payment or provision for payment of all
of our debts and liabilities and any preferential amount due to holders of
preferred stock. Holders of common shares do not have preemptive or other
subscription rights, conversion or redemption rights, or any rights to share in
any sinking fund. All currently outstanding common stock shares are, and the
shares offered hereby (when sold in the offering) will be, fully paid and
nonassessable.

PREFERRED STOCK

Our articles of incorporation authorize the board of directors, from time
to time, to issue shares of preferred stock in one or more series. They may
establish the number of shares to be included in any such series, and may fix
the designations, powers, preferences and rights (including voting rights) of
the shares of each such series and any qualifications, limitations, or
restrictions on preferred shares. No shareholder authorization is required for
the issuance of these shares of preferred stock unless imposed by then
applicable law. Shares of preferred stock may be issued for any general
corporate purposes, including acquisitions. The board of directors may issue one
or more series of preferred stock with rights more favorable with regard to
voting, dividends and liquidation than the rights of holders of common stock.
Issuance of a series of preferred stock also could be used for the purpose of
preventing a hostile takeover of Interland, even if the takeover is considered
to be desirable by the holders of the common stock. Issuance of a series of
preferred stock could otherwise adversely affect the voting power of the holders
of common stock, and could serve to perpetuate the board of directors' control
of Interland under some circumstances. Other than the issuance of the series of
preferred stock previously authorized by the board of directors in connection
with the Series A convertible preferred stock, all of which converts to common
stock at the time we complete this offering, and our shareholder rights plan
described below, we have no current plans that would result in the issuance of
any shares of preferred stock.

WARRANTS

We have issued warrants to Microsoft Corporation and Network Solutions and
will issue a second warrant to each of them to purchase shares of our common
stock at the time of this offering. For additional information about these
warrants, see "Certain Transactions -- Series A Convertible Participating
Preferred Stock Financings."

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<PAGE> 68

We have issued a warrant to Road Runner to purchase shares of our common
stock. The warrant, issued on January 27, 2000, entitles Road Runner to purchase
up to 376,920 shares of our common stock at an exercise price of $8.33 per share
based upon its achievement of performance criteria. The number of shares subject
to the warrant may be adjusted to prevent dilution, and the warrant expires on
December 3, 2002. We have also issued a warrant to an affiliate of TransAmerica
Business Credit Corporation to purchase shares of our common stock. The warrant,
issued on May 16, 2000, entitles TransAmerica to purchase up to 21,600 shares of
our common stock at an exercise price of $8.33 per share. The number of shares
subject to the warrant may be adjusted to prevent dilution, and the warrant
expires on May 16, 2005.

We have also issued warrants to an affiliate of Compaq and to
Hewlett-Packard Corporation to purchase shares of our common stock. The warrant
issued to Compaq on June 30, 2000 entitles Compaq to purchase up to 90,720
shares of our common stock at an exercise price of $11.11 per share. We have
also agreed to issue a second warrant to Compaq upon an increase in our
equipment financing line of credit to purchase 83,333 shares of our common stock
at an exercise price of $12.00 per share. The warrant issued to Hewlett-Packard
on June 30, 2000 entitles Hewlett-Packard to purchase up to 45,000 shares at an
exercise price of $11.11 per share. We have also agreed to issue a second
warrant to Hewlett-Packard upon an increase in our equipment financing line of
credit to purchase 58,333 shares of our common stock.

OPTIONS

We have granted options to purchase a total of 5,560,056 shares of our
common stock under our Stock Incentive Plan, including options for 1,539,000
shares to our executive officers as of June 30, 2000. The weighted average
exercise price of the options to purchase the 5,560,056 shares is $4.70 as of
June 30, 2000.

CERTAIN PROVISIONS OF GEORGIA LAW AND THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS

Staggered Board of Directors; Removal; Filling Vacancies

Our bylaws provide that our Board of Directors will consist of between five
and fifteen directors. Our Board currently consists of seven directors, four of
whom are not employees of Interland. Our Board of Directors is divided into
three classes of directors serving staggered three-year terms. The
classification of directors has the effect of making it more difficult for
shareholders to change the composition of our Board of Directors. We believe,
however, that the longer time required to elect a majority of a classified Board
of Directors will help to ensure the continuity and stability of our management
and policies. The classification provisions could also have the effect of
discouraging a third party from accumulating large blocks of our stock or
attempting to obtain control of Interland, even though such an attempt might be
beneficial to us and to you. Accordingly, you could be deprived of some
opportunities to sell your shares of common stock at a higher market price than
might otherwise be the case. Our shareholders will be entitled to vote on the
election or removal of directors, with each share entitled to one vote.

Our bylaws provide that, unless our Board of Directors otherwise
determines, any vacancies may be filled by the affirmative vote of a majority of
the remaining directors, even if less than a quorum. A director may be removed
with or without cause by the vote of the holders of a majority of the shares
entitled to vote for the election of directors at a special meeting of the
shareholders called for the purpose of removing such director. A vacancy
resulting from an increase in the number of directors may be filled by action of
our Board of Directors.

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Shareholder Rights Plan

We have adopted a shareholder rights plan to help ensure that our
shareholders receive fair and equal treatment in the event of any proposed
acquisition of Interland. Under the rights plan, our Board of Directors has
declared a dividend of one preferred share purchase right for each outstanding
share of our common stock. Each preferred share purchase right entitles the
registered holder to purchase one one-hundredth of a share of our Series B
participating cumulative preferred stock, no par value per share, at a price of
$100.00 per share, subject to adjustments to the exercise price and the number
of preferred shares that we may issue upon exercise from time to time to prevent
dilution. These rights are not exercisable until the earlier to occur of (1) ten
days following a public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 15% or more of our
outstanding common stock or (2) ten business days following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding shares of our common stock.

If we are acquired in a merger or other business combination transaction or
50% or more of our assets or earning power is sold after a person or group
acquires 15% or more of our outstanding common stock or announces an intention
to make a tender offer or exchange offer that would result in the beneficial
ownership of 15% or more of our outstanding shares of common stock, proper
provision will be made so that each holder of a preferred share purchase right,
other than those rights beneficially owned by the acquiring person (which will
become void), will then have the right to receive upon exercise that number of
shares of common stock having a market value of two times the exercise price of
the right.

Shares of Series B participating cumulative preferred stock purchasable
upon exercise of the preferred share purchase rights will not be redeemable.
Each share of preferred stock will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of one hundred times the dividend declared per share of our
common stock. In the event of liquidation, the holders of the preferred stock
will be entitled to a minimum preferential liquidation payment of $1.00 per
share but will be entitled to an aggregate payment of one hundred times the
payment made per share of our common stock. Each share of preferred stock will
have one one-hundredth of a vote, voting together with the shares of our common
stock. Finally, in the event of any merger, consolidation or other transaction
in which shares of our common stock are exchanged, each share of preferred stock
will be entitled to receive one hundred times the amount received per share of
our common stock. These rights are protected by customary antidilution
provisions.

Unless the preferred share purchase rights are either triggered or expire,
the rights may not be detached or transferred separately from our common stock.
The preferred share purchase rights will expire in July, 2010, unless this date
is extended or unless we redeem or exchange the preferred share purchase rights
earlier. At any time before the acquisition by a person or group of affiliated
or associated persons of beneficial ownership of 15% or more of our outstanding
common stock, our Board of Directors may redeem the preferred share purchase
rights in whole, but not in part, at a price of $.001 per right. Immediately
upon any redemption of the preferred share purchase rights, the right to
exercise these rights will terminate and the only right of the holders of those
rights will be to receive the redemption payment.

Ability to Consider Other Constituencies

Our Articles of Incorporation permit our Board of Directors, in determining
what is believed to be in our best interest, to consider the interests of our
employees, customers, suppliers and creditors, the communities in which our
offices or other establishments are located and all other factors the directors
consider pertinent, in addition to considering the effects of any actions on
Interland and our shareholders. This provision permits our Board of Directors to
consider numerous judgmental or subjective factors affecting a proposal,
including some non-financial matters, and on the basis of these considerations
may oppose a business combination or other transaction which, viewed exclusively
from a financial perspective, might be attractive to some, or even a majority,
of our shareholders.

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REGISTRATION RIGHTS

Upon completion of this offering, the holders of approximately 23,616,911
shares of our common stock, and rights to acquire our common stock, will be
entitled to rights with respect to the registration of those shares under the
Securities Act of 1933, as amended. Under the terms of the registration rights
agreement we entered with the holders of these registrable shares other than
Compaq and Hewlett-Packard, following the completion of this offering, if we
propose to register any additional securities under the Securities Act, the
holders must be notified and will be entitled to have their shares of common
stock included in the registration. In addition, the holders of the registrable
shares are also entitled to specified demand registration rights. These demand
registration rights permit the holders to require us, on up to two separate
occasions, to file a registration statement with respect to their shares of
common stock and to use our best efforts to cause the registration statement to
be declared effective. In addition, under the registration rights agreement,
subject to various conditions, the holders of registrable shares may require us
to file an unlimited number of additional registration statements on Form S-3,
but no more than two in any eighteen month period.

The rights granted under the registration rights agreement are subject to
various conditions and limitations, among them the right of Interland and the
underwriters of an offering to limit the number of shares included in a
registration and our right to delay registration if within 180 days before a
request for registration, a registration of our securities has been effected in
which the requesting holder had a right to participate, or if a holder's request
is received less than 90 days before the anticipated effective date of a
proposed underwritten offering approved by our board of directors before receipt
of the request.

Under the terms of registration rights agreements that we entered into with
Compaq and Hewlett-Packard, if we propose to register any additional securities
under the Securities Act following the completion of this offering, they must
each be notified and will be entitled to have their shares of common stock
included in the registration. These rights are subject to various conditions and
limitations, among them the right of Interland and the underwriters of an
offering to limit the number of shares included in a registration and are
subordinate to the registration right described above.

Holders of registrable securities must pay any transfer taxes and any
underwriting discounts or commissions associated with the sale of their shares.
Otherwise, we will bear all expenses incident to the registration of shares
under all of the registration rights agreements. We do not expect that the
expenses we will incur in connection with any exercise of these registration
rights will exceed the expenses customarily incurred by companies registering
their securities. Subject to some conditions, if the holders of registration
rights request that we withdraw a requested registration statement, those
holders will be obligated to reimburse us for the expenses of that registration.

INDEMNIFICATION AND LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS

We plan to enter into indemnification agreements with each of our directors
and executive officers. The form of indemnification agreement provides that we
will indemnify our directors and executive officers for expenses incurred
because of their status as a director or officer, to the fullest extent
permitted by Georgia law, our articles of incorporation and our bylaws.

Our bylaws provide for indemnification of each of our directors and
officers, and our Amended and Restated Articles of Incorporation eliminate, to
the extent permitted by the Georgia Business Corporation Code, the personal
liability of our directors to us and to our shareholders for monetary damages
for some breaches of fiduciary duty and the duty of care. The indemnification
provided by our bylaws may be available for liabilities arising in connection
with this offering. To the extent that indemnification for liabilities under the
Securities Act of 1933, as amended, may be permitted to directors, officers or
controlling persons under our bylaws, we have been informed that, in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
At present there is no pending material litigation or proceeding involving any
director, officer, employee or agent of Interland in which indemnification will
be required or permitted.

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Our bylaws provide for indemnification of our directors and officers with
respect to any liability and reasonable expense incurred by such person in
connection with any civil or criminal action, suit or proceeding to which such
person was (or is made or threatened to be made) a party or is otherwise
involved, by reason of the fact that such person is or was one of our directors
or officers, and such person acted in a manner he believed to be in good faith
and not opposed to our best interests, and had no reasonable cause to believe
that his conduct was unlawful. Our bylaws obligate us to indemnify each of our
directors and officers to the extent that they are successful in the defense of
any action, suit or proceeding. In addition, our bylaws may obligate us, under
some circumstances, to advance reasonable expenses incurred by each director or
officer in the defense of any civil or criminal action, suit or proceeding for
which indemnification may be sought. However, we will not indemnify any director
or officer to the extent that they are adjudged liable to us, or liable for the
receipt of improper personal benefit. Under conditions described in our bylaws,
any determination with respect to indemnification will be made by our board of
directors or a committee thereof, by special legal counsel appointed by our
board of directors or a committee thereof, or by our shareholders.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the common stock is SunTrust Bank.

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SHARES ELIGIBLE FOR FUTURE SALE

Before this offering there has been no public market for our common stock,
and we cannot predict the effect, if any, that sales of our common stock or the
availability of common stock for sale will have on its market price.
Nevertheless, sales of substantial amounts of our common stock in the public
market, or the perception that such sales could occur, could negatively affect
the market price of our common stock and impair our ability to raise capital
through the sale of our equity securities in the future.

We will have 46,647,628 shares of common stock outstanding at the time we
complete this offering and after the transactions with Microsoft, Network
Solutions, and Bell Atlantic. Of these shares, the 5,000,000 shares sold in this
offering will be freely transferable without restriction or further registration
under the Securities Act, unless held by affiliates of our company, as that term
is defined in Rule 144 under the Securities Act. For purposes of Rule 144, an
affiliate is a person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
Interland. The remaining 41,647,628 shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act. The
restricted securities generally may not be sold unless they are registered under
the Securities Act or sold under an exemption from registration, such as the
exemption provided by Rule 144.

In connection with this offering, our existing officers, directors and some
of our shareholders, who will own a total in excess of 41,000,000 shares of
common stock after the offering, have entered into lock-up agreements pursuant
to which they have agreed not to offer or sell any shares of common stock for a
period of 180 days after the date of this prospectus without the prior written
consent of Bear, Stearns & Co. Inc., which may in its sole discretion, at any
time and without notice, waive any of the terms of these lock-up agreements.
Bear, Stearns & Co. Inc. presently has no intention to allow any shares of
common stock or warrants to be sold or otherwise offered by Interland prior to
the expiration of the 180 day lock-up period, although it may decide to do so in
light of the purpose for which any such shares or warrants are requested to be
sold or otherwise offered, prevailing market conditions and any other factor
which Bear, Stearns & Co. Inc., in its sole discretion, may deem to be relevant.
Following the lock-up period, these shares will not be eligible for sale in the
public market without registration under the Securities Act unless such sale
meets the conditions and restrictions of Rule 144 or Rule 701 as described
below.

In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares of our common stock for at least one year is entitled
to sell, within any three-month period, a number of shares that is not more than
the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately 466,000 shares immediately after this offering, or

- the average weekly trading volume of the common stock during the four
calendar weeks before a notice of the sale is filed.

Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.

Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon regarding the resale of securities
originally purchased from us by our employees, directors, officers, consultants
or advisors before the date we become subject to the reporting requirements of
the Exchange Act, under written compensatory benefit plans or written contracts
relating to compensation of those persons. In addition, the SEC has indicated
that Rule 701 will apply to the typical stock options granted by an issuer
before it becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, along with the shares acquired upon exercise of these
options, including exercises after the date of this prospectus. Securities
issued in reliance on Rule 701 are restricted securities and beginning 90 days
after the date of this prospectus, may be sold (1) by persons other than
affiliates,
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subject only to the manner of sale provisions of Rule 144, and (2) by affiliates
under Rule 144 without compliance with its one-year holding period requirement.
Based on stock option grants as of the date of this prospectus, options for
1,022,108 shares will be exercisable upon the expiration of the 90-day
restricted period.

We intend to file one or more registration statements under the Securities
Act to register all shares of common stock issued, issuable or reserved for
issuance under our stock plans. These registration statements are expected to be
filed as soon as practicable after the date of this prospectus and will
automatically become effective upon filing. Following this filing, shares
registered under these registration statements will, subject to lock-up
agreements and Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market.

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UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
between us and the underwriters named below, for which Bear, Stearns & Co. Inc.,
Thomas Weisel Partners LLC and PaineWebber Incorporated are acting as
representatives, the underwriters have severally agreed to purchase from us the
following respective numbers of shares of common stock at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc..................................... 1,880,000
Thomas Weisel Partners LLC.................................. 1,128,000
PaineWebber Incorporated.................................... 752,000
CIBC WORLD MARKETS CORP..................................... 80,000
Dain Rauscher Incorporated.................................. 80,000
Deutsche Bank Securities Inc................................ 80,000
ING Barings LLC............................................. 80,000
Lazard Freres & Co. LLC..................................... 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 80,000
Morgan Stanley & Co. Incorporated........................... 80,000
UBS Warburg LLC............................................. 80,000
Wit SoundView Corporation................................... 80,000
Robert W. Baird & Co. Incorporated.......................... 40,000
Brean Murray & Co., Inc..................................... 40,000
First Albany Corporation.................................... 40,000
Gerard Klauer Mattison & Co., LLC........................... 40,000
Josephthal & Co. Inc........................................ 40,000
Kaufman Bros., L.P.......................................... 40,000
Needham & Company, Inc...................................... 40,000
Pacific Crest Securities.................................... 40,000
The Robinson-Humphrey Company, LLC.......................... 40,000
Sanders Morris Harris....................................... 40,000
Suntrust Equitable Securities Corporation................... 40,000
C.E. Unterberg, Towbin...................................... 40,000
Wachovia Securities, Inc.................................... 40,000
---------
Total............................................. 5,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration statement,
the continuing correctness of our representations to them, the receipt of a
comfort letter from our accountants, the listing of the common stock on the
Nasdaq National Market and no occurrence of an event that would have a material
adverse effect on our business. The underwriting agreement obligates the
underwriters to purchase and accept delivery of all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.

We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 750,000 additional
shares at the public offering price less the underwriting discount. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.

The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public

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offering price less a concession not in excess of $0.50 per share. The
underwriters may allow, and such dealers may re-allow, a concession not in
excess of $0.10 per share on sales to other dealers. After the initial offering
of the shares to the public, the representatives of the underwriters may change
the public offering price and such concessions. The underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.

The following table shows the underwriting discount to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of the common stock.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ 0.84 $ 0.84
Total....................................................... $4,200,000 $4,830,000
</TABLE>

The underwriting discount per share is equal to the public offering price
per share of common stock less the amount paid by the underwriters to us per
share of common stock.

We estimate that our total expenses in connection with this offering, other
than the underwriting discount, will be approximately $1.15 million.

At our request, the underwriters have reserved for sale at the initial
public offering price up to 375,000 shares of our common stock to be sold in
this offering for sale to persons we designate. The number of shares available
for sale to the general public will be reduced to the extent that any reserved
shares are purchased. The underwriters will offer any reserved shares not so
purchased on the same basis as the other shares offered hereby.

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 173 filed
public offerings of equity securities, of which 127 have been completed, and has
acted as a syndicate member in an additional 99 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
us or any of our officers, directors or other controlling persons, except with
respect to its contractual relationship with us under the underwriting agreement
entered into in connection with this offering.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the common stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.

We have agreed to indemnify the underwriters against liabilities specified
in the underwriting agreement, including liabilities under the Securities Act.

Our common stock has been approved for listing on the Nasdaq National
Market under the symbol "ILND."

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Before this offering, there has been no public market for our common stock.
As a result, the initial public offering price for our common stock will be
determined by negotiation among us and the representatives of the underwriters.
Among the factors to be considered in determining the public offering price will
be:

- prevailing market conditions;

- our results of operations in recent periods;

- the present stage of our development;

- the market capitalization and stages of development of generally
comparable companies; and

- estimates of our business potential.

In addition to the restrictions applicable to our directors, officers and
some of our shareholders under "Shares Eligible for Future Sale," we have agreed
that for a period of 180 days after the date of this prospectus, we will not
sell or offer to sell or otherwise dispose of any shares of common stock without
the prior written consent of Bear, Stearns & Co. Inc., except that we may issue,
and grant options to purchase, shares of common stock under our stock option and
employee stock purchase plans.

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LEGAL MATTERS

Kilpatrick Stockton LLP, Atlanta, Georgia is passing on legal matters with
respect to the validity of common stock offered hereby. Kilpatrick Stockton LLP
owns 16,764 shares of our common stock. Latham & Watkins, Washington, D.C., is
acting as counsel to the underwriters in connection with the offering.

EXPERTS

The financial statements of Interland, Inc. as of December 31, 1999 and
1998 and for the period from inception (September 18, 1997) to December 31, 1997
and for the years ended December 31, 1999 and 1998 included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, and
are included in this prospectus in reliance upon the authority of said firm as
experts in, giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement on Form S-1 that
Interland has filed with the SEC covering the shares of common stock that
Interland is offering. This prospectus does not contain all of the information
presented in the registration statement, and you should refer to that
registration statement with its exhibits for further information. Statements in
this prospectus describing or summarizing any contract or other document are not
complete, and you should review the copies of those documents filed as exhibits
to the registration statement for more detail. You may read and copy the
registration statement at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. For information on the operation of the Public
Reference Room, call the SEC at 1-800-SEC-0330. You can also inspect our
registration statement on the Internet at the SEC's web site,
http://www.sec.gov.

After this offering, we will be required to file annual, quarterly, and
current reports, proxy and information statements and other information with the
SEC. You can review this information at the SEC's Public Reference Room or on
the SEC's web site, as described above.

75
<PAGE> 78

INTERLAND, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Public Accountants.................... F-2

Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (unaudited)...................................... F-3

Statements of Operations for the Period From Inception
(September 18, 1997) to December 31, 1997 and for the
Years Ended December 31, 1998 and 1999 and the three
months ended March 31, 1999 and 2000 (unaudited).......... F-4

Statements of Shareholders' Equity (Deficit) for the Period
From Inception (September 18, 1997) to December 31, 1997,
for the Years Ended December 31, 1998 and 1999 and for the
three months ended March 31, 2000 (unaudited)............. F-5

Statements of Cash Flows for the Period From Inception
(September 18, 1997) to December 31, 1997 and for the
Years Ended December 31, 1998 and 1999 and for the three
months ended March 31, 1999 and 2000 (unaudited).......... F-6

Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 79

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO INTERLAND, INC.:

We have audited the accompanying balance sheets of INTERLAND, INC. (a
Georgia corporation) as of December 31, 1998 and 1999 and the related statements
of operations, shareholders' equity (deficit), and cash flows for the period
from inception (September 18, 1997) to December 31, 1997 and for the years ended
December 31, 1998 and 1999. 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 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 financial position of Interland, Inc. as of
December 31, 1998 and 1999 and the results of its operations and its cash flows
for the period from inception (September 18, 1997) to December 31, 1997 and for
the years ended December 31, 1998 and 1999 in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 16, 2000 (except with respect to the stock split
discussed in Note 7 to which the date is June 14, 2000)

F-2
<PAGE> 80

INTERLAND, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------- MARCH 31, MARCH 31, 2000
1998 1999 2000 NOTE 7
-------- --------- ----------- --------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 706 $ 24,510 $ 18,939
Restricted cash........................................... -- 1,007 1,200
Accounts receivable....................................... -- 655 1,579
Prepaid commissions....................................... 36 825 1,174
Other current assets...................................... -- 730 4,715
------- -------- --------
Total current assets................................ 742 27,727 27,607
------- -------- --------
Property and Equipment:
Internet access and computer equipment.................... 770 4,072 5,780
Construction in progress.................................. -- 2,499 5,442
Other furniture and equipment............................. 85 660 2,556
Office computer equipment................................. 223 445 828
Purchased software........................................ 26 451 537
Leasehold improvements.................................... -- 398 974
------- -------- --------
1,104 8,525 16,117
Less accumulated depreciation and amortization............ (115) (982) (1,569)
------- -------- --------
Property and equipment, net............................. 989 7,543 14,548
------- -------- --------
Other Long-Term Assets:
Notes receivable -- related parties....................... 50 481 493
Deposits and other long-term assets....................... -- 225 69
------- -------- --------
Total other long-term assets........................ 50 706 562
------- -------- --------
Total assets........................................ $ 1,781 $ 35,976 $ 42,717
======= ======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 1,022 $ 3,387 $ 6,994
Accrued expenses.......................................... 328 2,863 5,966
Capital lease obligation.................................. 124 1,185 1,557
Unearned revenue.......................................... 895 7,042 11,535
------- -------- --------
Total current liabilities........................... 2,369 14,477 26,052
Unearned Revenue............................................ 38 1,433 1,894
Capital Lease Obligation.................................... 312 2,406 2,935
Other Long-Term Liabilities................................. -- 165 165
Commitments and Contingencies (Note 6)
Shareholders' Equity (Deficit):
Preferred stock, no par value, 25,000,000 shares
authorized:
Series A, $2.02 stated value, 15,000,000 shares
authorized; 12,392,258 and 13,137,083 shares issued and
outstanding as of December 31, 1999 and March 31, 2000,
respectively; no shares issued and outstanding, pro forma... -- 34,423 40,630 --
Series A-1, 2,100,000 shares authorized, no shares
issued and outstanding as of December 31, 1998 and 1999 and
March 31, 2000.............................................. -- -- -- --
Common stock, no par value; 100,000,000 shares authorized
at December 31, 1998 and 1999; 19,443,151, 23,590,390 and
24,363,154 shares issued and outstanding as of December 31,
1998 and 1999 and March 31, 2000, respectively, and
37,500,239 shares outstanding, pro forma.................... 1,515 3,252 7,022 47,652
Warrants.................................................. -- 2,144 5,242 5,242
Deferred product development costs........................ -- (2,133) (2,026) (2,026)
Deferred marketing costs.................................. -- -- (4,603) (4,603)
Deferred compensation..................................... -- (954) (4,568) (4,568)
Accumulated deficit....................................... (2,453) (19,237) (30,026) (30,026)
------- -------- -------- --------
Total shareholders' equity (deficit)................ (938) 17,495 11,671 11,671
------- -------- -------- --------
Total liabilities and shareholders' equity
(deficit)................................................... $ 1,781 $ 35,976 $ 42,717 $ 42,717
======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE> 81

INTERLAND, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD THREE MONTHS
FROM INCEPTION YEARS ENDED ENDED
(SEPTEMBER 18, 1997) DECEMBER 31, MARCH 31,
TO DECEMBER 31, ------------------------- -------------------------
1997 1998 1999 1999 2000
-------------------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 5 $ 1,387 $ 9,121 $ 1,009 $ 6,268
Operating expenses:
Cost of revenues (including
non-cash expense of $810 for
the three months ended March
31, 2000)...................... -- 1,096 7,897 861 6,685
Sales and marketing.............. -- 1,803 7,901 896 5,579
General and administrative
(including non-cash stock
compensation expense of $3,557,
$101, and $595 for the year
ended December 31, 1999, and
the three months ended March
31, 1999 and 2000,
respectively).................. 119 809 10,093 677 5,044
----------- ----------- ----------- ----------- -----------
Total operating
expenses................ 119 3,708 25,891 2,434 17,308
----------- ----------- ----------- ----------- -----------
Operating loss..................... (114) (2,321) (16,770) (1,425) (11,040)
Other income (expense):
Interest income.................. -- 2 206 7 350
Interest expense................. -- (20) (220) (18) (99)
----------- ----------- ----------- ----------- -----------
Total other expense....... -- (18) (14) (11) 251
----------- ----------- ----------- ----------- -----------
Net loss........................... (114) (2,339) (16,784) (1,436) (10,789)
Preferred stock beneficial
conversion and dividends......... -- -- (9,559) -- (586)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
shareholders..................... $ (114) $ (2,339) $ (26,343) $ (1,436) $ (11,375)
=========== =========== =========== =========== ===========
Basic and diluted net loss per
common share..................... $ (0.01) $ (0.13) $ (1.23) $ (0.07) $ (0.48)
=========== =========== =========== =========== ===========
Shares used in computing net loss
per share........................ 17,631,191 18,316,449 21,461,161 19,654,296 23,936,350
=========== =========== =========== =========== ===========
Pro forma basic and diluted net
loss per common share............ $ (1.18) $ (0.31)
=========== ===========
Shares used in computing pro forma
net loss per share............... 22,302,836 36,459,567
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 82

INTERLAND, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1997)
TO DECEMBER 31, 1997,
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999,
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>

PREFERRED PREFERRED COMMON COMMON DEFERRED
STOCK STOCK STOCK STOCK DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT WARRANTS COSTS
---------- --------- ---------- ------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance, September 18, 1997........ -- $ -- -- $ -- $ -- $ --
Issuance of common stock.......... -- -- 17,631,167 139 -- --
Net loss.......................... -- -- -- -- -- --
---------- ------- ---------- ------- ------ -------
Balance, December 31, 1997......... -- -- 17,631,167 139 -- --
Issuance of common stock.......... -- -- 1,811,984 1,376 -- --
Net loss.......................... -- -- -- -- -- --
---------- ------- ---------- ------- ------ -------
Balance, December 31, 1998......... -- -- 19,443,151 1,515 -- --
Issuance of common stock.......... -- -- 4,003,230 8,441 -- --
Issuance of Series A preferred
stock........................... 12,392,258 25,014 -- (1,657) -- --
Issuance of options and stock to
consultants and bankers......... -- -- 144,009 4,212 -- --
Issuance of options to employee at
below fair value................ -- -- -- 300 -- --
Issuance of warrants in connection
with development agreement...... -- -- -- -- 2,144 (2,144)
Dividends on preferred stock...... -- -- -- (150) -- --
Beneficial conversion of preferred
stock........................... -- 9,409 -- (9,409) -- --
Amortization of deferred
development costs............... -- -- -- -- -- 11
Amortization of deferred
compensation.................... -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- --
---------- ------- ---------- ------- ------ -------
Balance, December 31, 1999......... 12,392,258 34,423 23,590,390 3,252 2,144 (2,133)
Exercise of common stock options... -- -- 756,000 7 -- --
Issuance of common stock for
services rendered................. -- -- 16,764 139 -- --
Issuance of options to employees at
below fair value.................. -- -- -- 4,210 -- --
Amortization of deferred
development costs................. -- -- -- -- -- 107
Amortization of deferred
compensation...................... -- -- -- -- -- --
Issuance of Series A preferred
stock............................. 744,825 4,000 -- -- -- --
Issuance of warrants and stock in
connection with marketing
agreement......................... -- 2,207 -- -- 2,444 --
Issuance of warrants............... -- -- -- -- 654 --
Amortization of deferred marketing
costs............................. -- -- -- -- -- --
Dividends on preferred stock....... -- -- -- (586) -- --
Net loss........................... -- -- -- -- -- --
---------- ------- ---------- ------- ------ -------
Balance, March 31, 2000
(unaudited)....................... 13,137,083 $40,630 24,363,154 $7,022 $5,242 $(2,026)
========== ======= ========== ======= ====== =======

<CAPTION>
TOTAL
DEFERRED SHAREHOLDERS'
MARKETING DEFERRED ACCUMULATED EQUITY
COSTS COMPENSATION DEFICIT (DEFICIT)
--------- ------------ ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Balance, September 18, 1997........ $ -- $ -- $ -- $ --
Issuance of common stock.......... -- -- -- 139
Net loss.......................... -- -- (114) (114)
------- ------- -------- --------
Balance, December 31, 1997......... -- -- (114) 25
Issuance of common stock.......... -- -- -- 1,376
Net loss.......................... -- -- (2,339) (2,339)
------- ------- -------- --------
Balance, December 31, 1998......... -- -- (2,453) (938)
Issuance of common stock.......... -- -- -- 8,441
Issuance of Series A preferred
stock........................... -- -- -- 23,357
Issuance of options and stock to
consultants and bankers......... -- (890) -- 3,322
Issuance of options to employee at
below fair value................ -- (300) -- --
Issuance of warrants in connection
with development agreement...... -- -- -- --
Dividends on preferred stock...... -- -- -- (150)
Beneficial conversion of preferred
stock........................... -- -- -- --
Amortization of deferred
development costs............... -- -- -- 11
Amortization of deferred
compensation.................... -- 236 -- 236
Net loss.......................... -- -- (16,784) (16,784)
------- ------- -------- --------
Balance, December 31, 1999......... -- (954) (19,237) 17,495
Exercise of common stock options... -- -- -- 7
Issuance of common stock for
services rendered................. -- -- -- 139
Issuance of options to employees at
below fair value.................. -- (4,210) -- --
Amortization of deferred
development costs................. -- -- -- 107
Amortization of deferred
compensation...................... -- 596 -- 596
Issuance of Series A preferred
stock............................. -- -- -- 4,000
Issuance of warrants and stock in
connection with marketing
agreement......................... (4,651) -- -- --
Issuance of warrants............... -- -- -- 654
Amortization of deferred marketing
costs............................. 48 -- -- 48
Dividends on preferred stock....... -- -- -- (586)
Net loss........................... -- -- (10,789) (10,789)
------- ------- -------- --------
Balance, March 31, 2000
(unaudited)....................... $(4,603) $(4,568) $(30,026) $ 11,671
======= ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 83

INTERLAND, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE YEARS ENDED FOR THE THREE MONTHS
INCEPTION DECEMBER 31, ENDED MARCH 31,
(SEPTEMBER 18, 1997) TO -------------------- --------------------
DECEMBER 31, 1997 1998 1999 1999 2000
----------------------- -------- --------- -------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(114) $(2,339) $(16,784) $(1,436) $(10,789)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization.... -- 115 992 111 587
Amortization of non-cash stock
compensation expense........... -- -- 3,557 101 1,250
Loss on disposal of property and
equipment...................... -- -- 198 -- --
Amortization of deferred
development and marketing
costs.......................... -- -- 11 -- 155
Changes in operating assets and
liabilities:
Accounts receivable............ -- -- (655) -- (923)
Prepaid commissions............ -- (36) (789) (82) (348)
Other current assets........... -- -- (730) (189) (3,798)
Note receivable--related
party....................... -- (50) (431) -- (12)
Other assets................... -- -- (225) (21) 156
Accounts payable and accrued
liabilities................. 4 1,347 4,752 654 6,125
Unearned revenue............... -- 933 7,542 808 4,952
Other long-term liabilities.... -- -- 165 -- --
----- ------- -------- ------- --------
Total adjustments........... 4 2,309 14,387 1,382 8,144
----- ------- -------- ------- --------
Net cash used in operating
activities................ (110) (30) (2,397) (54) (2,645)
Cash flows from investing activities:
Purchases of property and
equipment........................ (2) (1,102) (7,745) (682) (7,592)
Deposit of restricted cash.......... 0 -- (1,007) -- (193)
----- ------- -------- ------- --------
Net cash provided by
investing activities...... (2) (1,102) (8,752) (682) (7,785)
Cash flows from financing activities:
Net proceeds from issuance of common
stock............................ 139 1,376 8,441 785 7
Net proceeds from issuance of
preferred stock.................. -- -- 23,357 -- 4,000
Borrowings on capital lease
obligations...................... -- 491 3,628 236 1,118
Payments on capital lease
obligations...................... -- (56) (473) (55) (266)
----- ------- -------- ------- --------
Net cash provided by
financing activities...... 139 1,811 34,953 966 4,859
----- ------- -------- ------- --------
Net increase in cash and cash
equivalents......................... 27 679 23,804 230 (5,571)
Cash and cash equivalents, beginning
of year............................. -- 27 706 706 24,510
----- ------- -------- ------- --------
Cash and cash equivalents, end of
year................................ $ 27 $ 706 $ 24,510 $ 936 $ 18,939
===== ======= ======== ======= ========
Supplemental cash flow disclosure:
Cash paid for interest.............. $ -- $ 20 $ 178 $ 12 $ 71
===== ======= ======== ======= ========
Non cash disclosure:
Issuance of stock and options for
consultant and employee
compensation..................... $ -- $ -- $ 4,512 $ -- $ 4,349
===== ======= ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 84

INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF BUSINESS

NATURE OF BUSINESS

Interland, Inc. (the "Company") commenced operations on September 18, 1997.
The Company provides a broad range of web site and application hosting and other
related web based business solutions specifically to meet the needs of small to
medium-sized businesses. The Company focuses on delivering high-quality,
reliable, and flexible services that are backed by customer support 24 hours a
day, 7 days a week, and 365 days a year. The Company offers its solutions
directly and through third-party dealers that resell the Company's web hosting
services.

HISTORY OF OPERATING LOSSES

The Company has incurred net losses since it commenced operations. As of
December 31, 1999, the Company had an accumulated deficit of $28,796,000. These
losses have occurred, in part, because of the costs incurred by the Company to
develop its products, build a customer support infrastructure, and expand its
market share in an extremely competitive market. The Company does not expect to
generate positive cash flow from its operations for several years. The Company's
success depends on its ability to achieve profitability and on its ability to
raise additional funds. As a result, the Company intends to continue to seek
funding from external sources. The Company plans to continue to increase its
operating expenses in order to fund higher levels of market share, increase its
sales and marketing efforts, broaden its customer support capabilities, and
expand its administrative resources in anticipation of future growth. To the
extent that increases in such expenses precede or are not offset by increased
revenues, the Company's business, results of operations, and financial condition
would be materially adversely affected.

INTERIM UNAUDITED FINANCIAL INFORMATION

The financial statements as of March 31, 2000 and for the three months
ended March 31, 1999 and 2000 are unaudited. However, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the unaudited financial statements for
these interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.

NETWORK INFRASTRUCTURE

The Company must expand and adapt its network infrastructure to meet the
increasing number of users and the amount of information they wish to transport
to meet changing customer requirements. This expansion depends on financial,
operational and management resources as well as telecommunications capacity and
pricing and third party suppliers. Any failure of these could adversely affect
our business.

OTHER RISK FACTORS

The Company faces other risk factors including, but not limited to, the
following: quarterly and annual fluctuations in results of operations and
financial position, inability to manage anticipated growth, dependence on
Internet usage, dependence on key personnel, and potential disruption of
services due to systems failures, security breaches or unknown software defects.

INITIAL PUBLIC OFFERING

The Company is planning an initial public offering (the "Offering") of its
common stock which is targeted for completion in the third quarter of 2000.
There can be no assurance that the Offering will be completed in this time
period or at all.

F-7
<PAGE> 85
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be the equivalent of cash for the
purpose of balance sheet and statement of cash flows presentation. Cash
equivalents, which consist primarily of money market accounts, are carried at
cost, which approximates market value.

RESTRICTED CASH

At December 31, 1999 and March 31, 2000 the Company held several
certificates of deposits which have maturities ranging from 6 to 12 months.
These investments are restricted to use by certain vendors for insurance, rent,
credit card processing, lease payments and other items. These deposits have been
classified as restricted cash in the accompanying balance sheet. No such
deposits were held as of December 31, 1998.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company maintains cash and cash equivalents with
various major financial institutions. The Company believes that the
concentrations of credit risk with respect to accounts receivable are limited
due to the large number of entities comprising the Company's customer base. As
of December 31, 1999, the Company had no foreign currency assets or liabilities.

PREPAID COMMISSIONS

The Company typically pays commissions to its sales representatives within
three months after cash for the sale is collected; however, the revenue for the
service provided is deferred and recognized ratably over the customer service
period. The Company defers commissions paid prior to the revenue being earned
and amortizes those commissions over the same period for which revenue is
recognized.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the various classes
of property, which is three years for all software, computer and Internet
equipment, including capital leases and seven years for other furniture and
equipment. Leasehold improvements are amortized over the lesser of the useful
life of the asset or the term of the lease. Construction in progress represents
primarily computer equipment and leasehold improvements to expand the Company's
network and facilities that have not been placed in operation as of December 31,
1999. Total depreciation and amortization expense for the period from inception
(September 18, 1997) to December 31, 1997, and the years ended December 31, 1998
and 1999 was $0, $115,000 and $992,000, respectively. Total depreciation and
amortization expense for the three months ended March 31, 1999 and 2000 was
$111,000 and $587,000, respectively.

F-8
<PAGE> 86
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Expenditures for maintenance and repairs are charged to expense as
incurred, and the costs of renewals and betterments are capitalized. Cost and
the related accumulated depreciation of assets sold or retired are removed from
the respective accounts. Any resulting gain or loss is reflected in the
statements of operations.

The Company leases certain Internet access and computer equipment under
capital leases. Equipment recorded under capital leases is amortized using the
straight-line method over the lease term. See Note 6 for further discussion.

The Company periodically reviews the cost basis of long-lived assets based
on the undiscounted future cash flow to be generated by those assets to
determine whether any permanent impairment exists. Management believes that the
long-lived assets in the accompanying balance sheets are appropriately valued.

The Company adopted the American Institute of Certified Public Accountants
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," effective January 1, 1998. The Company
capitalizes certain external costs related to software and implementation
services in connection with its internal-use software systems.

ACCRUED LIABILITIES

Accrued liabilities include the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1998 1999 2000
---- ------ ---------
<S> <C> <C> <C>
Accrued compensation and employee benefits................. $118 $ 886 $1,412
Accrued construction in progress........................... -- 1,297 2,184
Other accrued liabilities.................................. 210 680 2,370
---- ------ ------
$328 $2,863 $5,966
==== ====== ======
</TABLE>

During 1999 the Company recorded accrued severance of approximately
$330,000 related to the termination of an officer. Of the total accrual,
$165,000 is included in other long- term liabilities in the accompanying balance
sheet, as it will be paid in November 2001.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The book values of cash and cash equivalents, accounts receivable, accounts
payable, and other financial instruments approximate their fair values,
principally because of the short-term maturities of these instruments.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement on Accounting Standards No. 131, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," the Company reviews its long-lived assets for impairment when events or
changes in circumstances indicate the carrying value of such assets may not be
recoverable. This review consists of a comparison of the carrying value of the
asset with the asset's expected future undiscounted cash flows without interest
costs. In estimating the expected future cash flows, assets are grouped at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. Estimates of expected
future cash flows represent management's best estimate based on reasonable and
supportable assumptions and projections. If the expected future cash flow
exceeds the carrying value of the asset, no impairment indicator is considered

F-9
<PAGE> 87
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

present. If the carrying value exceeds the future cash flow, an impairment
indicator is considered present. Such impairment would be measured and
recognized using a discounted cash flow method.

SOFTWARE DEVELOPMENT

In 1999, the Company did not have any significant software development
projects but did capitalize approximately $400,000 related to finance and
accounting software and call center software to be used internally. These costs
primarily related to external direct costs of materials and services used in
obtaining the internal-use software. The Company did not incur significant
payroll and payroll-related costs for employees. Internal training costs and
maintenance costs are expensed as incurred.

The Emerging Issues Task Force has issued Issue No. 200-02 regarding
web-site development costs. The Company has not incurred significant web-site
development costs to date; however, the Company will continue to monitor changes
in the treatment of these costs.

REVENUE RECOGNITION

The Company realizes revenue from providing shared and dedicated hosting,
application hosting and consulting services. The Company recognizes revenues
when the services are provided. The Company's hosting contracts typically
require up-front payment for service periods ranging from 3 to 24 months. The
Company follows the guidance in Staff Accounting Bulletin No. 101 regarding
revenue recognition. Therefore, fees received from the customer, including
set-up fees for hosting services, are deferred and recognized ratably over the
contract period. Substantially all of the end-user subscribers pay for services
with major credit cards for which the Company receives daily remittances from
the credit card carriers. Deferred revenues represent the liability for advance
billing to customers for services not yet provided. Consulting revenue is
recognized as the services are performed, provided that no significant
obligations remain. The Company generally receives all payments for consulting
services prior to the services being performed; therefore, collection is
considered probable. Total consulting revenue was $235,695 for the year ended
December 31, 1999 and $331,330 for the three months ended March 31, 2000,
respectively. No consulting revenue was earned in 1997 or 1998.

The Company provides a 30 day money back guarantee to its customers and
offers its customers a 99.9% service level warranty. The Company records an
allowance for returns and an accrual for warranty claims on a monthly basis
based on historical experiences. The Company has not experienced significant
returns or warranty claims to date and does not have a significant returns or
warranty claims reserve as of December 31, 1998 or 1999 or March 31, 2000.

ADVERTISING COSTS

The Company expenses the costs of advertising as incurred. Advertising
expenses included in sales and marketing expense is $1,438,000 and $5,473,000
for 1998 and 1999, respectively. Advertising expense for the three months ended
March 31, 1999 and 2000 was $585,000 and $4,436,000, respectively.

INCOME TAXES

The Company uses the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets or liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to be settled or realized.

F-10
<PAGE> 88
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

BASIC AND DILUTED NET LOSS PER SHARE

The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." That statement requires the disclosure of basic
net income (loss) per share and diluted net income (loss) per share. Basic net
income (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted-average number of common shares outstanding
during the period and does not include any other potentially dilutive
securities. Diluted net income (loss) per share gives effect to all potentially
dilutive securities. The Company's convertible preferred stock, stock options
and stock warrants are potentially dilutive securities and are not included in
historical diluted net loss per share in any periods presented as they would
reduce the loss per share.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, for periods prior to the Company's anticipated initial public offering,
basic net loss per share is computed by using the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per share
is computed using the weighted average number of common stock outstanding during
the period and nominal issuances of common stock and common stock equivalents,
regardless of whether they are antidilutive, as well as the potential dilution
of common stock equivalents, if dilutive. The Company has not issued common
stock or common stock equivalents for considerations that management considers
nominal.

STOCK-BASED COMPENSATION PLAN

The Company accounts for its stock option plan under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
adopted the disclosure option of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires that companies which do not choose to
account for stock-based compensation as prescribed by the statement shall
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted.

OPTIONS AND STOCK ISSUED TO NON-EMPLOYEES

Transactions for goods or services in which consideration provided by the
Company is in the form of stock options or stock are treated in accordance with
SFAS No. 123. SFAS No. 123 requires the Company to record the fair value of the
equity instrument issued or the fair value of the services received, whichever
is readily measurable. When the fair value of the goods or services received can
not be reliably measured, the fair value of the equity instrument issued is
calculated using the Black-Scholes option pricing model.

SEGMENT REPORTING

The Company has adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," effective January 1, 1998. SFAS No. 131
establishes standards for the way that public business enterprises report
selected information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about products
and services, geographical areas and major customers. SFAS No. 131 requires the
use of the "management approach" in disclosing segment information; based
largely on how senior management generally analyzes the business operations. The
Company currently operates in only one segment, and as such, no additional
disclosure is required. Additionally, the Company did not have any operations or
net assets or liabilities in foreign locations for the period from inception
(September 18, 1997) to December 31, 1999 or the three months ended March 31,
2000. The Company generated revenue of $690,000 and $442,000 from foreign
customers for the year ended December 31, 1999 and the three months ended March
31, 2000, respectively. All sales were denominated in U.S. dollars. No
significant revenue was generated from foreign customers in 1997 or 1998.
F-11
<PAGE> 89
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. RELATED-PARTY TRANSACTIONS

During December 1998 and May 1999 the Company loaned two shareholder
officers a total of $50,000 and $400,000, respectively. The notes are full
recourse and are also secured by the common stock of the Company owned by the
officers and bear interest at 10% per annum. Of the aggregate principal of
$450,000, $250,000 is due on demand and $200,000 is due on the earlier of six
months after the Offering or November 19, 2004. The notes and accrued interest
are reflected as notes receivable -- related parties in the accompanying balance
sheets.

On August 18, 1998 the Company sold computer equipment for the total amount
of $50,000 to Geneva Leasing Corporation (which is owned by a stockholder of the
Company). These assets were then leased back to the Company in the form of a
36-month capital lease. No gain or loss was recorded in this transaction. The
lease obligation amounted to $28,000 at December 31, 1999 and a total amount of
$27,000 was paid to the Geneva Leasing Corporation during 1999.

4. INCOME TAXES

Deferred tax assets and liabilities as of December 31, 1998 and 1999 are
determined based on the difference between the financial accounting and tax
bases of assets and liabilities. Deferred tax assets and liabilities at the end
of the year are determined using the enacted statutory tax rates expected to
apply to taxable income in the years in which the deferred tax assets or
liabilities are expected to be realized or settled.

The Company has incurred net operating losses ("NOL") since commencing
operations. As of December 31, 1999 the Company has total NOLs of approximately
$19,800,000 available to offset its future income tax liability. The NOL
carryforward begins expiring in 2012. A valuation allowance is provided when it
is determined that some portion or all of the deferred tax assets may not be
realized. Accordingly, since it currently is more likely than not that the net
deferred tax assets resulting from the remaining net operating loss
carryforwards ("NOLs") and other deferred tax items will not be realized, a
valuation allowance has been provided in the accompanying financial statements
as of December 31, 1998 and 1999. The Company established the valuation
allowance for the entire amount of the deferred tax assets attributable to the
NOL carryforwards as well as for the net deferred tax assets created as a result
of temporary differences between book and tax.

If there is a change in ownership of greater than 50% of the outstanding
shares of the Company's capital stock, the Company's ability to utilize its net
operating losses will be subject to limitations imposed by Internal Revenue Code
Section 382. These limitations could significantly affect the Company's
utilization of those net operating loss carryforwards. As of December 31, 1999,
the Company had experienced no such change. Significant components of the
Company's deferred tax assets and liabilities as of December 31, 1998 and 1999,
are as follows (in thousands):

<TABLE>
<CAPTION>
1998 1999
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 878 $ 7,537
Deferred revenue.......................................... 31 283
Other..................................................... 12 75
----- -------
Net deferred tax assets before valuation allowance.......... 921 7,895
Valuation allowance......................................... (921) (7,895)
----- -------
Net deferred tax assets..................................... $ -- $ --
===== =======
</TABLE>

F-12
<PAGE> 90
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. SHAREHOLDERS' EQUITY

PREFERRED STOCK

The Company is authorized to issue 25,000,000 shares of preferred stock,
including 15,000,000 shares which are designated as Series A preferred stock and
2,100,000 shares which are designated as Series A-1 preferred stock. The
remaining preferred stock has not been designated by the Company.

The Series A and Series A-1 preferred stock are convertible and rank junior
to any other preferred stock that may be issued by the Company, but rank senior
to common stockholders upon liquidation. The Series A preferred stockholders
have the right to receive dividends equal to 9% of the stated value of the
preferred stock. The dividends accrue on a semi-annual basis with the dividend
period ending on the last day of May and November. Dividends are cumulative from
the date the Series A preferred stock is issued and accrue whether or not
declared by the Company. Dividends can be paid in cash, or in the form of Series
A-1 preferred stock or a combination of both at the option of the Company.
Series A-1 preferred stock is to be issued only as a dividend on Series A
preferred stock. The preferred stock is convertible at the then current
conversion price, which is equal to the stated value on the date of issuance.
The conversion price is adjusted from time to time as a result of stock splits,
recapitalizations or if the Company issues stock at prices below the stated
value of the preferred stock. Upon a qualified initial public offering, all of
the outstanding Series A and Series A-1 preferred stock automatically convert to
common stock at the then current conversion price.

On December 2, 1999 and December 24, 1999, the Company issued 9,908,258 and
2,484,000 shares, respectively, of Series A convertible preferred stock for
$2.02 per share for proceeds of $25,014,000. The convertible preferred stock was
issued to third party investors. The conversion price of the outstanding shares
as of December 31, 1999 was $2.02 per share. The Company had accrued dividends
of $150,000 and $736,000 at December 31, 1999 and March 31, 2000, respectively,
that were recorded through a direct charge to common stock. Prior to these
transactions, the Company sold common stock at $2.78 per share to third party
investors. As a result of the sale of the convertible preferred stock at
conversion prices below the prices sold to common shareholders, the Company
recorded a preferred stock dividend of $9,409,000 related to this beneficial
conversion feature in accordance with Emerging Issues Task Force Issue 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios." This dividend is reflected as an
adjustment to arrive at net income applicable to common shareholders in the
accompanying statement of operations.

In connection with the issuance of Series A preferred stock, the Company
incurred $1,656,978 in offering expenses that were recorded as a reduction of
the no par value common stock such that the preferred stock would be recorded at
its stated value of $2.02 per share.

COMMON STOCK

In March 1999 the Company amended its articles of incorporation and bylaws
to increase the number of authorized shares to 100,000,000. The accompanying
financial statements retroactively reflect this amendment in authorized shares.

During 1997 the Company issued 17,631,167 shares of common stock to two
founders for $139,000 or $0.01 per share, the deemed fair value on the date the
Company commenced operations.

Throughout 1998 the Company sold 1,811,984 shares of common stock to
third-party investors, the majority of which were unrelated to the Company, for
a total of $1,376,000 at prices ranging from $0.41 to $1.39 per share.

During 1999 the Company sold 4,003,230 shares of common stock for net
proceeds of $8,797,000. The common stock was sold to third-party investors and
consultants at prices ranging from $0.46 to $2.78

F-13
<PAGE> 91
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

per share. Of the total shares sold, 453,600 shares were sold to consultants at
prices less than fair market value. The Company recognized non cash compensation
expense of $516,000 related to these sales of common stock. The compensation
expense is included in general and administrative expense in the accompanying
statements of operations. During the third quarter of 1999 the Company issued
144,009 shares of common stock valued at $400,000 for costs related to sale of
the above mentioned common stock and paid cash expenses of $256,000. The payment
for stock issuance costs is reflected as a reduction of the proceeds from the
issuance of common stock in the accompanying balance sheets.

On July 1, 1999 the Company issued options to purchase 108,000 shares of
common stock to an employee at an exercise price of $0.01 per share. The fair
market value on the date of grant was estimated to be $2.78 per share. The
Company recorded deferred compensation of $300,000 related to this grant. The
deferred compensation will be amortized over the vesting period of the option,
which is three years from July 1, 1999. The Company amortized $50,000 of this
deferred compensation in 1999. The compensation expense is included in noncash
general and administrative compensation expense in the accompanying statements
of operations.

At various dates during 1999 the Company issued options to purchase
1,728,000 shares of common stock to consultants at exercise prices ranging from
$0.01 to $2.78 per share. The Company recognized non cash compensation expense
of $3,695,000 related to the issuance of these options. The options were valued
using the Black Scholes pricing model. As of December 31, 1999 the Company has
deferred compensation of $704,000 related to these option issuances. The
deferred compensation will be amortized over the remaining service period with a
consultant.

WARRANTS

On December 24, 1999 the Company issued warrants to purchase 546,480 shares
of common stock at an exercise price of $5.37 per share to Microsoft Corporation
("Microsoft"). This warrant was issued in connection with entering into a five
year Development, License, and Co-marketing Agreement (the "Agreement") with
Microsoft that expires December 23, 2004. The warrant can be exercised by paying
the cash exercise price or by surrendering common shares owned by Microsoft
equal to the exercise price. The Agreement grants to Microsoft a non-exclusive
perpetual license to proprietary installation tools for third-party hosted
applications on Windows NT or Windows 2000. Microsoft has the sole right to
terminate the Agreement if the Company fails to deliver the tools on a timely
basis or if the Company fails to correct any errors in the tools on a timely
basis and Microsoft will provide technical consulting and writing services
during the development of the tools. Additionally, in consideration of the
obligations of Microsoft, the Company agreed to pay Microsoft 5% of the total
gross revenues that the Company receives from third parties in consideration of
its licensing and other exploitation of the tools for the five years following
acceptance of the tools by Microsoft. The Company recorded the value of the
warrants, calculated using the Black-Scholes pricing model, of approximately
$2,144,000 as deferred development costs and will amortize this amount to the
cost of revenues over the five-year term of the Agreement. The Company will
periodically evaluate the recoverability of this deferred charge over the term
of the Agreement.

In connection with this agreement, Microsoft also agreed to invest an
additional $7,500,000 in common stock by dividing $7,500,000 by a number equal
to the lesser of the midpoint of the expected Offering range in the Company's
first filing with the Securities and Exchange Commission and the actual price to
the public in such offering. If the Offering is not completed within 120 days of
the date of the first filing with the Securities and Exchange Commission, the
number of shares purchased will be determined to be the midpoint of the Offering
range on the first filing. Microsoft will also receive an additional warrant at
the date of this second investment to purchase up to that number of common stock
equal to 75% of the number of additional shares purchased by Microsoft in the
second investment. The warrants will have an

F-14
<PAGE> 92
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

exercise price equal to the purchase price per share paid by Microsoft for the
additional shares. The value of the warrants of approximately $3,357,000 and the
difference, if any, between the midpoint of the expected Offering range and the
Offering price will be recorded as additional deferred development costs similar
to that discussed above which will be amortized over the remaining term of the
five-year Agreement.

On January 28, 2000 the Company issued warrants to purchase up to 376,920
shares of common stock of the Company at an exercise price of $8.33 per share.
These warrants were issued in connection with the entering into a web hosting
agreement. This agreement requires the Company to provide hosting services at
wholesale prices, to provide customers and technical support and to provide
other services. Upon signing the web hosting agreement, 108,000 of the warrants
vest immediately. The remaining 268,920 will vest at the end of each quarter of
2000 and at December 31, 2001 based on the number of new customers provided
through the web hosting agreement; therefore, the total remaining warrants may
never vest if the new customer targets are not met. In January 2000 the Company
recorded expense of approximately $650,000 related to the 108,000 warrants that
vested upon the signing of the agreement. The Company will record additional
expense in the future based on the number of warrants that vest based on
performance targets as valued using the Black-Scholes pricing model at the time
of vesting.

STOCK OPTIONS

During July 1999 the board of directors approved the Stock Incentive Plan
(the "Plan"). As of December 31, 1999, 4,860,000 shares of common stock are
reserved for the grant of qualified and nonqualified stock options and other
incentive awards to employees of the Company. Subsequent to December 31, 1999,
the total number of authorized shares under the Plan was increased to 7,560,000.
As of December 31, 1999 the Company has 1,865,160 options available for issuance
under the Plan. The Plan provides for the grant of options to eligible employees
and the board of directors determines the specific terms of each option grant,
including vesting period and exercise price. The options generally vest over a
three-year period. Additionally, the Company granted options to purchase
1,728,000 of common stock to certain consultants in 1999. These options had
exercise prices ranging from $0.01 to $2.78 per share and were 100% vested on
the date of issuance. The Company recorded expense associated with the issuance
of these options as discussed above.

In 1999 the Company granted options under the Plan to purchase 3,037,500
shares of common stock to employees at exercise prices ranging from $0.01 to
$5.37 per share, of which 936,900 vest ratably over a three-year period. The
remaining 2,100,600 options vest over a three year period beginning July 1,
2000. However, if the Company completes an initial public offering before July
1, 2000, the vesting accelerates to be 1/3 on the initial public offering date
and 1/3 one year from the initial public offering date and 1/3 two years from
the initial public offering date.

F-15
<PAGE> 93
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the issuance of options:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER RANGE OF AVERAGE
OF EXERCISE PRICE PER
OPTIONS PRICES SHARE
--------- ----------- ---------
<S> <C> <C> <C>
Outstanding at December 31, 1998..................... 0 $0.00
Granted............................................ 4,765,500 $0.01-$5.37 $2.53
Forfeited.......................................... (42,660) $2.78-$5.37 $3.18
---------
Outstanding at December 31, 1999..................... 4,722,840 $0.01-$2.78 $2.53
=========
Vested and exercisable at December 31, 1999.......... 1,728,000 $0.01-$2.78 $1.56
=========
Granted............................................ 1,562,436 $5.37-$8.33 $5.68
Forfeited.......................................... (60,480) $2.78-$8.33 $4.94
Exercised.......................................... (756,000) $0.01 $0.01
---------
Outstanding at March 31, 2000........................ 5,468,796 $ .93-$8.33 $3.74
=========
Vested and exercisable at March 31, 2000............. 972,000 $0.01 $0.01
=========
</TABLE>

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

In accordance with SFAS No. 123 the Company has computed, for pro forma
disclosure purposes, the estimated fair value of all options for shares of the
Company's common stock granted to employees during the year ended December 31,
1999 using the Black-Scholes option pricing model and based on the following
assumptions:

<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Risk-free interest rate..................................... 5.85%-6.59%
Expected dividend yield..................................... 0%
Expected forfeiture rate.................................... 5%
Expected volatility......................................... 88%
</TABLE>

No options were granted for the period from commencement of operations
(September 18, 1997) to December 31, 1997 or for the year ended December 31,
1998. The total fair value of the options granted to employees during the year
ended December 31, 1999 was computed as $5,660,131, which would be amortized
over the vesting period of the options. If the Company had accounted for these
options in accordance with SFAS No. 123, the Company's reported pro forma net
loss attributable to common shareholders and net income (loss) per share
attributable to common shareholders for the year ended December 31, 1999 would
have been as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
1999
--------
<S> <C>
Net loss:
As reported............................................... $(16,784)
Loss applicable to common shareholders.................... (26,343)
Loss applicable to common shareholders pro forma for SFAS
No. 123................................................ (26,829)
Net loss per share:
Loss applicable to common shareholders as reported........ (1.23)
Loss applicable to common shareholders pro forma for SFAS
No. 123................................................ (1.25)
</TABLE>

F-16
<PAGE> 94
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the exercise price range, weighted average
exercise price, and remaining contractual lives by year of grant for the number
of options outstanding as of December 31, 1999:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE WEIGHTED REMAINING
NUMBER PRICE AVERAGE CONTRACTUAL
YEAR OF GRANT OF SHARES RANGE PRICE LIFE (YEARS)
------------- --------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Options issued to employees at fair value:
1999.................................. 2,929,500 $2.78-$5.37 $3.16 9.65
Options issued to employees at less than
fair value:
1999.................................. 108,000 $0.93 $0.93 9.51
Options issued to consultants:
1999.................................. 1,728,000 $0.01-$2.78 $1.56 2.47
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

LEASE OBLIGATIONS

The Company leases certain buildings and equipment under capital and
operating leases expiring at various dates through 2009. Some of the leases
contain bargain purchase options. The following details operating and capital
lease obligations as of December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
OPERATING
LEASES AND
OTHER FUTURE
CAPITAL MINIMUM
LEASES COMMITMENTS
------- ------------
<S> <C> <C>
2000........................................................ $1,519 $ 4,728
2001........................................................ 1,459 5,168
2002........................................................ 1,093 4,068
2003........................................................ 118 1,932
2004 and thereafter......................................... 20 9,595
------ -------
Total............................................. $4,209 $25,491
====== =======
</TABLE>

The total amount of assets under capital lease as of December 31, 1998 and
1999 was $495,000 and $4,119,000, respectively, and the total obligation related
to those capital leases was $436,000 and $3,591,000, respectively. Operating
rent expense was $36,000 for the period from commencement of operations
(September 18, 1997) to December 31, 1997 and $115,000 and $516,000 for the
years ended December 31, 1998 and 1999, respectively.

EQUIPMENT COMMITMENTS

The Company is party to a financing agreement with a vendor that allows for
the purchase of equipment under capital leases. The financing agreement provides
for the financing to occur in specified quarterly increments of $1,250,000 for
up to $5,000,000 over the 12 month period beginning with the fourth quarter of
1999. As of December 31, 1999 the Company had borrowed approximately $1,200,000
under this financing agreement. The financing bears interest at 11.3% and has a
term of three years.

As of December 31, 1999, the Company had commitments of approximately
$2,700,000 in capital expenditures outstanding for expanded network and
facilities.

F-17
<PAGE> 95
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ADVERTISING COMMITMENTS

As of December 31, 1999, the Company is party to advertising commitments of
$2,500,000 in 2000 and $250,000 in 2001.

7. SUBSEQUENT EVENTS

OPTIONS

In January, February and March 2000 the Company granted options to purchase
1,562,436 shares of common stock at exercise prices ranging from $5.37 to $8.33
per share. The Company plans to record deferred compensation expense of
approximately $4,210,000 on the options that were granted with exercise price
below the estimated fair value of $8.33 or $12.00 per share on the date of
grant. This expense will be amortized over the vesting period of the options.

PRO FORMA STOCKHOLDER'S EQUITY AND LOSS PER SHARE (UNAUDITED)

Simultaneous with the Company's initial public offering and pursuant to the
contractual agreements with the preferred stockholders, all shares of the
Company's Series A and Series A-1 preferred stock will be converted into shares
of common stock. Pro forma stockholder's (deficit) equity at March 31, 2000,
after giving effect to the conversion of the Series A and Series A-1 preferred
stock, would be approximately $11,700,000 and will be unchanged as a result of
the conversion. Had the conversion of the Series A and Series A-1 preferred
stock occurred at the time of the sale of the preferred stock, net loss per
share would have been $(1.18) and $(.31) for the year ended December 31, 1999
and the three months ended March 31, 2000, respectively.

INTERLAND B.V.

On February 7, 2000 the Company organized Interland B.V. in Amsterdam as a
wholly-owned subsidiary of the Company. Interland B.V. will serve as the
Company's headquarters for its European operations.

STOCK SPLIT

The Company's board of directors approved a 1.08 for one stock split on the
Company's common stock which will be affected in the form of a stock dividend.
All share and per share data in the accompanying financial statements have been
adjusted to reflect the split.

EMPLOYEE BENEFIT PLAN

On January 1, 2000 the Company adopted a 401(k) Plan, a defined
contribution plan covering substantially all employees of the Company. Under the
plan's deferred compensation arrangement, eligible employees who elect to
participate in the plan may contribute between 1% and 15% of eligible
compensation, as defined, to the plan. The Company, at its discretion, may elect
to provide for either a matching contribution or a discretionary profit-sharing
contribution or both.

EMPLOYEE STOCK PURCHASE PLAN

After the Offering, the Company intends to adopt an Employee Stock Purchase
Plan under which qualified employees will have the right to purchase common
stock on a semi-annual basis through payroll deductions. The price to be paid
for each share of common stock under the plan is 85% of the fair market value at
the beginning or the end of each six month period, whichever is lower. Total
payroll deductions

F-18
<PAGE> 96
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

may not exceed 10% of the employee's annual compensation and may not exceed
$25,000 per year. Up to 540,000 shares of common stock have been reserved under
the plan.

LOAN AGREEMENT

On May 15, 2000, the Company executed a loan agreement in the amount of
$3,024,000 to finance capital expenditures. The loan is secured by the related
assets, bears interest at 16.1% per year and has a three year term.

SALE OF PREFERRED STOCK AND WARRANTS (UNAUDITED)

On March 15, 2000, the Company entered into a stock purchase agreement with
Network Solutions. In connection with this financing transaction, the Company
issued 744,827 shares of Series A preferred stock to Network Solutions, at a
purchase price of $5.37 per share. The Company also issued a warrant to Network
Solutions to purchase 372,413 shares of common stock at an exercise price of
$5.37 per share. The number of shares subject to the warrant may be adjusted to
prevent dilution and each warrant will expire five years after its issuance. In
addition, under the stock purchase agreement, on the day following the effective
date of the Offering, in exchange for an additional $6,000,000 in cash from
Network Solutions, the Company will issue a number of shares of common stock to
Network Solutions equal to $6,000,000 divided by the lesser of $13.00 or the
actual price to the public of common stock sold in the offering. In connection
with this additional issuance, the Company will also issue an additional warrant
to purchase a number of shares of common stock equal to 75% of the number of
shares sold to Network Solutions at an exercise price equal to the price paid at
that closing. In conjunction with this investment, the Company entered into a 4
year premier program agreement with Network Solutions. The Company will record
deferred expense of approximately $2.5 million for the value of the warrant
issued on March 15, 2000 and deferred expense of approximately $2.2 million for
the difference between the purchase price of $5.37 per share and the fair value
of the Company's common stock on that date of $8.33 per share. The Company will
record additional deferred expense for the value of the warrants to be granted
upon the closing of the offering of approximately $2,686,000 and for the
difference, if any, between the midpoint of the expected offering range and the
offering price. This deferred expense will be amortized over the remaining 4
year term of the premier program agreement entered into with Network Solutions.

On May 8, 2000, the Company entered into a stock purchase agreement with
Bell Atlantic Investments, Inc. In connection with this financing transaction,
the Company issued 1,199,999 shares of Series A preferred stock to Bell Atlantic
at a purchase price of $8.33 per share. As a result of the sale of the
convertible preferred stock at conversion prices below the fair market value of
$12.00 for the common stock on the date of the issuance of the preferred stock,
the Company recorded a preferred stock dividend of approximately $4,404,000
related to this beneficial conversion feature in accordance with Emerging Issues
Task Force Issue 98-5 "Accounting for Convertible Securities with Beneficial
Conversion Features or Continently Adjustable Conversion Ratios." This dividend
will be reflected as an adjustment to arrive at net income applicable to common
shareholders in the statement of operations. In addition, under the stock
purchase agreement, on the third day following the effective date of the
offering, in exchange for an additional $15,000,000 in cash from Bell Atlantic,
the Company will issue a number of shares of common stock to Bell Atlantic equal
to $15,000,000 divided by the lesser of $13.00 or the actual price to the public
of common stock sold in the Offering. The Company will record deferred expense
for the difference, if any, between the midpoint of the expected offering range
and the offering price. This deferred expense will be amortized over the 3 year
life of the business agreement that is expected to be entered into as indicated
below.

Additionally, on May 8, 2000, the Company entered into a non-binding letter
of intent with Bell Atlantic to enter into a business relationship. The
non-binding letter of intent indicates that the parties will

F-19
<PAGE> 97
INTERLAND, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

work to complete final versions of a marketing channel relationship agreement
and a service provider agreement. These agreements will provide for Bell
Atlantic to promote and co-brand the Company's products and services. The term
of the agreements is intended to be three years under the terms or the letter of
intent, the Company will pay to Bell Atlantic 12.5% of any revenue received
customers with whom Bell Atlantic originates contact. The Company will record
this amount as an offset to revenue in the income statement. In connection with
the signing of the final agreement, the Company will issue to Bell Atlantic a
warrant to purchase 3,132,000 shares of common stock at an exercise price equal
to 150% of the initial public offering price. The warrant will be exercisable
for three years. The Company will record the value of the warrants to be granted
upon closing of the offering as deferred expense to be amortized over the 3 year
term of the agreements.

F-20
<PAGE> 98
[Inside Back Cover]

The inside of the back cover contains the Interland logo.
<PAGE> 99

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Prospective investors may rely only on the information contained in this
prospectus. Neither Interland, Inc. nor any underwriter has authorized anyone to
provide prospective investors with different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where such offer or sale is not permitted. The
information contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or any sale of
these securities.
---------------------------------

TABLE OF CONTENTS
---------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 1
Risk Factors....................... 8
Forward-Looking Statements......... 19
Use of Proceeds.................... 20
Dividend Policy.................... 20
Capitalization..................... 21
Dilution........................... 22
Selected Financial Data............ 23
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 25
Business........................... 34
Management......................... 52
Principal Shareholders............. 60
Certain Transactions............... 62
Description of Capital Stock....... 65
Shares Eligible for Future Sale.... 70
Underwriting....................... 72
Legal Matters...................... 75
Experts............................ 75
Where You Can Find More
Information...................... 75
Index to Financial Statements...... F-1
</TABLE>

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Until August 19, 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
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(Interland Logo)

5,000,000 SHARES

COMMON STOCK
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PROSPECTUS
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BEAR, STEARNS & CO. INC.

THOMAS WEISEL PARTNERS LLC

PAINEWEBBER INCORPORATED

JULY 25, 2000

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