NETSCAPE COMMUNICATIONS CORP, 424A, 1996-10-31

NETSCAPE COMMUNICATIONS CORP
424A, 1996-10-31
PREPACKAGED SOFTWARE

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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>

FILED PURSUANT TO RULE 424(a)
REGISTRATION NO. 333-15135

PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED OCTOBER 30, 1996
5,000,000 SHARES

[LOGO]

COMMON STOCK
-----------------

OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED, 750,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 4,250,000 SHARES ARE BEING OFFERED
INITIALLY INSIDE OF THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." OF THE 5,000,000 SHARES OF COMMON
STOCK BEING OFFERED, 2,000,000 SHARES ARE BEING SOLD BY THE COMPANY
AND 3,000,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDERS. SEE
"PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE
ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING
STOCKHOLDERS. THE COMPANY'S COMMON STOCK IS LISTED ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "NSCP." ON OCTOBER 30, 1996,
THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET WAS $46 1/8 PER SHARE. SEE "PRICE
RANGE OF COMMON STOCK."

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------

PRICE $ A SHARE
-------------------

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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
PER SHARE.................. $ $ $ $
TOTAL(3)................... $ $ $ $
</TABLE>

- ------------
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITERS."

(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $900,000.

(3) THE COMPANY HAS GRANTED TO THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
750,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS,
IF ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $ , $ AND $ , RESPECTIVELY.
SEE "UNDERWRITERS."
------------------------

THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY GRAY CARY WARE & FREIDENRICH, A PROFESSIONAL CORPORATION, COUNSEL FOR THE
UNDERWRITERS. IT IS EXPECTED THAT DELIVERY OF THE SHARES WILL BE MADE ON OR
ABOUT , 1996 AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW
YORK, N.Y., AGAINST PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------

MORGAN STANLEY & CO.
INTERNATIONAL

DEUTSCHE MORGAN GRENFELL

GOLDMAN SACHS INTERNATIONAL

HAMBRECHT & QUIST

, 1996
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------

NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY, ANY
SELLING STOCKHOLDER OR BY AN UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF
THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY
JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED
STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE
COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT, AND TO OBSERVE ANY
RESTRICTIONS AS TO, THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF
THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS

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PAGE
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Incorporation of Certain Documents by Reference.................................................................. 2
Prospectus Summary............................................................................................... 3
The Company...................................................................................................... 4
Risk Factors..................................................................................................... 5
Use of Proceeds.................................................................................................. 20
Price Range of Common Stock...................................................................................... 20
Dividend Policy.................................................................................................. 20
Capitalization................................................................................................... 21
Dilution......................................................................................................... 22
Selected Supplemental Consolidated Financial Data................................................................ 23
Business......................................................................................................... 24
Management....................................................................................................... 30
Principal and Selling Stockholders............................................................................... 33
Certain United States Federal Tax Considerations for Non-U.S. Holders of Common Stock............................ 35
Underwriters..................................................................................................... 37
Legal Matters.................................................................................................... 40
Experts.......................................................................................................... 40
Available Information............................................................................................ 40
Glossary of Terms................................................................................................ 42
</TABLE>

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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act") are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by the Company's Annual Report on Form 10-K/A Amendment No. 1
filed on May 7, 1996 and as amended by the Company's Annual Report on Form
10-K/A Amendment No. 2 filed on October 30, 1996; (2) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; (3) the Company's
Current Report on Form 8-K dated April 25, 1996, as amended by the Company's
Current Report on Form 8-K/A filed on July 8, 1996; (4) the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996; (5) the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996; and (6)
the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed on June 23, 1995, as amended by the
Company's Registration Statement on Form 8-A/A filed on August 4, 1995.

All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common Stock
hereunder shall be deemed to be incorporated by reference herein and to be a
part hereof from the date of filing of such reports and documents. The Company
will provide without charge, to each person to whom this Prospectus is
delivered, a copy of any or all of such documents (exclusive of exhibits unless
such exhibits are specifically incorporated by reference herein), upon written
or oral request to Investor Relations, Netscape Communications Corporation, 501
East Middlefield Road, Mountain View, California 94043, telephone (415)
937-9360.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
---------------------

Netscape Navigator-Registered Trademark- is a registered trademark of the
Company. AppFoundry-TM-, LiveWire-TM-, Netscape ONE-TM- and SuiteSpot-TM- are
trademarks of the Company. All other trademarks or trade names referred to in
this Prospectus are the property of their respective owners.
---------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE
"UNDERWRITERS."

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.

THE COMPANY

Netscape Communications Corporation ("Netscape" or the "Company") is a
leading provider of open software for linking people and information over
private TCP/IP-based enterprise networks ("intranets") and the Internet.
Netscape develops, markets and supports a broad suite of enterprise server and
client software, development tools and commercial applications to create a
single shared communications platform for network-based applications. Netscape
software is based on industry standard protocols and therefore can be deployed
across a variety of computer operating systems, hardware platforms and databases
and can be interconnected with traditional client/server applications. Using
Netscape solutions, organizations can extend their internal information systems
and applications to geographically dispersed facilities as well as to third
party partners and customers. In addition, Netscape's products allow individuals
and organizations to access information and to execute transactions across the
Internet, such as the buying and selling of information, software, merchandise
and publications.

Netscape released its first product, Navigator 1.0, in December 1994, which
offered an easy to use graphical user interface for browsing the World Wide Web
(the "Web"). Since that time, the Company has become increasingly focused on
offering user and network services for use in intranet applications, including
features with e-mail and graphics. The Company currently offers a broad suite of
software products and tools, targeted primarily at corporate intranets, for use
in a variety of information sharing, network management and commerce-enabling
applications. 92 of the Fortune 100 companies use Netscape products for intranet
or Internet solutions.

THE OFFERING

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<S> <C>
U.S. Offering............................................ 4,250,000 shares
International Offering................................... 750,000 shares
Total.................................................. 5,000,000 shares (including 2,000,000 shares sold by the
Company and 3,000,000 shares sold by the Selling
Stockholders)
Common Stock to be outstanding after the offering........ 86,535,395 shares (1)
Use of proceeds.......................................... For general corporate purposes, including working capital
and capital expenditures
Nasdaq National Market symbol............................ NSCP
</TABLE>

SUPPLEMENTAL SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995(2) 1995(2) 1995(2) 1995(2) 1996(3) 1996(3)
----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues....................................... $ 6,445 $ 14,072 $ 23,308 $ 41,562 $ 56,121 $ 75,006
Gross profit......................................... 5,814 12,753 20,289 34,824 47,627 62,978
Merger related charges............................... -- -- -- 2,033 -- 6,100
Total operating expenses............................. 10,412 15,941 21,470 36,566 45,137 62,450
Operating income (loss).............................. (4,598) (3,188) (1,181) (1,742) 2,490 528
Net income (loss).................................... (4,507) (2,792) 175 511 3,589 906
Net income (loss) per share.......................... $ (0.07) $ (0.04) $ 0.00 $ 0.01 $ 0.04 $ 0.01

SEPT. 30,
1996(3)
---------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues....................................... $ 100,016
Gross profit......................................... 85,322
Merger related charges............................... --
Total operating expenses............................. 76,362
Operating income (loss).............................. 8,960
Net income (loss).................................... 7,657
Net income (loss) per share.......................... $ 0.09
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
AS
ACTUAL(3) ADJUSTED(3)(4)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $70,571 $158,047
Total assets........................................... 331,748 419,234
Deferred revenues...................................... 75,126 75,126
Long-term obligations, net of current portion.......... 659 659
Stockholders' equity................................... 199,004 286,480
</TABLE>

- ------------
(1) Based on shares of Common Stock outstanding at September 30, 1996. Excludes,
as of September 30, 1996, (i) an aggregate of 8,301,650 shares of Common
Stock subject to outstanding options under the Company's stock option plans
at a weighted average exercise price of $22.83 per share and 3,257,663
shares reserved for future grants of options thereunder and (ii) 1,723,494
shares of Common Stock reserved but unissued under the Company's 1995
Employee Stock Purchase Plan. Assumes no exercise of the U.S. Underwriters'
over-allotment option. See "Capitalization" and "Underwriters."

(2) Reflects the business combinations of Collabra Software, Inc. and InSoft,
Inc. which have been accounted for as poolings of interests. Financial
information has not been restated for the operations of Netcode Corporation
and Paper Software, Inc. due to immateriality.

(3) Reflects the business combinations with Collabra Software, Inc., InSoft,
Inc., Netcode Corporation and Paper Software, Inc. which have been accounted
for as poolings of interests.

(4) Adjusted to reflect the sale of the shares of Common Stock and the
application of the estimated net proceeds therefrom. Assumes no exercise of
the U.S. Underwriters' over-allotment option. See "Use of Proceeds,"
"Capitalization" and "Underwriters."

3
<PAGE>
THE COMPANY

Netscape Communications Corporation ("Netscape" or the "Company") is a
leading provider of open software for linking people and information over
private TCP/IP-based enterprise networks ("intranets") and the Internet.
Netscape develops, markets and supports a broad suite of enterprise server and
client software, development tools and commercial applications to create a
single shared communications platform for network-based applications. Netscape
software is based on industry standard protocols and therefore can be deployed
across a variety of computer operating systems, hardware platforms and databases
and can be interconnected with traditional client/server applications. Using
Netscape solutions, organizations can extend their internal information systems
and applications to geographically dispersed facilities as well as to third
party partners and customers. In addition, Netscape's products allow individuals
and organizations to access information and to execute transactions across the
Internet such as the buying and selling of information, software, merchandise
and publications.

To reach a diverse and worldwide customer base, Netscape delivers its suite
of products and services through multiple distribution channels. The Company
offers its products via a direct sales force, telesales, and the Internet as
well as through resellers such as original equipment manufacturers ("OEMs"),
systems integrators, value added resellers (together with systems integrators
referred to herein as "VARs") and software retailers (collectively,
"Resellers"). To accelerate the acceptance of the Company's products, Netscape
has entered into reseller agreements with leading telecommunications and
technology companies with complementary resources. These companies include,
among others, AT&T Corp. ("AT&T"), Apple Computer, Inc. ("Apple"), Compaq
Computer Corporation ("Compaq"), Deutsche Telekom, Digital Equipment Corporation
("Digital"), France Telecom, Hewlett-Packard Company ("Hewlett-Packard"),
International Business Machines Corporation ("IBM"), Informix Software, Inc.
("Informix"), Novell, Inc. ("Novell"), Olivetti SPA ("Olivetti"), Siemens AG
("Siemens"), Silicon Graphics, Inc. ("Silicon Graphics"), Sybase, Inc.
("Sybase") and Sun Microsystems, Inc. ("Sun").

In October 1996, the Company announced a matched server/client solution
focused on the intranet market as an upgrade and extension of its server and
client products. Netscape SuiteSpot 3.0, an upgrade to Netscape SuiteSpot 2.0
which is planned to be commercially available in the first half of 1997, is
designed to be an integrated suite of server software that offers advanced
messaging and groupware functionality, provides an open foundation for the
creation of network-based applications and enables flexible content management.
Netscape Communicator 4.0, an upgrade to Netscape Navigator which is planned to
be commercially available in the first half of 1997, is designed to be a
componentized suite of client software for open HTML-based e-mail, groupware,
authoring, calendaring and Web browsing. Together, the Netscape SuiteSpot 3.0
and Communicator 4.0 solution are designed to offer a matched feature approach
enabling organizations to use e-mail, groupware and other enterprise
applications across an open network.

Netscape was incorporated in Delaware in April 1994. Netscape's home page
can be located on the Web at http://home.netscape.com. The Company's principal
executive office is located at 501 East Middlefield Road, Mountain View,
California 94043, and its telephone number at this location is (415) 254-1900.
Netscape's common stock is traded on the Nasdaq National Market under the symbol
"NSCP." Except as otherwise noted herein, all references to "Netscape" or the
"Company" shall mean Netscape Communications Corporation and its subsidiaries.

4
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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE
COMMON STOCK OFFERED BY THIS PROSPECTUS. THE SECTION ENTITLED "BUSINESS--RECENT
DEVELOPMENTS--PLANNED PRODUCTS AND RELEASES" IN THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS, SPECIFICALLY THE RISK FACTOR
ENTITLED "NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE," SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

As a result of the Company's relatively limited operating history and recent
acquisitions, the Company does not have relevant historical financial data for a
significant number of periods on which to base planned operating expenses.
Accordingly, the Company's expense levels, which are to a large extent fixed,
are based in part on its expectations as to future revenues. In addition, the
Company typically operates with minimal backlog, therefore, quarterly sales and
operating results generally depend on the volume and timing of and ability to
fulfill orders received within the quarter, which are difficult to forecast. The
Company typically recognizes a substantial portion of its revenues in the last
month of each quarter. Accordingly, the Company may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall. As a
result, any significant shortfall of demand for the Company's products and
services in relation to the Company's expectations would have an immediate
material adverse impact on the Company's business, operating results and
financial condition. Further, as the Company becomes increasingly focused on
sales to enterprise customers, the Company expects that a limited number of
large sales may account for a significant portion of revenue in some quarters,
resulting in fluctuations in revenue in future periods and adversely impacting
operating results in periods of lower than expected revenue. Moreover, the
Company (i) plans to continue to increase its operating expenses to fund greater
levels of research and development, increase its sales and marketing operations,
develop new distribution channels, improve its operational and financial systems
and broaden its customer support capabilities and (ii) may continue to incur
significant merger-related charges and other increases in operating expenses
associated with recently completed and any future acquisitions. To the extent
that such expenses precede or are not subsequently followed by increased
revenues, the Company's business, operating results and financial condition will
be materially adversely affected.

The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's products, introduction or enhancement of products by the
Company and its competitors, market acceptance of new products, the timing of
large sales (particularly to enterprise customers), price reductions by the
Company (such as those made in October 1995 and March 1996) or its competitors,
changes in how products are priced (such as the change in client and server
pricing announced in October 1996), the mix of distribution channels through
which products are sold, the mix of products and services sold, the mix of
international and North American revenues, costs of litigation, lengthy sales
cycles and general economic conditions. In particular, as the Company becomes
increasingly focused on sales to enterprise customers the Company believes that
quarterly operating results may fluctuate due to the timing of revenue from a
limited number of large sales. In addition, as a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing or marketing decisions (such as the recently announced change in client
and server pricing) or business combinations (such as the Collabra Software,
Inc. ("Collabra"), InSoft, Inc. ("InSoft"), Netcode Corporation ("Netcode") and
Paper Software, Inc. ("Paper Software") business combinations) that could have a
material adverse effect on the Company's business, results of operations or
financial condition. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance. Because of
all of the foregoing factors, it is likely that in some future quarters the
Company's operating

5
<PAGE>
results will be below the expectations of public market analysts and investors.
In such event, the price of the Company's common stock would likely be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in each of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (the
"Third Quarter 10-Q") and 1995 Annual Report to Stockholders (the "Annual
Report").

COMPETITION

The market for software and services for intranets and the Internet is
relatively new, intensely competitive, rapidly evolving and subject to rapid
technological change. The Company expects competition to persist, intensify and
increase in the future. Many of the Company's current and potential competitors
have longer operating histories, larger installed customer bases and
significantly greater financial, technical, marketing, public relations and
distribution resources than the Company. Such competition could materially
adversely affect the Company's business, operating results or financial
condition. The Company's current and potential competitors can be divided into
several groups: Microsoft Corporation ("Microsoft"), Web server software and
service vendors, browser software vendors, and other operating system vendors.

In particular the market for intranet software is rapidly evolving and
increasingly competitive. The Company's intranet solution of SuiteSpot server
software and Netscape Navigator client software has recently been upgraded to
include more robust e-mail features. The Company's intranet solution currently
competes with Lotus Development Corporation's ("Lotus") Lotus Notes and
Microsoft Exchange, both of which offer electronic mail and groupware
capability. In addition, Oracle has announced its intention to compete in this
market through its InterOffice products. Lotus, Microsoft and Oracle all have
significantly greater financial, technical, marketing and public relations
resources, larger installed customer bases, greater distribution capability and
significantly greater experience in selling to enterprises than the Company.

MICROSOFT. Microsoft is devoting a significant portion of its substantial
resources to developing, marketing and distributing Internet and intranet
software and services in an attempt to gain market share. Microsoft has bundled
its own browser with its Windows 95 operating system, allows it to be downloaded
for free over the Internet and offers it as a free product to distributors and
end-users, including distributors and end-users of the Company's products.
Microsoft recently introduced a new version of this browser that has similar
features and functionality to the browser features of Netscape Navigator 3.0,
and this new version will likely reduce Netscape Navigator's market share.
Microsoft has also announced that future versions of its Microsoft Office
Applications suite will offer enhanced Internet and intranet capability that may
be dependent upon certain functionality of Microsoft's browser. Further, in
August 1996, Microsoft shipped Version 2.0 of its Internet Information Server
("IIS") that is bundled with Microsoft's Windows NT Advanced Server operating
system at no additional cost, which may cause further price pressure on
Netscape's server products and may reduce Netscape's market share. Microsoft has
also been adding Internet and intranet capability to its range of server
software offered on the Windows NT operating system. Microsoft is bundling a Web
authoring tool for free with its NT Server and recently introduced a server that
will compete with Netscape Proxy Server. Further, Microsoft is expected to soon
begin offering products in the commercial applications software area,
particularly products competitive to Netscape Merchant System. In June 1996,
Microsoft announced server products for Internet service providers ("ISPs") and
content providers to set up Web servers and related services. In the intranet
software market, Microsoft has recently begun offering Microsoft Exchange, an
e-mail and groupware product that operates in conjunction with Microsoft's Back
Office and browser products. Microsoft also recently announced its Outlook
product, which is intended to be a universal browser for intranets and the
Internet.

Microsoft's significant focus and product development activity in the market
for Internet and intranet products and services and the penetration of
Microsoft's software into its installed base of PC users has significantly
increased the competitive pressures on the Company. Such pressures have placed
significant price pressure on the Company and in the future may result in price
reductions in Netscape's products and

6
<PAGE>
may also materially reduce Netscape's market share. If this were to occur, sales
of Netscape's products in particular, and Netscape's business, operating results
and financial condition in general, could be materially adversely affected.

The Company believes that Microsoft has attempted to create competitive
advantages for its browser and server products by bundling these products with
its operating systems, often at no additional cost. Moreover, Microsoft has
announced its intention to bundle its browser and server products in a more
tightly integrated fashion with its underlying operating systems. If Microsoft's
browser and server products are more tightly integrated with Microsoft's
operating systems, the ability of Microsoft's competitors, including Netscape,
to obtain effective access to Microsoft's operating systems could be impeded,
particularly if such competitors do not obtain the application programming
interfaces or other technical information necessary to access Microsoft's
operating systems in a timely fashion. Microsoft may also use other means of
attempting to restrict access to its operating systems. For example, Microsoft
may assert licensing or other restrictions which could restrict the access of
competitors to its operating systems. In particular, Microsoft has asserted that
its Windows NT Workstation operating system is not meant to be used as a server
operating system for a Web site. If Microsoft is successful in restricting
access to its operating systems, sales of Netscape's products in particular, and
Netscape's business, operating results and financial condition in general, could
be materially adversely affected.

The Company also believes that Microsoft has used, and will continue to use,
its dominant position in desktop software to secure preferential distribution
and bundling contracts with third parties such as ISPs, online service providers
and VARs, including third parties with whom the Company has relationships. In
addition, the Company believes that Microsoft may promote technologies and
standards with which Netscape's products are not compatible. For example,
Microsoft is promoting its proprietary ActiveX technology as an alternative to
the Java programming language for Internet application software. Although
Netscape has announced that it will provide native support for ActiveX on the
Windows 95 platform in Netscape Communicator 4.0, if Microsoft is successful in
promoting widespread adoption of its ActiveX technology as an alternative to
Java, Netscape's business, operating results and financial condition could be
materially adversely affected. Similarly, Microsoft is promoting its proprietary
DCOM technology as an alternative to the CORBA and IIOP standards for a
cross-platform, network-based environment. The Company has endorsed the CORBA
and IIOP standards in its products, and if Microsoft is successful in promoting
widespread adoption of its DCOM technology, the Company's business, operating
results and financial condition could be materially adversely affected.

Microsoft has a longer operating history, a much larger installed base and
number of employees and dramatically greater financial, technical, marketing and
public relations resources, access to distribution channels and name recognition
than the Company, all of which are a significant competitive advantage. For
example, Microsoft is currently offering certain of its Internet and intranet
products for free or for no additional charge when bundled with another product
and may eventually offer all of its Internet and intranet products for free or
for no additional charge when bundled with another product. In addition to
offering its browser and server products for free, Microsoft is also offering
special incentives, such as free access to Web sites that would otherwise
require a subscription fee, to users of its browser product. In addition,
Microsoft is investing significantly in localizing its Internet and intranet
software in non-English languages, which may be a competitive threat as Netscape
attempts to expand its international business. As a result of all of the
foregoing, there can be no assurance that Netscape's business, operating results
and financial condition will not be materially adversely affected.

OTHER COMPETITION. In addition to Microsoft, several companies are
currently offering Web server software products that compete directly with the
Company's Web server products. Organizations offering competing Web server
products for the Internet include the Apache Group ("Apache") (which has the
largest measured share of Web servers on the Internet as of July 1996),
Microsoft and the National Center for Supercomputing Applications at the
University of Illinois ("NCSA"). Unlike Netscape, which charges for its Web
server products for the Internet, the Web servers from Apache, Microsoft and
NCSA are offered for

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<PAGE>
free. Companies offering competing Web server products for intranets include
Microsoft, IBM, Oracle and Novell, among others. Some of these companies are
enhancing the functionality of their existing products through their Web server
product offerings. In addition to Microsoft's bundling of IIS with its Windows
NT Advanced Server, Lotus, a subsidiary of IBM, has developed a Web server based
on its popular Notes group software program. Oracle's Web server product works
with its large installed base of database software. Companies that offer Web
server and client products that are or can be bundled with operating systems or
databases are particularly formidable competition in the market for intranet
software. The Company also expects competition from companies that offer
products competitive with the Company's commercial application products by
enabling Web site creation and maintenance and a framework for online commerce.
These companies include Open Market, Inc., BroadVision, Inc., Connect, Inc. and
Edify Corporation. In the future, software companies which have server products
in other product categories may choose to enhance the functionality of existing
products or develop new products which are competitive with the Company's Web
server and commercial applications products.

In addition to Microsoft, several companies are currently offering a
client-based Web browser that competes directly with the Company's Netscape
Navigator product line. NCSA distributes its product, NCSA Mosaic, for free for
noncommercial use.

The Company believes that other operating system vendors may become
competitors. Although IBM and Apple have each announced an intention to
incorporate Netscape Navigator client software into their operating systems, IBM
and Apple are each currently offering competing browsers and may continue to do
so. In addition, IBM and Apple may also incorporate some Web server
functionality into their operating systems which would compete with the
Company's Web server and commercial applications products. The Company also
expects Unix operating systems vendors, such as Sun, Hewlett-Packard, IBM,
Digital, The Santa Cruz Operation, Inc. ("Santa Cruz") and Silicon Graphics, to
incorporate Web client and server software into their operating systems. If
these companies incorporate Web client or server functionality into their
software products and such technology is not licensed from Netscape or is
licensed from Netscape at significantly reduced prices, the Company's business,
operating results and financial condition could be materially adversely
affected.

Additional competition could come from client/server applications and tools
vendors, multimedia companies, document management companies, networking
software companies, network management companies and educational software
companies. Further, the Company's current products are designed around certain
standards, and industry acceptance of competing standards could decrease the
demand for the Company's products.

Competitive factors in the market for Internet and intranet software and
services include core technology, breadth of product features, product quality,
marketing and distribution resources, pricing, and customer service and support.
Except as set forth above, the Company believes it presently competes favorably
with respect to each of these factors. However, the market and competition are
still new and rapidly emerging, especially the intranet software market, and
there can be no assurance that the Company will be able to compete successfully
against current or future competitors, nor can there be any assurance that this
competition will not result in price reductions of the Company's products or
loss of market share or will not in some other manner materially adversely
affect the Company's business, operating results and financial condition.

NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE

Substantially all of the Company's revenues have been derived, and
substantially all of the Company's future revenues are expected to be derived,
from the license of its software and sale of its associated services.
Accordingly, broad acceptance of the Company's software products and services by
customers is critical to the Company's future success. However, the markets for
the Company's products are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions; therefore,
the Company's future success will depend on its ability to design, develop, test
and support new software

8
<PAGE>
products and enhancements on a timely and cost-effective basis that meet
changing customer needs and respond to technological developments and emerging
industry standards. There can be no assurance that the Company will successfully
identify new product opportunities and develop and bring new products, such as
Netscape SuiteSpot 3.0 and Netscape Communicator 4.0, to market in a timely and
cost-effective manner, or that products or technologies developed by others will
not render the Company's products or technologies obsolete or noncompetitive.
While the Company has addressed the need to develop new products and
enhancements primarily through its internal development efforts, the Company has
also addressed this need through acquisitions and the license of third party
technology. Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies and products of the acquired
companies, the diversion of management's attention from other business concerns,
risks of entering markets in which the Company has no or limited direct prior
experience and where competitors in such markets have stronger market positions,
and the potential loss of key employees of the acquired company. Licensing of
third party technology also involves numerous risks, including product liability
claims based on licensed technology, liability for licensed technology which
infringes the proprietary rights of others, the potential inability of third
party licensors to indemnify the Company for intellectual property infringement
claims, the risk that the scope of third party licensor indemnification is not
as broad as the indemnification the Company provides to its customers, and the
unavailability of similar technology on commercially reasonable terms in the
event that the third party technology is unavailable. See "--Uncertain
Protection of Intellectual Property; Unisys Patent Enforcement; Challenge to the
RSA License; Risks Associated with Licensed Third Party Technology." The failure
of the Company's new product development efforts, especially with respect to
Netscape SuiteSpot 3.0 or Netscape Communicator 4.0, could have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company's current products are designed around certain
standards, including, for example, security standards, and current and future
sales of the Company's products will be dependent, in part, on widespread
adoption of such standards by enterprises, consumers, developers and other
software providers. Widespread adoption of a standard not supported by Netscape
could have a material adverse effect on the Company's business, operating
results or financial condition. In addition, there can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products and
enhancements, such as Netscape SuiteSpot 3.0 and Netscape Communicator 4.0, or
that its new products and enhancements, including Netscape SuiteSpot 3.0 and
Netscape Communicator 4.0, will adequately meet the requirements of the
marketplace and achieve market acceptance. Further, because the Company has only
recently commenced shipment of many of its products, there can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in the Company's products, or, if discovered,
successfully corrected in a timely and cost-effective manner. If the Company is
unable to develop on a timely and cost-effective basis new software products,
enhancements to existing products or error corrections, or if such new products
or enhancements do not achieve market acceptance, the Company's business,
operating results and financial condition will be materially adversely affected.
See "Business--Recent Developments--Planned Products and Releases".

DEVELOPING MARKET; NEW ENTRANTS; UNCERTAIN ACCEPTANCE OF THE COMPANY'S PRODUCTS;
PRICE EROSION;
UNCERTAIN ADOPTION OF INTERNET AND INTRANETS AS A MEDIUM OF COMMERCE AND
COMMUNICATIONS

The market for the Company's software and services, especially for its
intranet products and services, is relatively new, is rapidly evolving and is
characterized by an increasing number of market entrants who have introduced or
developed products and services for communication and commerce over the Internet
and intranets. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty. The industry is relatively young and has
a limited number of proven products. Moreover, critical issues concerning the
use of intranets and of the Internet (including security, reliability, cost,
ease of deployment and administration and quality of service) remain unresolved
and may impact the growth of intranet and Internet use. While the Company
believes that its software products offer significant advantages for commerce
and communication over the

9
<PAGE>
Internet and intranets, there can be no assurance that commerce and
communication over the Internet or intranets will become widespread, or that the
Company's products for commerce and communication over the Internet or intranets
will become widely adopted for these purposes.

In particular, the Company's client software competes with free client
software distributed by online service providers, Internet access providers and
others. In addition, computer operating systems companies, notably Microsoft,
bundle client software with their operating systems at little or no additional
cost to users, which may cause the price of the Company's client products to
decline. The Company announced significant price reductions in its server
product line during the quarter ended December 31, 1995 and announced further
price reductions in its server product line in March 1996. See "--Competition."
Moreover, continued market acceptance of the Company's server and commercial
applications software products is substantially dependent upon the adoption of
the Internet and intranets for commerce and communications. The adoption of the
Internet or intranets for commerce and communications, particularly by those
individuals and enterprises which have historically relied upon alternative
means of commerce and communication, generally requires the acceptance of a new
way of conducting business and exchanging information. In particular,
enterprises that have already invested substantial resources in other means of
conducting commerce and exchanging information may be particularly reluctant or
slow to adopt a new strategy that may make some or all of their existing
information systems technology, software and systems obsolete. In addition,
there can be no assurance that individual PC users in business or at home will
adopt or, if adopted, continue to use the Internet or intranets for online
commerce or communication.

Because the market for the Company's products and services, especially its
intranet products and services, is relatively new and evolving, it is difficult
to predict the future growth rate, if any, and size of this market. There can be
no assurance that the market for the Company's products and services will
continue to develop, that the Company's new products or services, especially its
intranet products and services, will be adopted or that existing products and
services will continue to be adopted, or that the Internet or intranets will be
widely adopted for commerce and communication. If the market for the Company's
products fails to continue to develop, develops more slowly than expected or
becomes saturated with competitors, or if the Company's new products and
services, especially its intranet products and services, do not achieve market
acceptance, the Company's business, operating results and financial condition
will be materially adversely affected.

MANAGEMENT OF GROWTH

The rapid execution necessary for the Company to fully exploit the market
window for its products and services requires an effective planning and
management process. The Company's rapid growth has placed, and its planned
growth is expected to continue to place, a significant strain on the Company's
managerial, operational and financial resources. As of September 30, 1996, the
Company had grown to approximately 1,400 employees from approximately 189
employees on December 31, 1994. In addition, the Company has completed four
acquisitions in the last 12 months; assimilating the operations and personnel of
such acquired companies has also placed a significant strain on the Company's
managerial, operational and financial resources. To manage its growth, the
Company must continue to implement and improve its operational and financial
systems and to expand, train and manage its employee base. Further, the Company
is required and will continue to be required to manage multiple relationships
among various customers, suppliers, resellers, licensors, strategic partners and
other third parties. Although the Company believes that it has made adequate
allowances for the costs and risks associated with this expansion, there can be
no assurance that the Company's systems, procedures or controls will be adequate
to support the Company's current or future operations or that Company management
will be able to effectively manage this expansion and still achieve the rapid
execution necessary to fully exploit the market window for the Company's
products and services in a timely and cost-effective manner. The Company's
future operating results will also depend on its ability to expand its sales and
marketing organizations, implement and manage new distribution channels to
penetrate different and broader markets, particularly the market for intranet
software for the enterprise, and expand its support organization commensurate
with the increasing base of its installed

10
<PAGE>
products. If the Company is unable to manage growth effectively or unable to
achieve the rapid execution necessary to fully exploit the market window for the
Company's products and services in a timely and cost-effective manner, the
Company's business, operating results and financial condition will be materially
adversely affected.

RISKS OF ACQUISITIONS AND INVESTMENTS

During the nine months ended September 30, 1996, the Company completed the
business combinations with InSoft, Paper Software and Netcode and incurred an
aggregate of $6.1 million in acquisition and related costs. In addition, during
the nine months ended September 30, 1996, the Company formed two joint ventures
and made several equity investments in companies with complementary technology.
As part of its overall strategy, the Company plans to enter into further
business combinations and significant investments in complementary companies,
products or technologies and to enter into joint ventures and strategic
alliances with other companies. Any such transactions would be accompanied by
the risks commonly encountered in such transactions. In particular, business
combinations with high technology companies include such risks as the difficulty
of assimilating the operations and personnel of the combined companies, the
potential disruption of the Company's ongoing business, the inability to retain
key technical and managerial personnel, the inability of management to maximize
the financial and strategic position of the Company through the successful
integration of acquired businesses, additional expenses associated with
amortization of acquired intangible assets, the maintenance of uniform
standards, controls, procedures and policies and the impairment of relationships
with employees and customers as a result of any integration of new personnel.
There can be no assurance that the Company would be successful in overcoming
these risks or any other problems encountered in connection with such business
combinations, investments or joint ventures or that such transactions will not
materially adversely affect the Company's business, financial condition or
results of operations.

LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT

The Company was incorporated in April 1994, and, although the Company has
acquired a number of companies which were incorporated prior to that time, the
Company only commenced shipment of its products for intranets and the Internet
in December 1994. Accordingly, the Company has a relatively limited operating
history upon which an evaluation of the Company and its prospects can be based.
The Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their earlier stage of
development, particularly companies in new and rapidly evolving markets. To
address these risks, the Company must, among other things, respond to
competitive developments, continue to attract, retain and motivate qualified
persons, expand its management processes and capabilities and continue to
upgrade its technologies and successfully commercialize products and services
incorporating such technologies. There can be no assurance that the Company will
be successful in addressing such risks. The Company incurred net losses from
inception through the quarter ended June 30, 1995. As of September 30, 1996, the
Company had an accumulated deficit of $11.0 million. Although the Company has
experienced revenue growth in recent periods, historical growth rates will not
be sustained and are not indicative of future operating results. There can be no
assurance that the Company will sustain profitability.

NEED TO MANAGE EVOLVING MARKET AND PRODUCTS

The Company's software business has historically been characterized by
relatively short sales cycles, relatively small initial sales orders, relatively
simple uses for its software, short product development cycles and low aggregate
royalty payments to third parties for embedded technology. However, the Company
has evolved and expanded its product lines, and, as the Company has increased
its focus on sales to enterprise customers, the Company's business has been,
and, will continue to be, characterized by longer sales cycles, larger initial
sales orders, more complex use of its software, longer product development
cycles and higher aggregate royalty payments to third parties for embedded
technology. For example, the Company's server product line has evolved from
software products which merely enabled publication of HTML-based documents to
SuiteSpot, an integrated suite of server products that address an array of
complex information technology issues such as e-mail, groupware, calendaring,
security for internal information and online

11
<PAGE>
commerce, as well as information publication. Further, the Company now offers
complex commercial application software to accompany its server and client
software. Organizations which initially purchased Internet and intranet products
for trial use are now building complex intranets. The Company expects that sales
of its software will be increasingly made to enterprises, and that due to higher
price points and more complex uses, these sales will require approval at the
highest levels of the customer's organization. These sales are likely to be more
difficult, expensive and time-consuming for the Company, and will require
greater training of the Company's sales personnel and reseller partners.
Further, these sales generally involve a significant commitment of capital by
prospective customers, with the attendant delays frequently associated with
large capital expenditures and lengthy acceptance procedures. For these and
other reasons, the sales cycle associated with the license of the Company's
software products has lengthened, may continue to lengthen and is subject to a
number of significant risks over which the Company has little or no control. The
Company has relatively limited experience with these types of sales, and there
can be no assurance that the Company will be able to successfully manage this
evolution in its business, and the failure to successfully manage this evolution
in its business could have a material adverse effect on the Company's business,
operating results and financial condition.

EVOLVING DISTRIBUTION CHANNELS

The Company sells its products directly to end-users and via the Internet.
In addition, the Company offers its products indirectly through OEMs, VARs and
software retailers. The Company is currently pursuing a strategy which is
intended to increase sales through OEMs, VARs and system integrators as a
percentage of total revenues, especially in international markets. The Company
expects that any material increase in sales through Resellers as a percentage of
total revenues, especially any increase in the percentage of sales through OEMs,
VARs and system integrators, will adversely affect the Company's average selling
prices and gross margins due to the lower unit prices that are typically charged
when selling through indirect channels. In recent quarters, sales through
indirect channels have increased as a percentage of total revenues, which has
adversely impacted average selling prices; however, gross margins to date have
not decreased due to the large percentage of sales through OEMs, which have
lower associated costs of revenues than other Resellers due to the absence of
packaging costs. Other potential adverse consequences of the Company's focus on
increasing sales through Resellers are the diversion of management resources and
attention from direct sales, which could adversely affect direct sales revenue,
and greater revenue fluctuation due to a greater percentage of retail revenue,
which tends to fluctuate with product releases and may be subject to
seasonality. Moreover, there can be no assurance that the Company will be able
to continue to attract and retain Resellers that will be able to market the
Company's products effectively, particularly Resellers of intranet software for
the enterprise, and will be qualified to provide timely and cost-effective
customer support and service. There also can be no assurance that the Company
will be able to manage conflicts among its Resellers. In addition, the Company's
agreements with Resellers typically do not restrict Resellers from distributing
competing products, and in many cases may be terminated by either party without
cause. Further, in some cases the Company has granted exclusive distribution
rights that are limited by territory and in duration. Consequently, the Company
may be adversely affected should any Reseller fail to adequately penetrate its
market segment. The inability to recruit, manage or retain important Resellers,
particularly Resellers of intranet software for the enterprise, or their
inability to penetrate their respective market segments, could materially
adversely affect the Company's business, operating results or financial
condition.

In addition to expanding its direct sales channels, the Company will
continue to distribute its products electronically through the Internet.
Distributing the Company's products through the Internet makes the Company's
software more susceptible than other software to unauthorized copying and use.
The Company has historically allowed and currently intends to continue to allow
potential customers to electronically download its client and server software
for a free evaluation period. There can be no assurance that, upon expiration of
the evaluation period, the Company will be able to collect payment from users
that retain a copy of the Company's software. In addition, by distributing its
products for free evaluation over the Internet, the Company may have reduced the
future demand for its products. If, as a result of changing legal

12
<PAGE>
interpretations of liability for unauthorized use of the Company's software or
otherwise, users were to become less sensitive to avoiding copyright
infringement, the Company's business, operating results and financial condition
would be materially adversely affected.

SECURITY RISKS AND SYSTEM DISRUPTIONS; LACK OF PRODUCT LIABILITY INSURANCE FOR
PRODUCTS
INCORPORATING SECURITY FEATURES

The Company has included in its products security protocols which operate in
conjunction with encryption and authentication technology licensed from RSA Data
Security Inc. ("RSA"). Despite the existence of these technologies, the
Company's products have been found to be vulnerable to break-ins and similar
disruptive problems caused by Internet users. In the last two years, there have
been several instances in which weaknesses or vulnerabilities in the Company's
security implementation were discovered. In each instance in which a
vulnerability or weakness was discovered in the Company's security
implementation, the Company attempted to address the vulnerability or weakness
by making the various design changes in its security and reviewing those changes
both internally and with a broad set of outside industry experts. The design
changes appear to have resolved known security vulnerabilities and weaknesses in
the Company's products.

In addition, the Company's products incorporate technology from other
software companies which could be vulnerable to security flaws. For example, in
March 1996 certain security flaws were discovered in the Java programming
language; in particular, one security flaw was discovered which could have
jeopardized the security of information stored in the computer of Netscape
Navigator users. Sun, the licensor of Java, has corrected this particular
security flaw and has distributed the software fix to the Company. However,
there can be no assurance that the Company's products will not be susceptible to
other security flaws, whether in the Company's products or technologies, in Java
or in other technology incorporated into the Company's products.

Despite the Company's attempts to address the vulnerabilities and weaknesses
in its security implementation, the Company's products and licensed technology
incorporated in such products may continue to be vulnerable to break-ins and
similar disruptive problems caused by Internet users. Further, as is generally
known, weaknesses in the environment in which Netscape products are used may
compromise the security of confidential electronic information exchanges across
the Internet. This includes, but is not limited to, the security of the physical
network, security of the physical machines used for the information transfer and
the security of the operating system on top of which the Netscape products are
running. Any such flaws in the Internet or the end-user environment, or
weaknesses or vulnerabilities in the Company's products or licensed technology
incorporated in such products, would jeopardize the security of confidential
information sent over the Internet using Netscape software, such as credit card
numbers and e-mail, and might enable others to dismantle the special security
techniques meant to protect such transactions.

Any further computer break-ins or other disruptions could jeopardize the
security of information stored in and transmitted through the computer systems
of end-users of the Company's products, which may result in significant
liability to the Company and may also deter potential customers. Moreover, the
security and privacy concerns of existing and potential customers, as well as
concerns related to computer viruses, may inhibit the growth of the Internet and
intranet market generally, and the Company's customer base and revenues in
particular. The Company attempts to limit its liability to its customers,
including liability arising from failure of the security implementation
contained in the Company's products, through contractual provisions. However,
there can be no assurance that such limitations will be effective. The Company
currently does not have product liability insurance to protect against risks
associated with forced break-ins or disruptions. There can be no assurance that
additional security vulnerabilities and weaknesses will not be discovered in the
Company's products or licensed technology incorporated in such products or that
weaknesses in the end-user environments will not limit the use of the Internet
as a commercial medium. Any additional security related problems in the
Company's products or licensed technology incorporated in such products may
require significant expenditures of capital and resources by the Company to
alleviate such problems, may result in lawsuits against the Company, may result
in loss of customers and may cause

13
<PAGE>
interruptions, delays or cessations of product shipments to the Company's
customers. Any such expenditures, lawsuits, loss of customers, interruptions,
cessations or delays would likely have a material adverse effect on the
Company's business, operating results and financial condition.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

The Company is not currently subject to direct government regulation, other
than pursuant to securities laws and the regulations thereunder applicable to
all publicly owned companies and laws and regulations applicable to businesses
generally, and there are currently few laws or regulations directly applicable
to access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, it is likely that a number of laws and
regulations may be adopted at the local, state, national or international levels
with respect to the Internet, covering issues such as user privacy and
expression, pricing of products and services, taxation, advertising,
intellectual property rights, information security or the convergence of
traditional communication services with Internet communications. For example,
the Telecommunications Reform Act of 1996 (the constitutionality of which is
currently under challenge) was recently enacted and imposes criminal penalties
(via the Communications Decency Act or "CDA") on anyone who distributes obscene,
lascivious or indecent communications over the Internet. Moreover, the adoption
of any such laws or regulations may decrease the growth of the Internet, which
could in turn decrease the demand for the Company's products or increase the
Company's cost of doing business or in some other manner have a material adverse
effect on the Company's business, operating results or financial condition. In
addition, the applicability to the Internet of existing laws governing issues
such as property ownership, copyrights and other intellectual property issues,
taxation, libel and personal privacy is uncertain. The vast majority of such
laws were adopted prior to the advent of the Internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies. Changes to such laws intended to address
these issues, including some recently proposed changes, could create uncertainty
in the marketplace which could reduce demand for the Company's products, could
increase the Company's cost of doing business as a result of costs of litigation
or increased product development costs, or could in some other manner have a
material adverse effect on the Company's business, operating results or
financial condition.

Because the encryption technology contained in the Company's products is
deemed to be a "munition," such products are subject to U.S. export controls
pertaining to munitions. There can be no assurance that such export controls,
either in their current form or as may be subsequently revised, will not limit
the Company's ability to distribute certain encrypted products outside of the
United States or electronically. While Netscape takes precautions against
unlawful exportation, such exportation may occur from time to time. In addition,
federal or state legislation or regulation may further limit levels of
encryption or authentication technology, and foreign governments could enact
import laws or regulations that may restrict the type of encryption software
that is permitted for distribution in their countries. Moreover, as a
consequence of such export controls, Netscape must develop and market both
domestic and international versions of its products that contain encryption
software, with the version for the U.S. market having a stronger level of
encryption than the version for export to international markets. Along with the
additional costs associated with the duplication of effort and expense in
research, development, manufacturing and distribution of different versions of
products, the Company may lose sales from customers who wish to have the same
level of encryption security throughout their organization. The Company may also
encounter difficulties competing overseas with competitors that are subject to
less restrictive controls. Finally, due to the weaker level of encryption
contained in the Company's products shipped internationally, the Company may not
acquire the installed international base necessary to make the functionality of
its products part of an international standard.

Additionally, some countries have enacted import laws requiring the
alteration of the Company's products in order for the government of such
countries to maintain a level of control over the content of products entering
such countries. In addition to the costs incurred by the Company in complying
with varying international regulations, alteration of the Company's products may
cause such products to perform at a

14
<PAGE>
level below their intended level and thereby subject the Company to potential
liability and other adverse consequences. Any such export restrictions, import
restrictions, new legislation or regulation or unlawful exportation could have a
material adverse impact on the Company's business, operating results or
financial condition.

UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; UNISYS PATENT ENFORCEMENT;
CHALLENGE TO RSA LICENSE;
RISKS ASSOCIATED WITH LICENSED THIRD PARTY TECHNOLOGY

The Company's success and ability to compete is dependent in part upon its
internally developed technology. While the Company relies on patents, trademark,
trade secret and copyright law to protect its technology, the Company believes
that factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are more essential to establishing and maintaining
a technology leadership position. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
The Company generally enters into confidentiality or license agreements with its
employees, consultants and vendors, and generally controls access to and
distribution of its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In addition,
effective patents, copyright and trade secret protection may be unavailable or
limited in certain foreign countries. To license its products, the Company
relies in part on "shrink wrap" licenses that are not signed by the end-user
and, therefore, may be unenforceable under the laws of certain jurisdictions.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult. There can be no assurance that the
steps taken by the Company will prevent misappropriation of its technology or
that such agreements will be enforceable. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results or financial condition.

Unisys Corporation ("Unisys") has announced its intention to require the
payment of royalties for the use of compression technology associated with the
Graphics Interchange Format ("GIF"). Unisys asserts that this popular file
format is based on compression technology patented by Unisys. The Company's
products have the ability to decompress files, including files stored in GIF.
The Company and, to the Company's knowledge, other licensees, have received
notice of Unisys' intention to enforce or license such patent. The Company could
incur additional costs and liability should its products be found to be within
the scope of the Unisys patent, including costs and liability from claims for
indemnification resulting from infringement. The assertion of these patent
rights by Unisys, if successful, could prevent the Company's products from
enabling users to view files compressed in GIF. The Company does not believe its
products infringe the Unisys patent; however, there can be no assurance that the
Company's products are not within the scope of the Unisys patent or that the
Company's business, operating results and financial condition will not be
materially adversely affected if the Company's products are found to be within
the scope of the Unisys patent.

From time to time the Company has, in addition to the notice from Unisys,
received, and may receive in the future, notice of claims of infringement of
other parties' proprietary rights. Although the Company does not believe that
its products infringe the proprietary rights of any third parties, there can be
no assurance that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company or that any such assertions or prosecutions will
not materially adversely affect the Company's business, financial condition or
results of operations. Irrespective of the validity or the successful assertion
of such claims, the Company would incur significant costs and diversion of
resources with respect to the defense thereof which could have a material
adverse effect on the

15
<PAGE>
Company's business, financial condition or results of operations. In addition,
the assertion of such infringement claims could result in injunctions preventing
Netscape from distributing certain products, which could have a material adverse
effect on the Company's business, financial condition or results of operations.
If any claims or actions are asserted against the Company, the Company may seek
to obtain a license under a third party's intellectual property rights. There
can be no assurance, however, that under such circumstances, a license would be
available on reasonable terms or at all.

On August 7, 1995, Netscape received a letter from a law firm purporting to
represent Caro-Kann Corporation ("Caro-Kann"), a subsidiary of Cylink
Corporation, which is a partner with RSA in Public Key Partners ("PKP"), which
partnership purportedly holds certain exclusive licensing rights to certain
patents covering the practice of public key cryptography and digital signatures.
Caro-Kann alleges that the license agreement between RSA and Netscape relating
to certain RSA software conflicts with the rights held by PKP. RSA has advised
Netscape that the allegations of Caro-Kann are unfounded. The parties have
arbitrated portions of this dispute and currently disagree as to the
interpretation of the arbitration ruling. RSA has brought suit in federal court
against Cylink Corporation over certain patent related claims. Netscape is
unable to ascertain the significance of Caro-Kann's allegations or whether or
not any decision adverse to RSA in the arbitration or other proceedings may
invalidate or otherwise limit the license to Netscape. In Netscape's license
agreement with RSA, RSA has agreed to defend and indemnify and hold Netscape
harmless with respect to any claim by a third party that the licensed software
infringes any patent or other proprietary rights. Although the Netscape license
is fully paid-up, there can be no assurance that the outcome of this matter
would not lead to royalty obligations. Many of the Company's products
incorporate data encryption and server authentication technology licensed from
RSA.

The Company also relies on certain other technology which it licenses from
third parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability to maintain any of these technology licenses could result in delays or
reductions in product shipments until equivalent technology could be identified,
licensed and integrated. Any such delays or reductions in product shipments
could materially adversely affect the Company's business, operating results or
financial condition. Moreover, although the Company is generally indemnified by
the third parties against claims that the third parties' technology infringes
the proprietary rights of others, such indemnification is not always available
for all types of intellectual property rights (for example, patents may be
excluded) and in some cases the geographical scope of such indemnification is
limited. The result is that the indemnity that the Company receives against such
claims is often less broad than the indemnity that the Company provides to its
customers. Even in cases in which the indemnity that the Company receives from a
third party licensor is as broad as the indemnity that the Company provides to
its customers, often the third party licensors from whom the Company would be
receiving indemnity are not well-capitalized and may not be able to indemnify
the Company in the event that such third party technology infringes the
proprietary rights of others. Accordingly, the Company could have substantial
exposure in the event that technology licensed from a third party infringes
another party's proprietary rights. The Company currently does not have any
liability insurance to protect against the risk that licensed third party
technology infringes the proprietary rights of others. There can be no assurance
that infringement or invalidity claims arising from the incorporation of third
party technology, and claims for indemnification from the Company's customers
resulting from such infringement claims will not be asserted or prosecuted
against the Company or that any such assertions or prosecutions will not
materially adversely affect the Company's business, financial condition or
results of operations. Irrespective of the validity or successful assertion of
such claims, the Company would incur significant costs and the diversion of
resources with respect to the defense thereof, in addition to potential product
redevelopment costs and delays, all of which could have a material adverse
effect on the Company's business, financial condition or results of operations.

16
<PAGE>
DEPENDENCE ON KEY PERSONNEL

The Company's performance is substantially dependent on the performance of
its executive officers and key employees, many of whom have worked together for
only a short period of time. Given the Company's relatively early stage of
development, the Company is dependent on its ability to retain and motivate
highly qualified personnel, especially its management and highly skilled
development teams. The Company does not have "key person" life insurance
policies on any of its employees. The loss of the services of any of its
executive officers or other key employees could have a material adverse effect
on the business, operating results or financial condition of the Company. See
"Management".

The Company's future success also depends on its continuing ability to
identify, hire, train and retain other highly qualified technical and managerial
personnel, especially software developers. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to attract,
assimilate or retain other highly qualified technical and managerial personnel
in the future. The inability to attract and retain the necessary technical and
managerial personnel could have a material adverse effect on the Company's
business, operating results or financial condition.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION

International revenues (sales outside of North America) were approximately
17% and 28% of total revenues for the year ended December 31, 1995 and the nine
months ended September 30, 1996, respectively. A key component of the Company's
strategy is its continued expansion into international markets. To date, the
Company has only limited experience in developing localized versions of its
products and marketing and distributing its products internationally, and the
Company is currently incurring, and expects to continue to incur, significant
costs in developing, marketing and distributing localized versions. If the
international revenues are not adequate to offset the expense of establishing
and maintaining foreign operations and the costs of localizing the Company's
products, the Company's business, operating results or financial condition could
be materially adversely affected. There can be no assurance that the Company
will be able to successfully market, sell and deliver its products in foreign
markets. In addition to the uncertainty as to the Company's ability to continue
to generate revenues from its foreign operations and expand its international
presence, there are certain risks inherent in doing business on an international
level, such as unexpected changes in regulatory requirements, export and import
restrictions, export and import controls relating to encryption technology,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political instability, fluctuations in currency exchange rates, software piracy,
seasonal reductions in business activity during the summer months in Europe and
certain other parts of the world and potentially adverse tax consequences, which
could adversely impact the success of the Company's international operations.
There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's future international operations and,
consequently, on the Company's business, operating results and financial
condition.

DEPENDENCE ON THE INTERNET

Although some sales of the Company's products will depend upon growth of
intranets, sales of the Company's products will continue to depend in large part
upon a robust industry and infrastructure for providing Internet access and
carrying Internet traffic. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure
(e.g., reliable network backbone), untimely development of complementary
products (e.g., high speed modems), delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased government regulation. In addition, to the extent
that the Internet continues to experience significant growth in the number of
users and the level of use, there can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
such potential growth. Because global commerce and online exchange of
information on the Internet and other similar open wide area networks are new
and evolving, it is difficult to predict with any assurance whether the Internet
will

17
<PAGE>
prove to be a viable commercial marketplace. If the necessary infrastructure or
complementary products are not developed, or if the Internet does not become a
viable commercial marketplace, the Company's business, operating results and
financial condition will be materially adversely affected.

EXTREME VOLATILITY OF STOCK PRICE AND RISK OF LITIGATION

The Company's common stock price has been extremely volatile and has
experienced substantial and sudden fluctuations, particularly as a result of
announcements by the Company and its competitors and announcements with respect
to the industry generally. In addition, the stock market has experienced
significant price and volume fluctuations that have especially affected the
market prices of equity securities of many high technology companies,
particularly Internet-related companies, and that often have been unrelated to
the operating performance of such companies. These broad market fluctuations
have adversely affected and may continue to adversely affect the market price of
the Company's common stock. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted against such a company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on the Company's business, operating
results and financial condition.

CONCENTRATION OF STOCK OWNERSHIP

Upon completion of this offering, the Company's executive officers and
directors, together with entities affiliated with such individuals, will
beneficially own approximately 42.5% of the Company's Common Stock
(approximately 42.2% if the Underwriters' over-allotment option is exercised in
full). Accordingly, these stockholders will be able to exercise significant
influence over matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying or preventing a change in control
of the Company. See "Principal and Selling Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the Common
Stock. Each of the executive officers and directors of the Company, and entities
affiliated with one of the Company's non-employee directors, who collectively
held as of September 30, 1996 an aggregate of 35,694,037 shares, have agreed not
to sell or otherwise dispose of Common Stock of the Company through February 15,
1997 without the prior consent of Morgan Stanley & Co. Incorporated, except for
an aggregate of 200,000 shares held by certain executive officers of the
Company, which shall not have such restriction. Certain other stockholders of
the Company, including an entity affiliated with one of the Company's
non-employee directors, who are selling an aggregate of 3,000,000 shares in this
offering and will hold an aggregate of 2,352,727 shares after the offering, have
agreed not to sell or otherwise dispose of Common Stock of the Company for up to
120 days after the date of this Prospectus without the prior consent of Morgan
Stanley & Co. Incorporated. The Company has agreed in the Underwriting Agreement
that it will not, directly or indirectly, without the prior written consent of
Morgan Stanley & Co. Incorporated, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of any shares of Common Stock or any securities convertible into or exchangeable
for Common Stock, for a period of 120 days after the date of this Prospectus,
subject to certain limited exceptions. Except for shares subject to the
restrictions set forth above and (i) 14,219,720 shares subject to a repurchase
right of the Company which generally lapses at a rate of 20% after 10 months of
service and two percent per month thereafter, and (ii) 2,755,544 shares held by
existing stockholders which are "restricted securities" as that term is defined
in Rule 144 under the Securities Act and are not eligible for sale until the
expiration of their respective two-year holding periods, all other shares of
Common Stock are freely tradeable without restriction. See "Underwriters".

18
<PAGE>
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS AND
DELAWARE LAW

The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no present plans to issue shares of
Preferred Stock. Further, certain provisions of the Company's Amended and
Restated Certificate of Incorporation, including provisions that create a
classified board of directors, and of the Amended and Restated Bylaws and of
Delaware law could delay or make difficult a merger, tender offer or proxy
contest involving the Company.

DILUTION

Investors participating in this offering will incur immediately, substantial
dilution. To the extent outstanding options to purchase the Company's Common
Stock are exercised, there will be further dilution. See "Dilution."

19
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of 2,000,000
shares of Common Stock offered by the Company hereby are estimated to be $87.5
million ($120.7 million if the U.S. Underwriters' over-allotment option is
exercised in full), based on an assumed offering price of $46 1/8 and after
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company. The Company expects to use the net proceeds of this
offering primarily for general corporate purposes, including working capital and
capital expenditures. A portion of the proceeds are expected to be used to
secure additional facilities, for leasehold improvements and for general
corporate infrastructure. The Company currently expects that it will spend an
additional $35.0 million on such matters through the end of the current fiscal
year. A portion of the proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. However, the Company has no present plans, agreements or
commitments and is not currently engaged in any negotiations to acquire any
businesses. Pending use of the net proceeds for the above purposes, the Company
intends to invest such funds in interest-bearing, investment-grade obligations.
The Company will not receive any proceeds from the sale of shares by the Selling
Stockholders.

PRICE RANGE OF COMMON STOCK

The following table sets forth the range of high and low sales prices of the
Company's Common Stock for the indicated periods, as reported by the Nasdaq
National Market. The Company made its initial public offering on August 8, 1995
at a price of $14 per share. On October 30, 1996, the last reported sale price
for the Common Stock on the Nasdaq National Market was $46 1/8 per share. As of
October 25, 1996, the Company had approximately 2,129 holders of record of the
Common Stock. All prices have been restated to reflect a two-for-one stock split
effected in January 1996.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal year ended December 31, 1995:
Third Quarter (beginning August 9, 1995)............................................. $ 37 3/8 $ 22 7/8
Fourth Quarter....................................................................... 87 28
Fiscal year ending December 31, 1996:
First Quarter........................................................................ 86 34 3/4
Second Quarter....................................................................... 75 1/4 42 1/2
Third Quarter........................................................................ 65 1/2 34 1/2
Fourth Quarter (through October 30, 1996)............................................ 50 1/2 38 1/2
</TABLE>

DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock or other
securities. The Company currently anticipates that it will retain all of its
future earnings for use in the expansion and operation of its business and does
not anticipate paying any cash dividends in the foreseeable future.

20
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the sale of 2,000,000 shares of
Common Stock offered by the Company hereby (at an assumed offering price of
$46 1/8 and after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company):

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
AS
ACTUAL(1) ADJUSTED(1)(2)
---------- ----------------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term obligations............................................................... $ 659 $ 659
Total stockholders' equity:
Preferred Stock, $0.0001 par value; 5,000,000 shares authorized, none issued and
outstanding...................................................................... -- --
Common Stock, $0.0001 par value; 200,000,000 shares authorized, 84,535,395 shares
issued and outstanding, actual; 86,535,395 shares issued and outstanding, as
adjusted(3)...................................................................... 8 9
Additional paid-in capital........................................................ 215,231 302,706
Deferred compensation............................................................. (6,742) (6,742)
Accumulated deficit............................................................... (10,982) (10,982)
Other............................................................................. 1,489 1,489
---------- --------
Total stockholders' equity...................................................... 199,004 286,480
---------- --------
Total capitalization.......................................................... $ 199,663 $ 287,139
---------- --------
---------- --------
</TABLE>

- ---------
(1) Reflects the business combinations with Collabra, InSoft, Netcode, and Paper
Software which have been accounted for as poolings of interests.

(2) Assumes no exercise of the U.S. Underwriters' over-allotment option.

(3) Excludes, as of September 30, 1996, (i) an aggregate of 8,301,650 shares of
Common Stock subject to outstanding options under the Company's 1994 Stock
Option Plan, 1995 Stock Plan, 1995 Director Option Plan, Collabra Software,
Inc. 1993 Incentive Stock Plan, InSoft, Inc. 1993 Stock Option Plan and
Netcode Corporation 1996 Stock Plan (collectively, the "Stock Plans") at a
weighted average exercise price of $22.83 per share and 3,257,663 shares
reserved for future grants of options thereunder and (ii) 1,723,494 shares
of Common Stock reserved but unissued under the Company's 1995 Employee
Stock Purchase Plan.

21
<PAGE>
DILUTION

The net tangible book value of the Company as of September 30, 1996 was
$195,266,000 or $2.31 per share of Common Stock. Net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of outstanding
shares of Common Stock at that date. After giving effect to the sale by the
Company of the 2,000,000 shares of Common Stock offered hereby (at an assumed
offering price of $46 1/8 and after deduction of estimated underwriting
discounts and commissions and offering expenses payable by the Company), the
Company's pro forma net tangible book value at September 30, 1996 would have
been $282,742,000 or $3.27 per share. This represents an immediate increase in
net tangible book value to existing stockholders of $.96 per share and an
immediate dilution to new investors of $42.86 per share. The following table
illustrates the per share dilution:

<TABLE>
<CAPTION>
Assumed public offering price per share............................. $ 46.125
<S> <C> <C>
Net tangible book value per share as of September 30, 1996........ $ 2.31
Increase in net tangible book value per share attributable to new
investors........................................................ .96
---------
Pro forma net tangible book value per share after offering.......... 3.27
---------
Dilution per share to new investors................................. $ 42.86
---------
---------
</TABLE>

The following table sets forth on a pro forma basis as of September 30, 1996
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid by
the existing stockholders and by the new investors (at an assumed offering price
of $46 1/8 and before deduction of estimated underwriting discounts and
commissions and offering expenses payable by the Company):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............... 84,535,395 98% $ 229,087,000 71% $ 2.71
New investors.......................... 2,000,000 2 92,250,000 29 46.125
------------- ----- -------------- -----
Total.............................. 86,535,395 100% $ 321,337,000 100%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>

- ---------
(1) Sales by the Selling Stockholders in the offering will reduce the number of
shares held by existing stockholders to 81,535,395 shares, or 94% of the
total number of shares outstanding after the offering, and will increase the
number of shares held by new investors to 5,000,000 shares, or 6% of the
total number of shares outstanding after the offering. See "Principal and
Selling Stockholders."

The foregoing table assumes no exercise of the U.S. Underwriters'
over-allotment option and no exercise of stock options outstanding at September
30, 1996. As of September 30, 1996, (i) there was an aggregate of 8,301,650
shares of Common Stock subject to outstanding options under the Company's Stock
Plans at a weighted average exercise price of $22.83 per share and 3,257,663
shares reserved for future grants of options thereunder and (ii) there were
1,723,494 shares of Common Stock reserved but unissued under the Company's 1995
Employee Stock Purchase Plan.

22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated statement of operations
data and balance sheet data for the Company. The selected statement of
operations data for each of the five quarters in the period ended March 31, 1996
are derived from the unaudited condensed consolidated financial statements not
included or incorporated by reference herein. The selected statement of
operations data for each of the two quarters in the period ended September 30,
1996 and the selected balance sheet data at September 30, 1996 are derived from
the unaudited condensed consolidated financial statements of the Company
incorporated by reference herein. The selected balance sheet data as of December
31, 1995 is derived from the audited supplemental consolidated financial
statements incorporated by reference herein. In the opinion of the Company's
management, the unaudited condensed consolidated financial statements of the
Company include all adjustments, consisting of normal recurring adjustments,
which the Company considers necessary for a fair presentation of its financial
position at the end of, and the results of its operations for, these periods.
This financial data should be read in conjunction with the Company's
Supplemental Consolidated Financial Statements and the Notes thereto, the
unaudited condensed consolidated financial statements and other financial
information incorporated by reference herein. See "Incorporation of Certain
Documents by Reference." In November 1995, the Company entered into a business
combination with Collabra in a transaction accounted for as a pooling of
interests. In April 1996, the Company entered into a business combination with
InSoft in a transaction accounted for as a pooling of interests. All financial
data of the Company for the periods presented has been restated to give
retroactive effect to the business combinations with Collabra and InSoft. In
April and May 1996, the Company entered into business combinations with Netcode
and Paper Software, respectively, in transactions accounted for as poolings of
interests. The financial data for the operations of Netscape since January 1,
1996 have been restated to give retroactive effect to the business combinations
with Netcode and Paper Software. The financial data for the operations of
Netscape has not been restated to give retroactive effect to the business
combinations with Netcode and Paper Software for any periods prior to January 1,
1996 due to immateriality. All share and per share amounts have been adjusted to
reflect the two-for-one stock split approved on January 23, 1996. No dividends
have been declared or paid on the Common Stock of Netscape. The dividends
declared and paid by InSoft were insignificant.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product revenues..................................................... $ 6,057 $ 13,095 $ 21,979 $ 36,358
Service revenues..................................................... 388 977 1,329 5,204
----------- ----------- ----------- -----------
Total revenues..................................................... 6,445 14,072 23,308 41,562
Cost of revenues:
Cost of product revenues............................................. 431 982 2,639 5,125
Cost of service revenues............................................. 200 337 380 1,613
----------- ----------- ----------- -----------
Total cost of revenues............................................. 631 1,319 3,019 6,738
----------- ----------- ----------- -----------
Gross profit........................................................... 5,814 12,753 20,289 34,824
Operating expenses:
Research and development............................................. 2,827 5,105 7,117 11,792
Sales and marketing.................................................. 4,711 8,224 11,785 18,959
General and administrative........................................... 2,374 2,612 2,568 3,782
Merger related charges............................................... -- -- -- 2,033
Property rights agreement and related charges........................ 500 -- -- --
----------- ----------- ----------- -----------
Total operating expenses........................................... 10,412 15,941 21,470 36,566
----------- ----------- ----------- -----------
Operating income (loss)................................................ (4,598) (3,188) (1,181) (1,742)
Interest income, net................................................... 91 396 1,356 2,751
----------- ----------- ----------- -----------
Income (loss) before income taxes...................................... (4,507) (2,792) 175 1,009
Provision for income taxes............................................. -- -- -- 498
----------- ----------- ----------- -----------
Net income (loss)...................................................... $ (4,507) $ (2,792) $ 175 $ 511
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per share............................................ $ (0.07) $ (0.04) $ 0.00 $ 0.01
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computing net loss per share............................ 69,915 69,919 80,832 86,965

MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996
----------- --------- ---------

<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product revenues..................................................... $ 49,051 $ 62,296 $ 83,761
Service revenues..................................................... 7,070 12,710 16,255
----------- --------- ---------
Total revenues..................................................... 56,121 75,006 100,016
Cost of revenues:
Cost of product revenues............................................. 6,811 9,703 10,900
Cost of service revenues............................................. 1,683 2,325 3,794
----------- --------- ---------
Total cost of revenues............................................. 8,494 12,028 14,694
----------- --------- ---------
Gross profit........................................................... 47,627 62,978 85,322
Operating expenses:
Research and development............................................. 14,126 17,826 24,211
Sales and marketing.................................................. 25,805 32,506 43,865
General and administrative........................................... 5,206 6,018 8,286
Merger related charges............................................... -- 6,100 --
Property rights agreement and related charges........................ -- -- --
----------- --------- ---------
Total operating expenses........................................... 45,137 62,450 76,362
----------- --------- ---------
Operating income (loss)................................................ 2,490 528 8,960
Interest income, net................................................... 2,431 1,462 1,592
----------- --------- ---------
Income (loss) before income taxes...................................... 4,921 1,990 10,552
Provision for income taxes............................................. 1,332 1,084 2,895
----------- --------- ---------
Net income (loss)...................................................... $ 3,589 $ 906 $ 7,657
----------- --------- ---------
----------- --------- ---------
Net income (loss) per share............................................ $ 0.04 $ 0.01 $ 0.09
----------- --------- ---------
----------- --------- ---------
Shares used in computing net loss per share............................ 85,003 87,937 87,883
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
(IN
THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................................................................... $ 133,052
Total assets............................................................................................. 231,154
Deferred revenues........................................................................................ 30,032
Long-term obligations, net of current portion............................................................ 1,198
Stockholders' equity..................................................................................... 177,387

<CAPTION>
SEPTEMBER 30,

1996

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

<S> <C>

CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................................................................... $ 70,571

Total assets............................................................................................. 331,748

Deferred revenues........................................................................................ 75,126

Long-term obligations, net of current portion............................................................ 659

Stockholders' equity..................................................................................... 199,004

</TABLE>

23
<PAGE>
BUSINESS

OVERVIEW

Netscape is a leading provider of open software for linking people and
information over intranets and the Internet. Netscape develops, markets and
supports a broad suite of enterprise server and client software, development
tools and commercial applications to create a single shared communications
platform for network-based applications. Netscape software is based on industry
standard protocols and therefore can be deployed across a variety of computer
operating systems, hardware platforms and databases and can be interconnected
with traditional client/server applications. Using Netscape solutions,
organizations can extend their internal information systems and applications to
geographically dispersed facilities as well as to third party partners and
customers. In addition, Netscape's products allow individuals and organizations
to access information and to execute transactions across the Internet such as
the buying and selling of information, software, merchandise and publications.

INDUSTRY BACKGROUND

In today's increasingly competitive business environment, organizations seek
to leverage their existing investments in information technology and provide
access to network resources and applications across the enterprise. Disparate
computer operating systems, hardware platforms and databases have historically
limited the ability of these organizations to share information most effectively
across the enterprise. Intranets have provided simple services such as messaging
and publishing to network users, and have begun to connect closed operating
systems, databases, applications and networks over a common platform. These open
standards-based intranets are designed to permit user services such as
information sharing, application access and enterprise calendaring, as well as
network services such as network management and security, to operate across
heterogeneous environments.

According to Forrester Research, an independent market research group
("Forrester"), the intranet and Internet market opportunity is significant. In a
July 1996 report, Forrester reported that approximately 96% of the Fortune 1000
companies either have or are building an intranet and estimated that $8.5
billion will be spent on intranet and Internet software in the year 1999.

RECENT DEVELOPMENTS

PLANNED PRODUCTS AND RELEASES

24
<PAGE>
management. Netscape Communicator 4.0, an upgrade to Netscape Navigator which is
planned to be commercially available in the first half of 1997, is designed to
be a componentized suite of client software for open HTML-based e-mail,
groupware, authoring, calendaring and Web browsing. Together, the Netscape
SuiteSpot 3.0 and Communicator 4.0 solution are designed to offer a matched
feature approach enabling organizations to use e-mail, groupware and other
enterprise applications across an open network.

MATCHED CLIENT/SERVER SOLUTION:

This figure depicts the Company's recently announced matched server and
client solution and how the strategy to componentize each piece of functionality
creates seamless integration between client and server. Calendar functionality
in the Communicator, for example, gets matched with calendar functionality in
the SuiteSpot 3.0 New Platform any application model:

NETSCAPE SUITESPOT 3.0.

The Company's next-generation server software suite will be comprised of ten
server and tool products for building corporate intranets. Together with the
announced Netscape Communicator client, Netscape SuiteSpot 3.0 is expected to
provide enterprise customers with an integrated solution for building and
maintaining Web sites, open e-mail, publishing and groupware solutions on
intranets. In addition, Netscape SuiteSpot 3.0 is designed to support the
Netscape ONE framework that allows developers to build cross-platform,
network-based applications. Netscape SuiteSpot 3.0 is planned to be commercially
available in the first half of 1997. Below is a description of each server and
tool that collectively comprise Netscape SuiteSpot 3.0.

NETSCAPE ENTERPRISE SERVER 3.0. This enterprise server is designed to
be the platform that will enable users to share, locate and publish information.
Among the features the Company plans to include are the ability to manage
documents in a variety of formats, including Microsoft Office and Adobe PDF,
full-text search capability, agent technology, custom views, access controls and
document control with versioning. Netscape Enterprise Server 3.0, an upgrade of
Netscape's currently shipping Enterprise Server 2.0, is planned to be
commercially available as a standalone product in the first half of 1997.

NETSCAPE MESSAGING SERVER 3.0. This server is designed to expand its
native support of Internet standards and is designed to extend beyond a
traditional client/server messaging architecture through interoperability with
native Internet and proprietary LAN-based mail systems. Among the features the
Company plans to include are LDAP directory services support, offline and mobile
user support, tools for migration from proprietary messaging solutions and IMAP4
and POP3 support. Netscape Messaging Server 3.0, an upgrade to Netscape Mail
Server 2.0, is planned to be commercially available as a standalone product in
the first half of 1997.

NETSCAPE COLLABRA SERVER 3.0. This open and secure discussion server is
designed to allow group-to-group collaboration and knowledge-sharing among teams
both inside and outside an organization. Among the features the Company plans to
include are support for full-text search across all discussion forums, enhanced
encryption, single point administration and advanced replication capabilities.
Netscape Collabra Server 3.0, an upgrade to Netscape Collabra Server 2.1, is
planned to be commercially available as a standalone product in the first half
of 1997.

NETSCAPE CALENDAR SERVER 1.0. This server is designed to be the open
standards-based server for calendaring and scheduling across the enterprise.
Among the features the Company plans to include are access controls to protect
data and enterprise scalability. Netscape Calendar Server 1.0 is planned to be
commercially available as a standalone product in the first half of 1997.

NETSCAPE MEDIA SERVER 1.0. This server is designed to be the audio
broadcasting and publishing extension to the Netscape Enterprise Server. Among
the features the Company plans to include are the

25
<PAGE>
ability to deliver audio across a TCP/IP network, integration of audio with text
and graphics and support for industry-standard protocols and file formats
including RTSP. Netscape Media Server 1.0 is planned to be commercially
available as a standalone product in the first half of 1997.

NETSCAPE CATALOG SERVER 1.0. This is the automated search and discovery
server for creating, managing and maintaining an online catalog of files
residing on enterprise intranets and the Internet. This server features an
automated catalog that is easy to manage and customize with the ability to
catalog in multiple file formats. Netscape Catalog Server 1.0 is currently
available in beta version and is planned to be commercially released as a
standalone product by the end of 1996.

NETSCAPE DIRECTORY SERVER 1.0. This is the server for managing "white
pages" information such as names, e-mail addresses, phone numbers and
certificates. Its features include universal access to directory information
through LDAP, support for distributed searches, replication capabilities and
safeguarding of directory information using both access control lists and SSL.
Netscape Directory Server 1.0 is currently available in beta version and is
planned to be commercially released by the end of 1996.

NETSCAPE CERTIFICATE SERVER 1.0. This server enables organizations to
issue, sign and manage public-key certificates. Its features include single user
login, SSL support and software signing using the industry-standard RSA digital
signature algorithm. Netscape Certificate Server 1.0 is currently available in
beta version and is planned to be commercially released as a standalone product
in the first half of 1997.

NETSCAPE PROXY SERVER 2.5. This server is designed to replicate and
filter access to content on an intranet or the Internet. Among the features the
Company plans to include are access and control points for encrypted traffic,
automatic proxy configuration and replication on demand and on command. Netscape
Proxy Server 2.5, an upgrade to Netscape Proxy Server 2.0, is planned to be
commercially available as a standalone product in the first half of 1997.

NETSCAPELIVEWIRE/NETSCAPE LIVEWIRE PRO. These are visual tools suites
designed for managing Web sites and creating online applications. Features
include the ability to create and import Web page content with a site
downloader, a JavaScript compiler and interoperability with Oracle, Informix,
Sybase and ODBC databases. Both Netscape LiveWire 1.01 and LiveWire Pro 1.01
were commercially released in June 1996.

NETSCAPE COMMUNICATOR

The Company's next generation client product, Netscape Communicator, will
aggregate a set of features for the user to share and access information on
intranets or the Internet. Additionally, the Company announced the Netscape
Communicator Professional Edition, which is expected to include calendaring and
centralized management capabilities. The Netscape Communicator and Netscape
Communicator Professional are scheduled to enter beta phase in the fourth
quarter of 1996 and planned to be commercially available in the first half of
1997. Below is a description of each component that collectively comprise
Netscape Communicator.

NETSCAPE NAVIGATOR 4.0. This component is designed to enable access to
information and network applications on intranets and the Internet using the
intuitive Netscape Navigator interface. Among the features the Company plans to
include are an improved user interface, JavaScript style sheets, layers,
improved Java performance and platform support, multiple user profiles and
embedded object support. The Netscape Navigator 4.0 component is designed to
offer a point-and-click graphical user interface that enables users to navigate
the Internet's vast array of network resources. Netscape Navigator 4.0 is
planned to be an extension of the browser functionality in Netscape Navigator
3.0.

NETSCAPE MESSENGER. This component is designed to enable corporate
e-mail built on open standards. Among the features to be included are
integration with Netscape Composer to create HTML mail with embedded objects and
images, S/MIME encrypted and digitally signed messages, LDAP Internet-wide

26
<PAGE>
directory technology, additional support for IMAP4, POP3 and SMTP/MIME, message
filters, an integrated spelling checker, hierarchical folders and search
capabilities. Netscape Messenger will be an extension of the mail functionality
in Netscape Navigator 3.0.

NETSCAPE COLLABRA. This component is designed to enable enterprise
discussion groups based on Internet standards. Among the features the Company
plans to include are NNTP support for threaded discussion groups, HTML content,
forum names for discussions, access controls for private discussions, searching
across all forums and offline reading and posting.

NETSCAPE COMPOSER. This component is designed to be an HTML editor for
Web pages, e-mail and discussion groups. Among the features the Company plans to
include are one-button publishing, formatting which includes fonts and styles,
drag-and-drop images, an extensible editor plug-in API and FTP and HTTP
publishing support. Netscape Composer is designed to be an extension of the
authoring functionality in Netscape Navigator Gold.

NETSCAPE CONFERENCE. This component is designed to enable live
connection of people and information with Internet telephones, shared
whiteboards and file transfer. Among the features the Company plans to include
are audio conferencing, voicemail, collaborative browsing, full-duplex echo and
silence suppression, H.323 support and integration with Netscape Messenger
address book. Netscape Conference is designed to be an extension of the Netscape
CoolTalk plug-in for Netscape Navigator 3.0.

NETSCAPE CALENDAR. This component is designed to enable enterprise
calendaring and scheduling. Among the features the Company plans to include are
local and remote server searching, schedule delegation, offline support and
drag-and-drop events. Netscape Calendar will be bundled exclusively with the
Netscape Communicator Professional Edition.

NETSCAPE AUTOADMIN. This component is designed to enable centralized
management to install, deploy and configure the Netscape Communicator. Among the
features the Company plans to include are automatic download and installation of
new Netscape Communicator plug-ins and components and the capability to restrict
the downloading of such components to those authorized. Netscape AutoAdmin will
be bundled exclusively with the Netscape Communicator Professional Edition.
Netscape AutoAdmin is designed to be an extension of the administrator
functionality of the Netscape Dial-Up Navigator 3.0.

THE FOREGOING SECTION CONTAINS FORWARDING-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT
REGARDING THE COMPANY'S PLANNED PRODUCTS AND ENHANCEMENTS, INCLUDING
FORWARD-LOOKING STATEMENTS REGARDING PLANNED FEATURES AND PLANNED RELEASE DATES.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THE
FORWARD-LOOKING STATEMENTS IN THE FOREGOING SECTION, PARTICULARLY THOSE WITH
RESPECT TO PLANNED RELEASE DATES AND PLANNED FEATURES. THE RESULTS ANTICIPATED
BY SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO NUMEROUS DIFFERENT RISKS AND
UNCERTAINTIES AS SET FORTH IN "RISK FACTORS", SPECIFICALLY THE RISK FACTOR
ENTITLED "NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE." FOR EXAMPLE, THE
COMPANY'S ABILITY TO RELEASE SUCH PLANNED PRODUCTS AND ENHANCEMENTS WITH THEIR
PLANNED FEATURES IN A TIMELY AND COST-EFFECTIVE MANNER, OR AT ALL, COULD BE
MATERIALLY ADVERSELY AFFECTED BY ANY TECHNICAL OR OTHER PROBLEMS IN, OR
DIFFICULTIES WITH, SUCH PLANNED PRODUCTS OR ENHANCEMENTS, THIRD PARTY PRODUCTS
OR TECHNOLOGIES WHICH RENDER THE COMPANY'S PLANNED PRODUCTS AND ENHANCEMENTS
OBSOLETE, THE UNAVAILABILITY OF REQUIRED THIRD PARTY TECHNOLOGY LICENSES ON
COMMERCIALLY REASONABLE TERMS, THE LOSS OF KEY RESEARCH AND DEVELOPMENT
PERSONNEL, THE INABILITY OR FAILURE TO RECRUIT AND RETAIN ADDITIONAL QUALIFIED
RESEARCH AND DEVELOPMENT PERSONNEL, OR THE ADOPTION OF COMPETING STANDARDS.

RECENT PRICING ANNOUNCEMENTS

In conjunction with the announcement of the Company's matched server and
client solution, the Company announced a new pricing program that reflects the
enterprise scalability of the Company's products. The Company's new pricing
program will make its Netscape SuiteSpot 3.0 and Netscape Communicator 4.0
products available on a per seat basis. In addition, the Netscape Messaging,
Netscape Collabra, Netscape Directory and Netscape Calendar servers will be
available as standalone products with a certain

27
<PAGE>
number of client access licenses ("CALs"). As customers increase the number of
users to prescribed levels, additional incremental license charges will apply,
subject to volume and other discounts. This pricing model is noted in the table
below.

[B]

NETSCAPE LICENSE

This figure depicts the Company's pricing model for Per Seat pricing for
customer Seats above 500.

The Company's server and client product lines account for the vast majority
of the Company's total revenues. From time to time, the Company has in the past
changed, and may in the future change, the pricing of its products. The
Company's recent change in pricing announced in October 1996 and any future
pricing changes could materially adversely affect sales of the Company's
products and consequently materially adversely affect the Company's business,
operating results and financial condition.

NETSCAPE ONE

In July 1996, Netscape announced the creation of its Open Network
Environment ("Netscape ONE"), which provides a framework for developers to build
cross-platform, network-based applications. Netscape ONE is intended to promote
a standards-based approach to managing distributed objects on the network and to
serve as an alternative to platform-specific application development. Netscape
ONE incorporates technologies such as Java Script 1.1, HTTP and HTML, among
others, and, in combination with CORBA, permits developers to write distributed
applications and integrate information systems running on a broad range of
operating systems. More than 50 companies have announced their intent to support
and develop applications using Netscape ONE. These companies include software
applications and tools vendors such as: Adobe Systems Incorporated ("Adobe"),
Autodesk Inc. ("Autodesk"), Borland International Inc. ("Borland"), Digital,
Hewlett-Packard, Informix, Intuit Inc., Lotus, Macromedia Inc. ("Macromedia"),
Silicon Graphics, Symantec Corporation and Sun. The Company has posted the
source code for Netscape ONE, a comprehensive whitepaper, and a Netscape ONE
Software Development Kit ("SDK") on its Internet Web site in order to facilitate
third-party acceptance of the Netscape ONE approach.

NETSCAPE APPFOUNDRY

In early September 1996, Netscape announced the AppFoundry Program to
demonstrate applications developed using the Netscape ONE framework. Initially,
the AppFoundry Program included over 20 third party business applications that
could be downloaded from the Netscape Internet Web site at no charge. These
applications can be deployed and customized by an enterprise, and demonstrate
the speed at which applications can be built using an open Internet-standard
platform. Applications include programs for

28
<PAGE>

internal purchasing, travel and expense reporting, job posting and applicant
processing and sales trend analysis. The combination of Netscape ONE and
AppFoundry create an environment where the enterprise customer can enable
communication and share information and applications within its own departments
as well as with its third party partners and customers through a single common
intranet infrastructure.

Additionally, the Company launched Netscape AppFoundry Online, which holds a
collection of downloadable applications, maintains a "What's New" section to
keep developers up to date on the Company's announcements in both the Netscape
ONE and AppFoundry space, and hosts online question and answer discussion forums
for IS professionals and corporate developers. Since September, more than 10
additional applications have been added to the AppFoundry showcase including
work from Arbor Software, Dun and Bradstreet and Scopus Inc.

ACQUISITIONS AND JOINT VENTURES

In April 1996, the Company entered into a business combination with InSoft,
a privately-held company that provides network-based communications and
collaborative multimedia software for the enterprise. Netscape purchased all of
the outstanding capital stock and assumed all of the outstanding stock options
of InSoft. The business combination was accounted for as a pooling of interests.
Using InSoft's technology as a foundation, the Company has announced Netscape
LiveMedia and Netscape Media Server, a standards-based framework for bringing
real-time audio and video to the Netscape open software platform.

In May 1996, the Company entered into a business combination with Paper
Software, a privately-held company that provides distributed three-dimensional
graphics and maker of WebFX Virtual Reality Markup Language ("VRML") software.
Netscape purchased all of the outstanding capital stock of Paper Software. The
business combination was accounted for as a pooling of interests. Netscape has
integrated Paper Software's core technology into Netscape Navigator and, using
Paper Software's core technology as a foundation, has announced Netscape Live3D,
technology that enables industry-standard VRML graphics to be integrated into
the Netscape software platform.

In May 1996, the Company entered into a business combination with Netcode, a
privately-held company that created a Java-based object toolkit and visual
interface builder for developing Java applications. Netscape purchased all of
the outstanding capital stock and assumed all of the outstanding options of
Netcode. The business combination was accounted for as a pooling of interests.
Netscape develops and markets Netcode's products as part of Netscape ONE and
intends to integrate Netcode's core technology into future Netscape products.

In April 1996, the Company entered into a joint venture with GE Information
Services ("GEIS") to form Actra Business Systems L.L.C. that intends to develop
and market software for Internet-based business-to-business electronic commerce.

In August 1996, the Company entered into a joint venture called Navio
Communications, Inc. ("Navio"), an independent Internet software company in
which Netscape has an equity position. Navio plans to deliver core, scalable
technology for the Netscape Navigator for a wide-variety of consumer and non-PC
products such as televisions, telephones, set-top boxes, game players and the
new breed of network computers and information appliances.

The Company will continue to consider acquisitions, investments or strategic
alliances that it believes can complement its overall business strategy.

29
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages and
positions as of September 30, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- -------------------------------------------------- --------- --------------------------------------------------
<S> <C> <C>
James H. Clark.................................... 52 Chairman of the Board
James L. Barksdale................................ 53 President, Chief Executive Officer and Director
Marc L. Andreessen................................ 25 Senior Vice President, Technology and Director
Noreen G. Bergin.................................. 36 Vice President and Corporate Controller
Peter L.S. Currie................................. 40 Senior Vice President and Chief Financial Officer
Larry K. Geisel................................... 55 Senior Vice President, Information Systems and
Chief Information Officer
Eric A. Hahn...................................... 36 Senior Vice President and General Manager of the
Server Product Division(1)
Michael J. Homer.................................. 38 Senior Vice President, Marketing
Roberta R. Katz................................... 48 Senior Vice President, General Counsel and
Secretary
Kandis Malefyt.................................... 42 Senior Vice President, Human Resources
Conway Rulon-Miller............................... 45 Senior Vice President, Sales and Field Operations
Richard M. Schell................................. 46 Senior Vice President and General Manager of the
Client Product Division(1)
James C.J. Sha.................................... 46 Senior Vice President and General Manager,
Integrated Applications
L. John Doerr(2).................................. 45 Director
John E. Warnock(2)................................ 56 Director
</TABLE>

- ---------
(1) Title effective November 1, 1996
(2) Member of the Audit and Compensation Committees

Dr. Clark co-founded the Company in April 1994 and has served as its
Chairman of the Board since its inception. From inception of the Company to
January 1995, Dr. Clark served as the President and Chief Executive Officer of
the Company. From 1981 to 1994, Dr. Clark was Chairman of the Board of Directors
of Silicon Graphics, Inc. ("Silicon Graphics"), a computer systems company he
founded in 1981. Dr. Clark also served as Chief Technical Officer of Silicon
Graphics from 1981 to 1987. Prior to founding Silicon Graphics, Dr. Clark was an
associate professor at Stanford University. Dr. Clark holds a Ph.D. from the
University of Utah and an M.S. and a B.S. from the University of New Orleans.

Mr. Barksdale joined the Company in January 1995 as President and Chief
Executive Officer. He has served as a director of the Company since October
1994. From January 1992 to January 1995, Mr. Barksdale served as President and
Chief Operating Officer, and, as of September 1994, Chief Executive Officer, of
AT&T Wireless Services (formerly, McCaw Cellular Communications, Inc.
(collectively, "McCaw")), a cellular telecommunications company. From April 1983
to January 1992, Mr. Barksdale served as Executive

30
<PAGE>
Vice President and Chief Operating Officer of Federal Express Corporation
("Federal Express") an express package delivery company. From 1979 to 1983, Mr.
Barksdale served as Chief Information Officer of Federal Express. Mr. Barksdale
also held various management positions, including Chief Information Officer,
with Cook Industries Inc., during the mid-1970s and was employed by IBM from
1965 to 1972. He holds a B.A. from the University of Mississippi. Mr. Barksdale
serves as a director of 3Com Corporation, Harrah's Entertainment, Inc., Robert
Mondavi Corp. and @Home Corporation.

Mr. Andreessen co-founded the Company in April 1994. He currently serves as
Senior Vice President, Technology and has been a director of the Company since
September 1994. He received a B.S. from the University of Illinois in December
1993, where he co-authored the original NCSA Mosaic Web browser.

Ms. Bergin joined the Company in November 1995 as Vice President and
Corporate Controller. From November 1991 to November 1995, Ms. Bergin served as
Vice President, Finance and Corporate Controller of Frame Technology
Corporation, a document publishing software firm. Prior to that time, she served
as Corporate Controller of Boole & Babbage, Inc., a mainframe performance
software company for five years. Ms. Bergin holds a B.A. from Santa Clara
University.

Mr. Currie joined the Company as Vice President and Chief Financial Officer
in April 1995 and was elected to Senior Vice President in January 1996. From
April 1989 to March 1995, Mr. Currie held various management positions at McCaw,
including Executive Vice President and Chief Financial Officer, and as of
February 1993, Executive Vice President of Corporate Development. From 1982 to
1989, he held various positions at Morgan Stanley & Co. Incorporated. Mr. Currie
holds an M.B.A. from Stanford University and a B.A. from Williams College.

Mr. Geisel joined the Company in March 1996 as Senior Vice President,
Information Systems and Chief Information Officer. From June 1994 to March 1996,
Mr. Geisel served as Executive Vice President, Global Solutions Delivery for
Xerox Corporation ("Xerox"), an office equipment company. From May 1993 to June
1994, Mr. Geisel was a consultant. From September 1992 to June 1993, Mr. Geisel
served as President and Chief Executive Officer of White Pine Software, Inc., a
desktop connectivity software company. From February 1987 to September 1992, Mr.
Geisel was President and Chief Executive Officer of IIS Inc., a software,
systems and information services firm he founded in 1987. Mr. Geisel holds an
M.S.E. and a B.S.E. from Arizona State University.

Mr. Hahn joined the Company in November 1995 as Vice President, Enterprise
Technology, in connection with the Company's acquisition of Collabra, a
collaborative computing software company, where Mr. Hahn served as President and
Chief Executive Officer from February 1993 to November 1995. Mr. Hahn was
elected to Senior Vice President in January 1996 and in October 1996 was elected
to Senior Vice President and General Manager of the Server Product Division.
From September 1992 to February 1993, Mr. Hahn was employed by Merrill, Pickard,
Anderson & Eyre, a venture capital firm. From June 1990 to August 1992, he
served as Vice President, General Manager of the cc:Mail Division of Lotus.
Prior to that time, he served as Vice President and General Manager, Server
Products Division at Convergent Technologies/Unisys Corporation. Mr. Hahn holds
a B.S. from the Worcester Polytechnic Institute.

Mr. Homer joined the Company in October 1994 as Vice President, Marketing
and was elected to Senior Vice President in January 1996. From April 1994 to
October 1994, Mr. Homer was a consultant. From August 1993 to April 1994, Mr.
Homer served as Vice President, Engineering at EO Corporation, a handheld
computer manufacturer, and from July 1991 to July 1993, Mr. Homer was Vice
President, Marketing at GO Corporation, a pen-based software company. He had
previously been Director of Product Marketing at Apple, where he held various
technical and marketing positions from 1982 through 1991. Mr. Homer holds a B.S.
from the University of California, Berkeley.

Ms. Katz joined the Company in May 1995 as Vice President, General Counsel
and Secretary and was elected to Senior Vice President in January 1996. From
March 1993 until joining the Company, Ms. Katz served as Senior Vice President
and General Counsel of McCaw. In addition, from March 1992 until joining

31
<PAGE>
the Company, Ms. Katz served as Senior Vice President and General Counsel of LIN
Broadcasting Corporation, a subsidiary of McCaw. Prior to March 1992, Ms. Katz
was in private legal practice, most recently as a partner in the law firm of
Heller, Ehrman, White & McAuliffe. Ms. Katz is a Fellow of the Discovery
Institute and serves as a member of the Board of Directors of the Software
Publishers Association. Ms. Katz holds a J.D. from the University of Washington
School of Law, a Ph.D. from Columbia University, an M.A. from New York
University and a B.A. from Stanford University.

Ms. Malefyt joined the Company in December 1994 as Vice President, Human
Resources and was elected to Senior Vice President in January 1996. From May
1988 to December 1994, Ms. Malefyt served as a Director, Human Resources at
Silicon Graphics. Prior to that time, she served as Vice President, Human
Resources at ISI. Ms. Malefyt holds an M.A. from Antioch University and a B.A.
from Harding University.

Mr. Rulon-Miller joined the Company in October 1994 as Vice President, Sales
and Field Operations and was elected to Senior Vice President in January 1996.
From December 1992 to October 1994, Mr. Rulon-Miller was President and Chief
Executive Officer of Software Alliance Corp., a software company and a
subsidiary of Teknekron Communications Systems Inc. From October 1986 to
December 1992, he served as Vice President, Sales, of North American Operations
of NeXT Software, Inc., a software company. Mr. Rulon-Miller has previously held
management positions at Tandem Computers, Inc., American Express Company and
IBM. Mr. Rulon-Miller holds a B.A. from Princeton University.

Dr. Schell joined the Company in October 1994 as Vice President, Engineering
and was elected to Senior Vice President in January 1996. In October 1996, Dr.
Schell was elected to the position of Senior Vice President and General Manager
of the Client Product Division. From January 1993 to October 1994, Dr. Schell
was employed by Symantec, a software company, most recently as Vice
President/General Manager of the Central Point Division (formerly Central Point
Software, Inc.). From March 1989 to December 1992, he served as Vice President,
Languages and dBase at Borland, a database software company. Prior to that time,
Dr. Schell held various management positions at Sun and Intel. Dr. Schell holds
a Ph.D., an M.S. and a B.A. from the University of Illinois.

Mr. Sha joined the Company in August 1994 as Vice President and General
Manager, Integrated Applications and was elected to Senior Vice President in
January 1996. From June 1990 to August 1994, Mr. Sha served as Vice President,
Unix Division at Oracle, a database software company. From June 1986 to June
1990, he served as Vice President/General Manager, Advanced Systems Division at
Wyse Technology, Inc. Mr. Sha holds an M.S.E.E. from the University of
California, Berkeley, an M.B.A. from Santa Clara University and a B.S.E.E. from
National Taiwan University.

Mr. Doerr has been a director of the Company since September 1994. Mr. Doerr
has been a general partner of Kleiner Perkins Caufield & Byers, a venture
capital firm, since September 1980. Prior to joining Kleiner Perkins Caufield &
Byers, Mr. Doerr was employed by Intel for five years. He is a director of
Intuit, Macromedia, Platinum Software, Inc. and Shiva Corporation, as well as
several private companies. He holds an M.B.A. from the Harvard Business School
and an M.E.E. and a B.S.E.E. from Rice University.

Dr. Warnock has been a director of the Company since April 1995. Dr. Warnock
is a founder of Adobe, a software company, and has been its Chairman of the
Board since 1989. He has served as Adobe's Chief Executive Officer and a
director since October 1982 and was its President from December 1982 through
March 1989. Prior to founding Adobe, Dr. Warnock was principal scientist of the
Imaging Sciences Laboratory at Xerox's Palo Alto Research Center. He is a
director of Adobe, Evans & Sutherland Computer Corporation and Red Brick
Systems, Inc. Dr. Warnock holds a Ph.D., an M.S. and a B.S. from the University
of Utah.

32
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1996 and
as adjusted to reflect the sale of Common Stock offered hereby for (i) each
person or entity who is known by the Company to beneficially own more than 5% of
the outstanding Common Stock of the Company, (ii) each of the Company's
directors, (iii) the Company's Chief Executive Officer and each of the four most
highly compensated executive officers during the year ended December 31, 1995
(the "Named Officers"), (iv) each Selling Stockholder, and (v) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)
------------------------- BEING -------------------------
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------------ ------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
James H. Clark(2) .................................... 15,915,000 18.8% -- 15,915,000 18.4%
c/o Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
L. John Doerr(3) ..................................... 8,907,009 10.5 -- 8,907,009 10.3
Kleiner Perkins Caufield & Byers
4 Embarcadero Center, Suite 3520
San Francisco, CA 94111
James L. Barksdale(4) ................................ 5,232,000 6.2 -- 5,232,000 6.1
c/o Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
John E. Warnock(5).................................... 1,797,163 2.1 888,890 908,273 1.0
Marc L. Andreessen(6)................................. 1,501,220 1.8 -- 1,501,220 1.7
James C.J. Sha(7)..................................... 1,200,776 1.4 -- 1,200,776 1.4
Richard M. Schell(8).................................. 623,748 * -- 623,748 *
Michael J. Homer(9)................................... 577,322 * -- 577,322 *
Conway Rulon-Miller(10)............................... 487,100 * -- 487,100 *
All directors and executive officers as a group (15
persons)(11)......................................... 37,706,583 44.6 888,890 36,795,475 42.5

SELLING STOCKHOLDERS
- ------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adobe Systems Incorporated(5)......................... 1,797,163 2.1 888,890 908,273 1.0
TCI Netscape Holdings, Inc............................ 1,777,780 2.1 1,022,218 755,562 *
Knight-Ridder Investment Company...................... 888,892 1.1 888,892 -- --
The Hearst Corporation................................ 888,892 1.1 200,000 688,892 *
</TABLE>

- ---------
* Less than 1%.

(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also any
shares which the individual has the right

33
<PAGE>
to acquire within 60 days of September 30, 1996 through the exercise of any
stock option or other right. Unless otherwise indicated in the footnotes,
each person has sole voting and investment power (or shares such powers with
his or her spouse) with respect to the shares shown as beneficially owned.

(2) Includes 404,325 shares subject to a repurchase right of the Company upon
cessation of Mr. Clark's service to the Company.

(3) Includes 8,360,000 shares, 440,000 shares and 63,368 shares held by Kleiner
Perkins Caufield & Byers VII, KPCB Information Sciences Zaibatsu Fund II and
Kleiner Perkins Caufield & Byers VI, respectively. Also includes 8,450
shares, 2,828 shares and 14,980 shares held by Mr. Doerr, the L. John Doerr
Trust, and L. John Doerr III and Ann Howland Doerr as trustees of the
Vallejo Ventures Trust dated 2/12/96, respectively, and an option
exercisable for 17,383 shares within 60 days of September 30, 1996 issued to
Mr. Doerr under the 1995 Director Option Plan. Mr. Doerr is a general
partner of KPCB VII Associates, which is a general partner of Kleiner
Perkins Caufield & Byers VII and KPCB Information Sciences Zaibatsu Fund II,
and Mr. Doerr is also a general partner of KPCB VI Associates, which is a
general partner of Kleiner Perkins Caufield & Byers VI. Mr. Doerr disclaims
beneficial ownership of the shares held by such funds except for his
proportional interest therein.

(4) Includes (i) 2,552,000 shares subject to a repurchase right of the Company
upon cessation of Mr. Barksdale's service to the Company and (ii) 80,000
shares transferred to a family member of Mr. Barksdale, as to which Mr.
Barksdale disclaims beneficial ownership.

(5) Includes 1,777,780 shares held by Adobe and 2,000 shares held by Dr.
Warnock. Also includes an option exercisable for 17,383 shares within 60
days of September 30, 1996 issued to Dr. Warnock under the 1995 Director
Option Plan. Dr. Warnock is a founder of Adobe and currently serves as its
Chairman of the Board and Chief Executive Officer. Dr. Warnock may therefore
be deemed to share voting and investment power with respect to the shares
held by Adobe.

(6) Includes 840,000 shares subject to a repurchase right of the Company upon
cessation of Mr. Andreessen's service to the Company.

(7) Includes 400,000 shares subject to a repurchase right of the Company upon
cessation of Mr. Sha's service to the Company.

(8) Includes 416,000 shares subject to a repurchase right of the Company upon
cessation of Mr. Schell's service to the Company.

(9) Includes 312,000 shares subject to a repurchase right of the Company upon
cessation of Mr. Homer's service to the Company, and 200,000 shares issuable
upon the exercise of an immediately exercisable option.

(10) Includes 416,000 shares subject to a repurchase right of the Company upon
cessation of Mr. Rulon-Miller's service to the Company.

(11) Includes (i) 200,000 shares issuable upon currently exercisable options,
(ii) options exercisable for 34,766 shares within 60 days of September 30,
1996, (iii) an aggregate of 5,340,325 shares subject to certain repurchase
rights of the Company upon cessation of certain executive officers' service
to the Company, which repurchase rights generally lapse at a rate of two
percent per month, (iv) 10,641,148 shares owned by entities affiliated with
Messrs. Doerr and Warnock prior to the offering and (v) 9,752,258 shares
owned by entities affiliated with Messrs. Doerr and Warnock after the
offering.

34
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or
an estate or trust, in each case not subject to U.S. federal income tax on a net
income tax basis in respect of income or gain from Common Stock (a "non-U.S.
holder"). This discussion is based on the Internal Revenue Code of 1986, as
amended, Treasury regulations thereunder, and administrative and judicial
interpretations as of the date hereof, all of which may be changed. This
discussion does not address all the aspects of U.S. federal income and estate
taxation that may be relevant to non-U.S. holders in light of their particular
circumstances, or to certain types of holders subject to special treatment under
United States federal income tax laws (such as life insurance companies and
dealers in securities). Nor does it address tax consequences under the laws of
any state, municipality or other taxing jurisdiction or under the laws of any
country other than the United States.

Prospective holders should consult their own tax advisors about the
particular tax consequences to them of holding and disposing of Common Stock.

DIVIDENDS

Generally, dividends paid to a non-U.S. holder of Common Stock will be
subject to United States federal withholding tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business
within the United States (or alternatively are attributable to a United States
permanent establishment of such holder, if an applicable income tax treaty so
requires as a condition for the non-U.S. holder to be subject to United States
income tax on a net income basis in respect of such dividends). Such
"effectively connected" dividends, or dividends attributable to a permanent
establishment, are subject to tax at rates applicable to United States citizens,
resident aliens and domestic United States corporations, and are not generally
subject to withholding. Effectively connected dividends received by a non-U.S.
corporation may be subject to an additional "branch profits tax" at a 30% rate
(or a lower rate under an applicable income tax treaty) when such dividends are
deemed repatriated from the United States.

Under current U.S. Treasury regulations, dividends paid to an address
outside the United States in a foreign country are presumed to be paid to a
resident of such country for purposes of the withholding tax. Under current
interpretation of U.S. Treasury regulations, the same presumption applies to
determine the applicability of a reduced rate of withholding under a tax treaty.
Thus, non-U.S. holders receiving dividends at addresses outside the United
States are not currently required to file tax forms to obtain the benefit of an
applicable treaty rate. Under U.S. Treasury regulations that are proposed to be
effective for distributions after 1997 (the "Proposed Regulations"), to claim
the benefits of a tax treaty a non-U.S. holder of Common Stock would be required
to satisfy applicable certification requirements. In addition, under the
Proposed Regulations, in the case of Common Stock held by a foreign partnership,
(x) the certification requirement would generally be applied to the partners of
the partnership and (y) the partnership would be required to provide certain
information. The Proposed Regulations also provide look-through rules for tiered
partnerships. It is not certain whether, or in what form, the Proposed
Regulations will be adopted as final regulations.

If there is excess withholding on a person eligible for a treaty benefit,
the person can file for a refund with the United States Internal Revenue
Service.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of Common Stock unless
(i) the gain is effectively connected with a trade or business of the non-U.S.
holder in the United States, (ii) in the case of a non-U.S. holder who is an
individual

35
<PAGE>
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the disposition and
certain other conditions are met, (iii) the non-U.S. holder is subject to tax
pursuant to the provisions of United States tax law applicable to certain United
States expatriates, or (iv) the Company is or has been a "U.S. real property
holding corporation" for federal income tax purposes and, if the Common Stock is
regularly traded on an established securities market, the non-U.S. holder held,
directly or indirectly, at any time during the 5-year period ending on the date
of disposition (or such shorter period that such shares were held) more than 5%
of the Common Stock. The Company has not been and does not anticipate becoming a
"U.S. real property holding corporation" for United States federal income tax
purposes.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or other agreements, the U.S. Internal Revenue Service may make its
reports available to tax authorities in the recipient's country of residence.
Dividends not subject to withholding tax may be subject to backup withholding if
the non-U.S. holder is not an "exempt recipient" and fails to provide a tax
identification number and other information to the Company. Under the Proposed
Regulations, dividend payments generally will be subject to information
reporting and backup withholding unless applicable certification requirements
are satisfied.

If the proceeds of a disposition of Common Stock are paid over by or through
a United States office of a broker, the payment is subject to information
reporting and possible backup withholding at a 31% rate unless the disposing
holder certifies under penalties of perjury as to his name, address, and
non-U.S. holder status or otherwise establishes an exemption. Generally, United
States information reporting and backup withholding requirements will not apply
to a payment of disposition proceeds if the payment is made outside the United
States through a non-United States office of a broker. However, United States
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States if (A) the payment is
made through an office outside the United States of a broker that either (i) is
a U.S. person, (ii) derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (iii) is a
"controlled foreign corporation" for United States federal income tax purposes
and (B) the broker fails to maintain documentary evidence that the holder is a
non-U.S. holder or that the holder otherwise is entitled to an exemption.

Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.

FEDERAL ESTATE TAXES

Common Stock held by a non-U.S. holder at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes
unless an applicable estate tax treaty provides otherwise.

36
<PAGE>
UNDERWRITERS

Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Deutsche Morgan Grenfell Inc., Goldman, Sachs
& Co. and Hambrecht & Quist LLC are serving as U.S. Representatives, have
severally agreed to purchase, and the Company and the Selling Stockholders have
severally agreed to sell 4,250,000 shares of the Company's Common Stock, and the
International Underwriters named below, for whom Morgan Stanley & Co.
International Limited, Deutsche Morgan Grenfell Inc., Goldman Sachs
International and Hambrecht & Quist LLC are serving as International
Representatives (collectively with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase, and the Company and the
Selling Stockholders have agreed to sell 750,000 shares of the Company's Common
Stock which in the aggregate equals the number of shares set forth opposite the
name of such Underwriters below.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated........................................................
Deutsche Morgan Grenfell Inc.............................................................
Goldman, Sachs & Co......................................................................
Hambrecht & Quist LLC....................................................................

----------
Subtotal........................................................................... 4,250,000
----------

International Underwriters:
Morgan Stanley & Co. International Limited...............................................
Deutsche Morgan Grenfell Inc.............................................................
Goldman Sachs International..............................................................
Hambrecht & Quist LLC....................................................................

----------
Subtotal........................................................................... 750,000
----------
Total.............................................................................. 5,000,000
----------
----------
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all of the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
are taken.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions set
forth below, (a) it is not purchasing any U.S. Shares (as defined below) for the
account of anyone other than a United States or Canadian Person (as defined
below) and (b) it has not offered or sold, and will not offer or sell, directly
or indirectly, any U.S. Shares or

37
<PAGE>
distribute this Prospectus outside the United States or Canada or to anyone
other than a United States or Canadian Person. Pursuant to the Agreement Between
U.S. and International Underwriters, each International Underwriter has
represented and agreed that, with certain exceptions set forth below, (a) it is
not purchasing any International Shares (as defined below) for the account of
any United States or Canadian Person and (b) it has not offered or sold, and
will not offer or sell, directly or indirectly, any International Shares or
distribute this Prospectus within the United States or Canada or to any United
States or Canadian Person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. With respect to Hambrecht
& Quist LLC, the foregoing representations or agreements (i) made by it in its
capacity as a U.S. Underwriter shall apply only to shares of Common Stock
purchased by it in its capacity as a U.S. Underwriter, (ii) made by it in its
capacity as an International Underwriter shall apply only to shares of Common
Stock purchased by it in its capacity as an International Underwriter and (iii)
shall not restrict its ability to distribute this Prospectus to any person. As
used herein, "United States or Canadian Person" means any national or resident
of the United States or Canada or any corporation, pension, profit-sharing or
other trust or other entity organized under the laws of the United States or
Canada or of any political subdivision thereof (other than a branch located
outside of the United States and Canada of any United States or Canadian Person)
and includes any United States or Canadian branch of a person who is not
otherwise a United States or Canadian Person, and "United States" means the
United States of America, its territories, its possessions and all areas subject
to its jurisdiction. All shares of Common Stock to be offered by the U.S.
Underwriters and International Underwriters under the Underwriting Agreement are
referred to herein as the "U.S. Shares" and the "International Shares,"
respectively.

Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency settlement of any shares of Common Stock so sold shall be the public
offering price set forth on the cover page hereof, in United States dollars,
less an amount not greater than the per share amount of the concession to
dealers set forth below.

Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of such shares in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any shares of Common Stock a notice stating in substance that, by
purchasing such shares, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of such
shares in Canada in contravention of the securities laws of Canada or any
province or territory thereof and that any offer of shares of Common Stock in
Canada will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such shares a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented that (i) it has not offered or sold
and will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act of 1986 and the Regulations with
respect to anything done by it in relation to such shares in, from or otherwise
involving the United Kingdom: and (iii) it has only issued or passed on and will
only issue or pass on to any person in the

38
<PAGE>
United Kingdom any document received by it in connection with the issue of such
shares, if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or is a
person to whom such document may otherwise lawfully be issued or passed on.

Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and will not offer or sell, directly or indirectly, in Japan or to or for
the account of any resident thereof, any shares of Common Stock acquired in
connection with this offering, except for offers or sales to Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law of Japan. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of such shares of Common Stock a notice stating in substance that
such dealer may not offer or sell any of such shares, directly or indirectly, in
Japan or to or for the account of any resident thereof, except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
of Japan, and that such dealer will send to any other dealer to whom it sells
any of such shares a notice to the foregoing effect.

The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.

Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 750,000 shares of Common Stock at
the public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, incurred in
the sale of the shares of Common Stock offered hereby. To the extent such option
is exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such U.S. Underwriters' name in the
preceding table bears to the total number of shares of Common Stock offered
hereby to the U.S. Underwriters.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").

Each of the executive officers and directors of the Company, and entities
affiliated with one of the Company's non-employee directors, who collectively
held as of September 30, 1996 an aggregate of 35,694,037 shares, have agreed not
to sell or otherwise dispose of Common Stock of the Company through February 15,
1997 without the prior consent of Morgan Stanley & Co. Incorporated, except for
an aggregate of 200,000 shares held by certain executive officers of the
Company, which shall not be subject to such restriction. Certain other
stockholders of the Company, including an entity affiliated with one of the
Company's non-employee directors, who are selling an aggregate of 3,000,000
shares in this offering and will hold an aggregate of 2,352,727 shares after the
offering, have agreed not to sell or otherwise dispose of Common Stock of the
Company for up to 120 days after the date of this Prospectus without the prior
consent of Morgan Stanley & Co. Incorporated. The Company has agreed in the
Underwriting Agreement that it will not, directly or indirectly, without the
prior written consent of Morgan Stanley & Co. Incorporated, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock, for a period of 120 days
after the date of this Prospectus, subject to certain limited exceptions. Except
for shares subject to the restrictions set

39
<PAGE>
forth above and (i) 14,219,720 shares subject to a repurchase right of the
Company which generally lapses at a rate of 20% after 10 months of service and
two percent per month thereafter, and (ii) 2,755,544 shares held by existing
stockholders which are "restricted securities" as that term is defined in Rule
144 under the Securities Act and are not eligible for sale until the expiration
of their respective two-year holding periods, all other shares of Common Stock
are freely tradeable without restriction.

In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two-business-day period
before commencement of offers or sales of the Common Stock. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded. Passive
market making may stabilize the market price of the Common Stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by Gray
Cary Ware & Freidenrich, A Professional Corporation, Palo Alto, California.

EXPERTS

The consolidated financial statements and the related financial statement
schedule of Netscape Communications Corporation at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995, included
and/or incorporated by reference in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report incorporated by reference
therein, and are incorporated by reference herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.

The supplemental consolidated financial statements and related supplemental
financial statement schedule of Netscape Communications Corporation at December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995, included in the Company's Annual Report on Form 10-K/A Amendment No. 2
for the year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report incorporated by reference
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.

The financial statements of InSoft, Inc. at December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995 incorporated
by reference in Netscape Communications Corporation Form 8-K/A dated April 25,
1996 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report incorporated by reference herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-3 (referred to herein, together with all amendments and exhibits, as the
"Registration Statement") under the Securities Act, with respect to the
securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities

40
<PAGE>
offered hereby, reference is made to the Registration Statement. Statements made
in this Prospectus as to the contents of any contract or other document referred
to or incorporated by reference herein are not necessarily complete and, in each
instance in which a copy of such contract or document is filed as an exhibit to
the Registration Statement or another document filed by the Company with the
Commission, reference is made to such copy and each such statement shall be
deemed qualified in all respects by such reference. Copies of the Registration
Statement may be inspected, without charge, at the offices of the Commission, or
obtained at prescribed rates from the Public Reference Section of the Commission
at the address set forth below.

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference
facilities of the Commission located at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov. The Company's Common Stock is
quoted for trading on the Nasdaq National Market and reports, proxy statements
and other information concerning the Company may be inspected at the offices of
the National Association of Securities Dealers, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850.

41
<PAGE>
GLOSSARY OF TERMS

<TABLE>
<CAPTION>
STANDARD DESCRIPTION
- ---------------------------------------------------- ------------------------------------------------------------

<S> <C>
CGI................................................. Common Gateway Interface
CORBA............................................... Common Object Request Broker Architecture
FTP................................................. File Transfer Protocol
HTML................................................ HyperText Markup Language
HTTP................................................ HyperText Transfer Protocol
IIOP................................................ Internet Inter-ORB Protocol
IMAP................................................ Internet Message Access Protocol
IRC................................................. Internet Relay Chat
Java................................................ Object-oriented, cross-platform programming language
Java Script......................................... Open, cross-platform object scripting language
LDAP................................................ Lightweight Directory Access Protocol
MIME................................................ Multipurpose Internet Mail Extensions
NNTP................................................ Network News Transfer Protocol
ORB................................................. Object Request Broker
POP................................................. Post Office Protocol
RDM................................................. Resource Description Messages
RTSP................................................ Real Time Streaming Protocol
SDK................................................. Software Development Kit
SET................................................. Secure Electronic Transaction
S/MIME.............................................. Secure Multipurpose Internet Mail Extensions
SMTP................................................ Simple Mail Transfer Protocol
SNMP................................................ Simple Network Management Protocol
SOIF................................................ Summary Object Interchange Format
SQL................................................. Structured Query Language
SSL................................................. Secure Sockets Layer
TCP/IP.............................................. Transmission Control Protocol/Internet Protocol
vCalendar........................................... Versit Calendar Standard
VRML................................................ Virtual Reality Markup Language
</TABLE>

42
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