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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                  FORM 10-K/A
 
                                AMENDMENT NO. 3
 
                                       TO
 
(Mark One)
 
/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [FEE REQUIRED]
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
 
                                       OR
 
/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 
   For the transition period from                     to
                          Commission File Number: 0-26310
 
                      NETSCAPE COMMUNICATIONS CORPORATION
 
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                              <C>
           DELAWARE                 94-3200270
------------------------------   ----------------
 (State or other jurisdiction    (I.R.S. Employer
              of                  Identification
incorporation or organization)         No.)
</TABLE>
 
           501 EAST MIDDLEFIELD ROAD, MOUNTAIN VIEW, CALIFORNIA 94043
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
 
       Registrant's telephone number, including area code: (415) 254-1900
                            ------------------------
 
        Securities registered pursuant to Section 12(b) of the Act: NONE
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                    COMMON STOCK, $.0001 PAR VALUE PER SHARE
                                (Title of Class)
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __x__ No ______
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
 
    As of September 30, 1996, there were 84,535,395 shares of the Registrant's
common stock outstanding and the aggregate market value of such shares held by
non-affiliates of the Registrant (based upon the closing sale price of such
shares on the Nasdaq National Market on September 30, 1996) was approximately
$2,182,573,430. Shares of the Registrant's common stock held by each executive
officer and director and by each entity that owns 5% or more of the Registrant's
outstanding common stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Certain sections of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1995 are incorporated by reference in Parts II and IV of
this Form 10-K to the extent stated herein. Also, certain sections of the
Registrant's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be held on May 30, 1996 are incorporated by reference in Part
III of this Form 10-K to the extent stated herein.
 
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                                EXPLANATORY NOTE
 
    This Annual Report on Form 10-K/A ("Form 10-K/A") is being filed as
Amendment No. 3 to the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "Commission") on April 1, 1996, as
amended by Amendment No. 1 to the Registrant's Annual Report on Form 10-K filed
with the Commission on May 7, 1996 and as amended by Amendment No. 2 to the
Registrant's Annual Report on Form 10-K filed with the Commission on October 30,
1996 ("Form 10-K") solely for the purpose of revising and restating the
following items in their entirety:
 
                                     PART I
 
ITEM 1.  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.
 
    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.
 
    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 OEMs, VARs and software retailers. 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").
 
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,
 
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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
 
    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.
 
              [MATCHED CLIENT/SERVER SOLUTION FIGURE APPEARS HERE]
 
    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.
 
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        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 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.
 
                                       4
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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
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
 
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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 "Factors Affecting the Company's Business,
Operating Results and Financial Condition," specifically the 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 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.
 
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                     [NETSCAPE LICENSE FIGURE APPEARS HERE]
 
    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 Development Corporation ("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 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.
 
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    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.
 
    BUSINESS COMBINATIONS 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 business combinations, investments or
strategic alliances that it believes can complement its overall business
strategy.
 
    STOCK SPLIT
 
    On January 23, 1996, the Company effected a two-for-one split of its
outstanding common stock and correspondingly increased the Company's authorized
common stock from 100 million to 200 million shares. The stock split was
originally approved by the Company's Board of Directors on November 13, 1995,
and the stockholders approved the stock split at a special meeting of
stockholders held on January 23, 1996. The stock split was reflected on the
Nasdaq National Market on February 7, 1996.
 
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    PRICE REDUCTIONS
 
    In addition to offering the Netscape SuiteSpot server bundle as a means to
increase the affordability of the Company's products, Netscape 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 the quarter ended March 31, 1996. The Company's server and commercial
applications product lines account for a significant portion of the Company's
total revenues. From time to time, the Company may further reduce the prices of
its products. If these and any future price reductions do not generate
sufficient increases in the volume of software licenses, the Company's operating
results will be materially adversely affected.
 
PRODUCTS
 
    Netscape offers a comprehensive group of software products designed to
enable communications and commerce on the Internet and intranets. These products
enable the retrieval and presentation of information and dynamically changing
data in multiple forms, including video, audio and graphics. These products are
designed to provide controlled access to confidential information on the
Internet and intranets, the execution of financial transactions, and integrated
communication and collaboration solutions for users through such features as
seamless e-mail, Web browsing and newsgroup capabilities.
 
    In addition to the products discussed above under "Recent
Developments--Planned Products and Releases," Netscape's product line currently
includes the following products:
 
    NETSCAPE NAVIGATOR CLIENT SOFTWARE
 
    Netscape Navigator features a point-and-click graphical user interface that
enables users to navigate the Internet's vast array of networked resources as
well as to exchange information and participate in commerce on the Internet.
Netscape Navigator brings Web exploring, e-mail, newsgroups, chat and FTP
together in an integrated package designed to be easy to use and learn. In
addition, Netscape Navigator provides a platform for live online applications,
supporting Live Objects and other interactive multimedia content such as Java
applets, frames and Netscape online plug-ins. The Company currently offers three
versions of its Netscape Navigator client software and a product bundle of
add-on features that work in conjunction with Netscape Navigator.
 
    The Netscape Navigator product line is as follows:
 
    NETSCAPE NAVIGATOR LAN EDITION.  Netscape Navigator LAN Edition is intended
for users who already have TCP/IP connections to the Internet or intranets. It
incorporates all of the features of Netscape Navigator and is available for
Microsoft Windows, Apple Macintosh and various Unix platforms. It is compatible
with standard TCP/IP implementations on these platforms.
 
    NETSCAPE NAVIGATOR PERSONAL EDITION.  Netscape Navigator Personal Edition is
intended for companies and individuals without direct TCP/IP connections who
want dial-up access to the Internet. It includes a TCP/IP stack, an
implementation of the Point to Point Protocol and a dialer. Components are
installed and configured through installation programs designed for ease of use.
Netscape Navigator Personal Edition features automatic access to a choice of
Internet service providers.
 
    NETSCAPE NAVIGATOR GOLD.  Netscape Navigator Gold includes the standard
features of Netscape Navigator and adds a WYSIWYG editor that allows a user to
create and publish live, online Web pages in one integrated program. Netscape
Navigator Gold is designed to make building a Web page as easy as using a word
processor.
 
    NETSCAPE POWER PACK.  Netscape Power Pack is a suite of add-on applications
that extends the capabilities of Netscape Navigator in the Windows environment.
Netscape Power Pack combines Netscape SmartMarks, Netscape Chat and multimedia
add-on applications from such vendors as Adobe, Apple and
 
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Progressive Networks. Netscape SmartMarks provides advanced bookmark and Web
monitoring services for users of Netscape Navigator. Netscape Chat is an
interaction tool that integrates with Netscape Navigator to support real-time
communications.
 
    Licenses of Netscape Navigator and related client products accounted for 59%
of the Company's total revenues in the quarter ended September 30, 1996.
 
    NETSCAPE SERVER SOFTWARE
 
    Netscape server products combine encryption features, intuitive graphical
administration, high performance and adherence to standards to enable
communications and electronic commerce over the Internet and intranets. These
products can either be used independently for implementing and operating Web
server sites, e-mail or newsgroups, or they can be integrated to provide a
seamless, high performance TCP/IP-based communication solution, as well as
provide a platform to create next-generation, live, online applications.
 
    Netscape markets its servers individually and collectively through the
Netscape SuiteSpot server bundle. Netscape SuiteSpot is a flexible suite of up
to five integrated servers which enables business workgroups to communicate and
collaborate utilizing open Internet standards, thereby providing the basis for a
client/server workgroup environment. Netscape SuiteSpot includes Netscape's
LiveWire Pro for creating live online applications and Web sites plus the choice
of one or more of the following five Netscape server products:
 
    Netscape Enterprise Server-- for high-performance HTML delivery and
                                management
 
    Netscape Mail Server--for efficient, open standards-based messaging
    Netscape News Server--for Usenet-compatible, collaborative computing
    Netscape Proxy Server--for Web replication and site access control
    Netscape Catalog Server--for organized directory services
 
    The Netscape server software product line currently includes eight products:
Netscape Enterprise Server, Netscape FastTrack Server, Netscape Catalog Server,
Netscape Mail Server, Netscape News Server, Netscape Proxy Server, Netscape
Commerce Server and Netscape Communications Server.
 
    NETSCAPE FASTTRACK SERVER.  The Netscape FastTrack Server is an easy to use,
entry level Web server that enables non-programmers to create and manage a Web
site. It is designed to be a complete solution for creating and managing Web
sites on the Internet and intranets. The Netscape FastTrack Server is an open
platform for publishing traditional Internet documents as well as developing and
deploying live network-centric and media-rich applications. The Netscape
FastTrack Server enables end-users to install an Internet site. The installation
wizard automatically detects system configuration information to assist the user
in optimizing server performance. The server also includes Netscape Navigator
Gold, a WYSIWYG editor for HTML documents, forms and applications, and supports
one-button publishing. The Netscape FastTrack Server also offers encryption
features to restrict access to server resources (such as applications, documents
and administrative tools), as well as to encrypt the information that flows
between the server and client. Flexible access control allows users to select
which resources to protect. While the Netscape FastTrack Server is the only
server not shipping in Netscape SuiteSpot, it is designed to be easily
upgradeable to the Netscape Enterprise Server.
 
    NETSCAPE ENTERPRISE SERVER.  The Netscape Enterprise Server, the next
generation of the Netscape Commerce Server (discussed below), is a
high-performance Web server for creating, managing and intelligently
distributing information throughout an enterprise or across the Internet. It is
an open platform for developing and serving live, online applications using
next-generation development tools based on the Java and JavaScript programming
languages. It includes full-text and database search
 
                                       10
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capabilities, enterprise-wide management and control features, and tools for
creating and maintaining data.
 
    The Netscape Enterprise Server provides advanced capabilities for content
creation and management, including WYSIWYG editing, full text search and
revision control. It extends the development platform to include open,
server-side applications using Java and JavaScript applications. The Netscape
Enterprise Server also provides encryption and network management capabilities
including SSL and advanced access control with remote, cross-platform
administration, SNMP and reporting. The Netscape Enterprise Server also delivers
second generation performance enhancements including multi-processor support.
 
    NETSCAPE MAIL SERVER.  The Netscape Mail Server is server software that
enables the transport of e-mail and messages within an intranet and over the
Internet. The Netscape Mail Server complies with HTML and other standard
document formats and is designed to make installation and integration easy for
the user.
 
    NETSCAPE NEWS SERVER.  The Netscape News Server is designed to be
easy-to-use server software that allows users to create public and private
discussion groups for access over the Internet and intranets. These electronic
discussion groups enable people to participate in a remote dialogue by posting
and reading messages about topics of interest. Discussion groups support
multiple conversations, or threads, on a given subject, displaying postings in
the context of the prior discussion. This allows a reader to follow an entire
discussion from its inception, even if the reader joins after the discussion has
started.
 
    The Netscape News Server also incorporates encryption features allowing
users to enhance the confidentiality of private discussion groups. Used in
conjunction with Netscape Navigator (or any other SSL-compatible newsreader),
the Netscape News Server can encrypt and decrypt communications so that only
authorized users can access each discussion group. Netscape Navigator also
includes many user interface enhancements which are designed to make accessing
the Netscape News Server efficient and easy.
 
    NETSCAPE PROXY SERVER.  The Netscape Proxy Server is server software
designed to improve the performance and security of communications across a
TCP/IP network. Performance is improved because the server stores
frequently-accessed pages locally. Security is enhanced because the server
provides encrypted communications through a firewall onto the Internet.
 
    NETSCAPE CATALOG SERVER.  The Netscape Catalog Server is a new class of
server software that automatically builds and maintains a common directory of
resources, cataloging and indexing information so users can locate and access it
quickly, regardless of where the information is stored on intranets. It can also
be configured to catalog selected resources on the Web. The server is designed
to be efficient, automated, open, customizable and cross-platform, enabling
companies to deploy it network-wide across different brands of operating systems
and Web servers.
 
    NETSCAPE COMMERCE SERVER.  The Netscape Commerce Server is high-performance
server software for conducting electronic commerce and communications on the
Internet and intranets. Organizations of all kinds can use the Netscape Commerce
Server to educate the market about their products and to conduct electronic
commerce over the Web. In addition, the forms capability of the Netscape
Commerce Server enables businesses on the Web to gather customer feedback,
conduct market research and build extensive customer databases quickly and
efficiently.
 
    Organizations can also use the Netscape Commerce Server to manage
communications across departments within an enterprise. Engineering
organizations can present new product ideas, development plans and design
documents to their colleagues. Marketing departments can distribute product
presentations, customer success stories and competitive information throughout
the enterprise. Financial reports, sales updates, human resource information and
other confidential information can also be distributed to an internal audience
on a need-to-know basis.
 
                                       11
<PAGE>
    NETSCAPE COMMUNICATIONS SERVER.  The Netscape Communications Server is
server software that enables organizations to publish hypermedia documents on
the Web and on intranets. Companies can use the Netscape Communications Server
to post a variety of information on the Internet, including product information,
corporate news bulletins, and customer support and service information. In
addition, companies can collect customer input, conduct market research and
fulfill requests for information using the interactive forms processing
capability of the server.
 
    Companies can also use the Netscape Communications Server to publish
information on an intranet. Departments within corporations can use their own
servers to share information with the rest of the organization. For example,
research and development groups can use the Netscape Communications Server to
keep other departments abreast of their new product development efforts;
marketing groups can publish their latest product plans and presentations; and
human resource departments can quickly disseminate policies and procedures
throughout the organization.
 
    COMMERCIAL APPLICATIONS
 
    Netscape commercial applications are designed to enable organizations to
conduct electronic commerce on the Internet. These applications are intended to
address different business needs, including the presentation of multimedia
formats, support for large numbers of merchants and products, the need for real
time data management, support for special communities of interest and the
automation of high volumes of online transactions. All commercial applications
use the Netscape Commerce Server, which provides data encryption. The commercial
applications are designed to provide the capability to manage large-scale
commercial sites on the Internet.
 
    Certain commercial applications are designed to enable credit authorization
and transaction settlement. Credit card authorization occurs online by checking
records to ensure no abnormal activity has occurred and that the transaction
does not exceed the authorized credit limit. A merchant bank performs
transaction settlement by transferring funds from the customer's account to the
merchant's account.
 
    The Company's commercial applications product line is currently comprised of
the following products:
 
    NETSCAPE MERCHANT SYSTEM.  Netscape Merchant System allows users to create
and manage virtual storefronts. By storing product information in a relational
database, it provides the flexibility to add and delete products, change prices
and import new graphics. Furthermore, display pages are automatically updated,
which simplifies the task of managing products.
 
    With Netscape Merchant System, shoppers may browse or make multi-level
queries and view automatically generated pages displaying items that meet their
stated criteria. An electronic shopping basket allows shoppers to hold items and
allows purchases of any one or many products at a time of a customer's choosing,
even if the basket contains items from several merchants in the mall. At the
point of sale, Netscape Merchant System automatically forwards the shopping
basket and payment information to credit card authorization and processing
partners.
 
    NETSCAPE PUBLISHING SYSTEM.  Netscape Publishing System is designed for
users who want to create subscription-based online publications. This software
is not only for news services, but for anyone publishing large amounts of
information, such as banks communicating daily news information and services,
car manufacturers publishing specifications on new vehicles, industry analysts
issuing reports on new market developments and departments within an enterprise.
 
    Netscape Publishing System manages critical data for a publisher, such as
content, files, pricing information, access authorization, user demographic
information and advertising response rates. It is designed to display
context-sensitive advertising to subscribers based upon specified criteria,
including available demographic information, entry path and time. Netscape
Publishing System archives past issues, links related stories and creates HTML
pages on the fly in response to user queries by concept or keyword.
 
                                       12
<PAGE>
    NETSCAPE COMMUNITY SYSTEM.  Netscape Community System gives organizations
the ability to create and foster virtual communities based upon shared interest.
It supports such popular activities as e-mail, bulletin boards and news groups.
Netscape Community System allows electronic publishers or merchants to
communicate with their customers in new ways, by explaining product features and
offering customer support online.
 
    In addition to the commercial application products listed above, the Company
has developed the Netscape Commerce Platform upon which commerce extensions such
as Netscape LivePayment can operate.
 
    NETSCAPE COMMERCE PLATFORM.  The Netscape Commerce Platform is comprised of
two major components--the Netscape SuiteSpot line of software and the Netscape
Commerce Extensions (such as Netscape LivePayment) that allow developers and
businesses to create a customized commerce environment. The Netscape Commerce
Platform provides a server/client system that scales seamlessly between
workgroups, across an intranet as well as the Internet.
 
    NETSCAPE LIVEPAYMENT.  Netscape LivePayment is the first product within the
Netscape Commerce Extensions family and is designed to help businesses and
customers create customized commerce sites. Netscape LivePayment makes it
possible to integrate financial transactions with Web page content, enabling an
entirely new class of commerce Web sites. The LivePayment system is designed to
be a convenient, simple, low-cost solution for developers who want to create a
Web site that executes financial transactions over the Internet, using
encryption technology. Real-time online credit card processing for LivePayment
sites is offered by First Data Corporation.
 
    Licenses of the Company's server and commercial applications software
accounted for 25% of the Company's total revenues in the quarter ended September
30, 1996.
 
    DEVELOPMENT TOOLS
 
    Netscape's development tools are designed to allow developers to efficiently
create and manage live online applications that combine rich multimedia content
with application logic and database connectivity. These applications can take
advantage of many multimedia datatypes, such as Adobe Acrobat files, Macromedia
Director movies, Progressive Networks' RealAudio real-time audio, Apple
QuickTime and QuickTime VR movies, and VRML and SGML documents. They also
incorporate application logic consisting of Java applets and Netscape
JavaScripts, and connections to enterprise-class SQL databases. The resulting
live online applications operate on a variety of processors and operating
systems together with Netscape Navigators and Netscape servers.
 
    NETSCAPE LIVEWIRE.  Netscape LiveWire is a visual application development
tool designed for creating live online applications and managing Web sites.
LiveWire includes Netscape Navigator Gold, LiveWire Site Manager, LiveWire
Server Extension Engine and LiveWire Server Front Panel.
 
    NETSCAPE LIVEWIRE PRO.  Netscape LiveWire Pro includes all of the components
and features included in Netscape LiveWire with the addition of a run-time
version of the Informix Online relational database and database connectivity,
with extensions to the Netscape Server Language to support reading from and
writing to SQL databases from Informix, Oracle, Sybase and Microsoft.
 
    COLLABRA SHARE
 
    Collabra Share is a group conferencing product that is designed to make
teams more effective, collaboration more affordable, and organizational learning
automatic. Collabra Share forums provide a place to discuss key issues, solicit
input, communicate decisions and store important documents. Collabra Share
allows users to participate in virtual meetings that break down barriers of
time, distance and organization. Popular applications include product
development, help desks, customer service, re-engineering, project management,
task forces, ISO 9000, company announcements and human resources.
 
                                       13
<PAGE>
Collabra Share also offers connectivity to a range of other products and
technologies with Collabra Share Agents. These agents include links to other
information sources such as Internet Newsgroups, Lotus Notes, online newsfeeds,
e-mail participants and replication across the entire company or to other
partners.
 
    COLLABRA SHARE MAIL AGENT.  The Collabra Share Mail Agent allows any e-mail
user to participate in Collabra Share forums and allows forums to be populated
with any information that is distributed via e-mail, such as online newsfeeds.
 
    COLLABRA SHARE INTERNET NEWSGROUP AGENT.  The Collabra Share Internet
Newsgroup Agent gives Collabra Share users easy access to the information and
participants in over 10,000 Internet Newsgroup discussions. With the Internet
Newsgroup Agent, users can capitalize on the expertise shared in thousands of
newsgroups that range across all industries and all subjects.
 
    COLLABRA SHARE AGENT FOR LOTUS NOTES.  The Collabra Share Agent for Lotus
Notes unites users of Collabra Share and Lotus Notes so they can collaborate
effectively. The Agent for Lotus Notes provides high fidelity replication
between Collabra Share and Lotus Notes, so that group discussions, online
newsfeeds, reference material and other types of information are accessible to
users of both products. The Agent for Lotus Notes replication technology
synchronizes Collabra Share forums and Lotus Notes databases, ensuring that new
information in Lotus Notes is automatically copied to Collabra Share and vice
versa.
 
    COLLABRA SHARE REPLICATION AGENT.  The Collabra Share Replication Agent
provides enterprise-strength replication for creating and maintaining duplicate
copies of Collabra Share forums at multiple sites. The Replication Agent keeps
forums at different sites synchronized so that changes to a forum at one site
are automatically reflected at all other sites which participate in that forum.
 
DEVELOPING MARKET
 
    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 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
 
                                       14
<PAGE>
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.
 
SECURITY RISKS
 
    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
 
                                       15
<PAGE>
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 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.
 
SERVICES
 
    SUPPORT PROGRAMS
 
    The Company has made a commitment to provide timely, high quality technical
support to meet the diverse needs of its customers and partners and to
facilitate the adoption and use of its products. The Company offers several
support products:
 
    NETSCAPE HELP DESK SUPPORT.  The Company offers an annual support program
intended for organizations that need to internally support a large-scale
deployment of Netscape Navigator software and for authorized value added
resellers and systems integrators (together with value added resellers referred
to herein as "VARs") providing direct support to their customers. This program
offers a full spectrum of support, including access to technical experts,
support and training materials, support tools, call histories, maintenance
releases and software updates.
 
    NETSCAPE CONSULTATION SUPPORT.  For individuals and for small groups using
Netscape Navigator software, the Company offers support through a toll-free
telephone number on a time and materials payment basis. This service provides
online technical support and bug fixes or software releases as required.
Netscape Consultation Support is particularly economical for self-supporting
departments that consolidate questions through a department system
administrator.
 
    NETSCAPE SERVER ANNUAL SUPPORT.  The Company offers an annual support
program targeted at system administrators who have licensed Netscape servers.
The program features are similar to those in Netscape Help Desk Support but are
oriented toward the Netscape server software.
 
    NETSCAPE PREMIUM SUPPORT.  The Company offers medium to large-sized
organizations and strategic partners 24-hour support, partner specific training
and consulting, online access to support information, and early access to new
software releases.
 
    CONSULTING
 
    The Company offers consulting services for particularly complex application
design, integration and installation. Consulting services are provided at
negotiated rates and typically include on-site support during the installation
process by Company engineers.
 
                                       16
<PAGE>
    TRAINING
 
    Netscape offers hands-on training courses and materials to resellers and
end-users covering installation, configuration and troubleshooting. In addition,
courses and materials cover security and encryption, user support, data loading
and content creation, HTML user interface design, HTML template scripting and
integration with the database.
 
    ADVERTISING SPACE
 
    For its most frequently visited Web pages, Netscape has created a program
which enables advertisers to display their logo or message on a hyperlinked
button with access to their Web site. The Company charges a monthly fee for the
advertising spots, which varies depending on the specific page location and the
number of visits to the page.
 
                                       17
<PAGE>
MARKETING AND DISTRIBUTION
 
    MARKETING
 
    The Company uses a variety of marketing programs designed to stimulate
demand for its products and services. In addition, the Company has developed
co-marketing programs with channel partners designed to take advantage of their
complementary marketing capabilities. The key elements of the Company's
marketing strategy include:
 
    MARKETING ON THE INTERNET.  Netscape Navigator is designed to automatically
access the Netscape home page on the Company's Web server each time it starts
up. The home page provides frequently updated help for new users, news about the
Company, directories to interesting sites on the Internet, a variety of product
and technical support information and access to the Company's electronic store
where goods and services can be purchased. The Company makes its products
available for evaluation and purchase through its home page. Certain customer
information is collected electronically through an automated registration
process, creating the basis for ongoing marketing of upgrades, new products,
add-on products and merchandise. The Company is additionally involved in various
forms of electronic advertising and electronic promotions on the Internet.
 
    TARGET MARKETING.  The Company focuses direct marketing efforts on decision
makers in medium and large-sized enterprises, new electronic merchants and
companies now publishing on the Web. The Company addresses these customers
through a referral program for Netscape Navigator users, outbound telemarketing,
direct response advertising, trade shows and seminar programs. The goal of these
efforts is to identify potential buyers of the Company's products, create
awareness of the Company's product offerings and generate leads for follow-on
sales.
 
    MARKETING TO PC USERS.  Client products are marketed widely to PC users in
both the business and home PC market segments. Retail distribution through
national resellers, reseller agreements with Internet service providers, and
bundling arrangements with PC hardware and software OEMs are being used to make
the Company's client products available to a large number of potential
customers. In order to stimulate demand for its products, the Company also
advertises in PC industry publications and engages in sales promotions with
distribution partners.
 
    DISTRIBUTION
 
    The Company has designed its distribution strategy to address the particular
requirements of its diverse institutional and individual target customers. The
Company's direct distribution efforts consist of a direct sales force and
telesales as well as marketing directly via the Netscape home page on the
Internet. The Company's products are distributed indirectly through OEMs, VARs
and software retailers. Ventana Communications Inc. ("Ventana"), a domestic
retail distributor, accounted for 10% of total revenues for the year ended
December 31, 1995.
 
    DIRECT SALES.  The Company's direct sales force targets primarily medium to
large-sized organizations, including telecommunications companies,
manufacturers, retailers, publishers and financial service companies. The
Company believes that these organizations are most likely to become the
electronic merchants and information publishers for commerce on the Internet. In
addition, these organizations have a substantial installed base of intranets and
have been widely deploying Web servers for internal enterprise applications. In
certain instances, the Company's direct sales force works with complementary
hardware OEMs, value added resellers ("VARs") and systems integrators to deliver
complete solutions for major customers.
 
    TELESALES.  The Company's telesales organization, based in Mountain View,
California, receives customer orders as well as proactively contacts potential
customers.
 
                                       18
<PAGE>
    INTERNET SALES.  The Company offers its products and services electronically
via the Internet through an implementation of the Company's Merchant System
commercial application. Internet sales and distribution is particularly well
suited to address the large base of Internet users.
 
    OEMS.  The Company has established OEM relationships to leverage its sales
efforts. For example, the Company has OEM reseller agreements with AT&T, Apple,
Compaq, Deutsche Telekom, Digital, Hewlett-Packard, IBM, Informix, Novell,
Olivetti, Siemens, Silicon Graphics, Sony Corporation, Sun, Sybase and Toshiba
to bundle Netscape's server or client software with certain of their product
offerings.
 
    VARS  VARs and systems integrators customize, configure and install the
Company's software products with complementary hardware, software and services.
In combining these products and services, these Resellers are able to deliver
more complete Netscape-based solutions to address specific customer needs. The
Company may also help these VARs design customized applications to meet the
unique requirements of these customers.
 
    RETAIL DISTRIBUTION.  The Company currently distributes its Netscape
Navigator Personal Edition, Netscape Navigator Gold and Power Pack retail
products through a network of retail distributors in North America.
 
    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 ("Resellers"). 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
and VARs, 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
 
                                       19
<PAGE>
Internet, the Company may have reduced the future demand for its products. If,
as a result of changing legal 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.
 
    INTERNATIONAL
 
    International revenues (sales outside of North America) accounted for
approximately 17% and 28% of total revenues for the year ended December 31, 1995
and the nine months ended September 30, 1996, respectively, and were immaterial
in the year ended December 31, 1994.
 
    The Company believes it is important to have a strong international presence
and intends to conduct business in markets outside the United States through a
combination of subsidiaries and distributors. The Company intends to primarily
address this market through the use of Resellers.
 
    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. See "--Government Regulation."
 
RESEARCH AND DEVELOPMENT
 
    The Company's current development efforts are focused on new products,
product enhancements and adapting existing products to new operating systems.
Netscape Certificate Server and Netscape Directory Server are currently in beta
testing and are planned to be commercially available by the end of 1996. In
addition, the Company's next generation server and client software products,
Netscape SuiteSpot 3.0 and Netscape Communicator 4.0, respectively, are
currently in development and are planned to be commercially available in the
first half of 1997. There can be no assurance, however, that these products will
be made commercially available as planned or otherwise on a timely and
cost-effective basis, or that if introduced, these products will achieve market
acceptance.
 
    The Company believes that its software development team represents a
significant competitive advantage for the Company. The team includes key members
of the engineering teams which developed the original Mosaic Web client at NCSA,
and the original Web server software at CERN and NCSA, as well as leading
software security specialists. The Company's ability to attract and retain
highly qualified
 
                                       20
<PAGE>
employees will continue to be the principal determinant of its success in
maintaining technological leadership. Netscape has a policy of using
equity-based compensation programs to reward and motivate significant
contributors among its employees.
 
    Research and development expenses were $4.1 million and $26.8 million in the
years ended December 31, 1994 and 1995, respectively, and were $56.2 million in
the nine months ended September 30, 1996. To date, principally all software
development costs have been expensed as incurred. The Company believes that
significant investments in research and development are required to remain
competitive. As a consequence, the Company intends to continue to increase the
absolute amount of its research and development expenditures in the future.
 
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 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. See "Recent
Developments." 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 "Proprietary Rights."
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
 
                                       21
<PAGE>
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 "--Recent
Developments--Planned Products and Releases" and "--Products."
 
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 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
 
                                       22
<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
 
                                       23
<PAGE>
offered for 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.
 
GOVERNMENT REGULATION
 
    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
 
                                       24
<PAGE>
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 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. See "--Marketing and
Distribution--International."
 
PROPRIETARY RIGHTS
 
    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,
 
                                       25
<PAGE>
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 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
 
                                       26
<PAGE>
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.
 
EMPLOYEES
 
    As of September 30, 1996, the Company had approximately 1,400 employees. The
Company's future success depends in significant part upon the continued service
of its key technical and senior management personnel and its continuing ability
to attract and retain highly qualified technical and managerial personnel,
especially software developers. Competition for highly qualified personnel is
intense, and there can be no assurance that the Company will be able to retain
its key managerial and technical employees or that it will be able to attract
and retain additional highly qualified technical and managerial personnel in the
future. None of the Company's employees is represented by a labor union. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.
 
                                       27
<PAGE>
    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 203
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 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.
 
                                       28
<PAGE>
                        FACTORS AFFECTING THE COMPANY'S
              BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
 
    In addition to other information in this Form 10-K/A and in the documents
incorporated by reference herein, the following risk factors should be carefully
considered in evaluating the Company and its business. The section entitled
"Business--Recent Developments--Planned Products and Releases" in this Form
10-K/A 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 following risk factors,
specifically the risk factor entitled "New Product Development and Technological
Change," set forth below and elsewhere in this Form 10-K/A.
 
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. See "Recent Developments."
 
    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
 
                                       29
<PAGE>
performance. Because of all of the foregoing factors, it is likely that in some
future quarters the Company's operating 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.
 
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, 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 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 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.
 
                                       30
<PAGE>
    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
Distributed Common Object Model ("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 (which has the largest measured
share of Web servers on the Internet as of July 1996), Microsoft and the NCSA.
Unlike Netscape, which charges for its Web server products for the Internet, the
Web servers from Apache, Microsoft and NCSA are offered for 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
 
                                       31
<PAGE>
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, 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 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
 
                                       32
<PAGE>
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 "Products" and "Research and Development."
 
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 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
 
                                       33
<PAGE>
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 203
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
 
                                       34
<PAGE>
base of its installed 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. See "Employees."
 
RISKS OF ACQUISITIONS AND INVESTMENTS
 
    During the nine months ended September 30, 1996, the Company completed
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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
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,
 
                                       35
<PAGE>
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 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. See "Marketing and Distribution."
 
    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
 
                                       36
<PAGE>
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 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
 
                                       37
<PAGE>
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 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.
 
                                       38
<PAGE>
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 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. See "Marketing and
Distribution--International."
 
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.
 
                                       39
<PAGE>
    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 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 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
 
                                       40
<PAGE>
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.
See "Proprietary Rights."
 
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.
 
    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. See "Employees."
 
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. See "Marketing and Distribution--International."
 
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
 
                                       41
<PAGE>
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 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.
 
                                       42
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
 
    The information required by this item is incorporated by reference to the
section entitled "Selected Consolidated Financial Data" on page 20 of the
Company's 1995 Annual Report to Stockholders.
 
    In addition to the information set forth above, the following supplemental
information is hereby provided:
 
               SUPPLEMENTAL SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                          YEAR ENDED                     QUARTER ENDED (UNAUDITED)
                                                         DECEMBER 31,            -----------------------------------------
                                                -------------------------------  DECEMBER 31,   SEPTEMBER 30,   JUNE 30,
                                                  1995       1994       1993         1995           1995          1995
                                                ---------  ---------  ---------  -------------  -------------  -----------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>        <C>        <C>        <C>            <C>            <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
  Product revenues............................  $  77,489  $   3,337  $   1,006    $  36,358      $  21,979     $  13,095
  Service revenues............................      7,898        801        100        5,204          1,329           977
                                                ---------  ---------  ---------  -------------  -------------  -----------
      Total revenues..........................     85,387      4,138      1,106       41,562         23,308        14,072
COST OF REVENUES:
  Cost of product revenues....................      9,177        186         28        5,125          2,639           982
  Cost of service revenues....................      2,530        247         43        1,613            380           337
                                                ---------  ---------  ---------  -------------  -------------  -----------
      Total cost of revenues..................     11,707        433         71        6,738          3,019         1,319
                                                ---------  ---------  ---------  -------------  -------------  -----------
Gross profit..................................     73,680      3,705      1,035       34,824         20,289        12,753
OPERATING EXPENSES:
  Research and development....................     26,841      4,146        871       11,792          7,117         5,105
  Sales and marketing.........................     43,679      7,750      1,498       18,959         11,785         8,224
  General and administrative..................     11,336      3,389        513        3,782          2,568         2,612
  Property rights agreement and related
    charges...................................        500      2,487     --           --             --            --
  Merger related charges......................      2,033     --         --            2,033         --            --
                                                ---------  ---------  ---------  -------------  -------------  -----------
      Total operating expenses................     84,389     17,772      2,882       36,566         21,470        15,941
                                                ---------  ---------  ---------  -------------  -------------  -----------
Operating loss................................    (10,709)   (14,067)    (1,847)      (1,742)        (1,181)       (3,188)
  Interest income.............................      4,898        251         53        2,835          1,447           498
  Interest expense............................       (304)       (14)       (18)         (84)           (91)         (102)
                                                ---------  ---------  ---------  -------------  -------------  -----------
      Other income, net.......................      4,594        237         35        2,751          1,356           396
                                                ---------  ---------  ---------  -------------  -------------  -----------
Income (loss) before income taxes.............     (6,115)   (13,830)    (1,812)       1,009            175        (2,792)
Provision for income taxes....................        498     --         --              498         --            --
                                                ---------  ---------  ---------  -------------  -------------  -----------
Net income (loss).............................  $  (6,613) $ (13,830) $  (1,812)   $     511      $     175     $  (2,792)
                                                ---------  ---------  ---------  -------------  -------------  -----------
                                                ---------  ---------  ---------  -------------  -------------  -----------
Net income (loss) per share...................  $   (0.09) $   (0.21) $   (0.03)   $    0.01      $    0.00     $   (0.04)
                                                ---------  ---------  ---------  -------------  -------------  -----------
                                                ---------  ---------  ---------  -------------  -------------  -----------
Shares used in computing net income (loss) per
  share.......................................     75,735     67,181     61,904       86,965         80,832        69,919
                                                ---------  ---------  ---------  -------------  -------------  -----------
                                                ---------  ---------  ---------  -------------  -------------  -----------
 
<CAPTION>
 
                                                 MARCH 31,
                                                   1995
                                                -----------
 
<S>                                             <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
  Product revenues............................   $   6,057
  Service revenues............................         388
                                                -----------
      Total revenues..........................       6,445
COST OF REVENUES:
  Cost of product revenues....................         431
  Cost of service revenues....................         200
                                                -----------
      Total cost of revenues..................         631
                                                -----------
Gross profit..................................       5,814
OPERATING EXPENSES:
  Research and development....................       2,827
  Sales and marketing.........................       4,711
  General and administrative..................       2,374
  Property rights agreement and related
    charges...................................         500
  Merger related charges......................      --
                                                -----------
      Total operating expenses................      10,412
                                                -----------
Operating loss................................      (4,598)
  Interest income.............................         118
  Interest expense............................         (27)
                                                -----------
      Other income, net.......................          91
                                                -----------
Income (loss) before income taxes.............      (4,507)
Provision for income taxes....................      --
                                                -----------
Net income (loss).............................   $  (4,507)
                                                -----------
                                                -----------
Net income (loss) per share...................   $   (0.07)
                                                -----------
                                                -----------
Shares used in computing net income (loss) per
  share.......................................      69,915
                                                -----------
                                                -----------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                         -------------------------------
                                                                                           1995       1994       1993
                                                                                         ---------  ---------  ---------
                                                                                                 (IN THOUSANDS)
<S>                                                                                      <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................................................  $ 133,052  $   4,666  $   3,867
Total assets...........................................................................    231,154     16,996      5,093
Long-term obligations, excluding current portion.......................................      1,198        725     --
Stockholders' equity...................................................................    177,387      8,161      4,094
</TABLE>
 
------------------------------
 
(1) All periods reflect the business combinations with Collabra Software, Inc.
    and InSoft, Inc. which have been accounted for as poolings of interests.
    Financial information for periods prior to January 1, 1996 has not been
    restated for the operations of Netcode Corporation and Paper Software, Inc.
    due to immateriality. See Note 2 of Notes to Supplemental Consolidated
    Financial Statements.
 
(2) All share and per share data has been restated to reflect a two-for-one
    stock split approved on January 23, 1996.
 
(3) No dividends have been declared or paid on the common stock of Netscape. The
    dividends declared and paid by InSoft were insignficant.
 
                                       43
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
    The information required by this item is incorporated by reference to the
Consolidated Financial Statements, and the related notes thereto, Report of
Independent Auditors and the Supplementary Quarterly Consolidated Financial Data
on pages 29 through 44 of the Company's 1995 Annual Report to Stockholders.
 
    In addition to the information set forth above, the following supplemental
information is hereby provided:
 
                                       44
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Stockholders
Netscape Communications Corporation
 
    We have audited the supplemental consolidated balance sheets of Netscape
Communications Corporation (formed as a result of the consolidation of Netscape
Communications Corporation and InSoft, Inc.) as of December 31, 1995 and 1994,
and the related supplemental consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. The supplemental consolidated financial statements give
retroactive effect to the merger of Netscape Communications Corporation and
InSoft, Inc. on April 25, 1996, which has been accounted for using the
pooling-of-interests method as described in the notes to the supplemental
consolidated financial statements. Our audits also included the financial
statement schedule listed in the Index. These supplemental financial statements
and schedule are the responsibility of the management of Netscape Communications
Corporation. Our responsibility is to express an opinion on these supplemental
financial statements and schedule based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, based on our audits, the supplemental consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of Netscape Communications Corporation at
December 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, after giving retroactive effect to the merger of Insoft, Inc., as
described in the notes to the supplemental consolidated financial statements, in
conformity with generally accepted accounting principles. Also in our opinion,
the supplemental financial statement schedule referred to above, when considered
in relation to the basic supplemental financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
 
                                          ERNST & YOUNG LLP
 
Palo Alto, California
January 26, 1996,
except for Note 2, as to which the
date is May 28, 1996
 
                                       45
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
                    SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                       --------------------
                                                                                         1995       1994
                                                                                       ---------  ---------
                                                                                          (IN THOUSANDS,
                                                                                       EXCEPT SHARE AND PER
                                                                                           SHARE DATA)
<S>                                                                                    <C>        <C>
Current assets:
  Cash and cash equivalents..........................................................  $  55,276  $  10,190
  Short-term investments.............................................................     96,841     --
  Accounts receivable, net of allowance for doubtful accounts of $667 in 1995, and
    $104 in 1994.....................................................................     27,099      2,170
  Other current assets...............................................................      6,405        416
                                                                                       ---------  ---------
    Total current assets.............................................................    185,621     12,776
Property and equipment, net..........................................................     20,872      2,998
Long-term investments, deposits and other assets.....................................     24,661      1,222
                                                                                       ---------  ---------
                                                                                       $ 231,154  $  16,996
                                                                                       ---------  ---------
                                                                                       ---------  ---------
</TABLE>
 
                      LIABILITIES AND STOCKHOLDERS' EQUITY
 
<TABLE>
<S>                                                                          <C>        <C>
Current liabilities:
  Accounts payable.........................................................  $   8,533  $   1,837
  Accrued compensation and related liabiliaties............................      6,567        690
  Other accrued liabilities................................................      6,111        978
  Deferred revenues........................................................     30,032      3,880
  Current portion of long-term obligations and installment notes payable...      1,326        725
                                                                             ---------  ---------
    Total current liabilities..............................................     52,569      8,110
Long-term obligations and installment notes payable........................      1,198        725
 
Commitments and contingencies
 
Stockholders' equity:
  Preferred stock, $0.0001 par value; issuable in series; 7,608,222 shares
    in 1994 and 5,000,000 shares in 1995 authorized, 7,008,222 shares in
    1994 and no shares in 1995 issued and outstanding......................     --              1
  Common stock, $0.0001 par value; 200,000,000 shares authorized,
    13,467,846 shares in 1994 and 82,862,283 shares in 1995 issued and
    outstanding............................................................          8          1
  Additional paid-in-capital...............................................    207,188     24,083
  Notes receivable from stockholders.......................................       (763)    --
  Deferred compensation....................................................     (8,584)    --
  Unrealized gain on available-for-sale securities.........................      2,157     --
  Accumulated deficit......................................................    (22,716)   (15,924)
  Accumulated translation adjustment.......................................         97     --
                                                                             ---------  ---------
    Total stockholders' equity.............................................    177,387      8,161
                                                                             ---------  ---------
                                                                             $ 231,154  $  16,996
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
                            See accompanying notes.
 
------------------------
 
(1) Restated to reflect the business combinations with 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.
 
(2) All share and per share data has been restated to reflect a two-for-one
    stock split approved on January 23, 1996.
 
                                       46
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
               SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                            YEAR ENDED
                                                                                ----------------------------------
                                                                                   1995        1994        1993
                                                                                ----------  ----------  ----------
                                                                                 (IN THOUSANDS, EXCEPT SHARE AND
                                                                                         PER SHARE DATA)
<S>                                                                             <C>         <C>         <C>
Revenues:
  Product revenues............................................................  $   77,489  $    3,337  $    1,006
  Service revenues............................................................       7,898         801         100
                                                                                ----------  ----------  ----------
    Total revenues............................................................      85,387       4,138       1,106
Cost of revenues:
  Cost of product revenues....................................................       9,177         186          28
  Cost of service revenues....................................................       2,530         247          43
                                                                                ----------  ----------  ----------
    Total cost of revenues....................................................      11,707         433          71
                                                                                ----------  ----------  ----------
Gross profit..................................................................      73,680       3,705       1,035
 
Operating expenses:
  Research and development....................................................      26,841       4,146         871
  Sales and marketing.........................................................      43,679       7,750       1,498
  General and administrative..................................................      11,336       3,389         513
  Property rights agreements and related charges..............................         500       2,487      --
  Merger related charges......................................................       2,033      --          --
                                                                                ----------  ----------  ----------
    Total operating expenses..................................................      84,389      17,772       2,882
                                                                                ----------  ----------  ----------
Operating loss................................................................     (10,709)    (14,067)     (1,847)
 
  Interest income.............................................................       4,898         251          53
  Interest expense............................................................        (304)        (14)        (18)
                                                                                ----------  ----------  ----------
    Other income, net.........................................................       4,594         237          35
                                                                                ----------  ----------  ----------
Loss before income taxes......................................................      (6,115)    (13,830)     (1,812)
Provision for income taxes....................................................         498      --          --
                                                                                ----------  ----------  ----------
Net loss......................................................................  $   (6,613) $  (13,830) $   (1,812)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
Net loss per share............................................................  $    (0.09) $    (0.21) $    (0.03)
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
Shares used in computing net loss per share...................................      75,735      67,181      61,904
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
</TABLE>
 
                            See accompanying notes.
 
------------------------
 
(1) Restated to reflect the business combinations with 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.
 
(2) All share and per share data has been restated to reflect a two-for-one
    stock split approved on January 23, 1996.
 
                                       47
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
          SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                                        ADDITIONAL
                                                                                               PREFERRED     COMMON       PAID-IN
                                                                                                 STOCK        STOCK       CAPITAL
                                                                                              -----------  -----------  -----------
                                                                                               (IN THOUSANDS, EXCEPT SHARE AND PER
                                                                                                           SHARE DATA)
<S>                                                                                           <C>          <C>          <C>
Balance at December 31, 1992................................................................   $  --        $  --        $     106
Issuance of 867,743 shares of common stock for cash, services, conversion of notes, and
  other.....................................................................................      --           --              631
Issuance of 1,263,628 shares of common stock (Collabra Series A) net of issuance costs of
  $8........................................................................................      --           --            2,757
Issuance of 343,842 shares of common stock (InSoft Series A) net of issuance costs of $35...      --           --            2,565
Dividends of acquired Company (InSoft Series A).............................................      --           --               24
Net loss....................................................................................      --           --           --
                                                                                              -----------  -----------  -----------
Balance at December 31, 1993................................................................      --           --            6,083
Issuance of 967,062 shares of common stock (Collabra Series B) net of issuance costs of
  $28.......................................................................................      --           --            5,897
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $61...      --           --            2,439
Issuance of 7,534,926 shares of common stock to founders and employees for cash and
  services..................................................................................      --                1           23
Issuance of 4,151,000 shares of Series A convertible preferred stock at $0.75 per share for
  cash and technology.......................................................................           1       --            3,112
Issuance of 2,857,222 shares of Series B convertible preferred stock at $2.25 per share for
  cash, net of issuance costs of $34........................................................      --           --            6,395
Issuance of 1,522,000 shares of common stock upon exercise of stock options.................      --           --               29
Dividends of acquired Company (InSoft Series A).............................................      --           --              105
Net loss....................................................................................      --           --           --
                                                                                              -----------  -----------  -----------
Balance at December 31, 1994................................................................           1            1       24,083
Issuance of 21,533,159 shares of common stock upon exercise of stock options, for cash,
  services, and notes, net of repurchases...................................................      --                2        2,095
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $5....      --           --            2,495
Issuance of 125,635 shares of common stock (InSoft Series C) net of issuance costs of
  $127......................................................................................      --           --            1,873
Issuance of 2,000,000 shares of Series C convertible preferred stock at $9.00 per share for
  cash, net of issuance costs of $700.......................................................      --           --           17,300
Deferred compensation related to grant of stock options.....................................      --           --           11,087
Amortization of deferred compensation.......................................................      --           --           --
Issuance of 11,500,000 shares of common stock upon IPO, net of offering costs of $12,850....      --                1      148,149
Conversion and split of 9,008,222 shares of preferred stock.................................          (1)           4           (3)
Unrealized gain on available-for-sale securities............................................      --           --           --
Dividends of acquired Company (InSoft Series A and C).......................................      --           --              109
Net loss....................................................................................      --           --           --
Translation gain............................................................................      --           --           --
                                                                                              -----------  -----------  -----------
Balance at December 31, 1995................................................................   $  --        $       8    $ 207,188
                                                                                              -----------  -----------  -----------
                                                                                              -----------  -----------  -----------
 
<CAPTION>
                                                                                                  NOTES
                                                                                               RECEIVABLE
                                                                                                  FROM          DEFERRED
                                                                                              STOCKHOLDERS    COMPENSATION
                                                                                              -------------  ---------------
 
<S>                                                                                           <C>            <C>
Balance at December 31, 1992................................................................    $  --          $   --
Issuance of 867,743 shares of common stock for cash, services, conversion of notes, and
  other.....................................................................................       --              --
Issuance of 1,263,628 shares of common stock (Collabra Series A) net of issuance costs of
  $8........................................................................................       --              --
Issuance of 343,842 shares of common stock (InSoft Series A) net of issuance costs of $35...       --              --
Dividends of acquired Company (InSoft Series A).............................................       --              --
Net loss....................................................................................       --              --
                                                                                              -------------  ---------------
Balance at December 31, 1993................................................................       --              --
Issuance of 967,062 shares of common stock (Collabra Series B) net of issuance costs of
  $28.......................................................................................       --              --
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $61...       --              --
Issuance of 7,534,926 shares of common stock to founders and employees for cash and
  services..................................................................................       --              --
Issuance of 4,151,000 shares of Series A convertible preferred stock at $0.75 per share for
  cash and technology.......................................................................       --              --
Issuance of 2,857,222 shares of Series B convertible preferred stock at $2.25 per share for
  cash, net of issuance costs of $34........................................................       --              --
Issuance of 1,522,000 shares of common stock upon exercise of stock options.................       --              --
Dividends of acquired Company (InSoft Series A).............................................       --              --
Net loss....................................................................................       --              --
                                                                                              -------------  ---------------
Balance at December 31, 1994................................................................       --              --
Issuance of 21,533,159 shares of common stock upon exercise of stock options, for cash,
  services, and notes, net of repurchases...................................................         (763)         --
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $5....       --              --
Issuance of 125,635 shares of common stock (InSoft Series C) net of issuance costs of
  $127......................................................................................       --              --
Issuance of 2,000,000 shares of Series C convertible preferred stock at $9.00 per share for
  cash, net of issuance costs of $700.......................................................       --              --
Deferred compensation related to grant of stock options.....................................       --              (11,087)
Amortization of deferred compensation.......................................................       --                2,503
Issuance of 11,500,000 shares of common stock upon IPO, net of offering costs of $12,850....       --              --
Conversion and split of 9,008,222 shares of preferred stock.................................       --              --
Unrealized gain on available-for-sale securities............................................       --              --
Dividends of acquired Company (InSoft Series A and C).......................................       --              --
Net loss....................................................................................       --              --
Translation gain............................................................................       --              --
                                                                                              -------------  ---------------
Balance at December 31, 1995................................................................    $    (763)     $    (8,584)
                                                                                              -------------  ---------------
                                                                                              -------------  ---------------
 
<CAPTION>
                                                                                              UNREALIZED GAIN
                                                                                                    ON
                                                                                              AVAILABLE-FOR-    ACCUMULATED
                                                                                              SALE SECURITIES     DEFICIT
                                                                                              ---------------  -------------
 
Balance at December 31, 1992................................................................     $  --           $    (153)
Issuance of 867,743 shares of common stock for cash, services, conversion of notes, and
  other.....................................................................................        --              --
Issuance of 1,263,628 shares of common stock (Collabra Series A) net of issuance costs of
  $8........................................................................................        --              --
Issuance of 343,842 shares of common stock (InSoft Series A) net of issuance costs of $35...        --              --
Dividends of acquired Company (InSoft Series A).............................................        --                 (24)
Net loss....................................................................................        --              (1,812)
                                                                                              ---------------  -------------
Balance at December 31, 1993................................................................        --              (1,989)
Issuance of 967,062 shares of common stock (Collabra Series B) net of issuance costs of
  $28.......................................................................................        --              --
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $61...        --              --
Issuance of 7,534,926 shares of common stock to founders and employees for cash and
  services..................................................................................        --              --
Issuance of 4,151,000 shares of Series A convertible preferred stock at $0.75 per share for
  cash and technology.......................................................................        --              --
Issuance of 2,857,222 shares of Series B convertible preferred stock at $2.25 per share for
  cash, net of issuance costs of $34........................................................        --              --
Issuance of 1,522,000 shares of common stock upon exercise of stock options.................        --              --
Dividends of acquired Company (InSoft Series A).............................................        --                (105)
Net loss....................................................................................        --             (13,830)
                                                                                              ---------------  -------------
Balance at December 31, 1994................................................................        --             (15,924)
Issuance of 21,533,159 shares of common stock upon exercise of stock options, for cash,
  services, and notes, net of repurchases...................................................        --              --
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $5....        --              --
Issuance of 125,635 shares of common stock (InSoft Series C) net of issuance costs of
  $127......................................................................................        --              --
Issuance of 2,000,000 shares of Series C convertible preferred stock at $9.00 per share for
  cash, net of issuance costs of $700.......................................................        --              --
Deferred compensation related to grant of stock options.....................................        --              --
Amortization of deferred compensation.......................................................        --              --
Issuance of 11,500,000 shares of common stock upon IPO, net of offering costs of $12,850....        --              --
Conversion and split of 9,008,222 shares of preferred stock.................................        --              --
Unrealized gain on available-for-sale securities............................................         2,157          --
Dividends of acquired Company (InSoft Series A and C).......................................        --                (179)
Net loss....................................................................................        --              (6,613)
Translation gain............................................................................        --              --
                                                                                              ---------------  -------------
Balance at December 31, 1995................................................................     $   2,157       $ (22,716)
                                                                                              ---------------  -------------
                                                                                              ---------------  -------------
 
<CAPTION>
 
                                                                                               ACCUMULATED       TOTAL
 
                                                                                               TRANSITION    STOCKHOLDERS'
 
                                                                                               ADJUSTMENT        EQUITY
 
                                                                                              -------------  --------------
 
Balance at December 31, 1992................................................................    $  --          $      (47)
 
Issuance of 867,743 shares of common stock for cash, services, conversion of notes, and
  other.....................................................................................       --                 631
 
Issuance of 1,263,628 shares of common stock (Collabra Series A) net of issuance costs of
  $8........................................................................................       --               2,757
 
Issuance of 343,842 shares of common stock (InSoft Series A) net of issuance costs of $35...       --               2,565
 
Dividends of acquired Company (InSoft Series A).............................................       --              --
 
Net loss....................................................................................       --              (1,812)
 
                                                                                              -------------  --------------
 
Balance at December 31, 1993................................................................       --               4,094
 
Issuance of 967,062 shares of common stock (Collabra Series B) net of issuance costs of
  $28.......................................................................................       --               5,897
 
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $61...       --               2,439
 
Issuance of 7,534,926 shares of common stock to founders and employees for cash and
  services..................................................................................       --                  24
 
Issuance of 4,151,000 shares of Series A convertible preferred stock at $0.75 per share for
  cash and technology.......................................................................       --               3,113
 
Issuance of 2,857,222 shares of Series B convertible preferred stock at $2.25 per share for
  cash, net of issuance costs of $34........................................................       --               6,395
 
Issuance of 1,522,000 shares of common stock upon exercise of stock options.................       --                  29
 
Dividends of acquired Company (InSoft Series A).............................................       --              --
 
Net loss....................................................................................       --             (13,830)
 
                                                                                              -------------  --------------
 
Balance at December 31, 1994................................................................       --               8,161
 
Issuance of 21,533,159 shares of common stock upon exercise of stock options, for cash,
  services, and notes, net of repurchases...................................................       --               1,334
 
Issuance of 188,452 shares of common stock (InSoft Series B) net of issuance costs of $5....       --               2,495
 
Issuance of 125,635 shares of common stock (InSoft Series C) net of issuance costs of
  $127......................................................................................       --               1,873
 
Issuance of 2,000,000 shares of Series C convertible preferred stock at $9.00 per share for
  cash, net of issuance costs of $700.......................................................       --              17,300
 
Deferred compensation related to grant of stock options.....................................       --              --
 
Amortization of deferred compensation.......................................................       --               2,503
 
Issuance of 11,500,000 shares of common stock upon IPO, net of offering costs of $12,850....       --             148,150
 
Conversion and split of 9,008,222 shares of preferred stock.................................       --              --
 
Unrealized gain on available-for-sale securities............................................       --               2,157
 
Dividends of acquired Company (InSoft Series A and C).......................................       --                 (70)
 
Net loss....................................................................................       --              (6,613)
 
Translation gain............................................................................           97              97
 
                                                                                              -------------  --------------
 
Balance at December 31, 1995................................................................    $      97      $  177,387
 
                                                                                              -------------  --------------
 
                                                                                              -------------  --------------
 
</TABLE>
 
                            See accompanying notes.
 
------------------------------
 
(1) Restated to reflect the business combinations with 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.
 
(2) All share and per share data has been restated to reflect a two-for-one
    stock split approved on January 23, 1996.
 
                                       48
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
               SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                                ----------------------------------
                                                                                   1995         1994       1993
                                                                                -----------  ----------  ---------
                                                                                          (IN THOUSANDS)
<S>                                                                             <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................................  $    (6,613) $  (13,830) $  (1,812)
  Adjustments to reconcile net loss to net cash (used in) provided by
    operating activities:
    Stock issued for services.................................................      --           --            245
    Depreciation and amortization.............................................        3,853         345         24
    Amortization of deferred compensation.....................................        2,553      --         --
    Loss on sale of property and equipment....................................      --               11     --
  Changes in assets and liabilities:
    Accounts receivable.......................................................      (24,929)     (1,688)      (337)
    Other current assets......................................................       (5,989)       (298)      (191)
    Accounts payable..........................................................        6,696       1,506        301
    Accrued compensation and related liabilities..............................        5,877         682          8
    Other accrued liabilities.................................................        5,133         989        103
    Deferred revenues.........................................................       26,152       3,713     --
    Long-term obligations.....................................................         (725)      1,450     --
                                                                                -----------  ----------  ---------
Net cash (used in) provided by operating activities...........................       12,008      (7,120)    (1,659)
 
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..........................................................      (20,522)     (3,175)      (189)
Increase in deposits and other assets.........................................       (2,891)     (1,089)    --
Purchase of investments available-for-sale....................................     (153,311)     --         --
Maturities of investments available-for-sale..................................        6,208      --         --
Sale of investments available-for-sale........................................       30,736      --         --
                                                                                -----------  ----------  ---------
Net cash used in investing activities.........................................     (139,780)     (4,264)      (189)
 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of installment notes payable.......................        2,200      --             90
Payments on installment notes payable.........................................         (401)       (504)      (160)
Proceeds from issuance of preferred stock, net................................       17,300      11,902      2,541
Proceeds from issuance of common stock, net...................................      153,759       5,950      3,539
                                                                                -----------  ----------  ---------
 
Net cash provided by financing activities.....................................      172,858      17,348      6,010
Net increase in cash and cash equivalents.....................................       45,086       5,964      4,162
Cash and cash equivalents at beginning of period..............................       10,190       4,226         64
                                                                                -----------  ----------  ---------
Cash and cash equivalents at end of period....................................  $    55,276  $   10,190  $   4,226
                                                                                -----------  ----------  ---------
                                                                                -----------  ----------  ---------
Supplemental disclosures of cash flow information:
Income taxes paid.............................................................  $       478  $   --      $  --
                                                                                -----------  ----------  ---------
                                                                                -----------  ----------  ---------
</TABLE>
 
                            See accompanying notes.
 
------------------------
 
(1) Restated to reflect the business combinations with 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.
 
(2) All share and per share data has been restated to reflect a two-for-one
    stock split approved on January 23, 1996.
 
                                       49
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
            NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
NATURE OF OPERATIONS
 
    Netscape Communications Corporation ("Netscape" or the "Company") is a
leading provider of open client and server software, commercial applications and
development tools that link people and information over networks and the
Internet.
 
BASIS OF PRESENTATION
 
    As more fully described in Note 2, on April 25, 1996 Netscape entered into a
business combination with InSoft, Inc. ("InSoft"). The business combination has
been accounted for as a pooling of interests and the historical consolidated
financial statements of Netscape for all years prior to the business combination
have been restated in the accompanying Supplemental Consolidated Financial
Statements to include the financial position, results of operations and cash
flows of InSoft. Costs of the acquisition, which will be charged to operations
in 1996, are not included in the consolidated results of operations through
December 31, 1995. The supplemental financial statements will become the
historical financial statements of Netscape upon issuance of financial
statements for the subsequent period that includes the date of the acquisition
of InSoft.
 
    The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
 
USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
 
REVENUE RECOGNITION
 
    The Company's product revenues are derived from product licensing fees,
while service revenues are derived from fees for maintenance and support,
training, consulting and advertising space. Product revenues are generally
recognized upon delivery, net of allowances for estimated future returns,
provided that no significant vendor obligations remain and collection of the
resulting receivable is deemed probable. Product revenues from OEMs are
generally recognized upon notification of delivery to the end-users. Service
revenues from customer maintenance fees for ongoing customer support and product
updates are recognized ratably over the term of the maintenance period which is
typically 12 months. Payments for maintenance fees are generally made in advance
and are nonrefundable. Service revenues from training and consulting are
recognized when the services are performed. Service revenues from the sale of
advertising space are recognized in the period in which the advertisement is
displayed on a Web page of the Company. Costs related to insignificant
obligations, primarily telephone support, are accrued upon shipment and included
in cost of revenues.
 
CASH, CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
 
    The Company adopted Statement of Financial Accounting Standards No. 115,"
Accounting for Certain Investments in Debt and Equity Securities". The
cumulative effect of adoption was immaterial.
 
                                       50
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Cash and cash equivalents consist of cash on deposit with banks and money
market instruments with original maturities of 90 days or less. Short and
long-term investments, all of which are classified as available-for-sale,
consist of debt securities with original maturities between 90 days and three
years. Short and long-term investments are stated at fair value as of December
31, 1995 and 1994. At December 31, 1994, there was no significant difference
between the fair value and amortized cost of available-for-sale securities, and
all such securities, totaling $500,000, were included in cash and cash
equivalents. Fair value is determined based upon the quoted market prices of the
securities.
 
    The following table details the Company's investments, and their contractual
maturities at December 31, 1995 (amounts in thousands):
 
<TABLE>
<CAPTION>
                                                           GROSS        GROSS
                                            AMORTIZED   UNREALIZED   UNREALIZED     ESTIMATED
                                               COST        GAINS       LOSSES      FAIR VALUE
                                            ----------  -----------  -----------  -------------
<S>                                         <C>         <C>          <C>          <C>
U.S. Government agencies..................  $   27,193   $     500    $  --        $    27,693
Corporate bonds and notes.................      25,744         271       --             26,015
Foreign debt securities...................      23,899         710       --             24,609
Market auction preferred stock............       5,023          23       --              5,046
Medium term corporate notes...............      57,977         848         (195)        58,630
                                            ----------  -----------       -----   -------------
                                            $  139,836   $   2,352    $    (195)   $   141,993
                                            ----------  -----------       -----   -------------
                                            ----------  -----------       -----   -------------
Included in cash and cash equivalents.....  $   23,521   $     100    $    (153)   $    23,468
Included in short-term investments........      95,100       1,783          (42)        96,841
Included in long-term investments.........      21,215         469       --             21,684
                                            ----------  -----------       -----   -------------
                                            $  139,836   $   2,352    $    (195)   $   141,993
                                            ----------  -----------       -----   -------------
                                            ----------  -----------       -----   -------------
Due within one year.......................  $  118,621   $   1,883    $    (195)   $   120,309
Due after one year through five years.....      21,215         469       --             21,684
                                            ----------  -----------       -----   -------------
                                            $  139,836   $   2,352    $    (195)   $   141,993
                                            ----------  -----------       -----   -------------
                                            ----------  -----------       -----   -------------
</TABLE>
 
    The gross realized gains and losses on sales of available-for-sale
securities were $109,000 and $0, in 1995 and 1994, respectively. The cost of
securities sold is based on the specific identification method.
 
PROPERTY AND EQUIPMENT
 
    Property and equipment are depreciated using the straight-line method over
the estimated useful lives of the assets, generally three to five years.
Leasehold improvements are amortized over the lesser of the term of the lease or
the estimated useful life of the asset.
 
    In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. SFAS 121 is effective for fiscal years beginning
after December 15, 1995. Adoption of SFAS 121 is not expected to have a material
impact on the Company's financial position or results of operations.
 
                                       51
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
 
    Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash investments and trade receivables.
The Company invests its excess cash in deposits with major banks, in U.S.
Treasury and U.S. Agency obligations and in money market securities issued by
companies with strong credit ratings and in a variety of industries. Those
securities classified as cash equivalents and short-term marketable investments
typically mature within one year of their purchase date. The Company's other
debt investments typically have a maximum maturity of three years and bear
minimal credit risk.
 
    The Company sells its products to a large number of customers in diversified
industries, primarily in the United States, Europe and the Far East. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally does not require collateral. The Company maintains reserves for credit
losses, and such losses have been within management's expectations.
 
RESEARCH AND DEVELOPMENT
 
    Research and development expenditures are charged to operations as incurred.
Statement of Financial Accounting Standard No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility.
 
    Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant. All research and
development costs have been expensed.
 
ADVERTISING EXPENSES
 
    The Company accounts for advertising costs as expense in the period in which
they are incurred. Advertising expenses for 1995, 1994, and 1993 were
$2,714,000, $69,000, and $70,000, respectively.
 
STOCK BASED COMPENSATION
 
    The Company accounts for its stock option and employee stock purchase plans
in accordance with the provisions of the Accounting Principles Board's Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." In 1995, the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation." SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. The Company expects to continue
to account for its employee stock plans in accordance with the provisions of APB
25. Accordingly, SFAS 123 is not expected to have a material impact on the
Company's financial position or results of operations.
 
PER SHARE AMOUNTS
 
    Net loss per share is computed using the weighted average number of common
and dilutive common equivalent shares outstanding during the period. Pursuant to
the Securities and Exchange Commission
 
                                       52
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Staff Accounting Bulletins and Staff Policy, such computations include all
common and common equivalent shares issued within 12 months of the initial
public offering date as if they were outstanding for all periods presented using
the treasury stock method. Common equivalent shares consist of the incremental
common shares issuable upon conversion of the convertible preferred stock (using
the if-converted method) and shares issuable upon the exercise of stock options
(using the treasury stock method).
 
FOREIGN CURRENCY TRANSLATION
 
    Assets and liabilities of the Company's wholly-owned foreign subsidiaries
are translated in U.S. dollars at year-end exchange rates, and revenues and
expenses are translated at average rates prevailing during the year. Translation
adjustments are deferred in a separate component of stockholders' equity.
Foreign currency transaction gains and losses, which have been immaterial, are
included in results of operations.
 
RECLASSIFICATION
 
    Certain prior period balances have been reclassified to conform with current
period presentation.
 
2. BUSINESS COMBINATIONS
 
ACQUISITION OF COLLABRA SOFTWARE, INC.
 
    On November 9, 1995, the Company completed its acquisition of Collabra
Software, Inc., ("Collabra") a developer of collaborative computing software.
The Company exchanged an aggregate of 3.7 million shares of Netscape common
stock and options for all of the outstanding capital stock and assumption of all
of the outstanding stock options of Collabra, a privately held company. The
business combination was treated as a pooling of interests for accounting
purposes, and accordingly, the historical financial statements of the Company
have been restated as if the transaction occurred at the beginning of the
earliest period presented. In connection with the business combination, the
Company incurred direct transaction costs of approximately $2,033,000 which
consist of fees for investment banking, legal and accounting services and other
related expenses incurred in conjunction with the merger.
 
    The table below sets forth the combined net revenues and net income (loss)
for the periods indicated:
 
<TABLE>
<CAPTION>
                                                             MERGER
                                                             RELATED
                                      NETSCAPE   COLLABRA    CHARGES    ADJUSTMENTS    COMBINED
                                      ---------  ---------  ---------  -------------  ----------
                                                            (IN THOUSANDS)
<S>                                   <C>        <C>        <C>        <C>            <C>
Year ended December 31, 1995
  Net revenues......................  $  75,934  $   4,722  $  --        $  --        $   80,656
  Net income (loss).................      1,598     (3,006)    (2,033)      --            (3,441)
Year ended December 31, 1994
  Net revenues......................  $     696  $     707  $  --        $  --        $    1,403
  Net loss..........................     (8,470)    (3,409)    --           --           (11,879)
Inception (February 9, 1993) to
  December 31, 1993
  Net revenues......................  $  --      $  --      $  --        $  --        $   --
  Net loss..........................     --           (994)    --           --              (994)
</TABLE>
 
                                       53
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. BUSINESS COMBINATIONS (CONTINUED)
ACQUISITION OF INSOFT, INC.
 
    On April 25, 1996, the Company completed its business combination with
InSoft, Inc., a provider of network-based communications and collaborative
multimedia software for the enterprise. The Company exchanged an aggregate of
approximately 2.0 million shares of Netscape common stock and options for all of
the outstanding capital stock and assumption of outstanding stock options of
InSoft, a privately held company. The business combination was treated as a
pooling of interests for accounting purposes. In connection with the business
combination, the Company incurred direct transaction costs of approximately $5.1
million which consist of fees for investment banking, legal and accounting
services and other related expenses incurred in conjunction with the business
combination. Intercompany transactions between InSoft and Netscape were not
material.
 
    The Supplemental Consolidated Financial Statements have been prepared to
give retroactive effect to the business combination with InSoft on April 25,
1996. Generally accepted accounting principles prohibit giving effect to a
consummated business combination accounted for by the pooling-of-interests
method in financial statements that do not include the date of consummation. The
accompanying supplemental consolidated financial statements do not extend
through the date of the consummation, however, they will become the historical
consolidated financial statements of the company after financial statements
covering the date of consummation of the business combination are issued.
 
    The table below sets forth the combined net revenues and net loss for the
periods indicated:
 
<TABLE>
<CAPTION>
                                              NETSCAPE
                                            COMBINED WITH
                                              COLLABRA      INSOFT    ADJUSTMENTS   COMBINED
                                            -------------  ---------  -----------  ----------
                                                             (IN THOUSANDS)
<S>                                         <C>            <C>        <C>          <C>
Year ended December 31, 1995
  Net revenues............................   $    80,656   $   4,731   $  --       $   85,387
  Net loss................................        (3,441)     (3,172)     --           (6,613)
Year ended December 31, 1994
  Net revenues............................   $     1,403   $   2,735   $  --       $    4,138
  Net loss................................       (11,879)     (1,951)     --          (13,830)
Year ended December 31, 1993
  Net revenues............................   $   --        $   1,106   $  --       $    1,106
  Net loss................................          (994)       (818)     --           (1,812)
</TABLE>
 
BUSINESS COMBINATION WITH NETCODE CORPORATION
 
    On April 30, 1996, the Company completed its business combination with
Netcode Corporation ("Netcode"), a creator of a Java-based visual interface
builder and object toolkit for rapidly developing Java applications. The Company
exchanged shares of Netscape common stock and options for all of the outstanding
capital stock and assumed all of the outstanding stock options of Netcode, a
privately held company. The business combination was treated as a pooling of
interests for accounting purposes. As Netcode's historical results of operations
are not material in relation to those of Netscape, the financial information has
not been restated to reflect the business combination. In connection with the
business combination, the Company incurred direct transaction costs of
approximately $300,000 which consist of fees for legal and accounting services
and other related expenses incurred in conjunction with the business
combination.
 
                                       54
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
2. BUSINESS COMBINATIONS (CONTINUED)
BUSINESS COMBINATION WITH PAPER SOFTWARE, INC.
 
    On May 28, 1996, the Company completed its business combination with Paper
Software, Inc. ("Paper"), a provider of distributed three-dimensional graphics
and maker of WebFX VRML software. The Company exchanged shares of Netscape
common stock for all of the outstanding capital stock of Paper, a privately held
company. The business combination was treated as a pooling of interests for
accounting purposes. As Paper's historical results of operations are not
material in relation to those of Netscape, the financial information has not
been restated to reflect the business combination. In connection with the
business combination, the Company incurred direct transaction costs of
approximately $700,000 which consist of fees for legal and accounting services
and other related expenses incurred in conjunction with the business
combination.
 
3. PROPERTY AND EQUIPMENT
 
    Property and equipment, at cost, consists of the following:
 
<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                           --------------------
                                                                             1995       1994
                                                                           ---------  ---------
                                                                              (IN THOUSANDS)
<S>                                                                        <C>        <C>
Computers and equipment..................................................  $  19,402  $   2,725
Furniture and fixtures...................................................      3,164        629
Leasehold improvements...................................................      1,318          8
                                                                           ---------  ---------
                                                                              23,884      3,362
Less accumulated depreciation............................................     (3,012)      (364)
                                                                           ---------  ---------
                                                                           $  20,872  $   2,998
                                                                           ---------  ---------
                                                                           ---------  ---------
</TABLE>
 
4. INSTALLMENT NOTES PAYABLE
 
    On March 3, 1995, the Company entered into a senior loan agreement for total
borrowings not to exceed $2,200,000. Borrowings made under the agreement are
secured by certain assets of the Company. The notes are payable in 36 monthly
installments. Maturities subsequent to December 31, 1995 are approximately
$601,000 in 1996, $713,000 in 1997 and $487,000 in 1998. At December 31, 1995,
the fair value of the notes was $1,339,000, based on quoted market prices for
similar securities.
 
                                       55
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
5. LEASES
 
    The Company leases its facilities and certain other equipment under
operating lease agreements expiring through 2006. Future minimum payments as of
December 31, 1995 under these leases, net of sublease payments, are as follows:
 
<TABLE>
<CAPTION>
                                                                                 (IN
                                                                                 THOUSANDS)
<S>                                                                              <C>
1996...........................................................................    $   4,657
1997...........................................................................        6,405
1998...........................................................................        6,500
1999...........................................................................        5,498
2000 and thereafter............................................................       13,206
                                                                                 -------------
                                                                                   $  36,266
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
    Rent expense for the years ended December 31, 1995, 1994, and 1993 were
$2,169,000, $735,000, and $168,000, respectively, net of sublease payments.
 
6. PROPERTY RIGHTS AGREEMENT
 
    On December 20, 1994, the Company entered into an agreement with the
University of Illinois (the "University") and Spyglass, Inc. ("Spyglass"). Under
the terms of the agreement, the University and Spyglass agreed not to assert any
claim of trademark infringement arising out of the Company's prior use of the
word "Mosaic" or other symbols or words used by the Company to market itself or
its products. The University and Spyglass further agreed not to assert against
the Company any claim of copyright infringement, trade secret misappropriation
or related claims based on the Company's use of former University employees in
the development of the Company's present and future products. As consideration
for these covenants not to assert, the Company agreed to make certain payments
to the University over a two year period. The amount of this agreement and
associated costs, including fees for experts and professional services, as well
as trademark search and other costs, was expensed in 1994 and is included as
"Property rights agreement and related charges" in the supplemental consolidated
statements of operations. Certain amounts become payable to the University in
1996, and have been recorded as long-term obligations.
 
    If over the term of the agreement (two years from December 21, 1994) the
Company enters into a license, distribution, remarketing or sublicensing
agreement with certain specific companies, the Company may pay up to an
additional $1,300,000 to the University. During the year ended December 31,
1995, the Company made two such additional payments totaling $500,000. In
addition, if over the term of the agreement any of these companies acquires a
controlling interest in the Company, there is a per unit royalty paid to the
University over the remaining term.
 
7. STOCKHOLDERS' EQUITY
 
PREFERRED STOCK
 
    On August 14, 1995, the Company closed its initial public offering of its
common stock. At that time, all issued and outstanding shares of the Company's
Series A, B and C convertible preferred stock were converted into approximately
36,032,888 shares of the Company's common stock.
 
                                       56
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
 
    All shares of common stock issued by the Company through restricted stock
purchase agreements and the 1994 Stock Option Plan through December 31, 1995 are
subject to certain repurchase rights whereby the Company has the option to
repurchase the unvested shares upon termination of employment for any reason,
with or without cause, at the original price per share. Generally, the stock
vests over the 50 month period from the date of issuance. At December 31, 1995,
12,441,925 shares were reserved for issuance upon exercise of stock options.
 
STOCK OPTION PLANS
 
    The Company assumed the Collabra Software, Inc. 1993 Incentive Stock Plan
(the "1993 Plan") in November 1995 which provides for the grant of incentive
stock options and nonstatutory stock options to employees and consultants of the
Company at prices ranging from 85% to 110% (depending on the type of grant) of
the fair market value of the common stock on the date of grant as determined by
the board of directors. The vesting and exercise provisions of the option grants
are determined by the board of directors. Options generally vest at the rate of
24% of the original grant, commencing twelve months after the date of grant or
employment, and 2% per month thereafter. Options expire no later than ten years
from the date of the grant. The 1993 Plan was terminated in November 1995 and no
further options were granted under the 1993 Plan.
 
    During 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan") under which incentive stock options or nonqualified stock options to
purchase common stock may be granted to employees and certain consultants or
independent contractors. Under the 1994 Plan, options to purchase common stock
may be granted at prices not less than 85% of the fair value on the date of
grant (110% of fair value in certain instances), as determined by the board of
directors. Options granted are immediately exercisable and the resulting shares
issued to employees under the Plan are subject to certain repurchase rights by
the Company, at the discretion of the Company, upon the individual's cessation
of service prior to vesting in the shares at the original purchase price.
Generally, these repurchase rights lapse over a 50-month period. The 1994 Stock
Option Plan was terminated in August 1995 and no further options were granted
thereunder.
 
    In July 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan") that provides for the granting of incentive stock options and
nonqualified stock options, stock purchase rights and cash and stock bonus
awards to employees and consultants. Under the 1995 Plan, the board of directors
determines the term of each award, the award price, and conditions under which
the award becomes exercisable.
 
    Also in July 1995, the Company adopted the 1995 Director Option Plan (the
"Director Plan") and reserved 200,000 shares of common stock for issuance
thereunder. Under the Director Plan, non-employee directors are granted options
to purchase common stock at 100% of fair market value on dates specified in the
plan.
 
    The Company assumed the InSoft, Inc. 1993 Stock Option Plan which provides
for the granting of incentive stock options and nonqualified stock options to
certain officers, key employees, consultants and directors of InSoft. The
options entitle the holders to purchase shares of common stock within one to ten
years from the date of grant at options prices equal to the fair market value as
determined by the Board of Directors at the date of grant. In connection with
the business combination with InSoft described in Note 2, Netscape assumed all
of the outstanding stock options of InSoft (adjusted for the merger exchange
 
                                       57
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7. STOCKHOLDERS' EQUITY (CONTINUED)
ratio). 247,851 shares of Netscape common stock have been reserved for issuance
upon the exercise of options assumed in connection with the business combination
with InSoft. The Insoft, Inc. 1993 Stock Option Plan was terminated in April
1996 and no further options will be granted under this plan.
 
    A summary of activity under all plans including options assumed by Netscape
as a result of the business combinations with Collabra and InSoft (adjusted for
the respective merger exchange ratios) is as follows:
 
<TABLE>
<CAPTION>
                                                                  OPTIONS OUTSTANDING
                                              SHARES      ------------------------------------
                                           AVAILABLE FOR    NUMBER OF
                                               GRANT         SHARES         PRICE PER SHARE
                                           -------------  -------------  ---------------------
<S>                                        <C>            <C>            <C>
Balance at December 31, 1992.............       --             --                 --
Shares reserved..........................        926,237       --                 --
Options granted..........................       (177,104)       177,104          $0.22
Options canceled.........................       --             --                 --
Options exercised........................       --             --                 --
                                           -------------  -------------  ---------------------
Balance at December 31, 1993.............        749,133        177,104          $0.22
Shares reserved..........................     24,773,344       --                 --
Options granted..........................    (12,920,605)    12,920,605    $0.0003 - $7.2900
Options canceled.........................        600,000       (600,000)        $0.0188
Options exercised........................       --           (8,302,000)   $0.0003 - $0.0563
                                           -------------  -------------  ---------------------
Balance at December 31, 1994.............     13,201,872      4,195,709    $0.0188 - $7.2900
Shares reserved..........................      9,200,000       --                 --
Options granted..........................    (16,375,004)    16,375,004   $0.0563 - $69.7500
Options canceled.........................        484,400       (484,400)  $0.0188 - $49.5000
Options exercised........................       --          (14,155,656)   $0.0188 - $4.8000
                                           -------------  -------------  ---------------------
Balance at December 31, 1995.............      6,511,268      5,930,657   $0.0563 - $69.7500
                                           -------------  -------------  ---------------------
                                           -------------  -------------  ---------------------
</TABLE>
 
    At December 31, 1995, 329,129 options were vested and 19,714,128 shares of
common stock were subject to repurchase at the option of the Company at the
original purchase price. In the year ended December 31, 1995, the Company
repurchased 907,562 shares of common stock at the original exercise price.
 
    In the year ended December 31, 1995, the Company granted an option to
purchase 8,000,000 shares of common stock outside of the Plans. The exercise
price was $0.0563 per share. This option was immediately exercisable in its
entirety with 4,000,000 shares subject to repurchase at the option of the
Company upon the individual's cessation of service prior to vesting in the
shares at the original purchase price. The 4,000,000 shares vest over a 50-month
period. In the year ended December 31, 1995, the option was exercised.
 
    The Company has recorded deferred compensation expense of $11,087,000 for
the difference between the grant price and the deemed fair value of certain of
the Company's common stock options granted in 1995. This amount is being
amortized over the vesting period of the individual options, generally a
50-month period. Deferred compensation expense attributed to 4,000,000 shares of
common stock was fully amortized at June 30, 1995, as such shares were fully
vested upon grant. Deferred compensation expense recognized in the year ended
December 31, 1995 totaled $2,503,000.
 
                                       58
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
7. STOCKHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
 
    In June 1995, the Company adopted an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code and reserved 2,000,000 shares of common
stock for issuance under the plan. Under this plan, qualified employees are
entitled to purchase shares at 85% of fair market value. There were no shares
issued under the plan during 1995.
 
8. INCOME TAXES
 
    The provision for income taxes is as follows:
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                     -------------------------------
                                                                       1995       1994       1993
                                                                     ---------  ---------  ---------
                                                                             (IN THOUSANDS)
<S>                                                                  <C>        <C>        <C>
State:
  Current..........................................................  $      20  $  --      $  --
 
Foreign:
  Current..........................................................        478     --         --
                                                                     ---------  ---------  ---------
Provision for income taxes.........................................  $     498  $  --      $  --
                                                                     ---------  ---------  ---------
                                                                     ---------  ---------  ---------
</TABLE>
 
    The provision for income taxes in 1995 differs from the amount computed by
applying the statutory federal income tax rate to income before income taxes.
The sources and tax effects of the difference are as follows:
 
<TABLE>
<CAPTION>
                                                                                  YEAR ENDED
                                                                                 DECEMBER 31,
                                                                                     1995
                                                                                 -------------
                                                                                      (IN
                                                                                  THOUSANDS)
 
<S>                                                                              <C>
Expected tax at federal statutory rate.........................................    $  (2,140)
Net operating losses not benefited.............................................        2,071
Foreign withholding taxes......................................................          478
State taxes....................................................................           20
Other, net.....................................................................           69
                                                                                 -------------
Provision for income taxes.....................................................    $     498
                                                                                 -------------
                                                                                 -------------
</TABLE>
 
                                       59
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
8. INCOME TAXES (CONTINUED)
    Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
 
<TABLE>
<CAPTION>
                                                                               YEAR ENDED
                                                                              DECEMBER 31,
                                                                          ---------------------
                                                                             1995       1994
                                                                          ----------  ---------
                                                                             (IN THOUSANDS)
<S>                                                                       <C>         <C>
Deferred tax assets:
  Net operating losses..................................................  $    5,815  $   4,565
  Credits...............................................................       1,245        216
  Other, net............................................................       3,391      1,548
                                                                          ----------  ---------
Total deferred tax assets...............................................      10,451      6,329
Valuation allowance for deferred tax assets.............................     (10,451)    (6,329)
                                                                          ----------  ---------
Net deferred tax assets.................................................  $   --      $  --
                                                                          ----------  ---------
                                                                          ----------  ---------
</TABLE>
 
    The valuation allowance increased by $4,122,000 and $2,353,000 in 1995 and
1994, respectively. Approximately $1,825,000 of the 1995 valuation allowance
increase of $4,122,000 was related to tax carryforwards attributable to stock
option deductions which will be credited to paid-in capital when realized.
 
    As of December 31, 1995, the Company had federal and state net operating
loss carryforwards of approximately $15,000,000 and $12,200,000, respectively.
The federal net operating losses will expire between 2008 and 2010 while the
state net operating losses will expire between 1998 and 2002. Federal and state
credits of $1,027,000 and $335,000 will expire at various dates between the
years 2000 and 2010. Utilization of net operating losses and credits may be
subject to annual limitations due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. Such
limitations, if any, are not expected to impact the ultimate utilization of the
carryovers.
 
9. BENEFIT PLAN
 
    The Company maintains a 401(k) retirement savings plan (the "Plan") for its
full time employees. Each participant in the Plan may elect to contribute from
1% to 15% of his or her annual compensation to the Plan. The Company, at its
discretion, may make contributions to the Plan; however, the Company has made
none through December 31, 1995.
 
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
 
    The Company conducts its business within one industry segment. The Company's
export sales (i.e. sales to unaffiliated customers outside of the U.S. by the
U.S. operation) were approximately $17,254,000 (48% to Europe, 23% to the Far
East and 29% to other international locations) for the year ended December 31,
1995 and were immaterial in the year ended December 31, 1994. International
revenues (sales outside of North America) were approximately 17% of total
revenues (10% to Europe, and 7% to the Far East) in the year ended December 31,
1995 and were immaterial in the year ended December 31, 1994.
 
                                       60
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
    For the year ended December 31, 1995, Ventana Communications Inc., the
Company's exclusive domestic retail distributor, accounted for 10% of total
revenues. Burlington Coat Factory accounted for 12% of total revenues for the
year ended December 31, 1994 and AT&T accounted for 12% of total revenues for
the year ended December 31, 1993.
 
11. CONCENTRATION AND OTHER RISKS
 
PRODUCTS
 
    The Company offers a comprehensive line of software to enable secure
communications and commerce on the Internet and private TCP/IP-based enterprise
networks (intranets). These products enable the retrieval and presentation of
information and dynamically changing data in multiple forms, including video,
audio and graphics. These products are designed to provide enhanced security for
the controlled access of confidential information on intranets and the Internet,
the execution of financial transactions, as well as integrated communication and
collaboration solutions for users through seamless electronic mail, web
browsing, and newsgroup capabilities.
 
MARKETS
 
    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 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. 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
 
                                       61
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
      NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
11. CONCENTRATION AND OTHER RISKS (CONTINUED)
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.
 
12. SUBSEQUENT EVENTS
 
STOCK SPLIT
 
    On January 23, 1996, the Company's stockholders approved a two-for-one stock
split of Netscape common stock. The share and per share amounts included in
these supplemental consolidated financial statements are presented on a
post-split basis and have been adjusted to reflect this stock split.
 
                                       62
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
            SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
                                                                           QUARTER ENDED
                                     -----------------------------------------------------------------------------------------
                                      DEC. 31,     SEPT. 30,    JUNE 30,     MARCH 31,    DEC. 31,     SEPT. 30,    JUNE 30,
                                        1995         1995         1995         1995         1994         1994         1994
                                     -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>          <C>
Total revenues.....................   $  41,562    $  23,308    $  14,072    $   6,445    $   1,875    $     940    $     676
Gross profit.......................      34,824       20,289       12,753        5,814        1,497          903          658
Merger related charges.............       2,033       --           --           --           --           --           --
Income (loss) before income
  taxes............................       1,009          175       (2,792)      (4,507)      (8,484)      (3,090)      (1,437)
Net income (loss)..................         511          175       (2,792)      (4,507)      (8,484)      (3,090)      (1,437)
Income (loss) per share............   $    0.01    $    0.00    $   (0.04)   $   (0.07)   $   (0.12)   $   (0.04)   $   (0.02)
 
<CAPTION>
 
                                      MARCH 31,
                                        1994
                                     -----------
 
<S>                                  <C>
Total revenues.....................   $     647
Gross profit.......................         647
Merger related charges.............      --
Income (loss) before income
  taxes............................        (819)
Net income (loss)..................        (819)
Income (loss) per share............   $   (0.01)
</TABLE>
 
------------------------------
 
(1) Restated to reflect the business combinations with 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.
 
(2) All share and per share data has been restated to reflect a two-for-one
    stock split approved on January 23, 1996.
 
                                       63
<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
    (a) The following documents are filed as part of this Form 10-K/A Amendment
       No. 3:
 
       1.  FINANCIAL STATEMENTS. The following consolidated financial
           statements, and the related notes thereto, of the Company and the
           Report of Independent Auditors are incorporated by reference to pages
           29 through 43 of the Company's 1995 Annual Report to Stockholders.
 
           Report of Ernst & Young LLP, Independent Auditors
 
           Consolidated Balance Sheets as of December 31, 1995 and 1994
 
           Consolidated Statements of Operations for each of the two years in
           the period ended December 31, 1995 and for the period from inception
           (February 9, 1993) to December 31, 1993
 
           Consolidated Statements of Stockholders' Equity for each of the two
           years in the period ended December 31, 1995 and for the period from
           inception (February 9, 1993) to December 31, 1993
 
           Consolidated Statements of Cash Flows for each of the two years in
           the period ended December 31, 1995 and for the period from inception
           (February 9, 1993) to December 31, 1993
 
           Notes to Consolidated Financial Statements
 
       In addition to the information set forth above, the following
       supplemental consolidated financial statements, and the related notes
       thereto, of the Company and the Report of Independent Auditors is
       included herein:
 
           Report of Ernst & Young LLP, Independent Auditors
 
           Supplemental Consolidated Balance Sheets as of December 31, 1995 and
           1994
 
           Supplemental Consolidated Statements of Operations for each of the
           three years in the period ended December 31, 1995
 
           Supplemental Consolidated Statements of Stockholders' Equity for each
           of the three years in the period ended December 31, 1995
 
           Supplemental Consolidated Statements of Cash Flows for each of the
           three years in the period ended December 31, 1995
 
           Supplemental Notes to Consolidated Financial Statements
 
       2.  FINANCIAL STATEMENT SCHEDULES. The following financial statement
           schedule of the Company for each of the years ended December 31, 1995
           and 1994 and for the period from inception (February 9, 1993) to
           December 31, 1993 is filed as part of this Form 10-K/A Amendment No.
           3 and should be read in conjunction with the Consolidated Financial
           Statements, and related notes thereto, of the Company.
 
               Schedule II -- Valuation and Qualifying Accounts (previously
               filed with the Form 10-K)
 
       In addition to the information set forth above, the following
       supplemental financial statement schedule of the Company for each of the
       three years in the period ended December 31, 1995 is filed as part of
       this Form 10-K/A Amendment No. 3 and should be read in conjunction with
       the Supplemental Consolidated Financial Statements, and related notes
       thereto, of the Company.
 
               Schedule II -- Supplemental Valuation and Qualifying Accounts
 
                                       64
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(CONTINUED)
           Schedules other than those listed above have been omitted since they
           are either not required, not applicable, or the information is
           otherwise included.
 
       3.  EXHIBITS: The exhibits listed on the accompanying index to exhibits
           immediately following the financial statement schedule are filed as
           part of, or incorporated by reference into, this Form 10-K/A
           Amendment No. 3.
 
    (b) REPORTS ON FORM 8-K. A Current Report on Form 8-K dated November 9, 1995
       (the "November 8-K") was filed by the Company in the fourth quarter ended
       December 31, 1995 to report the acquisition of Collabra Software, Inc.
       ("Collabra"). A Current Report on Form 8-K/A was subsequently filed by
       the Company to amend the November 8-K to include financial statements of
       Collabra and the required pro forma financial information.
 
       In addition to the information set forth above, the following
       supplemental information is hereby provided:
 
           On May 10, 1996, the Company filed a Current Report on Form 8-K dated
           April 25, 1996 in conjunction with the acquisition of InSoft. On July
           8, 1996, the Company filed a Form 8-K/A Amendment No. 1 to its
           Current Report on Form 8-K dated April 25, 1996 which included the
           following financial statements:
 
           Pro Forma Combined Condensed Consolidated Balance Sheet at March 31,
           1996.
 
           Pro Forma Combined Condensed Consolidated Statement of Operations for
           the period from Inception (February 9, 1993) to December 31, 1993.
 
           Pro Forma Combined Condensed Consolidated Statement of Operations for
           the year ended December 31, 1994.
 
           Pro Forma Combined Condensed Consolidated Statement of Operations for
           the year ended December 31, 1995.
 
           Pro Forma Combined Condensed Consolidated Statement of Operations for
           the three months ended March 31, 1996.
 
           Notes to Pro Forma Combined Condensed Consolidated Financial
           Statements.
 
           Report of Ernst & Young LLP, Independent Auditors.
 
           InSoft, Inc. Balance Sheets at December 31, 1994 and 1995 and
           (unaudited) March 31, 1996.
 
           InSoft, Inc. Statements of Operations for the years ended December
           31, 1993, 1994 and 1995 and for the three months ended March 31, 1996
           (unaudited).
 
           InSoft, Inc. Statements of Stockholders' Equity (Deficit) for the
           years ended December 31, 1993, 1994 and 1995 and for the three months
           ended March 31, 1996 (unaudited).
 
           InSoft, Inc. Statements of Cash Flows for the years ended December
           31, 1993, 1994 and 1995 and for the three months ended March 31, 1996
           (unaudited).
 
           Notes to Financial Statements.
 
    (c) EXHIBITS. See Item 14(a) above.
 
    (d) FINANCIAL STATEMENT SCHEDULES. See Item 14(a) above.
 
                                       65
<PAGE>
                                   SIGNATURE
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K/A Amendment
No. 3 to be signed on its behalf by the undersigned, thereunto duly authorized,
on November 25, 1996.
 
                                NETSCAPE COMMUNICATIONS CORPORATION
 
                                By:            /s/ PETER L.S. CURRIE
                                     ------------------------------------------
                                                 Peter L.S. Currie
                                             SENIOR VICE PRESIDENT AND
                                              CHIEF FINANCIAL OFFICER
<PAGE>
                      NETSCAPE COMMUNICATIONS CORPORATION
 
                                  SCHEDULE II
                 SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS
 
                YEARS ENDED DECEMBER 31, 1995 AND 1994 AND 1993
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                   BALANCE AT                           BALANCE AT
                                                                  BEGINNING OF  COST AND   DEDUCTIONS/    END OF
CLASSIFICATION                                                       PERIOD     EXPENSES   WRITE-OFFS     PERIOD
----------------------------------------------------------------  ------------  ---------  -----------  -----------
<S>                                                               <C>           <C>        <C>          <C>
Year ended December 31, 1993
Allowance for doubtful accounts.................................   $   --       $  --       $  --        $  --
                                                                  ------------  ---------  -----------  -----------
                                                                  ------------  ---------  -----------  -----------
Year ended December 31, 1994
Allowance for doubtful accounts.................................   $   --       $     104   $  --        $     104
                                                                  ------------  ---------  -----------  -----------
                                                                  ------------  ---------  -----------  -----------
Year ended December 31, 1995
Allowance for doubtful accounts.................................   $      104   $     572   $      (9)   $     667
                                                                  ------------  ---------  -----------  -----------
                                                                  ------------  ---------  -----------  -----------
</TABLE>
 
                                      S-1
<PAGE>
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                              EXHIBIT DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
 2.1       Agreement and Plan of Reorganization dated as of September 21, 1995 by and among Registrant, NSCP
             Acquisition Corporation ("Merger Sub") and Collabra Software, Inc. ("Collabra") (which is
             incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated
             November 9, 1995 ("Registrant's 1995 8-K")).
 
 2.2       Agreement of Merger dated November 8, 1995 by and between Merger Sub and Collabra (which is
             incorporated herein by reference to Exhibit 2.2 to the Registrant's 1995 8-K).
 
 2.3       Agreement and Plan of Reorganization dated as of January 31, 1996 by and among Registrant, NSCP
             Corporation ("Sub") and InSoft, Inc. ("InSoft") (which was previously filed as Exhibit 2.3 to the
             Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 ("Registrant's
             1995 10-K")).
 
 2.4       Agreement of Merger dated April 25, 1996 by and between Sub and InSoft (which is incorporated herein by
             reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated April 25, 1996).
 
 3.(i)     Restated Certificate of Incorporation, as amended through January 23, 1996 (which was previously filed
             as Exhibit 3.(i) to the Registrant's 1995 10-K).
 
 3.(ii)    Amended and Restated Bylaws of Registrant, as amended through June 19, 1995 (which is incorporated
             herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration
             No. 33-93862 ("Registrant's 1995 S-1")).
 
 4.1       Form of Registrant's Common Stock Certificate (which is incorporated herein by reference to Exhibit 4.1
             to the Registrant's 1995 S-1).
 
 4.2       Second Amended and Restated Investors' Rights Agreement dated April 5, 1995 (which is incorporated
             herein by reference to Exhibit 4.2 to the Registrant's 1995 S-1).
 
10.1*      Form of Indemnification Agreement entered into by Registrant with each of its directors and executive
             officers (which is incorporated herein by reference to Exhibit 10.1 to the Registrant's 1995 S-1).
 
10.2*      Form of Restricted Stock Purchase Agreement (which is incorporated herein by reference to Exhibit 10.2
             to the Registrant's 1995 S-1).
 
10.3*      1994 Stock Option Plan and related agreements, as amended (which is incorporated herein by reference to
             Exhibit 10.3 to the Registrant's 1995 S-1).
 
10.4*      1995 Stock Plan and related agreements (which is incorporated herein by reference to Exhibit 10.4 to
             the Registrant's 1995 S-1).
 
10.5*      1995 Employee Stock Purchase Plan and related agreements (which is incorporated herein by reference to
             Exhibit 10.5 to the Registrant's 1995 S-1).
 
10.6*      1995 Director Option Plan and related agreements (which is incorporated herein by reference to Exhibit
             10.6 to the Registrant's 1995 S-1).
 
10.7*      Collabra Software, Inc. 1993 Incentive Stock Plan (which is incorporated herein by reference to Exhibit
             4.3 to the Company's Registration Statement on Form S-8, Registration No. 33-99198).
 
10.8*      Employment Agreement between Registrant and James L. Barksdale dated January 4, 1995 (which is
             incorporated herein by reference to Exhibit 10.7 to the Registrant's 1995 S-1).
 
10.9*      Employment Offer Letter from Registrant to Conway Rulon-Miller dated October 3, 1994 (which is
             incorporated herein by reference to Exhibit 10.16 to the Registrant's 1995 S-1).
 
10.10+     Software License Agreement between Registrant and MCI Telecommunications Corporation dated February 28,
             1995 (which is incorporated herein by reference to Exhibit 10.8 to the Registrant's 1995 S-1).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                              EXHIBIT DESCRIPTION
---------  -------------------------------------------------------------------------------------------------------
<S>        <C>
10.11+     License and Series A Stock Purchase Agreement between Registrant and RSA Data Security, Inc. dated
             August 19, 1994 (which is incorporated herein by reference to Exhibit 10.9 to the Registrant's 1995
             S-1).
 
10.12+     Settlement Agreement by and among the Registrant, the University of Illinois and Spyglass, Inc. dated
             December 21, 1994 (which is incorporated herein by reference to Exhibit 10.10 to the Registrant's
             1995 S-1).
 
10.13      Lease between Registrant and Ellis-Middlefield Business Park dated October 14, 1994 (which is
             incorporated herein by reference to Exhibit 10.11 to the Registrant's 1995 S-1).
 
10.14      Lease between Registrant and Ellis-Middlefield Business Park dated April 28, 1995 (which is
             incorporated herein by reference to Exhibit 10.12 to the Registrant's 1995 S-1).
 
10.15      Lease between Registrant and Sobrato Development Companies dated August 1995 (which was previously
             filed as Exhibit 10.14 to the Registrant's 1995 10-K).
 
10.16      Lease between Registrant and Renault & Handley Employees Investment Co. dated December 12, 1995 (which
             was previously filed as Exhibit 10.15 to the Registrant's 1995 10-K).
 
11.1       Statement of computation of earnings per share (which was previously filed as Exhibit 11.1 to the
             Registrant's 1995 10-K).
 
11.2       Supplemental statement of computation of earnings per share (which was previously filed as Exhibit 11.2
             to the Registrant's 1995 10-K Amendment No. 2).
 
13.1       Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 1995 expressly
             incorporated by reference herein.
 
21.1       Subsidiaries of the Registrant (which was previously filed as Exhibit 21.1 to the Registrant's 1995
             10-K Amendment No. 2).
 
23.1       Consent of Ernst & Young LLP, Independent Auditors (which was previously filed as Exhibit 23.1 to the
             Registrant's 1995 10-K).
 
23.2       Consent of Ernst & Young LLP, Independent Auditors.
 
24.1       Power of Attorney (which was previously filed as Exhibit 24.1 to the Registrant's 1995 10-K).
 
27.1       Financial Data Schedule for the fiscal year ended December 31, 1995.
</TABLE>
 
------------------------
 
+   Confidential treatment has been previously granted for certain portions of
    these exhibits.
 
*   Indicates management compensatory plan, contract or arrangement.