AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1999
 
 REGISTRATION NO. 333-
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 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 ------------------------
 
 FORM S-4
 REGISTRATION STATEMENT
 UNDER
 THE SECURITIES ACT OF 1933
 ------------------------
 
 AMERICA ONLINE, INC.
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
  AMERICA ONLINE, INC.
 22000 AOL WAY
 DULLES, VIRGINIA 20166-9323
 (703) 265-1000
 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
  AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
 SHEILA A. CLARK, ESQ.
 ACTING GENERAL COUNSEL
 AMERICA ONLINE, INC.
 22000 AOL WAY
 DULLES, VIRGINIA 20166-9323
 (703) 265-1000
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
 INCLUDING AREA CODE, OF AGENT FOR SERVICE)
 
 
 
 

 NETSCAPE LOGO
 
 AMERICA ONLINE LOGO
 
 SUMMARY OF THE PROXY STATEMENT-PROSPECTUS
 
 This summary may not contain all of the information that is important to
you. You should carefully read this entire document and the other documents we
refer to for a more complete understanding of the merger. In particular, you
should read the documents attached to this proxy statement-prospectus, including
the merger agreement, the stock option agreement and the voting agreement, which
are attached as Annexes A, B and C, respectively. In addition, we incorporate by
reference important business and financial information about America Online and
Netscape into this proxy statement-prospectus. You may obtain the information
incorporated by reference into this proxy statement-prospectus without charge by
following the instructions in the section entitled "Where You Can Find More
Information" on page 84 of this proxy statement-prospectus.
 
 THE COMPANIES
 
NETSCAPE COMMUNICATIONS CORPORATION
501 East Middlefield Road
Mountain View, California 94043-4042
(650) 254-1900
http://home.netscape.com
 
 Netscape offers software, services and Website resources to businesses and
consumers using the Internet.
 
 Netscape is a leading provider of software and services for businesses that
want to transform the way they create and keep customers in the emerging
Internet economy. Netscape provides its customers with end-to-end electronic
commerce solutions. Netscape develops, markets and supports a broad suite of
enterprise software, which consists of electronic commerce infrastructure and
electronic commerce applications targeted primarily at corporate intranets and
extranets, as well as the Internet. Netscape's software allows users to share
information, manage networks and facilitate electronic commerce.
 
 Complementing and building upon its software and services offerings,
Netscape first launched its Netcenter Website, an Internet portal, in September
1997. In June 1998, Netscape redesigned its Netcenter Website to use an
industry-standard, channel-based format, including business, entertainment and
other channels. The new channel-based format offers consumers an improved
interface and lets advertisers more effectively target consumers.
AMERICA ONLINE, INC.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-1000
http://www.aol.com
 
 America Online is the world's leader in branded interactive services and
content.
 
 America Online operates two worldwide Internet online services: the AOL
service, with more than 16 million members; and CompuServe, with approximately 2
million members. America Online also operates AOL Studios, a leading builder of
Internet brands for new market segments.
 
 Other branded Internet services and features operated by America Online
include: AOL.COM, the world's most accessed Website from home; Digital City,
Inc., the No. 1 branded local content network and community guide on the AOL
service and the Internet; AOL NetFind, America Online's comprehensive guide to
the Internet; and ICQ, an instant communication and chat technology on the
Internet.
 
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 QUESTIONS AND ANSWERS ABOUT THE NETSCAPE/AMERICA ONLINE MERGER
 
Q: WHY ARE WE PROPOSING TO MERGE? (SEE PAGE 29)
 
A: The merger allows America Online and Netscape to significantly extend their
 leadership in interactive services, provide access to new markets and
 technologies, further capitalize on the economic benefits of their
 respective infrastructures and add potentially strong value for the
 shareholders of the combined company. In particular, this combination will
 enable America Online and Netscape to (1) advance a multiple brand strategy
 by adding one of the Internet's best known brands to America Online's
 family of brands, (2) join the complementary Web audiences of the America
 Online services and products and Netscape Netcenter services and products
 and (3) enhance our ability to sell and capitalize on electronic commerce
 opportunities and solutions.
 
Q: WHAT WILL I RECEIVE IN THE MERGER?
 (SEE PAGE 43)
 
A: If the merger is completed, you will receive 0.45 of a share of America
 Online common stock for each share of Netscape common stock you own, prior
 to adjustment for America Online's two-for-one stock split which will be
 effected on February 22, 1999. Giving effect to America Online's
 two-for-one stock split, you will receive 0.9 of a share of America Online
 common stock for each share of Netscape common stock you own. America
 Online will not issue fractional shares of common stock. You will receive
 cash based on the market price of America Online common stock instead of
 any fractional share.
 
 The number of shares of America Online common stock to be issued for each
 share of Netscape common stock is fixed and will not be adjusted based upon
 changes in the value of these shares. As a result, the value of the shares
 you receive in the merger will not be known at the time you vote on the
 merger and may go up or down as the market price of America Online common
 stock goes up or down. Netscape is not permitted to "walk away" from the
 merger or resolicit the vote of its stockholders based solely on changes in
 the value of America Online common stock.
 
 Based on the number of Netscape and America Online shares outstanding as of
 November 23, 1998, the former stockholders of Netscape will own
 approximately 8.9% of America Online.
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  SUMMARY OF THE TRANSACTION
 
STRUCTURE OF THE TRANSACTION
(SEE PAGE 43)
 
 Netscape will merge with a subsidiary of America Online and become a
wholly-owned subsidiary of America Online. Following the merger, as a
stockholder of America Online, you will have an equity stake in Netscape's
parent company.
 
OPINION OF NETSCAPE'S FINANCIAL ADVISOR
 
 Pursuant to a letter agreement dated as of November 16, 1998, Morgan
Stanley was engaged to provide financial advisory services and a financial
fairness opinion in connection with the merger. Morgan Stanley was selected by
Netscape's board of directors to act as Netscape's financial advisor based on
Morgan Stanley's qualifications, expertise and reputation and its knowledge of
the business and affairs of Netscape. At the meeting of Netscape's board of
directors on November 22, 1998, Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing, that as of November 22, 1998, based upon and
subject to the various considerations set forth in the opinion, the exchange
ratio pursuant to the merger agreement was fair from a financial point of view
to the holders of shares of Netscape common stock.
 
 THE OPINION OF MORGAN STANLEY IS ATTACHED AS ANNEX D TO THIS PROXY
STATEMENT-PROSPECTUS. NETSCAPE STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO
NETSCAPE'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW TO THE
HOLDERS OF SHARES OF NETSCAPE COMMON STOCK AS OF THE DATE OF THE OPINION. MORGAN
STANLEY'S OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF NETSCAPE COMMON STOCK AS TO HOW TO
VOTE AT THE NETSCAPE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS, ALTHOUGH MATERIALLY
COMPLETE, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
 
 In connection with rendering its opinion, Morgan Stanley, among other
things:
 
 - reviewed some publicly available financial statements and other
 information of Netscape and America Online, respectively
 
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 39
 
 - reviewed the reported prices and trading activity for the Netscape common
 stock and the America Online common stock
 
 - compared the financial performance of Netscape and America Online and the
  prices and trading activity of the Netscape common stock and the America
 Online common stock with that of some other publicly-traded companies and
 their securities
 
 - reviewed some internal financial statements and other financial and
 operating data concerning Netscape and America Online prepared by the
 managements of Netscape and America Online, respectively
 
 - discussed the past and current operations and financial condition and the
 prospects of Netscape and America Online, including information relating
 to some strategic, financial and operational benefits anticipated from
 the merger, with senior executives of Netscape and America Online,
 respectively
 
 - reviewed the pro forma impact of the merger on America Online
 
 - reviewed the financial terms, to the extent publicly available, of
 comparable acquisition transactions
 
 - discussed the strategic rationale for the merger with the senior
 managements of Netscape and America Online, respectively
 
 - participated in discussions and negotiations among representatives of
 Netscape and America Online and their financial and legal advisors
 
 - reviewed the draft merger agreement and related agreements
 
 - performed such other analyses and considered such other factors as Morgan
 Stanley deemed appropriate
 
 In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the internal
financial statements and other financial and operating data and discussions
relating to strategic, financial and operational benefits anticipated from the
merger provided by Netscape and America Online, Morgan Stanley assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the prospects of Netscape and America Online,
respectively. Morgan Stanley relied upon the following:
 
 - the assessment by the managements of Netscape and America Online of their
 ability to retain key employees of Netscape and America Online
 
 - the assessment by the managements of Netscape and America Online of the
 strategic and other benefits expected to result from the merger
 
 - the assessment by the managements of Netscape and America Online of
 Netscape's and America Online's technologies and products
 
 - the timing and risks associated with the integration of Netscape with
 America Online
 
 - the validity of, and risks associated with, Netscape's and America
 Online's existing and future products and technologies
 
Morgan Stanley did not make any independent valuation or appraisal of the assets
or liabilities or technology of Netscape or America Online, nor was Morgan
Stanley furnished
 
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 40
 
with any such appraisals. In addition, Morgan Stanley assumed that the merger
will be accounted for as a "pooling of interests" business combination in
accordance with U.S. generally accepted accounting principles and the merger
will be treated as a tax-free reorganization and/or exchange pursuant to the
Internal Revenue Code of 1986 and will be completed in accordance with the terms
set forth in the merger agreement. Morgan Stanley's opinion is necessarily based
on financial, economic, market and other conditions as in effect on, and the
information made available to it as of, November 22, 1998.
 
 The following is a brief summary of some of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
opinion letter dated November 22, 1998. These summaries of financial analyses
include information presented in tabular format. In order fully to understand
the financial analyses used by Morgan Stanley, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
 
 COMPARATIVE STOCK PRICE PERFORMANCE. Morgan Stanley reviewed the recent
stock price performance of Netscape and America Online and compared such
performance with that of the following indices:
 
 - Internet Portal Index
 
 -- Yahoo! Inc.
 
 -- Excite, Inc.
 
 -- CNET, Inc.
 
 -- Infoseek Corporation
 
 - Major Application Index
 
 -- Oracle Corporation
 
 -- SAP Corporation
 
 -- PeopleSoft, Inc.
 
 -- Baan Company N.V.
 
 -- J.D. Edwards & Company
 
 - Mid-Cap Application Index
 
 -- Networks Associates, Inc.
 
 -- i2 Technologies, Inc.
 
 -- Check Point Software Technologies LTD
 
 -- Manugistics Group, Inc.
 
 - Customer Information Management Index
 
 -- Siebel Systems, Inc.
 
 -- Remedy Corporation
 
 -- Clarify, Inc.
 
 -- The Vantive Corporation
 
  - Internet Provider Index
 
 -- AtHome Corporation
 
 -- Earthlink Network, Inc.
 
 -- Mindspring Enterprises, Inc.
 
 -- PSINet Inc.
 
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 - Cable Index
 
 -- Time Warner Inc.
 
 -- MediaOne Group, Inc.
 
 -- Tele-Communications, Inc.
 
 -- Comcast Corporation
 
 -- Cox Communications, Inc.
 
 -- Cablevision Systems Corporation
 
 Morgan Stanley observed that over the period from November 19, 1997 to
November 19, 1998, the market price of Netscape common stock increased 22%,
compared with an increase of 528% for the Internet portal index, an increase of
21% for the major application index, an increase of 30% for the mid-cap
application index and an increase of 10% for the customer information management
index. Morgan Stanley also observed that over the period from November 19, 1997
to November 19, 1998, the market price of America Online common stock increased
360%, compared with an increase of 528% for the Internet portal index, an
increase of 259% for the Internet provider index and an increase of 75% for the
cable index.
 
 PEER GROUP COMPARISON. Morgan Stanley compared financial information of
Netscape, each of Netscape's two primary businesses, Netcenter and Enterprise
Software, and America Online with publicly available information for the
companies comprising the Internet portal index, the major application index, the
mid-cap application index, the customer information management index, the
Internet provider index and the cable index, respectively. For this analysis, as
well as other analyses, Morgan Stanley examined a range of estimates based on
securities research analysts as well as two additional estimate scenarios for
Netscape developed by Netscape management, a downside case and a target case,
which were below and above research estimates, respectively.
 
 The following table presents, as of November 19, 1998, the median for the
Internet portal companies, the major application companies, the mid-cap
application companies and the customer information companies of each of
estimated aggregate value, defined as market capitalization plus total debt less
cash and cash equivalents, to projected calendar year 1999 revenue multiples and
stock price to projected calendar year 1999 earnings multiples, compared to the
values indicated for the Netscape estimates.
 

AGGREGATE VALUE TO PROJECTED STOCK PRICE TO PROJECTED CALENDAR YEAR 1999 REVENUE CALENDAR YEAR 1999 EARNINGS -------------------------- --------------------------- Netscape range 4.6-5.0 59.9-131.0 Internet portal companies 13.1 210.3 major applications companies 3.0 41.2 mid-cap application companies 4.0 26.6 customer information companies 1.5 26.8

 
 
 The following table presents, as of November 19, 1998, the median for the
Internet portal companies, the Internet provider companies and the cable
companies of each of estimated aggregate value, defined as market capitalization
plus total debt less cash and cash equivalents, to projected calendar year 1999
revenue multiples, aggregate value per current subscriber and aggregate value
per projected one year forward subscriber, compared to the values indicated for
America Online.
 
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AGGREGATE VALUE PER AGGREGATE VALUE TO ONE YEAR FORWARD PROJECTED AGGREGATE VALUE PER PROJECTED CALENDAR YEAR 1999 REVENUE CURRENT SUBSCRIBER SUBSCRIBER -------------------------- ------------------- ------------------- America Online 10.4 $ 3,073 $2,562 Internet portal companies 13.1 NA NA Internet provider companies 6.0 $ 2,414 $2,321 cable companies 5.7 $ 3,040 $2,923

 
 
 No company utilized in the peer group comparison analysis as a comparison
is identical to Netscape or America Online. In evaluating the peer groups,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Netscape or America
Online, such as the impact of competition on the business of Netscape or America
Online and the industry generally, industry growth and the absence of any
adverse material change in the financial condition and prospects of Netscape or
America Online or the industry or in the financial markets in general.
Mathematical analysis, such as determining the average or median, is not in
itself a meaningful method of using peer group data.
 
 ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Morgan Stanley reviewed a
number of Internet related transactions which consisted of:
 
 - the acquisition of Mecklermedia Corporation by Fenton Media, Inc.
 
 - the acquisition of Barnesandnoble.com by Bertelsmann AG
 
 - the acquisition of WebLogic Inc. by BEA System, Inc.
 
 - the acquisition of Icon CMT Corporation by Qwest Communications
 International Inc.
 
 - the acquisition of Who Where? Inc. by Lycos, Inc.
 
 - the acquisition of Junglee Corporation by Amazon.com, Inc.
 
 - the acquisition of 43% of Infoseek Corporation by Walt Disney Company
 
 - the acquisition of Mirabilis, Ltd. by America Online
 
 - the acquisition of EUNet International Ltd by Qwest Communications
 International Inc.
 
 - the acquisition of ActaMed Corporation by Healtheon Corporation
 
 - the acquisition of Kiva Software Corporation by Netscape
 
 - the acquisition of CompuServe Corporation by Worldcom, Inc.
 
 - the acquisition of 19% of Excite, Inc. by Intuit Inc.
 
 - the acquisition of Digex Inc. by Intermedia Communications Inc.
 
 - the acquisition of BBN Corporation by GTE Corporation
 
 - the acquisition of VeriFone, Inc. by Hewlett Packard Company
 
 - the acquisition of Intuit Inc. Bill Payment Unit by Checkfree Corporation
 
 - the acquisition of Border Network Technologies, Inc. by Secure Computing
 Corporation
 
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 43
 
 - the acquisition of UUNet Technologies, Inc. by MFS Communications Company
 
 - the acquisition of RSA Data Security, Inc. by Security Dynamics
 Technologies, Inc.
 
 - the acquisition of InSoft, Inc. by Netscape
 
 - the acquisition of Illustra Information Technonlogies Inc. by Informix
Corporation
 
 - the acquisition of Collabra Software, Inc. by Netscape
 
Morgan Stanley also reviewed a number of large capitalization software
transactions which consisted of:
 
 - the acquisition of Boole & Babbage, Inc. by BMC Software, Inc.
 
 - the acquisition of HBO & Company by McKesson Corporation
 
 - the acquisition of Seagate Software, Inc NSMG by Veritas Software
Corporation
 
 - the acquisition of Discreet Logic Inc. by AutoDesk, Inc.
 
 - the acquisition of Memco Software Ltd. by Platinum Technology, Inc.
 
 - the acquisition of Broderbund Software, Inc. by The Learning Company,
Inc.
 
 - the acquisition of Dr Solomon's Group PLC by Network Associates, Inc.
 
 - the acquisition of Hyperion Software Corporation by Arbor Software
Corporation
 
 - the acquisition of Lacerte Software Corporation by Intuit Inc.
 
 - the acquisition of Scopus Technology, Inc. by Siebel Systems, Inc.
 
 - the acquisition of Wonderware Corporation by Siebe PLC
 
 - the acquisition of Trusted Information Systems, Inc. by Network
Associates, Inc.
 
 - the acquisition of BGS Systems, Inc. by BMC Software, Inc.
 
 - the acquisition of Computer Language Research, Inc. by Thomson
Corporation
 
 - the acquisition of Infinity Financial Technology, Inc. by SunGard Data
 Systems Inc.
 
 - the acquisition of Network General Corporation by McAfee Associates, Inc.
 
 - the acquisition of Pure Atria Corporation by Rational Software
Corporation
 
 - the acquisition of MDL Info Systems, Inc. by Reed Elsevier PLC
 
 - the acquisition of OpenVision Technologies, Inc. by Veritas Software
Corporation
 
 - the acquisition of SQA, Inc. by Rational Software Corporation
 
 - the acquisition of Cheyenne Software, Inc. by Computer Associates
 International, Inc.
 
 - the acquisition of Landmark Graphics Corporation by Halliburton Company
 
 - the acquisition of Atria Software, Inc. by Pure Software Inc.
 
 - the acquisition of Tivoli Systems, Inc. by International Business
 Machines Corporation
 
 - the acquisition of The Learning Company, Inc. by SoftKey International
Inc.
 
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 44
 
 - the acquisition of Minnesota Educational Computing Corporation by SoftKey
 International Inc.
 
 - the acquisition of Delrina Corporation by Symantec Corporation
 
 - the acquisition of Frame Technology Corporation by Adobe Systems
Incorporated
 
 - the acquisition of Lotus Development Corporation by International
 Business Machines Corporation
 
 - the acquisition of Legent Corporation by Computer Associates
International, Inc.
 
 - the acquisition of Alias Research, Inc. by Silicon Graphics, Inc.
 
 - the acquisition of ACT Group PLC by Misys PLC
 
 - the acquisition of Aldus Corporation by Adobe Systems Incorporated
 
 - the acquisition of Finsiel SpA by STET
 
 - the acquisition of Hoskyns Group PLC by Cap Gemini Sogeti SA
 
Morgan Stanley compared some publicly available statistics for the transactions
listed above to the relevant financial statistics for Netscape based on the
value of Netscape implied by the exchange ratio and the closing price for
Netscape common stock and America Online common stock as of November 19, 1998.
 
 The following table presents the low, median and high 1 trading day and 30
trading day prior to announcement offer price premia as well as the 30 trading
day prior to announcement implied exchange ratio premia for the Internet
transactions and large capitalization software transactions, compared to the
respective offer price and implied exchange ratio premium for the merger as of
November 19, 1998.
 

OFFER PRICE PREMIUM --------------------------- 1 DAY 30 DAY 30 DAY PRIOR TO PRIOR TO PRIOR TO ANNOUNCEMENT EXCHANGE ANNOUNCEMENT ANNOUNCEMENT RATIO PREMIUM ------------ ------------ --------------------- Low -5.2% -5.0% 11.0% Internet transactions Median 27.9% 41.0% 39.9% High 67.6% 113.5% 76.5% Low 0.0% -12.0% 1.9% large cap software transactions Median 32.5% 44.3% 31.2% High 96.9% 109.3% 61.0% Netscape 2.6% 111.4% 14.9%

 
 
 No transaction utilized as a comparison in the precedent transactions
analysis is identical to the merger. In evaluating the Internet and large
capitalization software transactions, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Netscape or America Online, such as the impact of competition on
Netscape or America Online and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Netscape or America Online or the industry or in the financial markets in
general. Mathematical analysis, such as determining the average or median, is
not in itself a meaningful method of using comparable transaction data.
 
  RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma
contribution of each of Netscape and America Online to the combined company
assuming completion
 
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of the merger and based on estimates from securities research analysts for both
companies. The analysis showed, among other things, that in terms of last 12
months' historical revenue, calendar year 1998 projected revenue and calendar
year 1999 projected revenue, Netscape would contribute 16.0%, 15.6% and 15.5%,
respectively, to the combined company. In terms of calendar year 1998 projected
earnings and calendar year 1999 projected earnings, Netscape would contribute
0.9% and 11.3%, respectively, to the combined company. These figures, adjusted
to reflect each company's respective capital structures, were compared to the
pro forma fully-diluted ownership of the combined company by Netscape
shareholders of 8.1% implied by the merger.
 
  EXCHANGE RATIO ANALYSIS. Morgan Stanley reviewed the ratios of the closing
prices of Netscape common stock divided by the corresponding prices of America
Online over various periods during the twelve month period ending November 19,
1998 and computed the premia represented by the exchange ratio over the averages
of these daily ratios over various periods. The following table presents the
range of implied exchange ratios over the periods covered and the implied
exchange ratio as of November 19, 1998, compared to the exchange ratio of the
merger. The numbers in this table do not reflect America Online's two-for-one
stock split that will be effected on February 22, 1999.
 

PERCENTAGE PREMIUM REPRESENTED AVERAGE EXCHANGE RATIO BY EXCHANGE RATIO IN MERGER PERIOD ENDING NOVEMBER 19, 1998 OVER PERIOD OVER HISTORICAL EXCHANGE RATIO ------------------------------- ---------------------- ------------------------------ As of November 19, 1998 0.439 3% 5 Trading Days 0.415 9% 10 Trading Days 0.403 12% 20 Trading Days 0.384 17% 30 Trading Days 0.391 15% 60 Trading Days 0.415 9% 90 Trading Days 0.449 0%

 
 
 DISCOUNTED EQUITY VALUE. Morgan Stanley performed an analysis of the
present value per share of Netscape on a standalone basis based on Netscape's
future trading price. Morgan Stanley observed that, based on a range of revenue
estimates based on the three estimates for the calendar year 2000, illustrative
multiples of revenue ranging from 3.0 times to 5.0 times and illustrative
discount rates of 17.7% to 20.0%, the present value per share of Netscape common
stock on a standalone basis ranged from $23.10 to $43.52. In addition, Morgan
Stanley observed that, based on the three estimates discussed above under the
subheading "Peer Group Comparison" for the calendar years 2000 and 2001,
illustrative multiples of earnings per share ranging from 50.0 times to 80.0
times and illustrative discount rates of 17.7% to 20.0%, the present value per
share of Netscape common stock on a standalone basis ranged from $15.94 to
$65.50.
 
 Morgan Stanley also performed an analysis of the present value per share of
Netscape on a standalone basis based on Netscape's future trading price assuming
separation of Netscape's two primary businesses: Netcenter and Enterprise
Software. Morgan Stanley observed that for the Netcenter business, based on a
range of revenue estimates based on the three estimates for the calendar year
2000, illustrative multiples of revenue ranging from 9.5 times to 13.5 times and
illustrative discount rates of 17.7% to 20.0%, the present value per share of
Netscape common stock on a standalone basis ranged from $22.40 to $38.57 for the
Netcenter business. Additionally, Morgan Stanley observed that for the
Enterprise Software business, based on a range of revenue estimates based on the
three estimates for the calendar year 2000, illustrative multiples of revenue
ranging from 1.0 times to 3.0 times and illustrative discount rates of 17.7% to
20.0%, the present value per share of Netscape common stock on a standalone
basis ranged from $6.84 to $18.09 for
 
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the Enterprise Software business. Combining the two businesses and based on a
range of revenue estimates based on the three estimates for the calendar year
2000, yielded a present value per share of Netscape common stock on a standalone
basis which ranged from $29.24 to $56.66.
 
 Morgan Stanley compared the results of the Netscape standalone analysis to
an analysis of the present value per share of the implied value of Netscape
based on America Online's future trading price assuming completion of the merger
and based on a range of revenue estimates based on securities research analysts
for both companies for calendar year 2000 and prior to any synergies resulting
from the merger, multiples of revenue ranging from 9.5 times to 13.5 times and
discount rates of 16.5% and 20.0%. Based on this analysis, Morgan Stanley
estimated a present value per equivalent share of Netscape common stock ranging
from $37.79 to $55.03. Morgan Stanley also compared the results of the
standalone analysis to an analysis of the present value per share of the implied
value of Netscape based on America Online's future trading price assuming
completion of the merger and based on a range of earnings per share estimates
based on securities research analysts for both companies for calendar years 2000
and 2001 and prior to any synergies resulting from the merger, multiples of
earnings per share ranging from 60.0 times to 100.0 times and discount rates of
16.5% and 20.0%. Based on this analysis, Morgan Stanley estimated present value
per equivalent share of Netscape common stock ranging from $24.21 to $53.18.
 
 Morgan Stanley also performed an analysis of the present value per share of
America Online on a standalone basis. Morgan Stanley observed that, based on a
range of revenue estimates based on securities research analysts for the
calendar year 2000, illustrative multiples of revenue ranging from 9.5 times to
13.5 times and illustrative discount rates ranging from 16.4% to 20.0%, the
present value per share of America Online common stock on a standalone basis
ranged from $69.12 to $121.65. Morgan Stanley also observed that, based on a
range of earnings per share estimates based on securities research analysts for
the calendar years 2000 and 2001, illustrative multiples of earnings per share
ranging from 60.0 times to 100.0 times and illustrative discount rates ranging
from 16.4% to 20.0%, the present value per share of America Online common stock
on a standalone basis ranged from $41.98 to $139.49. Morgan Stanley observed
that the price of America Online common stock on November 19, 1998 was $83.38.
 
 PRO FORMA MERGER ANALYSIS. Morgan Stanley analyzed the pro forma impact of
the merger on America Online's projected earnings per share for the calendar
years 1999 and 2000. Such analysis was based on earnings projections by
securities research analysts for both companies. Based on this analysis, Morgan
Stanley observed that, assuming that the merger was treated as a pooling
transaction, the merger would result in earnings per share accretion for America
Online shareholders of 3.4% and 2.5% for calendar years 1999 and 2000,
respectively, before taking into account any one-time charges or synergies.
 
 In connection with the review of the merger by Netscape's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The summary
set forth above does not purport to be a complete description of the analyses
performed by Morgan Stanley in connection with the merger.
 
 The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley
 
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believes that selecting any portion of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of Netscape or America
Online.
 
 In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Netscape or America
Online. Any estimates contained in Morgan Stanley's analysis are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses performed
were prepared solely as part of Morgan Stanley's analysis of the fairness of the
exchange ratio pursuant to the merger agreement from a financial point of view
to the holders of Netscape common stock and were conducted in connection with
the delivery of the Morgan Stanley opinion to Netscape's board of directors. The
analyses do not purport to be appraisals or to reflect the prices at which
Netscape common stock or America Online common stock might actually trade. The
exchange ratio pursuant to the merger agreement and other terms of the merger
agreement were determined through arm's-length negotiations between Netscape and
America Online and were approved by Netscape's board of directors. Morgan
Stanley provided advice to Netscape during such negotiations; however, Morgan
Stanley did not recommend any specific consideration to Netscape or that any
specific consideration constituted the only appropriate consideration for the
merger. In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition, business combination or other extraordinary transaction involving
Netscape, although in the course of its engagement, it did provide advice to
Netscape in connection with potential business combinations with parties other
than America Online. In addition, as described above, Morgan Stanley's opinion
and presentation to Netscape's board of directors was one of many factors taken
into consideration by Netscape's board of directors in making its decision to
approve the merger. Consequently, the Morgan Stanley analyses as described above
should not be viewed as determinative of the opinion of Netscape's board of
directors with respect to the value of Netscape or of whether Netscape's board
of directors would have been willing to agree to a different consideration.
 
 Netscape's board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of
Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade or otherwise
effect transactions, for its own account or for the account of customers in the
equity or debt securities or senior loans of Netscape or America Online.
 
 Pursuant to an engagement letter dated November 16, 1998, Morgan Stanley
provided financial advisory services and a financial fairness opinion in
connection with the merger, and Netscape agreed to pay Morgan Stanley a fee of
approximately $16.2 million in connection with the merger if the merger is
completed. This fee was calculated based on a
 
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percentage of the aggregate value of the transaction. Netscape has also agreed
to reimburse Morgan Stanley for its out-of-pocket expenses incurred by Morgan
Stanley in performing its services. In addition, Netscape has also agreed to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against liabilities and expenses, including
liabilities under the federal securities laws, related to or arising out of
Morgan Stanley's engagement and any related transactions.
 
 In the past two years, Netscape retained Morgan Stanley for financing and
advisory assignments for which Morgan Stanley was paid customary fees in the
aggregate of approximately $360,000. These assignments included certain hedging
and sale transactions relating to marketable securities in June 1998 and a
November 1997 fairness opinion for the acquisition of Kiva Software, Inc. In the
past two years, America Online has also retained Morgan Stanley for financing
and advisory assignments for which Morgan Stanley was paid customary fees in the
aggregate of approximately $3.4 million. These assignments included a June 1998
equity block trade and a June 1998 fairness opinion for the acquisition of
Mirabilis, Ltd. In connection with these assignments for both Netscape and
America Online, Morgan Stanley was reimbursed for its out-of-pocket expenses.
Netscape and America Online also agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
liabilities and expenses, including liabilities under the federal securities
laws, related to or arising out of Morgan Stanley's engagement and any related
transactions.
 
 
 
 ANNEX D
 
 OPINION OF MORGAN STANLEY & CO. INCORPORATED
 
  November 22, 1998
 
Board of Directors
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
 
Members of the Board:
 
We understand that Netscape Communications Corporation ("Netscape"), America
Online, Inc. ("America Online") and Apollo Acquisition Corp., a wholly-owned
subsidiary of America Online ("Merger Sub"), propose to enter into an Agreement
and Plan of Merger, substantially in the form of the draft dated November 20,
1998 (the "Merger Agreement") which provides, among other things, for the merger
(the "Merger") of Merger Sub with and into Netscape. Pursuant to the Merger,
Netscape will become a wholly owned subsidiary of America Online, and each
outstanding share of common stock, par value $0.0001 per share of Netscape (the
"Netscape Common Stock"), other than shares held in treasury or held by America
Online or any affiliate of America Online, will be converted into the right to
receive 0.450 shares (the "Exchange Ratio") of common stock, par value $0.01 per
share of America Online (the "America Online Common Stock"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
 
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of shares
of Netscape Common Stock.
 
For purposes of the opinion set forth herein, we have:
 
 (i) reviewed certain publicly available financial statements and
 other information of Netscape and America Online,
 respectively;
 
 (ii) reviewed the reported prices and trading activity for the
 Netscape Common Stock and the America Online Common Stock;
 
 (iii) compared the financial performance of Netscape and America
 Online and the prices and trading activity of the Netscape
 Common Stock and the America Online Common Stock with that of
  certain other publicly-traded companies and their securities;
 
 (iv) reviewed certain internal financial statements and other
 financial and operating data concerning Netscape and America
 Online prepared by the managements of Netscape and America
 Online, respectively;
 
 (v) discussed the past and current operations and financial
 condition and the prospects of Netscape and America Online,
  including information relating to certain strategic, financial
 and operational benefits anticipated from the Merger, with
 senior executives of Netscape and America Online, 
 respectively;
 
 (vi) reviewed the pro forma impact of the Merger on America Online;
 
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 (vii) reviewed the financial terms, to the extent publicly
 available, of certain comparable acquisition transactions;
 
 (viii) discussed the strategic rationale for the Merger with the
 senior managements of Netscape and America Online,
 respectively;
 
 (ix) participated in discussions and negotiations among
 representatives of Netscape and America Online and their
 financial and legal advisors;
 
 (x) reviewed the draft Merger Agreement and certain related
 agreements; and
 
 (xi) performed such other analyses and considered such other
 factors as we have deemed appropriate.
 
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the internal financial statements and other financial
and operating data and discussions relating to strategic, financial and
operational benefits anticipated from the Merger provided by Netscape and
America Online, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the prospects
of Netscape and America Online, respectively. We have relied upon the assessment
by the managements of Netscape and America Online of their ability to retain key
employees of Netscape and America Online. We have also relied upon, without
independent verification, the assessment by the managements of Netscape and
America Online of the strategic and other benefits expected to result from the
Merger. We have also relied upon, without independent verification, the
assessment by the managements of Netscape and America Online of Netscape's and
America Online's technologies and products, the timing and risks associated with
the integration of Netscape with America Online and the validity of, and risks
associated with, Netscape's and America Online's existing and future products
and technologies. We have not made any independent valuation or appraisal of the
assets or liabilities or technology of Netscape or America Online, nor have we
been furnished with any such appraisals. In addition, we have assumed that the
Merger will be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. Generally Accepted Accounting Principles and the Merger
will be treated as a tax-free reorganization and/or exchange pursuant to the
Internal Revenue Code of 1986 and will be consummated in accordance with the
terms set forth in the Merger Agreement. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
 
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction involving Netscape, although we
have in the course of our engagement provided advice to Netscape in connection
with certain potential business combinations with parties other than America
Online.
 
We have acted as financial advisor to the Board of Directors of Netscape in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory services for Netscape and America Online and have received
fees for the rendering of these services. In the ordinary course of our business
we may actively trade the securities of Netscape and America Online for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
 
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It is understood that this letter is for the information of the Board of
Directors of Netscape and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Netscape with the Securities and Exchange Commission in
respect of the Merger. In addition, this opinion does not in any manner address
the prices at which the America Online Common Stock will actually trade at any
time and we express no recommendation or opinion as to how the holders of
Netscape Common Stock should vote at the shareholders' meeting held in
connection with the Merger.
 
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of Netscape Common Stock.
 
 Very truly yours,
 
 MORGAN STANLEY & CO. INCORPORATED
 
 By: /s/ CHARLES R. CORY
 -----------------------------------------
 Charles R. Cory
 Managing Director
 
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