STAMPS COM INC, S-4, 1999-11-19

STAMPS COM INC
S-4, 1999-11-19
CATALOG & MAIL-ORDER HOUSES

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As filed with the Securities and Exchange Commission on November 19, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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Stamps.com Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 5961 77-0454966
(Primary Standard (I.R.S. Employer
(State or Other Industrial Identification No.)
Jurisdiction of Classification Number)
Incorporation or
Organization)

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3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
(310) 581-7200
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)

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John M. Payne
Chairman and Chief Executive Officer
Stamps.com Inc.
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
(310) 581-7200
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)

Copies to:
Bruce R. Hallett Craig E. Sherman
Brobeck, Phleger & Harrison LLP David R. Young
38 Technology Drive Megan L. Muir
Irvine, California 92618 David T. Sobota
(949) 790-6300 Venture Law Group
A Professional Corporation
4750 Carillon Point
Kirkland, Washington 98033
(425) 739-8700

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Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described in this registration statement.

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If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to be Offering Price Offering Registration
Securities to be Registered Registered Per Unit Price(1) Fee(2)
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Common Stock, $0.001 par
value..................... 8,000,000 not applicable $5,132,300 $1,427.00
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(1) Estimated solely for the purpose of computing the amount of registration
fee pursuant to Rule 457(f)(2) under the Securities Act of 1933, as
amended, and represents the book value of the equity interests in,
iShip.com, Inc., the company to be acquired, as of September 30, 1999, for
which there is no active trading market.
(2) Wired to the Securities and Exchange Commission's lockbox account on
November 19, 1999.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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[LOGO OF stamps.com]

November , 1999

Dear Stockholder of Stamps.com Inc.:

Your board of directors has approved a merger agreement that would result
in Stamps.com Inc. acquiring iShip.com, Inc., a provider of Web-based
technology which helps consumers, small businesses and large corporations
price, ship, track and manage shipments over the Internet. Your board of
directors is excited about this opportunity to expand Stamps.com's business.
If the acquisition is completed, Stamps.com will issue up to 8 million shares
of Stamps.com common stock to the former shareholders of iShip.com. The
Stamps.com common stock is listed on the Nasdaq National Market under the
symbol "STMP."

In order to complete the acquisition, you are asked to vote, at a special
meeting of stockholders, to be held on December , 1999, beginning at 9:00
a.m., at . At that Stamps.com special meeting, your board of directors is
asking that you approve (a) the agreement which provides for iShip.com
becoming a wholly owned subsidiary of Stamps.com and (b) a 2.5 million share
increase in the number of shares of Stamps.com common stock covered by our
1999 stock incentive plan. Only stockholders of record at the close of
business on November 17, 1999 will be entitled to vote at the Stamps.com
special meeting. If the acquisition is completed, Stamps.com will issue up to
8 million shares of Stamps.com common stock to the former shareholders of
iShip.com. The Stamps.com common stock is listed on the Nasdaq National Market
under the symbol "STMP."

Stamps.com can not complete the acquisition unless Stamps.com's
stockholders approve both of those proposals. Accordingly, Stamps.com asks
that you either attend the Stamps.com special meeting or send back the
enclosed proxy card.

You should consider the "Risk Factors" described beginning at page 11, as
well as all of the other information in the joint proxy statement and consent
solicitation/prospectus which follows this letter.

After careful consideration, your board of directors has unanimously
approved the merger of a subsidiary of Stamps.com into iShip.com and
unanimously recommends that you vote in favor of the approval of the merger
agreement and the increase in the number of shares covered by Stamps.com's
stock incentive plan.

Your vote is very important. I urge you to vote in favor of both proposals
at the Stamps.com special meeting.

Very truly yours,

John M. Payne
Chairman and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities
commission has approved the merger described in the joint proxy statement and
consent solicitation/prospectus which follows this letter or the shares of
Stamps.com common stock to be issued in connection with the merger.
Furthermore, the Securities and Exchange Commission has not determined if the
joint proxy statement and consent solicitation/prospectus which follows this
letter is accurate or adequate. Any representation to the contrary is a
criminal offense. The joint proxy statement and consent
solicitation/prospectus which follows this letter is not an offer to sell and
it is not soliciting an offer to buy securities in any jurisdiction where
offers or sales are not permitted.

The joint proxy statement and consent solicitation/prospectus is dated
November , 1999 and was first mailed to Stamps.com's stockholders on November
, 1999.
<PAGE>

[LOGO]

November , 1999

Dear Shareholder of iShip.com Inc.:

Your board of directors has approved a merger agreement that would result
in Stamps.com Inc., a leading provider of services for purchasing and printing
postage over the Internet, acquiring iShip.com, Inc. Stamps.com is offering a
total of 8,000,000 of its shares of common stock to the holders of equity
securities of iShip.com in connection with the acquisition, 800,000 of which
will be held in escrow for one year. Your board of directors is excited about
this opportunity.

In order to complete the acquisition, you are asked to sign and return an
action by written consent approving the agreement which provides for iShip.com
becoming a wholly owned subsidiary of Stamps.com. Only shareholders of record
at the close of business on the date of this letter will be entitled to give
consents. The Stamps.com common stock is listed on the Nasdaq National Market
under the symbol "STMP."

iShip.com can not complete the acquisition unless iShip.com's shareholders
approve the acquisition. Accordingly, iShip.com asks that you send back the
enclosed written consent.

Your vote is very important. I urge you to vote in favor of the
acquisition.

Very truly yours,

Stephen M. Teglovic
President and Chief Executive
Officer

The joint proxy statement and consent solicitation/prospectus is dated
November , 1999 and was first mailed to iShip.com's shareholders on November
, 1999.
<PAGE>

Stamps.com Inc.
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405

To the Stockholders of Stamps.com Inc.:

Stamps.com will hold a special meeting of the stockholders of Stamps.com
Inc. on , December , 1999, beginning at 9:00 a.m., local time, at ,
for the following purpose:

1. To consider and vote upon a proposal to approve the agreement and plan
of merger, dated as of October 22, 1999, which provides for the merger
of a subsidiary of Stamps.com into iShip.com, Inc. in exchange for
issuance of 8 million shares of Stamps.com common stock.

2. To increase by 2.5 million the number of shares of Stamps.com common
stock issuable under Stamps.com's 1999 stock incentive plan.

Stamps.com will transact no other business at the special meeting, except
such business as may properly be brought before the Stamps.com special meeting
or any adjournment of it by the board of directors.

Only holders of record of Stamps.com common stock at the close of business
on November 17, 1999, the record date for the Stamps.com special meeting, are
entitled to notice of, and to vote at, the Stamps.com special meeting and any
adjournments or postponements of it.

Stamps.com cannot complete the acquisition of iShip.com unless the holders
of a majority of the shares of Stamps.com common stock present and entitled to
vote at the special meeting vote in favor of both proposals. None of
Stamps.com's stockholders will have appraisal rights in connection with the
acquisition.

Whether or not you plan to attend the Stamps.com special meeting, please
complete, sign and date the enclosed proxy card and return it promptly in the
enclosed postage paid envelope. Internet Voting.

By Order of the Board of Directors

Michael A. Zuercher
Senior Director, Legal Affairs and
Secretary

Santa Monica, California
November , 1999
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TABLE OF CONTENTS

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QUESTIONS AND ANSWERS ABOUT THE ACQUISITION............................... 1

SUMMARY................................................................... 1
The Companies........................................................... 1
The Acquisition......................................................... 1
Recommendation of Stamps.com's Board of Directors....................... 2
Recommendation of iShip.com Board of Directors.......................... 2
Opinion of Stamps.com's Financial Advisor............................... 2
Conditions to the Acquisition........................................... 2
Termination of the Merger Agreement..................................... 2
Termination Payment..................................................... 3
Accounting Treatment.................................................... 3
Expenses................................................................ 3
The Merger is Intended to Qualify as a Tax-Free Reorganization.......... 3
Market Price and Dividend Information................................... 3
Vote Required of Stamps.com's Stockholders and iShip.com's
Shareholders........................................................... 4
Ownership of Shares by Directors and Officers........................... 4
Dissenter's Rights...................................................... 4
Comparison of Rights of Stamps.com's Stockholders and iShip.com's
Regulatory Matters Shareholders........................................ 4
Comparative Per Share Data.............................................. 4
Selected Historical Financial Data...................................... 6
Stamps.com.............................................................. 6
iShip.com............................................................... 7
Unaudited Pro Forma Combined Financial Data............................. 8
Where You Can Find More Information..................................... 8

RISK FACTORS.............................................................. 10
The exchange ratio for Stamps.com common stock to be issued in the
acquisition is fixed and will not be adjusted in the event of any
change in stock price.................................................. 10
The integration of Stamps.com and iShip.com following the acquisition
will present significant challenges. Stamps.com and iShip.com may not
be able to realize the benefits anticipated from the acquisition....... 11
The merger may cause customers to delay purchasing decisions............ 12
The price of the stock of the merged company may be affected by factors
different from those affecting the price of Stamps.com or iShip.com.... 11
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The market price of Stamps.com common stock may be affected by the
Stamps.com follow-on offering.......................................... 11
If Stamps.com does not effectively manage the commercial release of
Stamps.com's Internet Postage service, Stamps.com's business will be
harmed................................................................. 11
Success by Pitney Bowes in its suit against us alleging patent
infringement could prevent Stamps.com from offering Internet Postage
service and severely harm Stamps.com's business or cause it to fall.... 12
The Internet postage and shipping markets are new and uncertain and
Stamps.com's business may not develop.................................. 12
Stamps.com has a history of losses and expect to incur losses in the
future, and Stamps.com may never achieve profitability................. 13
If Stamps.com cannot effectively manage its growth, its ability to
provide services will suffer........................................... 14
If Stamps.com is unable to maintain and develop its strategic
relationships and distribution arrangements, Stamps.com's Internet
Postage service may not achieve commercial acceptance.................. 14
Stamps.com faces risks typical of early stage companies and of new and
rapidly changing markets............................................... 15
If Stamps.com does not achieve the brand recognition necessary to
succeed in the Internet postage market, its business will suffer....... 15
System and online security failures could harm Stamps.com's business and
operating results...................................................... 15
If Stamps.com does not expand its product and service offerings, its
business may not grow.................................................. 16
Fluctuations in Stamps.com's operating results could cause its stock
price to fall.......................................................... 16
Stamps.com relies on a relatively new management team and needs
additional personnel to grow its business.............................. 17
Third party assertions of violations of their intellectual property
rights could adversely affect Stamps.com's business.................... 18
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i
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A failure to protect Stamps.com's own intellectual property could harm
Stamps.com's competitive position...................................... 18
If the internal and third-party equipment and software that Stamps.com
uses is not Year 2000 compliant, Stamps.com's operating results, brand
and reputation could be impaired and Stamps.com could lose customers... 18
Stamps.com's growth and operating results could be impaired if
Stamps.com is unable to meet Stamps.com's future capital requirements.. 19
Stamps.com could be required to register as an investment company and
become subject to substantial regulation that would interfere with
Stamps.com's ability to conduct Stamps.com's business.................. 20
Stamps.com's management has broad discretion over use of the proceeds
from the Stamps.com follow-on offering and may not use the proceeds
effectively............................................................ 20
If Stamps.com does not respond effectively to technological change,
Stamps.com's service could become obsolete and Stamps.com's business
will suffer............................................................ 20
If Stamps.com is unable to compete successfully, particularly against
large, traditional providers of postage products such as Pitney Bowes
who enter the online postage market, Stamps.com's revenues and
operating results will suffer.......................................... 21
The success of Stamps.com's business will depend on the continued growth
of the Internet and the acceptance by customers of the Internet as a
means for purchasing postage........................................... 22
US Postal Service regulation may cause disruptions or the discontinuance
of Stamps.com's business............................................... 22
Stamps.com's operating results could be impaired if Stamps.com or the
Internet become subject to additional government regulation and legal
uncertainties.......................................................... 23
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If Stamps.com markets Stamps.com's Internet Postage service
internationally, government regulation could disrupt Stamps.com's
operations............................................................. 23
The rights of Stamps.com's stockholders and iShip.com shareholders could
be adversely affected because of the concentrated control of
Stamps.com's stock..................................................... 24
Stamps.com's charter documents could deter a takeover effort, which
could inhibit your ability to receive an acquisition premium for your
shares................................................................. 24
Additional shares held by existing Stamps.com stockholders may be sold
into the public market in the near future, which could cause
Stamps.com's stock price to decline.................................... 24

INFORMATION REGARDING FORWARD LOOKING STATEMENTS.......................... 25

THE SPECIAL MEETING....................................................... 27
Date, Time and Place.................................................... 27
Purpose of the Stamps.com Special Meeting............................... 27
Record Date; Stock Entitled to Vote; Quorum............................. 27
Votes Required.......................................................... 27
Voting by Stamps.com's Directors and Executive Officers................. 27
Voting of Proxies....................................................... 28
Revocability of Proxies................................................. 28
Solicitation of Proxies................................................. 28

THE ISHIP.COM WRITTEN CONSENT............................................. 29
Consents Solicited...................................................... 29
Consents Required....................................................... 29
Outstanding Shares...................................................... 29
Support Agreements...................................................... 29

THE MERGER................................................................ 30
Background of the merger................................................ 30
Reasons for the merger and Stamps.com's and iShip.com's board of
directors recommendations.............................................. 32
Opinion of Stamps.com's financial advisor .............................. 34
Accounting treatment and future reporting............................... 39
Directors and management after the acquisition.......................... 39
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Comparison of Rights of Stamps.com's Stockholders and iShip.com's
Shareholders........................................................... 39

THE MERGER AGREEMENT...................................................... 43
Terms of the Merger..................................................... 43
Exchange of New Stock Certificates...................................... 44
Representations and Warranties.......................................... 45
Covenants............................................................... 46
No Solicitation of Transactions......................................... 46
Conditions to the Merger................................................ 47
Termination............................................................. 47
Termination Fees and Expenses........................................... 48
Federal Income Tax Considerations....................................... 48
RELATED AGREEMENTS........................................................ 50
Support Agreements...................................................... 50
Employment Agreements................................................... 50
Lock-Up Agreements...................................................... 50
APPROVAL OF AMENDMENT TO STAMPS.COM'S 1999 STOCK INCENTIVE PLAN........... 51
Equity Incentive Programs............................................... 51
Share Reserve........................................................... 51
Eligibility............................................................. 52
Valuation............................................................... 52
Discretionary Option Grant Program...................................... 52
Salary Investment Option Grant Program.................................. 53
Stock Issuance Program.................................................. 53
Automatic Option Grant Program.......................................... 54
Director Fee Option Grant Program....................................... 54
Limited Stock Appreciation Rights....................................... 55
Predecessor Plan........................................................ 55
Stock Awards............................................................ 55

OPTION TRANSACTIONS....................................................... 56
New Plan Benefits....................................................... 56
General Provisions...................................................... 56
Acceleration............................................................ 56
Stockholder Rights and Option Transferability........................... 57
Changes in Capitalization............................................... 57
Financial Assistance.................................................... 57
Special Tax Election.................................................... 57
Amendment and Termination............................................... 58
Federal Income Tax Consequences......................................... 58
Option Grants........................................................... 58
Incentive Options....................................................... 58
Non-Statutory Options................................................... 58
Direct Stock Issuance................................................... 59
Deductibility of Executive Compensation................................. 59
Accounting Treatment.................................................... 59
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Vote Required.......................................................... 60

PRICE RANGE OF STAMPS.COM COMMON STOCK................................... 61

DIVIDEND POLICY.......................................................... 61

CAPITALIZATION........................................................... 62

SELECTED FINANCIAL DATA.................................................. 64
STAMP.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 64
Overview............................................................... 64
Results of Operations.................................................. 65
Liquidity and Capital Resources........................................ 65
Year 2000.............................................................. 66
Recently Issued Accounting Pronouncements.............................. 67

SELECTED FINANCIAL DATA OF ISHIP.COM..................................... 68

ISHIP.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 69
Overview............................................................... 69
iShip.com's Results of Operations...................................... 69
Liquidity and Capital Resources........................................ 70
Year 2000.............................................................. 71
Recently Issued Accounting Pronouncements.............................. 72
Market for iShip.com's Common Equity and Related Shareholder Matters... 72

Quantitative and Qualitative Disclosures About iShip.com's Market
Risk.................................................................. 72
STAMPS.COM............................................................... 74
Stamps.com............................................................. 74
Overview of Stamps.com's Industry...................................... 74
Growth of Internet Commerce.......................................... 74
Rapid Growth in Internet Usage by Small Businesses................... 75
Traditional Postage Industry and the Emergence of the Internet
Postage............................................................. 75
The Stamps.com's Solution.............................................. 76
Stamps.com's Strategy.................................................. 77
Stamps.com's Internet Postage Service.................................. 78
The US Postal Service Certification Process............................ 79
Stamps.com's Certification Progress and Commercial Release............. 80
Stamps.com's Strategic Distribution Partners........................... 80
Stamps.com's Marketing and Sales....................................... 80
Stamps.com's Competition............................................... 81
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Stamps.com's Technology................................................. 83
Stamps.com's Intellectual Property...................................... 83
Stamps.com's Employees.................................................. 83
Stamps.com's Properties................................................. 84
Legal Proceedings....................................................... 84

ISHIP.COM................................................................. 85
Traditional Shipping Industry and the Emergence of Internet-Based
Shipping............................................................... 85
The iShip.com Solution.................................................. 85
iShip.com's Strategy.................................................... 85
iShip.com's Internet-Based Shipping Service............................. 86
iShip.com's Strategic Partners.......................................... 86
iShip.com's Sales and Marketing......................................... 87
iShip.com's Competition................................................. 87
iShip.com's Technology.................................................. 88
iShip.com's Intellectual Property....................................... 88
iShip.com's Employees................................................... 89
iShip.com's Properties.................................................. 89

MANAGEMENT................................................................ 90
Stamps.com's Directors and Executive Officers........................... 90
Stamps.com's Classified Board of Directors.............................. 93
Stamps.com's Board Committees........................................... 93
Stamps.com's Compensation Committee Interlocks and Insider
Participation.......................................................... 94
Stamps.com's Director Compensation and Other Arrangements............... 94
Stamps.com's Executive Compensation..................................... 94
1999 Stock Incentive Plan............................................... 97
1999 Employee Stock Purchase Plan....................................... 97
iShip.com's Executive Officers.......................................... 98

RELATED PARTY TRANSACTIONS................................................ 100
Sales of Securities..................................................... 100
Transactions with Mr. Ananda............................................ 100
Consulting Services..................................................... 100
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PRINCIPAL STAMPS.COM STOCKHOLDERS......................................... 102

PRINCIPAL ISHIP.COM SHAREHOLDERS.......................................... 104

Certain Relationships and Related Transactions.......................... 105
DESCRIPTION OF STAMPS.COM CAPITAL STOCK................................... 107
Common Stock............................................................ 107
Preferred Stock......................................................... 107
Warrant................................................................. 107
America Online Investment............................................... 107
Anti-Takeover Effects of Provisions of Delaware Law and Stamps.com's
Certificate of Incorporation and Bylaws................................ 108
Registration Rights..................................................... 109
Transfer Agent and Registrar............................................ 109
Listing................................................................. 109

RIGHTS OF DISSENTING ISHIP.COM SHAREHOLDERS............................... 110

SHARES ELIGIBLE FOR FUTURE SALE........................................... 112

LEGAL MATTERS............................................................. 112

EXPERTS................................................................... 112

WHERE YOU CAN FIND ADDITIONAL INFORMATION................................. 113

STOCKHOLDER PROPOSALS FOR STAMPS.COM'S NEXT ANNUAL MEETING................ 113

INDEX TO FINANCIAL STATEMENTS............................................. F-1

Annex A--Agreement and Plan of Merger..................................... A-1

Annex B--Opinion of Thomas Weisel Partners LLC............................ B-1

Annex C--Washington Dissenters' Rights Statute............................ C-1
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QUESTIONS AND ANSWERS ABOUT THE ACQUISITION

Q: Why is Stamps.com proposing to acquire iShip.com?

A: This is a unique opportunity to acquire a complementary Internet shipping
business which will provide Stamps.com the opportunity to offer a complete
one-stop mailing, shipping and tracking solution.

Q: Why is iShip.com proposing to be acquired?

A: The acquisition will allow iShip.com's shareholders to participate in the
creation of a leading provider of Internet postage and shipping services.

Q: If Stamps.com is not itself merging why are Stamps.com's stockholders being
asked to vote?

A: Stamps.com's common stock is traded on the Nasdaq National Market, which
requires that Stamps.com's stockholders approve the merger agreement because
Stamps.com will issue more than twenty percent of its outstanding shares of
common stock in exchange for iShip.com's outstanding stock, options and
warrants It is necessary for Stamps.com's stockholders to approve the
proposed increase in options available for grant in order for those options
to be eligible for favorable tax treatment.

Q: Can Stamps.com stockholders change their vote after they have sent a proxy
authorization?

A: Yes. A vote can be changed at any time before the proxy is voted at the
special meeting. This can be done in one of three ways. First, you can send
a written notice stating that you would like to revoke your proxy. Second,
you can complete and deliver a new proxy. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy to
Stamps.com's Secretary at 3420 Ocean Park Blvd., Suite 1040, Santa Monica,
California 90405. Third, you can attend the Stamps.com special meeting and
vote in person.

Q: If my Stamps.com shares are held in "street name" by a broker, will the
broker vote the shares for the shareholder?

A: The broker will vote the Stamps.com shares only if they are provided
instructions on how to vote. Follow the directions provided by the broker
regarding how to instruct the broker to vote the shares. Without
instructions, the shares will not be voted.

Q: When do you expect the acquisition to be completed?

A: Stamps.com and iShip.com are working to complete the acquisition as soon as
possible. Stamps.com and iShip.com expect to complete the acquisition during
the fourth quarter of 1999.

Q: Who can help answer my questions?

A: If you have questions about the acquisition or if you need additional copies
of this document or the enclosed proxy, you should contact:

[MacKenzie Partners Logo]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885

v
<PAGE>

John E. Jamerson
Chief Financial Officer
iShip.com, Inc.
3535 Factoria Boulevard S.E., Suite 500
Bellevue, Washington 98006
Telephone: (425) 602-4848
E-mail: [email protected]

Q: When should I send in my iShip.com stock certificates?

A: iShip.com will send you a letter of transmittal for surrendering
certificates representing shares of iShip.com capital stock. Do not send in
your certificates until you receive the letter of transmittal.

vi
<PAGE>

SUMMARY

You should read the following summary together with the more detailed
information and financial statements and the notes to those statements
appearing elsewhere in this document. This document contains forward looking
statements that involve risks and uncertainties. Stamps.com's actual results
could differ materially from the results anticipated in these forward looking
statements as a result of the factors set forth under "Risk Factors" and
elsewhere in this document.

The Companies

Stamps.com Inc.
3420 Ocean Park Blvd., Suite 1040
Santa Monica, California 90405
(310) 581-7200

Stamps.com offers a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. Stamps.com's core service is
approved by the US Postal Service and enables users to print information-based
indicia, or electronic stamps, directly onto envelopes, labels or business
documents using ordinary laser or inkjet printers. Stamps.com's service is
currently the only commercially available offering that requires no additional
hardware to purchase and print postage; the user's existing PC, printer and
Internet setup are sufficient. Accessing the Stamps.com service is simple.
Stamps.com's free software can be downloaded from the Internet or installed
from a free CD-ROM. After installing the software and completing a brief
registration process, customers can purchase and print postage 24 hours a day,
seven days a week from their PCs. Customers are charged a monthly convenience
fee based on their usage of service. Stamps.com's technology meets strict US
government security standards and our service incorporates US Postal Service-
mandated address verification features to enhance the efficiency of mail
processing and delivery. In addition, Stamps.com's Internet Postage(TM) service
is designed to interact with word processing, contact and address management,
accounting and corporate applications to stamp letters, invoices, statements,
checks and other business documents automatically.

On October 22, 1999, Stamps.com commercially launched its Internet Postage
service. Stamps.com was incorporated in Delaware as StampMaster, Inc. in
January 1998 and changed its name to Stamps.com Inc. in December 1998.
Information contained on Stamps.com's Web site does not constitute part of this
document.

Stamps.com is currently offering to sell 5 million shares of Stamps.com
common stock in a firm commitment underwritten offering. Those shares are
offered by a different registration statement and the related prospectus.
Stamps.com can not assure you that the follow-on offering will be completed, at
what price it will be completed, or whether that offering will affect the
market price of shares of Stamps.com's stock. The completion of the acquisition
is not contingent on completion of the follow-on offering nor is completion of
the follow-on offering contingent on completion of the acquisition.

iShip.com, Inc.
3535 Factoria Blvd. S.E., Suite 500
Bellevue, Washington 98006
(425) 602-4848

iShip.com has developed Web-based technology that provides a complete, one-
stop shipping and tracking solution. iShip.com's tools are designed to help
consumers, small businesses and large corporations price, ship, track and
manage shipments over the Internet. iShip.com's service will enable a
comparison of rates and services among multiple carriers, including Airborne
Express, Federal Express, UPS, the US Postal Service and Yellow Freight
Systems. iShip.com was incorporated in Washington as MoveIt! Software, Inc. in
May 1997 and changed its name to iShip.com, Inc. in May 1998. Information
contained on iShip.com's Web site does not constitute part of this document.

The Acquisition (see page )

To accomplish the acquisition a wholly owned subsidiary of Stamps.com will
be merged into iShip.com and, as a result, iShip.com will become a
1
<PAGE>

wholly owned subsidiary of Stamps.com. In connection with the acquisition,
Stamps.com will issue up to 8 million shares of its common stock to the equity
holders of iShip.com. Eight million shares of Stamps.com common stock had a
market value of approximately $ million based upon the closing price of
Stamps.com common stock on the Nasdaq National Market on November , 1999.
Stamps.com and iShip.com incorporate by reference the full text of the merger
agreement, which is attached as Annex A. You should read the merger agreement
carefully in its entirety.

Recommendation of Stamps.com's Board of Directors (see page )

After careful consideration, the Stamps.com board of directors has
unanimously approved the merger and unanimously recommends that you vote in
favor of the approval of the merger agreement and the 2.5 million share
increase in the number of shares of Stamps.com common stock covered by
Stamps.com's 1999 stock incentive plan.

Recommendation of iShip.com Board of Directors (see page )

After careful consideration, the iShip.com board of directors has
unanimously approved the merger and unanimously recommends that you consent to
the approval of the merger and the merger agreement.

Opinion of Stamps.com's Financial Advisor (see page )

Thomas Weisel Partners LLC, has delivered its written opinion dated October
27, 1999 to the Stamps.com board of directors that, as of that date and on the
basis of and subject to the matters described in the opinion, the consideration
to be paid to iShip.com's shareholders in the merger was fair, from a financial
point of view, to Stamps.com. The full text of the written opinion of Thomas
Weisel Partners, which sets forth assumptions made, matters considered and the
scope of the renew undertaken, is attached as Annex B. The opinion is addressed
to Stamps.com board of directors and is not a recommendation as to how Stamps.
com stockholders should vote at the Stamps.com special meeting. You should read
the opinion of Thomas Weisel Partners carefully in its entirety.

Conditions to the Acquisition (see page )

Stamps.com and iShip.com will not complete the acquisition unless a number
of conditions are satisfied or waived by Stamps.com and iShip.com. These
include:

. approval by Stamps.com's stockholders and iShip.com's shareholders.

. Stamps.com's retention of many of iShip.com's key employees.

. the continued effectiveness of support agreements from some of
iShip.com's shareholders.

. receipt of opinions from Stamps.com's and iShip.com's respective counsel
that the merger will qualify as a tax-deferred reorganization under the
Internal Revenue Code.

Termination of the Merger Agreement (see page )

Stamps.com and iShip.com may terminate the merger agreement by mutual
written consent, after receiving the approval of both Stamps.com's and
iShip.com's boards of directors.

Either company may terminate the merger agreement if it is not in material
breach of the merger agreement and if:

. Stamps.com and iShip.com do not complete the merger by February 29,
2000.

. a final court order, which can not be appealed, prevents the completion
of the merger.

. any governmental or regulatory authority enacts a law or rule that would
make the merger illegal.

. any governmental or regulatory authority enacts a law or order that
would compel Stamps.com's disposition or separately holding any portion
of iShip.com's properties.

Stamps.com may terminate the merger agreement if:

. any governmental or regulatory authority enacts a law or order that
would prohibit

2
<PAGE>

Stamps.com's ownership or operation of any part of iShip.com's business.

. iShip.com breaches any representation, warranty, covenant or agreement
contained in the merger agreement and has not cured the breach within 15
days.

Termination Payment (see page )

iShip.com will be required to pay Stamps.com a termination fee of $5 million
if iShip.com breaches its obligations under the merger agreement with respect
to not seeking or entertaining third-party acquisition proposals.

Accounting Treatment (see page )

Stamps.com will account for the acquisition using the purchase method of
accounting under generally accepted accounting principles. Stamps.com will
therefore recognize goodwill in connection with the acquisition which will be
amortized as an expense over an appropriate period.

Expenses (see page )

Stamps.com and iShip.com will bear their respective expenses incurred in
connection with the merger. If the acquisition is completed, Stamps.com and
iShip.com agree that the first $200,000 of transaction costs plus all costs
incurred in connection with the preparation of this document would be incurred
by iShip.com and any expenses in excess of that amount would reduce the value
of the consideration received by iShip.com's shareholders. Stamps.com's
expenses include the costs of filing with the Securities and Exchange
Commission the registration statement of which this document is a part,
printing and mailing this document.

The Merger is Intended to Qualify as a Tax-Free Reorganization (see page )

iShip.com and Stamps.com intend that the merger will qualify as a tax-free
reorganization for United States federal income tax purposes. If the merger
qualifies as a tax-free reorganization, shareholders of iShip.com will
generally not recognize gain or loss for United States federal income tax
purposes upon the receipt of Stamps.com common stock in the acquisition. It is
a condition to completion of the merger that Stamps.com and iShip.com each
receives a legal opinion from its counsel to the effect that the acquisition
constitutes a reorganization within the meaning of the Internal Revenue Code.

Market Price and Dividend Information (see page )

Shares of Stamps.com common stock are listed on the Nasdaq National Market
under the symbol "STMP." iShip.com is a privately held company. The following
table presents:

. the last reported sale price of one share of Stamps.com common stock, as
reported on the Nasdaq National Market.

. the market value of one share of iShip.com common stock on an equivalent
per share basis as if the merger had been completed on October 22, 1999,
the last full trading day prior to the public announcement of the
proposed merger, and on November , 1999, the last day for which such
information could be calculated prior to the date of this document. The
equivalent price per share data for iShip.com common stock has been
determined by multiplying the last reported sale price of one share of
Stamps.com common stock on each of these dates by the appropriate
exchange ratio.

<TABLE>
<CAPTION>
Equivalent Price Per Share of iShip.com
Closing Price of --------------------------------------------------
Stamps.com Common Series A Series B
Date Common Stock Stock Preferred Stock Preferred Stock
---- ---------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
October 22, 1999........ $38.1125 $8.66 $9.07 $9.48
November , 1999........ $ $ $ $
</TABLE>

3
<PAGE>

You are urged to obtain current market quotations for Stamps.com common
stock before making a decision with respect to the merger.

Stamps.com has never declared nor paid cash dividends on its capital stock.
Stamps.com currently intends to retain all available funds for use in the
operation and expansion of its business and does not anticipate paying any
cash dividends in the foreseeable future.

Vote Required of Stamps.com's Stockholders and iShip.com's Shareholders

At the special meeting, Stamps.com's stockholders will vote on a resolution
to approve the merger agreement and a resolution to increase by 2.5 million
the number of shares of Stamps.com's common stock issuable under Stamps.com's
1999 stock incentive plan. Other resolutions may be considered if properly
brought before the special meeting or any adjournment of it by your board of
directors. As of the date of this document, Stamps.com's board of directors
knows of no other matters to be brought before the Stamps.com special meeting.

The vote required of Stamps.com's stockholders for each proposal described
in this document is a majority of the shares of Stamps.com present and
entitled to vote the special meeting. Approval by Stamps.com stockholders of
both the resolution to approve the merger agreement and the resolution to
increase the number Stamps.com common stock shares issuable under the stock
incentive plan are conditions to the completion of the acquisition.

The merger agreement and the merger must also be approved by the holders of
(a) a majority of iShip.com's outstanding common stock and (b) at least two-
thirds of the outstanding shares of iShip.com's Series A Preferred Stock and
Series B Preferred Stock, voting together. iShip.com is soliciting the written
consent of its shareholders approving the merger agreement and the merger
which it currently expects to receive before the special meeting.

Ownership of Shares by Directors and Officers

As of October 31, 1999, Stamps.com directors and executive officers owned
of record 3,920,169 shares of Stamps.com common stock, representing
approximately 11.2% of the outstanding shares. Each of Stamps.com's directors
and executive officers intends to vote at the special meeting in favor of the
approval of the merger agreement and the increase in the number of shares of
Stamps.com common stock issuable under Stamps.com's 1999 stock incentive plan.
As of October 31, 1999, iShip.com's directors and executive officers owned of
record 22,021,223 shares, or approximately % of the outstanding shares, of
iShip.com common stock, shares, or approximately % of the
outstanding shares, of iShip.com Series A Preferred and shares, or
approximately % of the outstanding shares, of iShip.com Series B Preferred
Stock. Each of iShip.com's directors and executive officers intend to provide
a written consent to approve the merger agreement and the merger.

Dissenter's Rights

Stamps.com's stockholders will not have dissenter's rights in connection
with the acquisition. iShip.com's shareholders have dissenter's rights under
Washington law in connection with the acquisition. Stamps.com is not obligated
to complete the merger if the holders of more than 5% of iShip.com's
outstanding shares exercise dissenter's rights.

Comparison of Rights of Stamps.com's Stockholders and iShip.com's Shareholders
(see page )

If the acquisition is completed, holders of iShip.com capital stock will
receive shares of Stamps.com common stock. There are numerous differences
between the rights of a shareholder in iShip.com, a Washington corporation,
and the rights of a stockholder in Stamps.com, a Delaware corporation. For
example, the rights of iShip.com shareholders are currently governed by the
Washington Business Corporation Act, iShip.com's articles of incorporation and
iShip.com's bylaws. The rights of Stamps.com stockholders are and will be
governed by the Delaware General Corporation Law, Stamps.com's certificate of
incorporation and Stamps.com's bylaws.

Regulatory Matters

No regulatory approvals, filings or consents are required to complete the
acquisition.

4
<PAGE>

Comparative Per Share Data

The following tables present unaudited historical and pro forma per share
data that reflect the completion of the acquisition based upon the historical
financial statements of Stamps.com and iShip.com. The pro forma adjustments are
based upon available information and certain assumptions Stamps.com that
believes are reasonable in the circumstances. The pro forma data are not
indicative of the results of future operations or the actual results that would
have occurred had the acquisition been consummated at the beginning of the
periods presented. You should read the data presented below together with the
historical consolidated financial statements, including applicable notes, and
the unaudited pro forma condensed combined financial data.

The average common shares outstanding used in calculating pro forma loss per
share of common stock are calculated assuming that the estimated 6,304,000
shares of Stamps.com common stock to be issued in the acquisition were
outstanding from the beginning of the periods presented.

The book value per share of Stamps.com common stock was calculated by
dividing stockholders' equity by the number of shares Stamps.com common stock
outstanding, at the end of the period. The number of shares of Stamps.com
common stock outstanding used in calculating pro forma combined book value per
common share are 34,864,807 of Stamps.com common stock outstanding at September
30, 1999 plus 6,304,000 million shares representing the estimated number of
common shares to be issued in the merger. This calculation excludes 1,696,000
shares reserved for option and warrant holders of iShip.com common stock, 5
million shares issuable in the follow-on offering and 327,498 shares issued to
America Online, Inc.

iShip.com pro forma equivalent amounts are calculated by multiplying the
applicable exchange ratio times the number of outstanding shares as of
September 30, 1999.

<TABLE>
<CAPTION>
Three months Nine months Year ended
ended and at ended and at and at
September 30, September 30, December 31,
1999 1999 1998(1)
------------- ------------- ------------
<S> <C> <C> <C>
Stamps.com-Historical
Earnings (Loss) Per Common Share
Basic and diluted.................... (0.40) (1.59) (0.85)
Cash Dividend Per Common Share......... -- -- --
Book Value Per Common Share............ 1.95 4.60 (0.80)

iShip.com-Historical
Earnings (Loss) Per Common Share
Basic and Diluted.................... (0.07) (0.55) (0.29)
Cash Dividend Per Common Share......... -- -- --
Book Value Per Common Share............ 0.03 0.78 0.18

Stamps.com Pro forma
Earnings (Loss) Per Common Share
Basic and diluted.................... (5.39) (10.64)
Cash Dividend Per Common Share......... -- -- --
Book Value Per Common Share............ 1.66 3.22 (0.31)
v
iShip.com-Pro Forma equivalent
Earnings (Loss) Per Common Share
Basic and Diluted.................... (0.06) (0.17) (0.14)
Cash Dividend Per Common Share......... -- -- --
Book Value Per Common Share............ 0.03 0.78 0.09
</TABLE>
- --------
(1) Stamps.com date of inception is January 9, 1998; accordingly all
information is from the date of inception to December 31, 1998.

5
<PAGE>

Selected Historical Financial Data

Stamps.com and iShip.com are providing the following historical financial
information to aid you in your analysis of the financial aspects of the
acquisition. The information is only a summary and you should read it together
with Stamps.com and iShip.com financial statements and other financial
information, from which this information was derived.

Stamps.com

The following table sets forth Stamps.com's and iShip.com's historical
financial data for the periods ending December 31, 1998 the past three months.
Net loss per share is computed on the basis described in the notes to
Stamps.com's financial statements.

The following selected financial data should be read with the financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of Stamps.com
included elsewhere in this document. The statement of operations data for the
period from inception through December 31, 1998 and the balance sheet data at
December 31, 1998, are derived from Stamps.com's financial statements which
have been audited by Arthur Andersen LLP, Stamps.com's independent public
accountants, and are included elsewhere in this document. The statements of
operations data for the period January 9, 1998 (inception) through September
30, 1999, are derived from Stamps.com's unaudited interim financial statements
included elsewhere in this document. The statement of operations data displayed
in the "Pro Forma for iShip.com Acquisition" column give effect to the
acquisition as if it were completed on January 1, 1999. The pro forma general
and administrative expenses include expenses related to the amortization of
intangibles, which would have been $85.3 million for the nine months ended
September 30, 1999. The balance sheet data displayed in the "As Adjusted and
Pro Forma for iShip.com Acquisition" column reflect the assumed and estimated
net proceeds of $273 million from the follow-on offering of 5,000,000 shares at
an assumed price to the public of $57.50 per share which was Stamps.com's
closing price on October 29, 1999 and $11 million from the sale of 327,498
shares of common stock to AOL as well as the proposed iShip.com acquisition as
if it were completed on September 30, 1999. Stamps.com's unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and, in the opinion of Stamps.com's management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the results of operations for these periods. Please be
advised that historical results are not necessarily indicative of the results
to be expected in the future, and results of interim periods are not
necessarily indicative of results for the entire year.

<TABLE>
<CAPTION>
Nine Months Ended
Period from Period from September 30, 1999
January 9, 1998 January 9, 1998 -------------------------
(inception) to (inception) to Pro Forma for
December 31, September 30, iShip.com
1998 1998 Actual Acquisition
--------------- --------------- ----------- -------------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development........... 1,532 548 5,049 6,542
Sales and marketing.... 632 -- 10,856 11,090
General and
administrative........ 2,016 1,126 8,276 95,592
------- ------- -------- ---------
Total costs and
expenses............ 4,180 1,674 24,181 113,224
------- ------- -------- ---------
Loss from operations.... (4,180) (1,674) (24,181) (113,224)
Interest expense, net... (16) (2) 1,078 1,214
------- ------- -------- ---------
Net loss................ $(4,196) $(1,676) $(23,103) $(112,010)
======= ======= ======== =========
Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59) $ (5.39)
======= ======= ======== =========
Pro forma basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74) $ (2.98)
======= ======= ======== =========
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation............ 4,956 4,738 14,496 20,800
Weighted average shares
outstanding used in pro
forma basic and diluted
net loss per share
calculation............ 11,593 9,613 31,260 37,564
</TABLE>

6
<PAGE>

<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------
As Adjusted and
As of Pro Forma for
December 31, iShip.com
1998 Actual Acquisition
------------ ----------- ---------------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $3,470 $61,198 $350,704
Working capital...................... 1,385 61,380 349,863
Total assets......................... 4,426 74,185 781,678
Line of credit, capital lease
obligations and other long-term
liabilities......................... 1,473 1,972 4,000
Redeemable preferred stock........... 5,978 -- --
Total stockholders' equity
(deficit)........................... (3,951) 66,652 771,429
</TABLE>

Stamps.com's statement of operations data for the period from inception
through December 31, 1998 excludes approximately $35,000 of expenses incurred
prior to incorporation. Prior to incorporation, the founders of Stamps.com
primarily investigated the feasibility of entering into the US Postal Service's
Information Based Indicia Program and initiated the certification process.

Please refer to note 1 of the notes to Stamps.com's financial statements for
a description of the method used to compute basic and diluted loss per share
and pro forma basic and diluted loss per share. Stamps.com's pro forma loss per
share calculations give effect to the conversion of all outstanding shares of
Stamps.com's preferred stock into share of Stamps.com common stock upon closing
of Stamps.com's initial public offering as if such conversion occurred at
inception or the date of original issue, if later.

iShip.com

The following selected financial data of iShip.com should be read with the
financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
iShip.com included elsewhere in this document. The statement of operations data
for the year ended December 31, 1998 and the balance sheet data at December 31,
1998 are derived from iShip.com's financial statements which have been audited
by Moss Adams, LLP, iShip.com's independent public accountants, and are
included elsewhere in this document. The statements of operations data for the
nine months ended September 30, 1998 and the nine months ended September 30,
1999, and the balance sheet data at September 30, 1999, are derived from
iShip.com's unaudited interim financial statements included elsewhere in this
document. iShip.com's unaudited financial statements have been prepared on
substantially the same basis as the audited consolidated financial statements
and, in the opinion of iShip.com's management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the results of operations for these periods. Please be advised that
historical results are not necessarily indicative of the results to be expected
in the future, and results of interim periods are not necessarily indicative of
results for the entire year.

<TABLE>
<CAPTION>
Nine months Nine months
ended and at ended Year
September 30, September 30, ended and at
1999 1998 December 31, 1998
------------- ------------- -----------------
(in thousands, except per share data)
<S> <C> <C> <C>
Income Statement Data:
Revenues........................ $ -- $ -- $ --
Operating income (loss)......... (3,755) (1,299) (1,951)
Net income (loss)............... (3,619) (1,224) (1,854)
Loss per common share
Basic and Diluted............... $ (.55) $ (.19) $ (.29)
Dividends per common share...... -- -- --
Balance Sheet Data:
Total assets.................... $ 7,849 $ 1,627
Total debt...................... 1,592 378
Shareholders' equity............ 5,132 1,130
</TABLE>

7
<PAGE>

Unaudited Pro Forma Combined Financial Data

The following unaudited selected pro forma combined condensed financial
data are derived from the unaudited pro forma combined financial information
included elsewhere in this document and should be read together with that data
and with the notes to that data. These unaudited selected pro forma financial
data:

. are based upon the historical financial statements of iShip.com and
Stamps.com as of and for the nine months ended September 30, 1999 and
for the year ended December 31, 1998.

. are adjusted to give effect to the acquisition.

These unaudited selected pro forma financial data are for illustrative
purposes only and do not necessarily indicate the operating results or
financial position that would have been achieved had the merger been completed
as of the dates indicated or of the results that may be obtained in the
future. These data also exclude the effects of the follow-on offering and the
issuance of shares to America Online, Inc. In addition, the data does not
reflect the synergies that might be achieved, if any.

<TABLE>
<CAPTION>
Nine months
ended and at
September 30, 1999
-------------------
(unaudited)
<S> <C>
Income Statement Data:
Revenues............................................... $ --
Operating loss......................................... (113,224)
Net loss............................................... (112,010)
Loss per common share:
Basic and diluted.................................... (5.39)
Dividends per common share............................. 0

<CAPTION>
As of September 30,
1999
-------------------
(unaudited)
<S> <C>
Balance Sheet Data:
Total assets........................................... $ 781,678
Total debt............................................. 4,000
Stockholders' equity................................... 771,429
</TABLE>

Where You Can Find More Information

Stamps.com files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. iShip.com
is a privately held company and does not file reports or other information
with the Securities and Exchange Commission.

You may read and copy any reports, statements or other information on file
at the Securities and Exchange Commission's public reference room located at
450 Fifth Street, NW, Washington, D.C. 20549 or at one of the Securities and
Exchange Commission's other public reference rooms in New York City and
Chicago. Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the public reference rooms. Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at www.sec.gov.

This document is a part of the registration statement on Form S-4 and
constitutes a prospectus. Stamps.com has filed a registration statement on
Form S-4 to register with the Securities and Exchange Commission the shares of
Stamps.com common stock which iShip.com equity holders will receive in the
acquisition.

8
<PAGE>

You may obtain any documents through the Securities and Exchange Commission
or the Securities and Exchange Commission's Internet world wide web site
described above. Documents are also available from Stamps.com without charge,
and may be obtained by a request in writing or by telephone at the following
address:

Mackenzie Partners Logo
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free: (800) 322-2885

If you would like to request documents of Stamps.com, please do so by
November , 1999 to receive them before the special meeting.

You should rely on the information contained in this document. No one has
been authorized to provide you with information that is different from what is
contained in this document. You should not assume that the information
contained in this document is accurate as of any date other than November ,
1999, and neither the mailing of this document to Stamps.com stockholders and
iShip.com shareholders nor the issuance or receipt of shares of Stamps.com
common stock in the acquisition shall create any implication to the contrary.

9
<PAGE>

RISK FACTORS

You should carefully consider the risks described below as well as other
information provided to you in this document in deciding how to vote,
including information in the section of this document entitled "--INFORMATION
REGARDING FORWARD LOOKING STATEMENTS." The risks and uncertainties described
below are not the only ones facing Stamps.com and iShip.com. Additional risks
and uncertainties not presently known to Stamps.com and iShip.com or that
Stamps.com and iShip.com currently believe are immaterial may also impair
Stamps.com's and iShip.com's respective or combined business operations. If
any of the following risks actually occur, Stamps.com's and iShip.com's
businesses, financial condition or results of operations could be materially
adversely affected, the value of the Stamps.com common stock could decline,
and you may lose all or part of your investment.

Stamps.com and iShip.com face risks associated with the acquisition

The exchange ratio for Stamps.com common stock to be issued in the acquisition
is fixed and will not be adjusted in the event of any change in stock price.

Under the merger agreement, each share of iShip.com capital stock will be
converted into the right to receive shares of Stamps.com common stock. The
number of shares of Stamps.com common stock issuable pursuant to the merger
agreement is fixed and will not be adjusted in the event of any increase or
decrease in the price of Stamps.com common stock. The price of Stamps.com
common stock at the closing of the acquisition may vary from the price on the
date of this document and on the date of the special meeting. Stamps.com's
price may vary because of changes in the business, operations or prospects of
Stamps.com or iShip.com, market assessments of the likelihood that the
acquisition will be completed, the timing of the completion of the
acquisition, the prospects of post-acquisition operations, regulatory
considerations, general market and economic conditions and other factors.
Because the date that the acquisition is completed may be later than the date
of the special meeting and the date of the giving of consents, the price of
Stamps.com common stock on the date of the special meeting and date of the
giving of consents may not be indicative of the price on the date the
acquisition is completed. Stamps.com and iShip.com urge you to obtain current
market quotations of Stamps.com common stock.

The market price of Stamps.com's common stock could fluctuate significantly
in response to various factors and events, including:

. operating results below market expectations;

. developments in, and the outcome of, Stamps.com's litigation with Pitney
Bowes;

. announcements of technological innovations or new products by Stamps.com
or Stamps.com's competitors;

. loss of any strategic relationship;

. changes in, or Stamps.com's failure to meet, financial estimates by
securities analysts;

. industry developments;

. economic and other external factors; and

. period-to-period fluctuations in Stamps.com's financial results.

In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of Stamps.com's common stock.
Past stock price performance is not an indication of future performance.

10
<PAGE>

The integration of Stamps.com and iShip.com following the acquisition will
present significant challenges. Stamps.com and iShip.com may not be able to
realize the benefits anticipated from the acquisition.

The acquisition is subject to a number of contingencies, including approval
by the shareholders of iShip.com and the stockholders of Stamps.com and other
customary closing conditions. As a result, there can be no assurance that the
acquisition will be completed. If the acquisition is not completed, the
trading price of Stamps.com's common stock may fall.

If the acquisition is completed, Stamps.com will face significant
challenges in integrating organizations, operations, technology, product lines
and services in a timely and efficient manner and in retaining key personnel
and strategic partnerships of both companies. Cost synergies, revenue growth,
technological development and other synergistic benefits may not materialize.
Diversion of management attention, loss of management-level and other highly
qualified employees, and an inability to integrate management, systems and
operations of these two companies may all result from the acquisition. The
failure to integrate Stamps.com and iShip.com successfully and to manage the
challenges presented by the integration process may result in Stamps.com and
iShip.com not achieving the anticipated potential benefits of the acquisition.
Delays encountered in the transition process could have a material adverse
effect upon the combined company.

Further, the physical expansion in facilities that would occur as a result
of this acquisition may result in disruptions that seriously impair
Stamps.com's business. In particular, if the acquisition is completed,
Stamps.com will have operations in multiple facilities in geographically
distant areas. Stamps.com is not experienced in managing facilities or
operations in geographically distant areas.

The price of the stock of the merged company may be affected by factors
different from those affecting the price of Stamps.com or iShip.com.

Upon completion of the acquisition, holders of iShip.com shares will become
holders of Stamps.com common stock. Stamps.com's business differs from that of
iShip.com, and Stamps.com's operations, as well as the price of Stamps.com
common stock, may be affected by factors different from those affecting a
stand alone entity. For a discussion of Stamps.com business and certain
factors to consider in connection with such businesses, see the discussion
below.

The market price of Stamps.com common stock may be affected by the Stamps.com
follow-on offering.

Stamps.com is currently offering to sell 5 million shares of Stamps.com
common stock in a firm commitment underwritten offering. The completion of the
acquisition is not contingent on completion of the follow-on offering nor is
completion of the follow-on offering contingent upon completion of the
acquisition. The proposed underwriters' for the follow-on offering may be
marketing the follow-on offering between the date of this document and the
date of the giving of consents, the date of the special meeting and
thereafter. Those marketing efforts may affect the trading price of Stamps.com
common stock in a manner that would not otherwise exist in the open market.
You should be aware of this effect when considering the reported market prices
of shares of Stamps.com common stock. Stamps.com's stock price may fall when
these marketing efforts are suspended. Stamps.com and iShip.com cannot assure
you that the follow-on offering will be completed or if it is completed, at
what price it will be completed or how much proceeds Stamps.com will generate
from that offering.

Stamps.com faces risks associated with its operations
which will not be reduced by the acquisition

If Stamps.com does not effectively manage the commercial release of
Stamps.com's Internet Postage service, Stamps.com's business will be harmed.

On August 9, 1999, Stamps.com's Internet Postage service was approved by
the US Postal Service for commercial release. On October 22, 1999, Stamps.com
began to offer the service commercially. Stamps.com will face numerous risks
coincident with the introduction of Stamps.com's services. For example,
Stamps.com's software and Internet Postage service have not yet been subjected
to the demands of widespread commercial use. Stamps.com cannot be sure that
Stamps.com's service will successfully process large numbers of user
transactions. If Stamps.com experiences problems with the scalability or
functionality of Stamps.com's Internet Postage service, Stamps.com's full
commercial deployment could be delayed and Stamps.com's results of operations
would be adversely impacted.

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Stamps.com currently is limited to a total of 100,000 customers until the
US Postal Service completes an evaluation of Stamps.com's service at those
customer levels. Stamps.com is currently conducting a national customer
registration campaign; however, Stamps.com has very limited experience
conducting marketing campaigns, and Stamps.com may fail to generate
significant interest. On the other hand, if Stamps.com experiences extensive
interest in these services, Stamps.com may fail to meet the expectations of
customers due to limited experience in operating these services and the
strains this demand will place on the Stamps.com Web site, network
infrastructure and systems.

Stamps.com's ability to obtain and retain customers depends on the
attractiveness of Stamps.com's service to Stamps.com's customers and on
Stamps.com's customer service capabilities. If Stamps.com is unable at any
time during and after the national launch to address customer service issues
adequately or to provide a satisfactory customer experience for current or
potential customers, Stamps.com's business and reputation may be harmed.

Success by Pitney Bowes in its suit against us alleging patent infringement
could prevent Stamps.com from offering Internet Postage service and severely
harm Stamps.com's business or cause it to fall.

On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against
Stamps.com. The suit alleges that Stamps.com is infringing two patents held by
Pitney Bowes related to postage application systems and electronic indicia.
The suit seeks treble damages, a preliminary and permanent injunction from
further alleged infringement, attorneys' fees and other unspecified damages.
Stamps.com answered the complaint on August 6, 1999, denying the allegations
of patent infringement and asserting a number of affirmative defenses. Pitney
Bowes filed a similar complaint in early June 1999 against one of Stamps.com's
competitors, E-Stamp Corporation, alleging infringement of seven Pitney Bowes
patents.

If Pitney Bowes prevails in its suit against Stamps.com, Stamps.com may be
prevented from selling postage on the Internet. Alternatively, the Pitney
Bowes suit could result in limitations on how Stamps.com implements its
service, delays and costs associated with redesigning Stamps.com's service and
payments of its license fees and other payments. Thus, if Pitney Bowes
prevails in its suit against Stamps.com, its business could be severely harmed
or fail.

In addition, the litigation could result in significant expenses and
diversion of management time and other resources.

On August 17, 1998, Pitney Bowes issued a press release stating that it
holds dozens of US patents related to computer-based postage metering and that
it intended to engage in discussions with other marketers of computer-based
postal products to license Pitney Bowes technology. Prior to Pitney Bowes
filing a lawsuit against Stamps.com, Stamps.com was in license discussions
with Pitney Bowes. Stamps.com intends to continue these discussions; however,
Stamps.com cannot predict whether these discussions will continue, the outcome
of these discussions or the impact of Pitney Bowes' intellectual property
claims on Stamps.com's business or the Internet postage market. If Pitney
Bowes is unable to prevail in its claims against Stamps.com and if Stamps.com
does not enter into a license relationship with Pitney Bowes, Stamps.com's
business could be impacted severely or fail. In addition, as described above,
Pitney Bowes could obtain monetary and injunctive relief against Stamps.com.

The Internet postage and shipping markets are new and uncertain and
Stamps.com's business may not develop.

The market for Internet postage has not developed, and its development is
subject to substantial uncertainty. Stamps.com cannot assure you that the
Internet postage market will develop. Stamps.com depends on the

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commercial acceptance of Stamps.com's Internet Postage service. Stamps.com
cannot predict if Stamps.com's target customers will choose the Internet as a
means of purchasing postage, or if customers will be willing to pay a fee to
use Stamps.com's service, or if potential users will select Stamps.com's
system over Stamps.com's competitors. Stamps.com's target customers often have
alternatives to the US Postal Service and shipping services, including online
invoicing, bill payment and financial transactions. The General Accounting
Office, in a report issued on October 21, 1999, stated that competition from
these alternatives could lead to substantial declines in the US Postal
Service's First Class Mail volume in the next decade. Such trends could limit
the market opportunity for Stamps.com's Internet Postage service.

In addition, if the acquisition is completed, Stamps.com will enter the
market for online shipping services. There can be no assurance that iShip.com
will succeed as a business. The market for online shipping services is new and
uncertain and may not develop. iShip.com faces many risks frequently
experienced by early stage companies and companies in new, rapidly changing
markets. iShip.com has not released its services commercially. It currently
has no customers and no revenues, and its ability to obtain and retain
customers will depend on the attractiveness of its service to its customers
and on its customer service capabilities. If iShip.com experiences significant
system, customer service, security or other problems once it begins commercial
operation, customers may stop using or refuse to try iShip.com's services. In
addition, shippers may terminate or limit their relationships with iShip.com.
The occurrence of these problems could have a material adverse effect on
iShip.com's and Stamps.com's business, financial condition or results of
operations.

Stamps.com has a history of losses and expect to incur losses in the future,
and Stamps.com may never achieve profitability.

As of September 30, 1999, Stamps.com had not generated any revenues and had
a deficit accumulated during the development stage of $27.3 million.
Stamps.com's lack of revenues can be attributed primarily to the fact that
Stamps.com's Internet Postage service had not been released commercially until
October 22, 1999. Due to the need to establish Stamps.com's brand and service,
Stamps.com expects to incur increasing sales and marketing, research and
development, and administrative expenses and therefore could continue to incur
net losses for at least the next several years or longer. As a result,
Stamps.com will need to generate significant revenues to achieve and maintain
profitability.

Stamps.com's ability to generate gross margins generally assumes that if a
market for Internet postage develops, Stamps.com must generate significant
revenues from a large base of active customers. Stamps.com currently charges
Stamps.com's customers a fee to use Stamps.com's Internet Postage service. See
"Business-Stamps.com's Internet Postage Service." However, given the lack of
an established or proven commercial market for Internet postage, Stamps.com
cannot be sure that customers will be receptive to Stamps.com's fee structure.
Even if Stamps.com are able to establish a sizeable base of users, Stamps.com
still may not generate sufficient gross margins to become profitable.

Since inception, iShip.com has not generated any significant revenues and
had an accumulated deficit of $5.9 million as of September 30, 1999. If the
iShip.com acquisition is completed, Stamps.com expects that Stamps.com's
losses will increase even more significantly because of additional costs and
expenses related to:

. an increase in the number of employees;

. an increase in sales and marketing activities;

. additional facilities and infrastructure; and

. assimilation of operations and personnel.

If the iShip.com acquisition is completed, Stamps.com will record a
significant amount of intangibles, the amortization of which will
significantly and adversely affect Stamps.com's operating results. Based on
Stamps.com's closing price of $57.50 per share on October 29, 1999, Stamps.com
expects these intangibles to equal approximately $455 million, which will be
amortized over a four-year period. To the extent Stamps.com does not generate
sufficient cash flow to recover the amount of the investment recorded, the
investment may be

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<PAGE>

considered impaired and could be subject to an immediate write-down of up to
the full amount of the investment. In such event, Stamps.com's net loss in any
given period could be greater than anticipated and the market price of
Stamps.com's stock could decline.

If Stamps.com cannot effectively manage its growth, its ability to provide
services will suffer.

Stamps.com's reputation and ability to attract, serve and retain
Stamps.com's customers depends upon the reliable performance of Stamps.com's
Web site, network infrastructure and systems. Stamps.com has a limited basis
upon which to evaluate the capability of Stamps.com's systems to handle
controlled or full commercial availability of Stamps.com's Internet Postage
service. Stamps.com has recently expanded operations significantly, and
further expansion will be required to address the anticipated growth in
Stamps.com's user base and market opportunities. To manage the expected growth
of operations and personnel, Stamps.com will need to improve existing and
implement new systems, procedures and controls. In addition, Stamps.com will
need to expand, train and manage an increasing employee base. Stamps.com will
also need to expand Stamps.com's finance, administrative and operations staff.
If the acquisition is completed, Stamps.com will need to assimilate
substantially all of iShip.com's operations into Stamps.com's operations.

Stamps.com may not be able to manage Stamps.com's growth effectively.
Stamps.com's current expansion has and will continue to place a significant
strain on Stamps.com's managerial, operational and financial resources.
Stamps.com's current and planned personnel, systems, procedures and controls
may be inadequate to support Stamps.com's future operations. If Stamps.com is
unable to manage growth effectively or experiences disruptions during
expansion, Stamps.com's business will suffer and Stamps.com's financial
condition and results of operations will be seriously affected.

If Stamps.com is unable to maintain and develop its strategic relationships
and distribution arrangements, Stamps.com's Internet Postage service may not
achieve commercial acceptance.

Stamps.com has established strategic relationships with a number of third
parties. Stamps.com's strategic relationships generally involve the promotion
and distribution of Stamps.com's service through Stamps.com's partners'
products, services and Web sites. Additionally, some of Stamps.com's
relationships provide for the inclusion of Stamps.com's logo or promotional
offers for Stamps.com's service in packaging and marketing materials utilized
by Stamps.com's partners. In return for promoting Stamps.com's service,
Stamps.com's partners may receive revenue-sharing opportunities. In order to
achieve wide distribution of Stamps.com's service, Stamps.com believes
Stamps.com must establish additional strategic relationships to market
Stamps.com's service effectively. Stamps.com has limited experience in
establishing and maintaining strategic relationships and Stamps.com may fail
in Stamps.com's efforts to establish and maintain these relationships.

Stamps.com's current strategic relationships have not yet resulted in
significant revenues, primarily because Stamps.com has only recently
commercially released Stamps.com's Internet Postage service. As a result,
Stamps.com's strategic partners may not view their relationships with
Stamps.com as significant or vital to their businesses and consequently, may
not perform according to Stamps.com's expectations. Stamps.com has little
ability to control the efforts of Stamps.com's strategic partners and, even if
Stamps.com is successful in establishing strategic relationships, these
relationships may not be successful.

In addition, if the acquisition is completed, iShip.com will be dependent
on strategic relationships with eBay, Mail Boxes Etc., UPS, Yellow Freight
Systems and the other major U.S. shipping services. If one or more of these
companies terminates or limits its relationship with iShip.com, its business
could be severely harmed or fail. iShip.com has limited experience in
establishing strategic relationships and it may not be able to develop and
maintain them sufficiently for its business to succeed.

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Stamps.com faces risks typical of early stage companies and of new and rapidly
changing markets.

You should consider Stamps.com's prospects in light of the risks and
difficulties frequently encountered by early stage companies and those in new
and rapidly evolving markets. These risks include, among other things,
Stamps.com's:

. ability to meet and maintain government specifications for Stamps.com's
service, specifically US Postal Service requirements;

. complete dependence on a service that currently does not have broad
market acceptance;

. need to expand Stamps.com's sales and support organizations;

. ability to establish and promote Stamps.com's brand name;

. ability to expand Stamps.com's operations to meet the commercial demand
for Stamps.com's service;

. development of and reliance on strategic and distribution relationships;

. ability to prevent and respond quickly to service interruptions;

. ability to minimize fraud and other security risks; and

. ability to compete with companies with greater capital resources and
brand awareness.

If Stamps.com does not achieve the brand recognition necessary to succeed in
the Internet postage market, its business will suffer.

Stamps.com must quickly build the Stamps.com brand to gain market
acceptance for Stamps.com's service. Stamps.com believes it is imperative to
Stamps.com's long term success that Stamps.com obtain significant market share
for Stamps.com's services before other competitors enter the Internet postage
market. Stamps.com must make substantial expenditures on product development,
strategic relationships and marketing initiatives in an effort to establish
Stamps.com's brand awareness. In addition, Stamps.com must devote significant
resources to ensure that its users are provided with a high quality online
experience supported by a high level of customer service. Stamps.com cannot be
certain that it will have sufficient resources to build its brand and realize
commercial acceptance of its service. If Stamps.com fails to gain market
acceptance for its service, its business will suffer dramatically or may fail.

System and online security failures could harm Stamps.com's business and
operating results.

Stamps.com's services depend on the efficient and uninterrupted operation
of Stamps.com's computer and communications hardware systems. In addition,
Stamps.com must provide a high level of security for the transactions
Stamps.com executes. Stamps.com relies on internally-developed and third-party
technology to provide secure transmission of postage and other confidential
information. Any breach of these security measures would severely impact
Stamps.com's business and reputation and would likely result in the loss of
customers. Furthermore, if Stamps.com is unable to provide adequate security,
the US Postal Service could prohibit Stamps.com from selling postage over the
Internet.

Stamps.com's systems and operations are vulnerable to damage or
interruption from a number of sources, including fire, flood, power loss,
telecommunications failure, break-ins, earthquakes and similar events.
Stamps.com has entered into an Internet hosting agreement with Exodus
Communications, Inc. to maintain Stamps.com's Internet postage servers at
Exodus' data center in Southern California. Stamps.com's operations depend on
Exodus' ability to protect its and Stamps.com's systems in the data center
against damage or interruption. Exodus does not guarantee that Stamps.com's
Internet access will be uninterrupted, error-free or secure. Stamps.com's
servers are also vulnerable to computer viruses, physical, electrical or
electronic break-ins and similar disruptions. Stamps.com has experienced minor
system interruptions in the past and may experience them again in the future.
Any substantial interruptions in the future could result in the loss of data
and could

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completely impair Stamps.com's ability to generate revenues from its service.
Stamps.com does not presently have a formal disaster recovery plan in effect.
Stamps.com has business interruption insurance; however, Stamps.com cannot be
certain that its coverage will be sufficient to compensate for losses that may
occur as a result of business interruptions.

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Anyone
who is able to circumvent Stamps.com's security measures could misappropriate
confidential information or cause interruptions in its operations. Stamps.com
may be required to expend significant capital and other resources to protect
against potential security breaches or to alleviate problems caused by any
breach. Stamps.com relies on specialized technology to provide the security
necessary for secure transmission of postage and other confidential
information. Advances in computer capabilities, new discoveries in security
technology, or other events or developments may result in a compromise or
breach of the algorithms Stamps.com uses to protect customer transaction data.
Should someone circumvent Stamps.com's security measures, Stamps.com's
reputation, business, financial condition and results of operations could be
seriously harmed. Security breaches could also expose Stamps.com to a risk of
loss or litigation and possible liability for failing to secure confidential
customer information. As a result, Stamps.com may be required to expend a
significant amount of financial and other resources to protect against
security breaches or to alleviate any problems that they may cause.

If Stamps.com does not expand its product and service offerings, its business
may not grow.

Stamps.com may establish subsidiaries, enter into joint ventures or pursue
the acquisition of new or complementary businesses, products or technologies
in an effort to enter into new business areas, diversify Stamps.com's
resources of revenue and expand Stamps.com's product and service offerings
outside the Internet postage market. With the exception of the merger
agreement, Stamps.com has no commitments or agreements and is not currently
engaged in discussions for any material acquisitions or investments.
Stamps.com continues to evaluate incremental revenue opportunities and
derivative applications of Stamps.com's technology such as ticketing,
couponing and enterprise mailing systems and plans to pursue and develop those
opportunities with strategic partners and investors. For instance, Stamps.com
announced on November 16, 1999 the formation of a subsidiary, Encryptix, Inc.,
to explore opportunities in the events, travel and financial services
industries. To the extent Stamps.com pursues new or complementary businesses,
Stamps.com may not be able to expand Stamps.com's service offerings and
related operations in a cost-effective or timely manner. Stamps.com may
experience increased costs, delays and diversions of management's attention
when integrating any new businesses or services. Stamps.com may lose key
personnel from Stamps.com's operations or those of any acquired business.
Furthermore, any new business or service Stamps.com launches that is not
favorably received by users could damage Stamps.com's reputation and brand
name in the Internet postage or other markets that Stamps.com enters.
Stamps.com also cannot be certain that it will generate satisfactory revenues
from any expanded services or products to offset related costs. Any expansion
of Stamps.com's operations would also require significant additional expenses,
and these efforts may strain Stamps.com's management, financial and
operational resources. Additionally, future acquisitions may also result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt, the assumption of known and unknown liabilities, and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on Stamps.com's business,
financial condition and operating results. New issuances of securities may
also have rights, preferences and privileges senior to those of Stamps.com's
common stock.

Fluctuations in Stamps.com's operating results could cause its stock price to
fall.

Prior to its commercial launch on October 22, 1999, Stamps.com had not
generated any revenues from its operations. Accordingly, Stamps.com has a
limited basis upon which to predict future operating results. Stamps.com
expects that its revenues, margins and operating results will fluctuate
significantly due to a variety of factors, many of which are outside of its
control. These factors include:

. the success of the commercial release of Stamps.com's Internet Postage
service;

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. the costs of the Pitney Bowes litigation or other intellectual property
claims;

. the costs of Stamps.com's marketing programs to establish and promote
the Stamps.com brand name;

. the demand for Stamps.com's Internet Postage service;

. Stamps.com's ability to develop and maintain strategic distribution
relationships;

. the number, timing and significance of new products or services
introduced by both Stamps.com and Stamps.com's competitors;

. Stamps.com's ability to develop, market and introduce new and enhanced
services on a timely basis;

. the level of service and price competition;

. the increases in Stamps.com's operating expenses as Stamps.com expands
operations; and

. general economic factors.

Stamps.com's cost of revenues includes costs for systems operations,
customer service, Internet connection and security services; all of these
costs will fluctuate depending upon the demand for Stamps.com's service. In
addition, a substantial portion of Stamps.com's operating expenses is related
to personnel costs, marketing programs and overhead, which cannot be adjusted
quickly and are therefore relatively fixed in the short term. Stamps.com's
operating expense levels are based, in significant part, on its expectations
of future revenues. If Stamps.com's expenses precede increased revenues, both
gross margins and results of operations would be materially and adversely
affected.

Due to the foregoing factors and the other risks discussed in this
document, you should not rely on period-to-period comparisons of Stamps.com's
results of operations as an indication of future performance. It is possible
that in some future periods Stamps.com's results of operations will be below
the expectations of public market analysts and investors. In this event, the
market price of Stamps.com's common stock is likely to fall.

Stamps.com relies on a relatively new management team and needs additional
personnel to grow its business.

Stamps.com's management team is relatively new. Stamps.com hired its
Chairman and Chief Executive Officer in October 1998, its President and Chief
Operating Officer in October 1999 and its Chief Financial Officer in September
1998. There can be no assurance that Stamps.com will successfully assimilate
its recently hired managers or that Stamps.com can successfully locate, hire,
assimilate and retain qualified key management personnel. Stamps.com's
business is largely dependent on the personal efforts and abilities of its
senior management, including its Chairman and Chief Executive Officer, its
President and Chief Operating Officer, and its Chief Financial Officer. Any of
Stamps.com's officers or employees can terminate his or her employment
relationship at any time. The loss of these key employees or Stamps.com's
inability to attract or retain other qualified employees could have a material
adverse effect on Stamps.com's results of operations and financial condition.

Stamps.com's future success depends on its ability to attract, retain and
motivate highly skilled technical, managerial, marketing and customer service
personnel. Also, if Stamps.com completes the acquisition, Stamps.com's success
will also depend on a successful integration of iShip.com's management with
Stamps.com's senior management team. Stamps.com plans to hire additional
personnel in all areas of its business. Competition for qualified personnel is
intense, particularly in the Internet and high technology industries. As a
result, Stamps.com may be unable to successfully attract, assimilate or retain
qualified personnel. Further, Stamps.com may be unable to retain the employees
Stamps.com currently employs or attract additional technical personnel. The
failure to retain and attract the necessary personnel could seriously harm
Stamps.com's business, financial condition and results of operations.

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<PAGE>

Third party assertions of violations of their intellectual property rights
could adversely affect Stamps.com's business.

In addition to the Pitney Bowes claim described above, as is customary with
technology companies, Stamps.com may receive or become aware of correspondence
claiming potential infringement of other parties' intellectual property
rights. Stamps.com could incur significant costs and diversion of management
time and resources to defend claims against Stamps.com regardless of their
validity. Stamps.com may not have adequate resources to defend against these
claims and any associated costs and distractions could have a material adverse
effect on Stamps.com's business, financial condition and results of
operations. As an alternative to litigation, Stamps.com may seek licenses for
other parties' intellectual property rights. Stamps.com may not be successful
in obtaining all of the necessary licenses on commercially reasonable terms,
if at all.

A failure to protect Stamps.com's own intellectual property could harm
Stamps.com's competitive position.

Stamps.com relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect
Stamps.com's rights in Stamps.com's products, services, know-how and
information. Stamps.com has three issued US patents and has filed 19 patent
applications in the United States, and one international patent application.
Stamps.com has also applied to register several trademarks and service marks.
Stamps.com plans to apply for other patents in the future. Stamps.com may not
receive patents for any of Stamps.com's patent applications. Even if patents
are issued to Stamps.com, claims issued in these patents may not protect
Stamps.com's technology. In addition, any of Stamps.com's patents might be
held invalid or unenforceable by a court. If Stamps.com's patents fail to
protect Stamps.com's technology, Stamps.com's competitive position could be
harmed. Even if Stamps.com's patents are upheld or are not challenged, third
parties may develop alternative technologies or products without infringing
Stamps.com's patents. Stamps.com generally enters into confidentiality
agreements with Stamps.com's employees, consultants and other third parties to
control and limit access and disclosure of Stamps.com's confidential
information. These contractual arrangements or other steps taken to protect
Stamps.com's intellectual property may not prove to be sufficient to prevent
misappropriation of technology or deter independent third party development of
similar technologies. Additionally, the laws of foreign countries may not
protect Stamps.com's services or intellectual property rights to the same
extent as do the laws of the United States.

In addition, if the acquisition is completed, Stamps.com will face the
additional risk that third parties will challenge iShip.com's intellectual
property rights. The costs of defending against any such litigation, including
the diversion of management time and resources, could adversely affect
Stamps.com's business, financial condition and results of operations. Any loss
resulting from intellectual property litigation could severely limit
iShip.com's operations, cause it to pay license fees, or prevent it from doing
business.

iShip.com also has applied for one patent for its intellectual property.
The failure to obtain this patent, or to obtain patents on future proprietary
technology or trademark protection for its brand name, could have a material
adverse effect on iShip.com's and Stamps.com's business, financial condition
and results of operations.

If the internal and third-party equipment and software that Stamps.com uses is
not Year 2000 compliant, Stamps.com's operating results, brand and reputation
could be impaired and Stamps.com could lose customers.

Many existing computer systems and software products are coded to accept
only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. If not corrected, there could be system
failures or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions or engage in
normal business activities. As a result, many companies' software and computer
systems may need to be upgraded or replaced to comply with these "Year 2000"
requirements.

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Stamps.com uses and depends on third-party equipment and software that may
not be Year 2000 compliant. If Year 2000 issues prevent Stamps.com's users
from accessing the Internet or Stamps.com's service, purchasing postage or
using their credit cards, Stamps.com's business and operations will suffer.
Any failure of Stamps.com's third-party equipment or software to operate
properly could result in system and online security failures and require
Stamps.com to incur unanticipated expenses, resulting in serious harm to
Stamps.com's business, operating results and financial condition. For example,
Stamps.com relies on the US Postal Service's secure postage accounting vault
to purchase postage credit for Stamps.com's customers. If the US Postal
Service systems are not Year 2000 compliant, users of Stamps.com's service may
not be able to purchase additional postage.

Stamps.com's failure to make Stamps.com's service Year 2000 compliant could
result in:

. a decrease in sales of Stamps.com's service;

. an increase in the allocation of resources to address Year 2000 problems
of Stamps.com's users without additional revenue commensurate with the
dedication of Stamps.com's resources; and

. an increase in litigation costs relating to losses suffered by
Stamps.com's users due to Year 2000 problems.

Furthermore, the purchasing patterns of users or potential users may be
affected by Year 2000 issues as companies expend significant resources to
correct their current systems. These expenditures may result in reduced funds
available to purchase Stamps.com's service, which could seriously harm
Stamps.com's business, operating results and financial condition. Stamps.com
has conducted a preliminary review of Stamps.com's internal computer systems
to identify the systems that could be affected by the Year 2000 issue. Based
on this preliminary review, Stamps.com believes that its internal software
systems are Year 2000 compliant. However, Stamps.com continually evaluates its
systems and intends to develop a contingency plan to address any Year 2000
issues.

At this time, Stamps.com has not yet developed a contingency plan to
address situations that may result if Stamps.com, or Stamps.com's vendors, are
unable to achieve Year 2000 compliance. While Stamps.com does not believe a
contingency plan is necessary, the cost of developing and implementing this
plan, if necessary, could be material. Any failure of Stamps.com's material
systems, Stamps.com's vendors' material systems or the Internet to be Year
2000 compliant could have material adverse consequences for Stamps.com. These
consequences could include service interruptions or other difficulties in
operating Stamps.com's service effectively or conducting other fundamental
parts of Stamps.com's business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000."

Stamps.com's growth and operating results could be impaired if Stamps.com is
unable to meet Stamps.com's future capital requirements.

Stamps.com believes that its current cash balances and the proceeds of the
follow-on offering will allow Stamps.com to fund its operations, including the
operation of iShip.com following its anticipated acquisition, for at least the
next 24 months. However, Stamps.com may require substantial working capital to
fund its business and Stamps.com may need to raise additional capital.
Stamps.com cannot be certain that additional funds will be available on
satisfactory terms when needed, if at all. Stamps.com's future capital needs
depend on many factors, including:

. market acceptance of Stamps.com's postage and shipping services;

. the level of promotion and advertising of Stamps.com's postage and
shipping services;

. the level of Stamps.com's development efforts;

. rate of customer acquisition and retention of Stamps.com's postage and
shipping services; and

. changes in technology.

19
<PAGE>

The various elements of Stamps.com's business and growth strategies,
including its plans to support fully the commercial release of its service,
Stamps.com's introduction of new products and services and its investments in
infrastructure will require additional capital. If Stamps.com is unable to
raise additional necessary capital in the future, Stamps.com may be required
to curtail its operations significantly or obtain funding through the
relinquishment of significant technology or markets. Also, raising additional
equity capital would have a dilutive effect on existing stockholders.

Stamps.com could be required to register as an investment company and become
subject to substantial regulation that would interfere with Stamps.com's
ability to conduct Stamps.com's business.

Stamps.com plans to invest the proceeds of the follow-on offering in short-
term instruments consistent with prudent cash management and not primarily for
the purpose of achieving investment returns. This could result in Stamps.com
being treated as an investment company under the Investment Company Act of
1940 and therefore being required to register as an investment company under
the Investment Company Act. The Investment Company Act requires the
registration of companies which are engaged primarily in the business of
investing, reinvesting or trading in securities or which are engaged in
investing, reinvesting, owning, holding or trading in securities and over 40%
of whose assets on an unconsolidated basis (other than government securities
and cash) consist of investment securities. While Stamps.com does not believe
that it is engaged primarily in the business of investing, reinvesting or
trading in securities, Stamps.com may invest its cash and cash equivalents in
government securities to the extent necessary to avoid having over 40% of its
assets consist of investment securities. Government securities are defined as
securities issued by the U.S. government and certain federal agencies. These
securities generally yield lower rates of income than other short-term
instruments in which Stamps.com has invested to date. Accordingly, investing
substantially all of Stamps.com's cash and cash equivalents in government
securities could result in lower levels of interest income, which could cause
Stamps.com's losses to increase.

If Stamps.com were required to register as an investment company under the
Investment Company Act, Stamps.com would become subject to substantial
regulation with respect to its capital structure, management, operations,
transactions with affiliated persons, if any, and other matters, incur
substantial costs and experience a disruption of its business. Application of
the provisions of the Investment Company Act to Stamps.com would materially
and adversely affect Stamps.com's business, prospects, financial condition and
results of operations.

Stamps.com's management has broad discretion over use of the proceeds from the
Stamps.com follow-on offering and may not use the proceeds effectively.

The net proceeds of the Stamps.com follow-on offering are anticipated to be
approximately $273.0 million at an assumed price to public of $57.50 per
share, which was Stamps.com's closing price on October 29, 1999, after
deducting the underwriting discount and commissions and estimated offering
expenses payable by Stamps.com. Stamps.com's management retains broad
discretion as to the allocation of the proceeds of the follow-on offering.

Stamps.com faces risks associated with Stamps.com's market

If Stamps.com does not respond effectively to technological change,
Stamps.com's service could become obsolete and Stamps.com's business will
suffer.

The development of Stamps.com's service and other technology entails
significant technical and business risks. To remain competitive, Stamps.com
must continue to enhance and improve the responsiveness, functionality and
features of its online operations. The Internet and the electronic commerce
industry are characterized by:

. rapid technological change;

. changes in user and customer requirements and preferences;

20
<PAGE>

. frequent new product and service introductions embodying new
technologies; and

. the emergence of new industry standards and practices.

The evolving nature of the Internet or the Internet postage market could
render Stamps.com's existing technology and systems obsolete. Stamps.com's
success will depend, in part, on its ability to:

. license or acquire leading technologies useful in Stamps.com's business;

. enhance its existing service;

. develop new services and technology that address the increasingly
sophisticated and varied needs of its current and prospective users; and

. respond to technological advances and emerging industry and regulatory
standards and practices in a cost-effective and timely manner.

Future advances in technology may not be beneficial to, or compatible with,
Stamps.com's business. Furthermore, Stamps.com may not be successful in using
new technologies effectively or adapting Stamps.com's technology and systems
to user requirements or emerging industry standards on a timely basis.
Stamps.com's ability to remain technologically competitive may require
substantial expenditures and lead time. If Stamps.com is unable to adapt in a
timely manner to changing market conditions or user requirements, Stamps.com's
business, financial condition and results of operations could be seriously
harmed.

If Stamps.com is unable to compete successfully, particularly against
large, traditional providers of postage products such as Pitney Bowes who
enter the online postage market, Stamps.com's revenues and operating results
will suffer.

The market for Internet postage products and services is new and Stamps.com
expects it to be intensely competitive. At present, E-Stamp has a hardware-
based product commercially available and Pitney Bowes and Neopost Industries
are seeking certification through the Information Based Indicia Program and
have hardware products available for beta testing. All three of these vendors
have also announced that they intend to offer software-based solutions; one of
these, Pitney Bowes, has a software-based product in beta testing. If any of
Stamps.com's competitors, including Pitney Bowes, could provide the same or
similar service as Stamps.com, Stamps.com's operations could be adversely
impacted.

Internet postage may not be adopted by customers. These customers may
continue to use traditional means to purchase postage, including purchasing
postage from their local post office. If Internet postage becomes a viable
market, Stamps.com may not be able to establish or maintain a competitive
position against current or future competitors as they enter the market. Many
of Stamps.com's competitors have longer operating histories, larger customer
bases, greater brand recognition, greater financial, marketing, service,
support, technical, intellectual property and other resources than Stamps.com.
As a result, Stamps.com's competitors may be able to devote greater resources,
to marketing and promotional campaigns, adopt more aggressive pricing policies
and devote substantially more resources to Web site and systems development
than Stamps.com. This increased competition may result in reduced operating
margins, loss of market share and a diminished brand. Stamps.com may from time
to time make pricing, service or marketing decisions or acquisitions as a
strategic response to changes in the competitive environment. These actions
could result in reduced margins and seriously harm Stamps.com's business.

If the market for Internet postage develops, Stamps.com could face
competitive pressures from new technologies or the expansion of existing
technologies approved for use by the US Postal Service. Stamps.com may also
face competition from a number of indirect competitors that specialize in
electronic commerce and other companies with substantial customer bases in the
computer and other technical fields. Additionally, companies that control
access to transactions through a network or Web browsers could also promote
Stamps.com's competitors or charge Stamps.com a substantial fee for inclusion.
Stamps.com's competitors may also be acquired by, receive investments from or
enter into other commercial relationships with larger, better-

21
<PAGE>

established and better-financed companies as use of the Internet and other
online services increases. In addition, changes in postal regulations could
adversely affect Stamps.com's service and significantly impact Stamps.com's
competitive position. Stamps.com may be unable to compete successfully against
current and future competitors, and the competitive pressures Stamps.com faces
could seriously harm Stamps.com's business.

If the acquisition is completed, Stamps.com will also compete with
companies that provide shipping solutions to businesses. Customers may
continue using the direct services of the US Postal Service, UPS and other
major shippers, instead of adopting iShip.com's online service. Alternatively,
potential competitors with greater resources than iShip.com, such as Pitney
Bowes, may develop more successful Internet solutions. In addition, companies
including GoShip.com, Intershipper.net, Kewill Systems, PackageNet and
SmartShip are competing in shipping services. iShip.com also faces a
significant risk that large shipping companies will collaborate in the
development and operation of an online shipping system that could make
iShip.com's service obsolete.

The success of Stamps.com's business will depend on the continued growth of
the Internet and the acceptance by customers of the Internet as a means for
purchasing postage.

Stamps.com's success depends in part on widespread acceptance and use of
the Internet as a way to purchase postage. This practice is at an early stage
of development, and market acceptance of Internet postage is uncertain.
Stamps.com cannot predict the extent to which customers will be willing to
shift their purchasing habits from traditional to online postage purchasing.
To be successful, Stamps.com's customers must accept and utilize electronic
commerce to satisfy their product needs. Stamps.com's future revenues and
profits, if any, substantially depend upon the acceptance and use of the
Internet and other online services as an effective medium of commerce by
Stamps.com's target users.

The Internet may not become a viable long-term commercial marketplace due
to potentially inadequate development of the necessary network infrastructure
or delayed development of enabling technologies and performance improvements.
The commercial acceptance and use of the Internet may not continue to develop
at historical rates. Stamps.com's business, financial condition and results of
operations would be seriously harmed if:

. use of the Internet and other online services does not continue to
increase or increases more slowly than expected;

. the infrastructure for the Internet and other online services does not
effectively support future expansion of electronic commerce or Internet
postage;

. concerns over security and privacy inhibit the growth of the Internet;
or

. the Internet and other online services do not become a viable commercial
marketplace.

US Postal Service regulation may cause disruptions or the discontinuance of
Stamps.com's business.

Stamps.com is subject to continued US Postal Service scrutiny and other
government regulations. The US Postal Service could change its certification
requirements or specifications for Internet postage or revoke the approval of
Stamps.com's service at any time. Any changes in requirements or
specifications for Internet postage could adversely affect Stamps.com's
pricing, cost of revenues, operating results and margins by increasing the
cost of providing Stamps.com's Internet postage service. For example, the US
Postal Service could decide to charge Internet postage vendors fees for the
enrollment of each unique customer of the Internet postage product, which
would be a cost that Stamps.com would either absorb or pass through to
customers. The US Postal Service could also decide that Internet postage
should no longer be an approved postage service due to security concerns or
other issues. Stamps.com's business would suffer dramatically if Stamps.com is
unable to adapt Stamps.com's Internet Postage service to any new requirements
or specifications or if the US Postal Service were to discontinue Internet
postage as an approved postage method. Alternatively, the US Postal Service
could amend its requirements to make certification easier to obtain, which
could lead to more competition from third parties. See "--If Stamps.com is
unable to compete successfully, particularly against large, traditional
providers of postage

22
<PAGE>

products such as Pitney Bowes who enter the online postage market,
Stamps.com's revenues and operating results will suffer."

In addition, US Postal Service regulations may require that Stamps.com's
personnel with access to postal information or resources receive security
clearance prior to doing relevant work. Stamps.com may experience delays or
disruptions if Stamps.com's personnel cannot receive necessary security
clearances in a timely manner, if at all. The regulations may limit
Stamps.com's ability to hire qualified personnel. For example, sensitive
clearance may only be provided to US citizens or aliens who are specifically
approved to work on US Postal Service projects.

Stamps.com's operating results could be impaired if Stamps.com or the Internet
become subject to additional government regulation and legal uncertainties.

With the exception of US Postal Service and Department of Commerce
regulations, Stamps.com is not currently subject to direct regulation by any
domestic or foreign governmental agency, other than regulations applicable to
businesses generally, and laws or regulations directly applicable to
electronic commerce. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, relating to:

. user privacy;

. pricing;

. content;

. copyrights;

. distribution;

. characteristics and quality of products and services; and

. export controls.

The adoption of any additional laws or regulations may hinder the expansion
of the Internet. A decline in the growth of the Internet could decrease demand
for Stamps.com's products and services and increase Stamps.com's cost of doing
business. Moreover, the applicability of existing laws to the Internet is
uncertain with regard to many issues, including property ownership, export of
specialized technology, sales tax, libel and personal privacy. Stamps.com's
business, financial condition and results of operations could be seriously
harmed by any new legislation or regulation. The application of laws and
regulations from jurisdictions whose laws do not currently apply to
Stamps.com's business, or the application of existing laws and regulations to
the Internet and other online services could also harm Stamps.com's business.

Stamps.com offers its Internet Postage service in multiple states and plan
to expand both domestically and internationally. These jurisdictions may claim
that Stamps.com is required to qualify to do business as a foreign corporation
in each state or foreign country. Stamps.com's failure to qualify as a foreign
corporation in a jurisdiction where Stamps.com is required to do so could
subject Stamps.com to taxes and penalties. Other states and foreign countries
may also attempt to regulate Stamps.com's Internet Postage service or
prosecute Stamps.com for violations of their laws. Further, Stamps.com might
unintentionally violate the laws of foreign jurisdictions and those laws may
be modified and new laws may be enacted in the future.

If Stamps.com markets Stamps.com's Internet Postage service internationally,
government regulation could disrupt Stamps.com's operations.

One element of Stamps.com's strategy is to provide service in international
markets. Stamps.com's ability to provide service in international markets
would likely be subject to rigorous governmental approval and certification
requirements similar to those imposed by the US Postal Service. For example,
Stamps.com's service cannot currently be used for international mail because
foreign postal authorities do not currently recognize information-based
indicia postage. If foreign postal authorities accept postage generated by
Stamps.com's service

23
<PAGE>

in the future, and if Stamps.com obtains the necessary foreign certification
or approvals, Stamps.com would be subject to ongoing regulation by foreign
governments and agencies. To date, efforts to create a certification process
in Europe and other foreign markets are in a preliminary stage and these
markets may not prove to be a viable opportunity for Stamps.com. As a result,
Stamps.com cannot predict when, or if, international markets will become a
viable source of revenues for a postage service similar to Stamps.com.

Stamps.com's ability to provide service in international markets may also
be impacted by the export control laws of the United States. Stamps.com's
software technology makes Stamps.com subject to stronger export controls, and
may prevent Stamps.com from being able to export Stamps.com's products and
services.

If Stamps.com achieves significant international acceptance of its Internet
Postage service, Stamps.com's business activities will be subject to a variety
of potential risks, including the adoption of laws and regulatory
requirements, political and economic conditions, difficulties protecting
Stamps.com's intellectual property rights and actions by third parties that
would restrict or eliminate Stamps.com's ability to do business in these
jurisdictions. If Stamps.com begins to transact business in foreign
currencies, Stamps.com will become subject to the risks attendant to
transacting in foreign currencies, including the potential adverse effects of
exchange rate fluctuations.

The rights of Stamps.com's stockholders and iShip.com shareholders could be
adversely affected because of the concentrated control of Stamps.com's stock.

After the follow-on offering, Stamps.com's executive officers, directors
and 5% stockholders will control approximately 53.5% of Stamps.com's voting
stock. These stockholders will have significant influence and ability to
control most matters requiring board and stockholder approval, including a
significant corporate transaction like the sale of Stamps.com, a change in
control, or the terms of future equity financings. These stockholders could
use their control in ways that may not be beneficial to you.

Stamps.com's charter documents could deter a takeover effort, which could
inhibit your ability to receive an acquisition premium for your shares.

The provisions of Stamps.com's Amended and Restated Certificate of
Incorporation, Bylaws and Delaware law could make it difficult for a third
party to acquire Stamps.com, even it would be beneficial to Stamps.com's
stockholders. In addition, Stamps.com is subject to the provisions of Section
203 of the Delaware General Corporation Law, which could prohibit or delay a
merger or other takeover of Stamps.com, and discourage attempts to acquire
Stamps.com.

Additional shares held by existing Stamps.com stockholders may be sold into
the public market in the near future, which could cause Stamps.com's stock
price to decline.

Sales of substantial amounts of Stamps.com's common stock in the public
market could adversely affect the prevailing market price of Stamps.com's
common stock. Stamps.com estimates that prior to acquisition of iShip.com,
approximately 6.0 million of Stamps.com's 34.9 million shares of outstanding
common stock were freely tradeable. On December 22, 1999, upon the expiration
of a lock-up entered into in connection with Stamps.com's initial public
offering, an additional 2.1 million shares of Stamps.com's outstanding common
stock will become available for immediate sale. On the 60th day after the date
of prospectus for the follow-on offering, the lock-up described below will
expire for approximately 6.8 million shares of Stamps.com's outstanding common
stock and, on the 90th day after the date of the prospectus for the follow-on
offering for the follow-on offering, the lock-up described below will expire
for all remaining shares subject to the lock-up. All of the shares subject to
the lock-up will be available for immediate sale, subject to the volume and
other restrictions under Rule 144 of the Securities Act of 1933. Of these
shares, approximately 22.5 million held by investment funds may, be
distributed by them from time to time to their investors. Upon distribution,
those shares will be available for immediate sale.

24
<PAGE>

As part of the follow-on offering, Stamps.com's executive officers and
directors, other significant stockholders and iShip.com's significant
shareholders, who will receive at least 95% of the shares of Stamps.com common
stock issued in the acquisition, have executed agreements with the
underwriters that they will not offer or sell any shares of Stamps.com common
stock for a period of 60 days after the date of the prospectus for the follow-
on offering without the prior written consent of Goldman, Sachs & Co. On the
60th day after the date of the prospectus for the follow-on offering, the
lock-up will expire for 20% of the shares held by these stockholders. On the
90th day after the date of pricing of the follow-on offerng, the lock-up will
expire for the remaining 80% of the shares held by these stockholders. Prior
to this date, these shares cannot be offered or sold without the prior written
consent of Goldman, Sachs & Co. In addition, the merger agreement provides
that Stamps.com is not obligated to file an S-8 registration statement for
options assumed in the acquisition until the expiration of the 90 day lock-up
period. Goldman, Sachs & Co. may, in its sole discretion, at any time and
without notice, release all or a portion of the shares Stamps.com common stock
subject to these agreements. Sales of substantial amounts of Stamps.com common
stock in the public market, or the perception that these sales could occur,
could adversely affect the prevailing market price for Stamps.com's common
stock and could impair Stamps.com's ability to raise capital through a public
offering of equity securities.

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

Stamps.com and iShip.com have each made forward-looking statements in this
document, all of which are subject to risks and uncertainties. Forward-looking
statements include information concerning possible or assumed future business
success or financial results. Such forward-looking statements include, but are
not limited to, statements as to expectations regarding:

. Stamps.com's and iShip.com's commercial releases;

. future revenue opportunities;

. the outcome of the Pitney Bowes litigation;

. the national customer registration campaign for Stamps.com's Internet
Postage service;

. the integration of iShip.com;

. the development of the Internet postage and shipping markets and the
future growth of customer base;

. future expense levels (including research and development, selling,
general and administrative expenses, legal expenses related to the
Pitney Bowes litigation and amortization of goodwill and other
intangibles);

. strategic relationships and distribution relationships;

. future capital needs;

. the effect of the year 2000 situation;

. the emergence of new technologies;

. expansion of marketing and sales forces;

. investment in new product development and enhancements;

. expansion into new markets, such as the international postage market;

. acquisition of complementary products, technologies and businesses;

. Stamps.com use of net proceeds of the follow-on offering; and

. future financial pronouncements.

When Stamps.com or iShip.com uses word such as "believe," "expect,"
"anticipate" or similar words, they are making forward-looking statements.

25
<PAGE>

You should note that an investment in Stamps.com common stock involves
risks and uncertainties that could affect our future business success or
financial results. Stamps.com's actual results could differ materially from
those anticipated expressly or implicitly in these forward-looking statements
as a result of certain factors, including those set forth in "Risk Factors"
and elsewhere in this document.

Stamps.com believes that it is important to communicate its expectations to
its investors. However, there may be events in the future that Stamps.com is
not able to predict accurately or over which Stamps.com has no control. You
should be aware that the occurrence of the events described in the risk
factors and elsewhere in this document could materially and adversely affect
the business, financial condition and operating results of Stamps.com.
Stamps.com undertakes no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.

26
<PAGE>

THE SPECIAL MEETING

Stamps.com is furnishing this document to Stamps.com's stockholders as part
of the solicitation by the board of directors of Stamps.com of proxies for use
at the special meeting.

Date, Time and Place

Stamps.com will hold the special meeting on , December , 1999,
beginning at 9:00 a.m., local time, at .

Purpose of the Stamps.com Special Meeting

At the Special Meeting, Stamps.com's stockholders will be asked to vote on
proposals to:

. approve the merger agreement for the acquisition of iShip.com; and

. increase by 2.5 million the number of shares of Stamps.com common stock
issuable under Stamps.com's 1999 stock incentive plan.

Stamps.com will be asked to consider any other matter properly brought
before the special meeting or any adjournment of it by Stamps.com's board of
directors. As of the date of this document, Stamps.com's board of directors
knows of no other matter to be considered at the Stamps.com special meeting.
No person (including news media and press members) other than Stamps.com's
stockholders of record and invited guests will be admitted to the Stamps.com
special meeting. Accordingly, if your broker holds Stamps.com's shares in
"street name," in order to be admitted to the special meeting, you must either
bring a letter from your broker or a copy of your brokerage statement
confirming your stock ownership as of the record date.

Record Date; Stock Entitled to Vote; Quorum

Only holders of record of Stamps.com common stock at the close of business
on November 17, 1999, the record date, are entitled to vote at the Stamps.com
special meeting. On the record date, shares of Stamps.com common stock
were issued and outstanding and held by approximately holders of record. A
quorum will be present at the Stamps.com special meeting if a majority of the
issued and outstanding shares of Stamps.com common stock entitled to vote on
the record date are represented in person or by proxy. If a quorum is not
present at the Stamps.com special meeting, the Stamps.com special meeting will
be adjourned or postponed to solicit additional proxies. No shares voted
against either proposal will be voted in favor of such an adjournment or
postponement. Stamps.com's stockholders will be entitled to one vote for each
share of Stamps.com common stock held of record at the close of business on
the record date.

Votes Required

A majority of the issued and outstanding shares present at the special
meeting and entitled to vote must be voted in favor of the merger proposal in
order for it to be adopted, and a majority of the issued and outstanding
shares present or represented at the special meeting and entitled to vote must
be voted in favor of the proposal to increase the share reserve under
Stamps.com's 1999 plan in order for that proposal to be adopted. Stamps.com
does not intend to proceed with the acquisition if either proposal, but not
both proposals, is adopted.

Voting by Stamps.com's Directors and Executive Officers

At the close of business on the record date, members of Stamps.com's board
of directors and Stamps.com's executive officers owned of record and were
entitled to vote shares of Stamps.com common stock, which represented
approximately % of the outstanding shares. Each of Stamps.com's directors and
Stamps.com's executive officers intends to vote in favor of both proposals at
the Stamps.com special meeting.

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<PAGE>

Voting of Proxies

All shares represented by properly executed proxies received in time for
the special meeting will be voted at the Stamps.com special meeting in the
manner specified by the holders of Stamps.com common stock. If you do not
provide voting instructions but properly return a proxy, your shares will be
voted in favor of both proposals.

Stamps.com will treat shares abstaining from voting at the Stamps.com
special meeting as present for purposes of determining whether a quorum is
present at the special meeting.

Brokers who hold shares of Stamps.com common stock in "street name" for
customers who are the beneficial owners of such shares may not give a proxy to
vote their customers' shares unless specific instructions are received from
their customers. These non-voted shares are referred to as broker non-votes
and will not be counted as present for determining whether there is a quorum
at the special meeting.

Mr. John Payne and Mr. John LaValle, the holders of proxies under the
enclosed proxy cards, may vote all shares represented by proxies in favor of
one or more adjournments or postponements of the special meeting, including
adjournments or postponements to permit further solicitations of proxies. No
proxy voted against either or both of the proposals will be voted in favor of
any such adjournment or postponement. In the event any matter other than the
two proposals described in this joint proxy statement/prospectus is properly
brought before the special meeting, your shares of Stamps.com common stock
will be voted by Messrs. Payne and LaValle in their discretion.

Revocability of Proxies

Stamps.com stockholders may revoke their proxy at any time prior to its
being voted, by filing an instrument of revocation with the Secretary of
Stamps.com addressed as follows: Corporate Secretary, Stamps.com Inc., 3420
Ocean Park Blvd., Suite 1040, Santa Monica, California 90405. Stamps.com
stockholders may also revoke their proxy by filing a duly executed proxy
bearing a later date or by appearing at Stamps.com special meeting in person,
notifying the Secretary and voting by ballot at the Stamps.com special
meeting. Stamps.com stockholders who attend the Stamps.com special meeting,
may vote in person whether or not they have previously given a proxy, but
their presence without notification to the Secretary of Stamps.com will not
revoke a previously given proxy. In addition, if Stamps.com stockholders
beneficially hold shares of Stamps.com common stock that are not registered in
their own name, they will need additional documentation from the record holder
of such shares to attend and vote personally at the Stamps.com special
meeting.

Solicitation of Proxies

Stamps.com will bear the cost of the solicitation of proxies from
Stamps.com stockholders. In addition to solicitation by mail, Stamps.com
directors, officers and employees and its subsidiaries may solicit proxies
from stockholders by telephone or other electronic means or in person.
Stamps.com will cause brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of
shares of Stamps.com common stock held of record by such persons. Stamps.com
will reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in doing so. Stamps.com has engaged MacKenzie Partners,
Inc. to represent Stamps.com in connection with the solicitation of proxies at
a cost to Stamps.com of approximately $ plus expenses, and will indemnify
MacKenzie Partners, Inc. against any losses arising out of proxy soliciting
services on Stamps.com's behalf.

The matters to be considered at the special meeting are of great importance
to all Stamps.com stockholders. Stamps.com's board urges you to read and
carefully consider all of the information presented in this document, and to
complete, date, sign and promptly return the enclosed proxy in the enclosed
postage-paid envelope.

28
<PAGE>

THE ISHIP.COM WRITTEN CONSENT

iShip.com is furnishing this document to iShip.com's shareholders as part
of the solicitation by the board of directors of iShip.com of written consents
to approval of the merger agreement and the merger.

Consents Solicited

iShip.com is soliciting written consents of its shareholders to the
approval of the merger agreement and the merger.

Consents Required

The written consent of the holders of (a) a majority of the outstanding
shares of iShip.com's common stock and (b) at least two-thirds of the
outstanding shares of iShip.com's Series A Preferred Stock and Series B
Preferred Stock, voting together as a class, is required for the approval of
the merger agreement and the merger. Each share of Series A Preferred Stock,
Series B Preferred Stock and common stock of iShip.com is entitled to one vote
with respect to the approval of the merger agreement and the merger. The
iShip.com board of directors has set the close of business on the date of
mailing of consents as the record date for shares entitled to provide written
consents to the approval of the merger agreement and the merger. Written
consents must be submitted to iShip.com, by December , 1999. Written
consents should be mailed to Venture Law Group, 4750 Carillon Point, Kirkland,
Washington 98033, Attention: David T. Sobota.

Outstanding Shares

The outstanding capital stock of iShip.com as of October 22, 1999 is
described as follows:

<TABLE>
<CAPTION>
Outstanding Shares Record Holders
------------------ --------------
<S> <C> <C>
Series A Preferred Stock................... 8,986,668 11
Series B Preferred Stock................... 10,133,334 16
Common Stock............................... 7,492,720 52
</TABLE>

Support Agreements

The holders of more than two-thirds of the outstanding shares of
iShip.com's Series A Preferred Stock and Series B Preferred Stock, together as
a class, have agreed with Stamps.com to provide written consents to the
approval of the merger agreement and the merger. The holders of a majority of
the outstanding shares of iShip.com's common stock have agreed with Stamps.com
to provide written consents to the approval of the merger agreement and the
merger.

29
<PAGE>

THE MERGER

Background of the merger

Stamps.com and iShip.com originally became familiar with one another in May
1999. From May 1999 through July 1999, representatives from the companies had
conversations regarding a potential strategic distribution and marketing
relationship. During that time, the possibility of an acquisition was never
discussed.

On August 3, 1999, representatives of Stamps.com traveled to iShip.com's
offices in Bellevue, Washington to continue discussions with iShip.com's
management about a strategic distribution and marketing relationship. After
returning from the visit, these representatives suggested to John M. Payne,
Chief Executive Officer of Stamps.com, that Stamps.com consider iShip.com as a
strategic acquisition possibility. After discussing the idea with Stamps.com
management, Mr. Payne invited Stephen M. Teglovic, President and Chief
Executive Officer of iShip.com, to Stamps.com's office in Santa Monica,
California on August 12, 1999 to discuss strategic business opportunities for
the parties. From this time through the execution of a definitive agreement on
October 22, 1999, Mr. Payne provided periodic updates on the proposed
transaction and discussed progress with Stamps.com's non-employee directors.

On August 12, 1999, Mr. Teglovic, Mr. Payne and John W. LaValle,
Stamps.com's Chief Financial Officer, met for dinner to discuss a strategic
relationship, a meeting at which Mr. Payne introduced the possibility of a
business combination between Stamps.com and iShip.com. Mr. Teglovic indicated
that he would consult with management of iShip.com, including its board of
directors, regarding a possible transaction.

On August 18, 1999, Mr. Teglovic telephoned Mr. Payne and indicated that
members of the iShip.com board of directors had authorized him and management
to enter into discussions about a potential business combination. From this
time through the execution of a definitive agreement on October 22, 1999, Mr.
Teglovic provided periodic updates on the proposed transaction and discussed
progress with iShip.com's non-employee directors.

On August 26, 1999, Mr. Teglovic, John Jamerson, the Chief Financial
Officer of iShip.com, William Smith, Senior Vice President of Engineering of
iShip.com and John Dietz, Senior Vice President of Operations of iShip.com,
traveled to Stamps.com's offices for a full day meeting. At this meeting,
management of Stamps.com made presentations about Stamps.com's business and
organization. No discussions or negotiations about the business combination
occurred at this meeting.

On August 31, 1999 and September 1, 1999, members of Stamps.com's
management, including members of the engineering, strategy, legal and finance
groups, traveled to iShip.com's offices to discuss the business, operations
and organization of iShip.com. At these meetings, the companies discussed
potential integration issues that would result from a business combination;
however, no other discussions or negotiations regarding the terms of a
transaction occurred at these meetings. From this time until the execution of
a definitive agreement on October 22, 1999, each of Stamps.com and iShip.com,
and their respective legal and accounting advisors, conducted in-depth
business, financial and legal due diligence reviews.

On September 2, 1999, Messrs. Teglovic and Jamerson and Brian Finn, a non-
employee member of the iShip.com board, traveled to Santa Monica for a dinner
meeting with Messrs. Payne, LaValle and other members of Stamps.com's
management team. At this meeting, potential transaction terms and valuation
ranges for iShip.com were discussed initially. However, no specific share
consideration amount or exchange ratio mechanics were discussed at this
meeting. At the conclusion of the meeting, the parties agreed to continue
discussions and negotiations for a business combination.

On September 8, 1999, at a regular meeting of the Stamps.com board, Mr.
Teglovic and Mr. Jamerson made a presentation about the iShip.com business.
Following the presentation, Mr. Teglovic and Mr. Jamerson were excused, and
the Stamps.com board discussed the status of discussions to date and the
initial results of due diligence by the Stamps.com management. At the
conclusion of the discussion, the Stamps.com board authorized Stamps.com's
management to continue discussions and negotiations. In addition, Stamps.com's
in-house and

30
<PAGE>

outside legal advisors discussed the board's fiduciary duties in considering a
strategic business combination and strategic alternatives.

From September 8, 1999 through October 22, 1999, Stamps.com and iShip.com,
together with their respective legal, financial and accounting advisors,
conducted due diligence reviews and negotiated the terms of the definitive
merger agreement and other agreements related to the merger, including
employment agreements for each of Messrs. Teglovic, Jamerson, Smith and Dietz.
During this period of time, from September 9 through September 11, Messrs.
Payne and LaValle and Messrs. Teglovic and Jamerson negotiated a fixed share
amount of 8 million shares of Stamps.com common stock for all of iShip.com's
outstanding capital stock, options and warrants. It was also agreed over this
period of time that the aggregate share consideration would be subject to no
adjustments due to fluctuations in the market price of Stamps.com's common
stock.

At board meetings held by Stamps.com on September 22, October 6 and October
13, Stamps.com management presented status on the discussions and negotiations
with iShip.com and board members raised questions, had discussions and made
recommendations about the progress of the transaction. During the same period
of time, iShip.com's management periodically informed its board of directors
about the status of discussions and negotiations.

On October 1, 1999, Stamps.com engaged Thomas Weisel Partners LLC to render
a fairness opinion to the Stamps.com board of directors in connection with the
acquisition of iShip.com. From this date through October 22, 1999, Thomas
Weisel Partners performed financial due diligence and prepared its valuation
analyses of a potential business combination of Stamps.com and iShip.com.

On October 22, 1999, Stamps.com's board of directors met with senior
management and Stamps.com's in-house and outside legal and financial advisors
at a special telephonic meeting to discuss the status of final negotiations
with iShip.com. To begin the meeting, in-house legal counsel presented the
terms of the merger agreement and related agreements. Next, Thomas Weisel
Partners made a presentation regarding its analysis of the proposed
transaction and delivered its oral opinion, subsequently confirmed in writing,
that, as of October 22, 1999, the consideration to be paid to the stockholders
of iShip.com in the merger was fair, from a financial point of view, to
Stamps.com. Following this presentation, Stamps.com's board of directors
engaged in a full discussion of the proposed merger. Stamps.com's board of
directors concluded that the merger agreement was fair to Stamps.com and that
the proposed merger was in the best interests of Stamps.com and its
stockholders. Stamps.com's board of directors unanimously approved the merger
and the merger agreement and related documents and authorized management to
proceed with the execution of the merger documents.

By unanimous written consent dated October 21, 1999, iShip.com's board of
directors, after reviewing the financial and other terms of the merger,
approved the merger and the terms of the merger agreement and authorized
management to proceed with the execution of the transaction documents.

During the late afternoon of October 22, 1999, Stamps.com and iShip.com
entered into the merger agreement; certain shareholders of iShip.com entered
into support agreements with Stamps.com; Messrs. Teglovic, Jamerson, Smith and
Dietz executed employment agreements that become effective on the closing of
the merger and the directors and certain officers of iShip.com entered into
affiliate agreements.

The merger was jointly announced by Stamps.com and iShip.com on the morning
of October 25, 1999.

31
<PAGE>

Reasons for the merger and Stamps.com's and iShip.com's board of directors
recommendations

Stamps.com's Reasons for the Merger.

The Stamps.com board of directors considered the factors below as reasons
that the merger will be beneficial to Stamps.com and its stockholders:

. the potential of the combined companies to offer a complete, one-stop
mailing, shipping and tracking solution over the Internet;

. the strength of iShip.com's management, engineering resources and
understanding of the shipment market;
. iShip.com's established strategic relationships and investors, including
UPS, eBay and Mail Boxes Etc.;

. the complementary nature of the companies' service offerings and
possible synergies from combining Stamps.com and iShip.com;

. the terms and conditions of the merger agreement, including termination
fees and closing conditions;

. the terms and conditions of employment agreements with key management of
iShip.com;

. the expected qualification of the merger as a reorganization under
Section 368(a) of the Internal Revenue Code;

. the transaction being accounted for as a purchase; and

. the opinion dated October 22, 1999 of Thomas Weisel Partners that, as of
that date and subject to the matters described in the opinion, the
consideration to be paid to the shareholders of iShip.com in this merger
was fair, from a financial point of view, to Stamps.com.

In the course of deliberations, the Stamps.com board of directors also
considered a number of additional factors relevant to the merger, including:

. information relating to the business, assets, management, competitive
position, operating performance and prospects of each of Stamps.com and
iShip.com;

. current industry, market and economic conditions;

. the risks to stockholder value of Stamps.com relying on its Internet
Postage service as a single source of revenues;

. the impact of the merger on Stamps.com's and iShip.com's employees;

. the impact of the merger on Stamps.com's and iShip.com's existing and
potential customers and business relationships; and

. the likelihood that the merger would be completed.

The Stamps.com board of directors also identified and considered a number
of potentially negative factors in its deliberations concerning the merger
including:

. the risk that the operations and back office systems of Stamps.com and
iShip.com might not be successfully integrated;

. the risk that, despite the efforts of Stamps.com and iShip.com after the
acquisition, key personnel might leave Stamps.com and iShip.com;

. the difficulty of managing operations in the different geographic
locations in which Stamps.com and iShip.com operate or are considering
to operate;

. the risk that the potential benefits of the merger might not be fully
realized;

. the risk that competitors may overtake iShip.com in the market for
online shipping and tracking solutions; and

. the risk that other acquisition opportunities may be less dilutive to
existing stockholders.

32
<PAGE>

The Stamps.com board of directors believed that certain of these risks were
unlikely to occur, that Stamps.com could avoid or mitigate others, and that
overall, these risks were outweighed by the potential benefits of the merger.

In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the merger and the increase in shares
issuable under the Stamps.com 1999 stock incentive plan, the Stamps.com board
of directors did not find it practicable to and did not quantify or otherwise
assign relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the Stamps.com board of
directors may have given different weight to different factors.

Recommendation of Stamps.com Board of Directors. After careful
consideration, the Stamps.com board of directors, on October 22, 1999,
unanimously determined that the terms of the merger agreement and the merger
and the increase in shares issuable under the Stamps.com 1999 stock incentive
plan are fair to, and in the best interests of, Stamps.com and its
stockholders and has approved the merger agreement and the merger and the
increase in shares issuable under the Stamps.com 1999 stock incentive plan. In
reaching its decision to approve the merger agreement and the merger and to
recommend adoption of the merger agreement and the increase in shares issuable
under the Stamps.com 1999 stock incentive plan by Stamps.com stockholders, the
Stamps.com board of directors consulted with its management team and advisors
and independently considered the proposed merger agreement and the
transactions contemplated by the merger agreement. The Stamps.com board of
directors unanimously recommends that the stockholders of Stamps.com vote
"for" the approval of the merger agreement and "for" the 2.5 million-share
increase in shares issuable under the Stamps.com 1999 stock incentive plan.

iShip.com's Reasons for the Merger.

The iShip.com board of directors considered the factors listed below as
reasons that the merger will be beneficial to iShip.com and its shareholders:

. the potential of the combined companies to offer customers a more
complete set of postage and shipping services;

. Stamps.com's established relationship with the US Postal Service;

. the complementary nature of the companies' service offerings and
possible synergies from combining iShip.com and Stamps.com;

. the terms and conditions of the merger agreement;

. the expected qualification of the merger as a reorganization under
Section 368(a) of the Internal Revenue Code;

. information relating to the business, assets, management, competitive
position, operating performance and prospects of each of Stamps.com and
iShip.com;

. current industry, market and economic conditions;

. the potential benefits to shareholder value of being a company with a
more diversified product line;

. the potential benefits to shareholders of owning shares of a company
that are traded on a national market;

. the impact of the merger on Stamps.com's and iShip.com's customers,
suppliers and employees;

. the likelihood that the merger would be completed;

. synergistic fit of the senior management teams of both companies; and

. synergistic fit of transaction-based revenue models of both companies.

In view of the variety of factors considered in connection with its
evaluation of the merger agreement and the merger, the iShip.com board of
directors did not find it practicable to and did not quantify or otherwise
assign relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the iShip.com board of
directors may have given different weight to different factors.

33
<PAGE>

Recommendation of iShip.com Board of Directors.

After careful consideration, the iShip.com board of directors has
unanimously determined that the terms of the merger agreement and the merger
are fair to, and in the best interests of, iShip.com and its shareholders and
has approved the merger agreement and the merger. In reaching its decision to
approve the merger agreement and the merger, the iShip.com board of directors
consulted with its management team and advisors and independently considered
the proposed merger agreement and the transactions contemplated by the merger
agreement. The iShip.com board of directors unanimously recommends that the
shareholders of iShip.com execute and return the written consent soliciting
approval of the merger and the merger agreement.

Opinion of Stamps.com's financial advisor

Thomas Weisel Partners was selected by the Stamps.com board of directors to
act as Stamps.com's financial advisor based on Thomas Weisel Partners'
qualifications, expertise and reputation. Thomas Weisel Partners is a
nationally recognized merchant bank specializing in technology and information
services businesses. At the meeting of the Stamps.com board of directors held
on October 22, 1999, Thomas Weisel Partners delivered to the Stamps.com board
its oral opinion (which was subsequently confirmed in writing) that, as of
that date and based upon the assumptions made, matters considered and limits
of review set forth in Thomas Weisel Partners' written opinion, the
consideration to be paid by Stamps.com in the merger was fair from a financial
point of view to Stamps.com.

Stamps.com determined the consideration to be paid in the merger through
negotiations with iShip.com. Stamps.com did not impose any limitations on
Thomas Weisel Partners with respect to the investigations made or procedures
followed in rendering its opinion. Further, Stamps.com did not request the
advice of Thomas Weisel Partners with respect to alternatives to the merger.

The full text of Thomas Weisel Partners' written opinion, which sets forth,
among other things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by Thomas
Weisel Partners in delivering its opinion, is attached as Annex B to this
document. You should read this opinion carefully and in its entirety. The
following description of the Thomas Weisel Partners opinion is only a summary
of the written opinion and as such is qualified and not a substitute for the
written opinion.

Thomas Weisel Partners directed its opinion to the Stamps.com board of
directors. The opinion does not constitute a recommendation to the
stockholders of Stamps.com as to how they should vote with respect to the
merger. The opinion addresses only the financial fairness of the consideration
to be paid by Stamps.com in the merger. It does not address the relative
merits of the merger or any alternatives to the merger. Further, it does not
address the business decision of the Stamps.com board of directors to proceed
with or effect the merger.

In connection with its opinion, Thomas Weisel Partners, among other things:

. reviewed certain publicly available financial and other data with
respect to Stamps.com, including the consolidated financial statements
for recent years and interim periods to June 30, 1999, and other
relevant financial and operating data relating to Stamps.com made
available to Thomas Weisel Partners from published sources and from the
internal records of Stamps.com;

. reviewed the consolidated financial statements of iShip.com for recent
years and interim periods to September 30, 1999 and certain other
relevant financial and operating data relating to iShip.com made
available to Thomas Weisel Partners from the internal records of
iShip.com;

. reviewed the financial terms and conditions of a draft, dated October
20, 1999, of the merger agreement;
. reviewed certain publicly available information concerning the trading
of Stamps.com common stock;

. compared iShip.com and Stamps.com from a financial point of view with
certain other Internet-based service companies which Thomas Weisel
Partners deemed to be relevant;

34
<PAGE>

. considered the financial terms, to the extent publicly available, of
selected recent business combinations of Internet-based service
companies which Thomas Weisel Partners deemed to be comparable, in whole
or in part, to the merger;

. completed a discounted cash flow analysis of iShip.com;

. reviewed and discussed with representatives of the managements of
iShip.com and Stamps.com information of a business and financial nature
regarding iShip.com and Stamps.com, furnished to Thomas Weisel Partners
by iShip.com and Stamps.com, including financial forecasts and related
assumptions of iShip.com and Stamps.com;

. made inquiries regarding and discussed the merger and the merger
agreement and other matters related thereto with Stamps.com's counsel;
and

. performed such other analyses and examinations as Thomas Weisel Partners
deemed appropriate.

In preparing its opinion, Thomas Weisel Partners assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to it and did not assume any responsibility to verify independently
the information referred to above or undertake an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities of
iShip.com or Stamps.com and was not furnished with any such evaluation or
appraisal. Thomas Weisel Partners also assumed the following:

. with respect to the financial forecasts of iShip.com and Stamps.com
provided to Thomas Weisel Partners by their respective managements, upon
their advice and with their consent, Thomas Weisel Partners assumed that
such forecasts (a) had been reasonably prepared on bases reflecting the
best available estimates and judgments of their respective managements
at the time of preparation as to the future financial performances of
iShip.com and Stamps.com and (b) provided a reasonable basis upon which
Thomas Weisel Partners could form its opinion;

. that there had been no material changes in the assets, financial
condition, results of operations, business or prospects of iShip.com or
Stamps.com since the respective dates of their last financial statements
made available to Thomas Weisel Partners;

. that the merger would be consummated in a manner that complies in all
respects with the applicable provisions of the federal securities laws
and all other applicable federal and state statutes, rules and
regulations;

. that the merger would be recorded as a purchase under generally accepted
accounting principles; and

. that the merger would be consummated in accordance with the terms
described in the October 20, 1999 draft of the merger agreement, without
further amendments thereto, and without any waiver by Stamps.com of any
of the conditions to its obligations thereunder.

The Thomas Weisel Partners opinion was based on economic, monetary, market
and other conditions as in effect on, and the information made available to
Thomas Weisel Partners as of, the date of its opinion. Accordingly, although
subsequent developments may affect its opinion, Thomas Weisel Partners has not
assumed any obligation to update, revise or reaffirm its opinion. In preparing
its opinion, Thomas Weisel Partners relied on advice of Stamps.com counsel and
independent accountants as to all legal and financial reporting matters with
respect to Stamps.com, the merger and the merger agreement.

The following is a summary of the financial analyses performed by Thomas
Weisel Partners in connection with preparing its opinion to the Stamps.com
board of directors. Some of the summaries of financial analyses performed by
Thomas Weisel Partners include information presented in tabular format. In
order to fully understand the financial analyses performed by Thomas Weisel
Partners, you should read the tables together with the text of each summary.
Considering the data set forth in the tables without considering the full
narrative description of the financial analyses, including the methodologies
and assumptions underlying the analyses, could create a misleading or
incomplete view of the financial analyses performed by Thomas Weisel Partners.

Comparable Company Analysis. Thomas Weisel Partners compared the valuation
multiples implied by the merger to those of selected publicly-traded Internet
companies. Since there are no directly comparable publicly-

35
<PAGE>

traded companies, Thomas Weisel Partners analyzed companies with similar
business models in three areas: business-to-business, consumer e-commerce and
Internet infrastructure. The companies included in each category are:

Consumer E-Commerce
Business-to-Business

. eBay
. bamboo.com

. priceline.com
. E-Stamp

Internet Infrastructure
. ImageX.com

. Cyber Source
. Interactive Pictures

. Keynote Systems
. NIC

. Purchase Pro.com
. pcOrder.com

. Tumbleweed Communications
. Private Business

For each of these companies, Thomas Weisel Partners calculated the
multiples of enterprise value to estimates of total revenues for the fiscal
years 1999 through 2003. For purposes of this analysis, Thomas Weisel Partners
defined enterprise value as equity value plus debt less cash and cash
equivalents and calculated equity value on the basis of closing stock prices
on October 22, 1999. Estimated revenues for the comparable companies were
derived from equity research reports published by certain investment banks.
Thomas Weisel Partners then compared the median multiples of enterprise value
to revenue estimates for fiscal years 2000 and 2001 to the multiples of
iShip.com implied by the consideration to be received in the merger as
follows:

Median Multiples

<TABLE>
<CAPTION>
Business to
Enterprise Value to: Business Consumer Infrastructure Stamps.com iShip.com
- -------------------- ----------- -------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Estimated 2000
Revenues............... 15.1x 40.7x 52.8x 88.8x 26.7x
Estimated 2001
Revenues............... 9.4x 30.5x 22.9x 27.2x 9.0x
</TABLE>

Comparable Transactions Analysis. Thomas Weisel Partners reviewed the
following eleven comparable acquisitions of selected Internet-based service
companies that have been announced since January 1, 1998:

<TABLE>
<CAPTION>
Announcement Date Name of Acquiror Name of Target
----------------- ---------------- --------------
<S> <C> <C>
September 22, 1999 Chemdex Promedix.com
September 13, 1999 National Information Consortium eFed
September 8, 1999 Prodigy Communications BizOnThe.net
July 13, 1999 Verio digitalNATION
July 13, 1999 Excite@Home IMall
July 1, 1999 Go2Net Authorize.net
May 18, 1999 Ebay Billpoint
April 29, 1999 Go2Net Virtual Avenue (USAOnline)
April 26, 1999 Amazon.com Accept.com
April 22, 1999 Inktomi Impulse! Buy Network
July 19, 1999 Commerce One Veo Systems
</TABLE>

Revenue information was publicly available for only five of these
transactions: the acquisition of digitalNATION by Verio; the acquisition of
iMall by Excite@Home; the acquisition of Authorize.net by Go2Net; the
acquisition of Virtual Avenue (USAOnline) by Go2Net; and the acquisition of
Veo Systems by Commerce One. For each of these transactions, Thomas Weisel
Partners calculated multiples of the enterprise value of the target company
implied by the transaction to latest twelve month revenues of the target
company, as well as

36
<PAGE>

ratios of the target's implied latest twelve month revenue multiple to that of
the acquiror.

Thomas Weisel Partners advised the Stamps.com board of directors that the
two most comparable transactions were the acquisition of iMall by Excite@Home
and the acquisition of Authorize.net by Go2Net. Using the revenue estimate
provided by the management of iShip.com for fiscal year 1999, Thomas Weisel
Partners then compared the implied multiples and ratios of these two
transactions, as well as the median of such multiples and ratios for all five
transactions with the multiples and ratios for iShip.com implied by the
consideration to be received in the merger as follows:

<TABLE>
<CAPTION>
Excite@Home/ Go2Net/ Median for
iMall Authorize.net Transactions iShip.com
------------ ------------- ------------ ---------
<S> <C> <C> <C> <C>
Enterprise Value to latest
twelve month revenues...... 159.0x 18.7x 18.7x 798.0x
Target's latest twelve month
revenue multiple to
Acquiror's latest twelve
month revenue multiple..... 254.6% 8.0% 56.1% 26.6%
</TABLE>

No company or transaction used in the comparable company or comparable
transactions analyses is identical to Stamps.com or iShip.com or the merger.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value of the companies to
which Stamps.com, iShip.com and the merger are being compared.

Discounted Cash Flow Analysis. Using management estimates of iShip.com's
projected free cash flows for fiscal years 2000 through 2004, Thomas Weisel
Partners performed a discounted cash flow analysis. For purposes of this
analysis, free cash flows means earnings before interest and taxes, less
taxes, depreciation and amortization, changes in working capital and capital
expenditures.

Thomas Weisel Partners calculated implied enterprise values and implied
equity values of iShip.com by utilizing discount rates ranging from 20.0% to
30.0% and terminal value multiples of estimated 2004 revenue ranging from 5.0x
to 7.5x. Thomas Weisel Partners arrived at these discount rates based on its
judgment of the weighted average cost of capital of selected publicly traded
companies, and arrived at these terminal multiples based on its review of the
trading characteristics of the common stock of selected publicly traded
companies. This analysis implied an enterprise value range of $155.7 million
to $359.3 million. Adjusting this range of implied enterprise value by
iShip.com's estimated net debt, Thomas Weisel Partners calculated an implied
equity value range of $165.3 million to $368.9 million. Thomas Weisel Partners
noted that the equity value to be paid by Stamps.com pursuant to the merger
was $305.0 million.

Contribution Analysis. Using estimates prepared by the managements of
Stamps.com and iShip.com, Thomas Weisel Partners calculated the estimated
contribution by Stamps.com and iShip.com to total revenues and earnings before
interest, taxes, depreciation, and amortization (EBITDA) of the combined
company for the fiscal years 2000 to 2004. In light of the negative EBITDA
projected for fiscal years 2000 and 2001, Thomas Weisel Partners focused on
EBITDA contributions in fiscal years 2002 to 2004.

Thomas Weisel Partners then compared these relative contributions to the
relative contributions of Stamps.com and iShip.com to the combined company's
enterprise value (which Thomas Weisel Partners defined for purposes of this
analysis as equity value plus total debt minus cash) and equity value
(calculated on the basis of closing stock prices on October 22, 1999).

37
<PAGE>

This analysis yielded the following relative contributions:

<TABLE>
<CAPTION>
Stamps.com iShip.com
---------- ---------
<S> <C> <C>
Estimated Revenues
2000.................................................. 60.1% 39.9%
2001.................................................. 62.3% 37.7%
2002.................................................. 65.5% 34.5%
2003.................................................. 63.5% 36.5%
2004.................................................. 62.1% 37.9%
Estimated EBITDA
2002.................................................. 43.5% 56.5%
2003.................................................. 60.5% 39.5%
2004.................................................. 65.9% 34.1%
Enterprise Value........................................ 83.4% 16.6%
Aggregate Equity Value.................................. 83.6% 16.4%
</TABLE>

Pro Forma Merger Analysis. Thomas Weisel Partners reviewed the pro forma
effects of the merger on the combined company's earnings per share, utilizing
financial forecasts for iShip.com and Stamps.com provided by their respective
managements and not taking into account any merger-related cost savings or
revenue enhancements.

This analysis indicated that the impact of the merger on the combined
company's earnings per share before taking into account goodwill and deferred
compensation would be dilutive in 2000 and 2001, and accretive in 2002, 2003
and 2004. On this basis, the pro forma earnings per share accretion or
dilution is as follows:

<TABLE>
<CAPTION>
Year Per share Accretion/(Dilution)
---- ------------------------------
<S> <C>
2000.......................................... $(0.05)
2001.......................................... $(0.06)
2002.......................................... $ 0.01
2003.......................................... $ 0.19
2004.......................................... $ 0.38

This analysis further indicated that the impact of the merger on the
combined company's earnings per share, taking into account goodwill and
deferred compensation, would be dilutive in all years analyzed. On this basis,
the pro forma earnings per share dilution is as follows:

<CAPTION>
Year Per Share Dilution
---- ------------------
<S> <C>
2000.......................................... $(1.22)
2001.......................................... $(1.24)
2002.......................................... $(1.15)
2003.......................................... $(0.85)
2004.......................................... $(0.64)
</TABLE>

The foregoing description is only a summary of the analyses and
examinations that Thomas Weisel Partners deems material to its opinion. The
preparation of a fairness opinion necessarily is not susceptible to partial
analysis or summary description. Thomas Weisel Partners believes that its
analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to us. In
addition, Thomas Weisel Partners may have given various analyses more or less
weight than other analyses, and may have deemed various assumptions more or
less probable than other assumptions. The fact that any specific analysis has
been referred to in the summary above is not meant to indicate that this
analysis was given greater weight than any other analysis. Accordingly, the
ranges of

38
<PAGE>

valuations resulting from any particular analysis described above should not
be taken to be the view of Thomas Weisel Partners with respect to the actual
value of Stamps.com or iShip.com.

In performing its analyses, Thomas Weisel Partners made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Stamps.com and iShip.com. The analyses performed by Thomas Weisel Partners are
not necessarily indicative of actual values or actual future results, which
may be significantly more or less favorable than those suggested by these
analyses. These analyses were prepared solely as part of the analysis
performed by Thomas Weisel Partners with respect to the financial fairness of
the consideration to be paid by Stamps.com pursuant to the merger, and were
provided to Stamps.com in connection with the delivery of the Thomas Weisel
Partners opinion. The analyses do not purport to be appraisals or to reflect
the prices at which a company might actually be sold or the prices at which
any securities may trade at any time in the future.

Under its engagement letter dated October 1, 1999, Stamps.com agreed to pay
Thomas Weisel Partners a fee of $250,000 upon the delivery of its opinion and
$150,000 upon the earlier of (a) the consummation of the merger or (b)
December 31, 1999. Stamps.com also agreed to reimburse Thomas Weisel Partners
for its reasonable out-of-pocket expenses and to indemnify Thomas Weisel
Partners, its affiliates, and their respective partners, directors, officers,
agents, consultants, employees and controlling persons against specific
liabilities, including liabilities under the federal securities laws.

In the ordinary course of its business, Thomas Weisel Partners actively
trades the equity securities of Stamps.com for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in these securities. Thomas Weisel Partners also acted as underwriter
in connection with public offerings of Stamps.com's securities, is currently a
co-manager of the follow-on offering and has performed various investment
banking services for Stamps.com.

Accounting treatment and future reporting

The merger of iShip.com and Stamps.com is being accounted for using the
purchase method of accounting under Accounting Principles Board Opinion (APB)
No. 16. Under this accounting treatment, as of the effective time of the
merger, the excess of the cost of acquiring iShip.com, including the value of
the shares of Stamps.com common stock offered by this document, over the fair
market value of the assets and liabilities of iShip.com assumed will be
recorded as goodwill. Stamps.com intends to amortize this goodwill on a
straight line basis over four years. iShip.com's results of operations will be
included in Stamps.com's consolidated results of operations following
completion of the merger.

Directors and management after the acquisition

Stamps.com's current directors and management are expected to continue to
serve after the acquisition is completed, subject to any resignations or
retirements in the period prior to completion of the acquisition. In addition,
upon the closing of the acquisition two persons nominated by iShip.com will be
elected to the Stamps.com board of directors. Stamps.com has not determined
whether these nominees will take new board seats or whether two incumbent
directors will voluntarily resign to create two vacant seats.

Comparison of Rights of Stamps.com's Stockholders and iShip.com's Shareholders

The rights of iShip.com shareholders are currently governed by the
Washington Business Corporation Act, iShip's articles of incorporation,
iShip's bylaws and a voting agreement among iShip.com and some of its
shareholders. The rights of Stamps.com stockholders are currently governed by
the General Corporation Law of the State of Delaware, Stamps.com's certificate
of incorporation and Stamps.com's bylaws. Upon completion of the acquisition,
the rights of Stamps.com stockholders and of iShip.com shareholders who become
Stamps.com

39
<PAGE>

stockholders as a result of the merger will be governed by the General
Corporation Law of the State of Delaware, Stamps.com's certificate of
incorporation and Stamps.com's bylaws.

The rights of iShip.com shareholders under the Washington Business
Corporation Act, the iShip.com articles of incorporation and the iShip.com
bylaws prior to the merger are substantially the same as the rights of
Stamps.com stockholders under the General Corporation Law of the State of
Delaware, the Stamps.com certificate of incorporation and the Stamps.com
bylaws, with the following principal exceptions:

Indemnification

iShip.com Stamps.com

. Organizational documents require . Organizational documents require
indemnification to the fullest indemnification to the fullest
extent of Washington law. extent of Delaware law.

Restrictions on Business Combinations

iShip.com Stamps.com

. Chapter 23B.19 of the Washington . Stamps.com is subject to section
Business Corporations Act can 203 of the General Corporation
affect acquisitions and business Law of the State of Delaware;
combinations of Washington
corporations. However, Chapter . Section 203 prohibits mergers
23B.19 does not apply to with, dispositions of assets to,
iShip.com because iShip.com does the receipt of disproportionate
not have a class of voting stock financial benefits by or any
registered pursuant to section 12 other transaction that would
of Securities Exchange Act of increase the interested
1934 and has not elected to be stockholder's proportionate
subject to Chapter 23B.19 in its ownership of any class or series
articles of incorporation or of the corporation's stock for a
bylaws. period of three years from the
date a person became an
interested stockholder;

. A corporation may "opt out" of
section 203;

. Even if section 203 is triggered,
a supermajority vote by
stockholders may exempt a
transaction from the restrictions
contained in Section 203

. An interested shareholder owns
15% or more of a corporation"s
voting stock unless the
transaction in which such person
became an interested shareholder
was approved by the corporation"s
board of directors or 66.67%
(excluding shares held by the
interested stockholder) of the
outstanding voting stock of the
corporation

40
<PAGE>

Directors

iShip.com Stamps.com

. one year terms; . three classes of three-year
terms;

. removed with or without cause by
shareholders; . removal only for cause and by
two-thirds of the outstanding
shares;
. not less than three nor more than
nine; . not less than six;

. vacancies filled by board or . vacancies filled only by board.
shareholders;

. one director elected by holders
of Series A Preferred Stock, one
director elected by holders of
Series B Preferred Stock, two
directors elected by holders of
common stock and one director
elected by UPS.

Amendment of Organizational Documents

iShip.com Stamps.com

. Articles of incorporation amended . Two-thirds vote of stockholders
by vote of (a) a majority of the to amend provisions of the
outstanding common stock and (b) certificate of incorporation
at least two-thirds of the relating to staggered board,
outstanding Series A Preferred bylaws, amendments and
Stock and Series B Preferred indemnification;
Stock, voting together;

. Bylaws amended by board of . Two-thirds vote of stockholders
directors or majority vote of to effect any amendment to
shareholders. bylaws.

Voting Rights

iShip.com Stamps.com

. One vote per share, except one . One vote per share, subject to
director elected by holders of the rights of any shares of
Series A Preferred Stock, one preferred stock;
director elected by holders of
Series B Preferred Stock, two . 120 day advance notice
directors elected by holders of requirement for stockholders
common stock and one director proposals and director
elected by UPS; nominations;

. A majority vote of common stock, . Majority vote to approve merger.
and at least two-thirds of Series
A Preferred Stock and Series B
Preferred Stock, voting together
to approve mergers.

Treasury Shares

iShip.com Stamps.com

. Any shares repurchased are deemed . Treasury shares may be reissued
to revert to authorized but in the business judgment of the
unissued shares upon acquisition. board of directors;

. Shares held in treasury or owned
by a subsidiary are not deemed to
be outstanding and may not be
voted.

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<PAGE>

Stockholder Meetings

iShip.com Stamps.com

. Special meetings called by the . Special meetings called by the
board of directors, the board of directors or the holders
president, the chairman of the of 40% of the capital stock
board or the holders of 25% of entitled to vote at that special
the votes entitled to be cast at meeting
the special meeting;
. Advance notice requirements;

. Record date must be written . Record date must be within 90
within 70 days of meeting date. days of meeting date.

Dissenters Rights

iShip.com Stamps.com

. Granted under Washington law for . Not granted under Delaware law if
mergers, consolidations, share the consideration consists
exchanges, amendments to a exclusively of publicly traded
corporation"s certificate of securities;
incorporation that materially and
adversely affects shareholders . Not granted under Delaware law
rights and sales of all or for a sale of all or substantially
substantially all of a all of a corporation"s assets.
corporation"s assets.

The preceding summary of exceptions is not intended to be complete and is
qualified in its entirety by reference to the General Corporation Law of the
State of Delaware, the Washington Business Corporation Act, Stamps.com's
certificate of incorporation, Stamps.com's bylaws, iShip.com's articles of
incorporation and iShip.com's bylaws. Copies of Stamps.com's certificate of
incorporation and Stamps.com's bylaws are incorporated by reference herein and
will be sent to holders of shares of Stamps.com's common stock and iShip.com
capital stock upon request of Stamps.com's Secretary (see "--Where You Can
Find More Information").

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<PAGE>

THE MERGER AGREEMENT

The following is a brief summary of the material provisions of the merger
agreement. You are urged to read the annexed merger agreement carefully and in
its entirety.

Terms of the Merger

General

The merger agreement contemplates the merger of a Stamps.com subsidiary
into iShip.com. After the merger, iShip.com will survive as a wholly owned
subsidiary of Stamps.com. The merger will be completed once Stamps.com files
the articles of merger with the Secretary of State of the State of Washington.
Stamps.com believes that this filing will occur at the same time as the
closing under the merger agreement which, unless otherwise agreed, will occur
promptly, and not more than five business days, after the satisfaction or
waiver of the conditions to the merger.

Conversion of Securities

Once the merger is completed, the following will occur:

The merger agreement contains a calculation of the exchange ratio for each
class or series of iShip.com capital stock. In general, Stamps.com will not be
required to issue more than 8 million shares of Stamps.com common stock in
order to complete the acquisition.

The exchange ratios applicable to iShip.com Series A Preferred Stock and
Series B Preferred Stock reflect that each are entitled to receive their
liquidation preference before sharing in the proceeds of the merger with the
common stock.

. The common stock exchange ratio is (a) 8 million minus the liquidation
share number (defined below) divided by (b) the total number of shares
of capital stock of iShip.com including options and warrants exercisable
for capital stock of iShip.com outstanding immediately prior to
completion of the acquisition.

. The liquidation share number is (a)(1) the number of shares of Series A
Preferred Stock outstanding immediately prior to the completion of the
acquisition multiplied by $0.375 plus (2) the number of shares of Series
B Preferred Stock outstanding immediately prior to the completion of the
acquisition, including shares issuable upon exercise of the warrant
issued to Mail Boxes Etc., multiplied by $0.75, divided by (b) the
average closing price of the Stamps.com for the thirty trading days
ending on the third trading day prior to completion of the acquisition.

. The Series A exchange ratio is (a) the common stock exchange ratio plus
(b) $0.375 divided by the average closing price of the Stamps.com common
stock for the thirty trading days ending on the third trading day prior
to completion of the acquisition.

. The Series B exchange ratio is (a) the common exchange ratio plus (b)
$0.75 divided by the average closing price of the Stamps.com for common
stock the thirty trading days ending on the third trading day prior to
completion of the acquisition.

Each share of iShip.com capital stock will be converted into a number of
shares of Stamps.com common stock as determined by the exchange ratio for that
class or series of iShip.com capital stock.

As of October 22, 1999, the exchange ratios were as follows:

<TABLE>
<CAPTION>
Exchange
Class or Series of iShip.com Capital Stock Ratio
------------------------------------------ --------
<S> <C>
Common Stock........................................................ 0.227186
Series A Preferred Stock............................................ 0.237863
Series B Preferred Stock............................................ 0.248540
</TABLE>

43
<PAGE>

If Stamps.com or iShip.com issues additional shares or options prior to the
completion of the merger, the exchange ratios will be adjusted to reflect the
additional shares or options. Stamps.com will not issue any fractional shares
of Stamps.com stock in the merger and all fractional shares will be
eliminated.

Stock Options and Other Stock Rights

Once Stamps.com and iShip.com complete the merger, Stamps.com will assume
each option or warrant to purchase shares of iShip.com's stock issued under
iShip.com's stock option plan or warrant agreements or otherwise. This means
that each iShip.com stock option or warrant will be converted into an option
or warrant to acquire shares of Stamps.com common stock. The number of shares
of Stamps.com common stock to be subject to the option or warrant will be the
number of shares of iShip.com common stock subject to the option or warrant
multiplied by the applicable exchange ratio and rounded down to the next whole
share of Stamps.com common stock. The exercise price per share of Stamps.com
common stock under the option or warrant will be equal to the exercise price
per share of iShip.com capital stock under the option or warrant divided by
the applicable exchange ratio and rounded up to the next whole cent.

Exchange of New Stock Certificates

Issuance of New Shares

Once Stamps.com and iShip.com complete the merger, Stamps.com will issue
the certificates representing the shares of Stamps.com common stock in
exchange for the certificates for the shares of iShip.com capital stock. Upon
surrender of iShip.com stock certificates to Stamps.com, the former iShip.com
shareholders will be entitled to receive a certificate representing that
number of whole shares of Stamps.com common stock plus any dividends, which
they have the right to receive under the merger agreement. Their iShip.com
stock certificates will then be canceled.

Dividends and Distributions

No dividends or other distributions declared or made after the merger with
respect to Stamps.com common stock with a record date after the date the
merger is completed will be paid to iShip.com shareholders until they
surrender their iShip.com stock certificates.

Following their surrender of any such certificates, as a record holder of
certificates representing whole shares of Stamps.com common stock, they will
be paid, without interest:

. the amount of dividends or other distributions with a record date after
the date the merger is completed already paid with respect to whole
shares of Stamps.com common stock; and

. the amount of dividends or other distributions with a record date after
the date the merger is completed but prior to the date of surrender of
the iShip.com stock certificate and a payment date subsequent to the
date of surrender of the iShip.com stock certificate payable with
respect to their whole shares of Stamps.com common stock.

No interest will be paid or accrued on unpaid dividends and distributions,
if any, which may be payable upon surrender of iShip.com stock certificates.

No Transfers After Completion

As soon as the merger is completed, the stock transfer books of iShip.com
will be closed, and there will be no further registration of transfers of
iShip.com stock.

No Liability Under Abandoned Property Laws

The combined company will not be liable to any iShip.com shareholder or
Stamps.com stockholder for any undistributed Stamps.com common stock or cash
from the proceeds of the sale of any excess Stamps.com shares which is
delivered to a public official pursuant to an applicable abandoned property or
similar laws.

44
<PAGE>

Holdback of Shares

The combined company will not pay out 800,000 of Stamps.com shares to the
shareholders of iShip.com at the time the merger is completed. These shares
will be held by U.S. Stock Transfer Company for a period of up to one year
following completion of the acquisition. The combined company may make a claim
against those heldback shares if one or more breaches of any of iShip.com's
representations, warranties or covenants in the merger agreement is discovered
within one year of completion of the acquisition or if the third party costs
incurred by iShip.com in connection with the acquisition exceed $200,000 In
addition, costs incurred by iShip.com in connection with this document are not
subject to the $200,000 calculation.

Representations and Warranties

The merger agreement contains various representations and warranties of
iShip.com relating to, among other things:

. its organization and
qualification and its . brokers;
subsidiaries;

. its authority relative to the . no impact of take-over statutes;
merger agreement;
. employee benefit plans;

. capitalization; . accounting treatment of the
merger;

. no violation of laws or other . identification of material
agreements; contracts;

. receipt of consents and . absence of litigation;
approvals required for the
merger; . environmental matters;

. compliance with laws
applicable to the operation . intellectual property;
of iShip.com"s business;
. taxes;

. its financial statements; . iShip.com"s relationships with
Mail Boxes Etc., eBay and United
. absences of changes or events Parcel Service;
which would have a material
adverse effect on iShip.com;

. the absence of undisclosed . the accuracy of information
liabilities; supplied by iShip.com in
connection with this document;
and

. title to property; . vote necessary to approve the
merger.

The merger agreement also contains various representations and warranties
made by Stamps.com and its merger subsidiary as to, among other things:

. their organization and . filings with the Securities and
qualification and their Exchange Commission
subsidiaries;

. their authority relative to . intellectual property;
the merger agreement;

. no violation of laws or other . tax treatment of the merger;
agreements;

. consents and approvals . absence of material changes or
required for the merger; events not publicly disclosed;

. absence of changes or events . brokers;
which will have a material
adverse effect on Stamps.com . vote necessary to approve the
or its merger subsidiary. merger; and

. Year 2000 compliance.

45
<PAGE>

Covenants

iShip.com has agreed it will generally:

. conduct its business in the ordinary course of business and consistent
with past practice;

. not amend its organizational documents;

. not pay any dividends on its common stock, reclassify its common stock
in any way or issue any other securities instead of its common stock or
acquire any shares of its common stock;

. except for pay or benefits increases of less than five percent, not
change the terms of its existing pay or benefits arrangements with
management or its employees or otherwise enter into new employment or
severance agreements with any of those persons;

. not enter into any contract, commitment or transaction or incur any
liability except in the ordinary course of business consistent with past
practices;

. except in the ordinary course of business consistent with past practice,
not enter into any contract granting to any person manufacturing,
marketing, distribution, licensing or similar rights with respect to
iShip.com or any of its intellectual property;

. except for $50,000 of obligations, not incur any debt, guarantee any
debt securities of another person or make any loans or capital
contributions to any other person;

. not terminate, cancel or make any significant change in any contract or
agreement material to iShip.com;

. not take any action with respect to accounting policies, other than as
required by law or by generally accepted accounting principles; and

. not make any tax election or settle any material income tax liability.

Both iShip.com and Stamps.com have also agreed to:

. cooperate with each other in the preparation of information filed with
the Securities and Exchange Commission, including this joint proxy
statement/prospectus.

. update the other with respect to changes to our respective companies up
until the merger is completed, particularly with respect to any change
that could be expected to violate the merger agreement;

. ensure that there are no material misstatements or omissions contained
in the documents filed with the Securities and Exchange Commission in
connection with the merger; and

. use best efforts to obtain the necessary stockholder approval required
to approve the merger.

No Solicitation of Transactions

iShip.com has agreed that it will not directly or indirectly solicit or
entertain a proposal by a third party to acquire an interest in iShip.com or
propose, enter into or participate in any discussions or negotiations
regarding any such proposal. iShip.com has agreed that if it violates this
term, it will pay Stamps.com a termination fee of $5 million.

If iShip.com receives such a proposal, iShip.com must immediately inform
Stamps.com of the material terms and conditions of such proposal and the
identity of the person making it and will keep Stamps.com fully informed
regarding any significant details or developments with respect to any such
proposal and of all significant steps iShip.com is taking in response to such
proposal.

iShip.com has agreed that neither its board nor any committee thereof will:

. propose to withdraw or modify its recommendation to approve the merger
agreement; or

. propose to approve or recommend any third-party proposal to acquire an
interest in iShip.com.

46
<PAGE>

Conditions to the Merger

Stamps.com's and iShip.com's respective obligations to complete the merger
depend on the satisfaction or waiver by the other party of each of the
following conditions:

. the approval of the merger by holders of two-thirds of the outstanding
shares of iShip.com's preferred stock and by the holders of a majority
of the outstanding shares of iShip.com's common stock and the approval
of the merger agreement and the increase in the number of shares of
Stamps.com common stock issuable under Stamps.com's 1999 stock incentive
plan by a majority of the holders of Stamps.com common stock present in
person or by proxy at the special meeting;

. the listing of the shares of Stamps.com common stock to be issued in
connection with the merger on the Nasdaq National Market, subject to
official notice of issuance;

. obtaining all approvals from governmental authorities and consents from
third parties that are necessary and that there be no litigation which
would impair Stamps.com's or iShip.com's ability to complete the merger;

. the effectiveness of, and the absence of stop order proceedings with
respect to, the registration statement of which this joint proxy
statement/prospectus forms a part;

. Stamps.com and iShip.com each receiving legal opinions from their
respective tax counsel that the merger will qualify as a tax-free
reorganization under the Internal Revenue Code;

. the exercise of dissenters' rights by the holders of less than 5% of the
outstanding shares of iShip.com's common stock;

. iShip.com's and Stamps.com's representations and warranties are true and
accurate in all material respects;

. iShip.com and Stamps.com comply in all material respect with their
respective covenants and obligations under the merger agreement;

. two people appointed by iShip.com are elected to the Stamps.com board of
directors; and

. the support agreements with Mail Boxes Etc., eBay and UPS and the
employment agreements entered into in connection with signing the merger
agreement remain in full force and effect.

Stamps.com's obligation to complete the merger agreement also depends on
the satisfaction or waiver of the conditions that iShip.com will have
delivered to Stamps.com the required letters from all persons who may be
deemed to be "affiliates" within the meaning of the federal securities laws.

Neither party has made a determination as to whether it would waive one or
more foregoing conditions. Neither party may waive the requirement of
stockholders' approval. If the waiver of any of the foregoing conditions
constitutes a material change in the disclosure made in this document, the
parties will recirculate a revised proxy statement and resolicit stockholders'
approval.

Termination

The merger may be abandoned, at any time before Stamps.com and iShip.com
complete the merger and before or after you approve the merger, in the
following circumstances:

. by our mutual written consent;

. by either one of us, if the merger is not completed before February 29,
2000 through no fault of the party wishing to terminate the merger
agreement;

. by either one of us, if a final decree, law, rule, regulation, order or
injunction prevents the completion of the merger or if Stamps.com is
compelled to dispose of or hold separate any portion of iShip.com's
assets or properties;

47
<PAGE>

. by Stamps.com, if

. iShip.com takes action in furtherance of a competing proposal or
transaction;

. iShip.com's representations and warranties become untrue or because
iShip.com breaches its representations and warranties or its
covenants in a material way;

. iShip.com's shareholders fail to approve the merger;

. by iShip.com, if

. Stamps.com's representations and warranties become untrue or because
Stamps.com breaches its representations and warranties or covenants
in a material way; or

. Stamps.com's stockholders do not approve the merger agreement and
the increase in the number of shares of Stamps.com common stock
issuable under Stamps.com's 1999 stock incentive plan.

Termination Fees and Expenses

All expenses incurred in the merger will be paid by the party incurring
such expenses.

If iShip.com incurs in excess of $200,000 of costs associated with the
acquisition, excluding costs associated with the preparation of this document,
iShip.com's shareholders will pay for such costs by a reduction of the number
of shares held back by U.S. Stock Transfer Company.

iShip.com has agreed to pay Stamps.com $5 million if the merger agreement
is terminated by iShip.com in order to accept another acquisition offer.

Federal Income Tax Considerations

The following discussion describes the material federal income tax
considerations relevant to the exchange of shares of iShip.com capital stock
for shares of Stamps.com common stock as a result of the merger that are
generally applicable to holders of iShip.com capital stock. This discussion is
based on currently existing provisions of the Internal Revenue Code, existing
and proposed treasury regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences
described in the following discussion.

iShip.com shareholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
iShip.com shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Internal Revenue Code, who are foreign persons,
who do not hold their iShip.com stock as capital assets, or who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions.

In addition, the following discussion does not address the tax consequences
of the merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
merger (whether or not any such transactions are undertaken in connection with
the merger), including without limitation any transaction in which shares of
iShip.com stock are acquired or shares of iShip.com stock are disposed of, or
the tax consequences of the assumption by Stamps.com of the iShip.com Options
or the tax consequences of any receipt of rights to acquire Stamps.com common
stock. ACCORDINGLY, ISHIP.COM SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.

The merger is intended to constitute a reorganization within the meaning of
the Internal Revenue Code. If the merger qualifies as a reorganization, then,
subject to the limitations and qualifications referred to in this

48
<PAGE>

discussion, the merger will generally result in the following federal income
tax consequences to the iShip.com shareholders:

. No gain or loss will be recognized by holders of iShip.com stock solely
upon their receipt of Stamps.com common stock in exchange for iShip.com
stock in the merger (except to the extent of cash received in lieu of a
fractional share of Stamps.com common stock).

. The aggregate tax basis of the Stamps.com common stock received by
iShip.com shareholders in the merger (reduced by any tax basis
attributable to fractional shares deemed to be disposed of) will be the
same as the aggregate tax basis of the iShip.com stock surrendered in
exchange therefor.

. The holding period of the Stamps.com common stock received by each
iShip.com shareholder in the merger will include the period for which
the iShip.com stock surrendered in exchange therefor was considered to
be held, assuming that the iShip.com stock was held as a capital asset
at the time of the merger.

. Cash payments received by holders of iShip.com stock in lieu of a
fractional share will be treated as if such fractional share of
Stamps.com common stock had been issued in the merger and then redeemed
by Stamps.com. An iShip.com stockholder receiving such cash will
recognize gain or loss, upon such payment, measured by the difference,
if any, between the amount of cash received and the basis in such
fractional share.

The parties have not and will not request a ruling from the Internal
Revenue Service as to the tax consequences of the merger. The consummation of
the merger is conditioned on the receipt by Stamps.com of an opinion from its
counsel, Brobeck, Phleger & Harrison LLP, and the receipt by iShip.com of an
opinion from its counsel, Venture Law Group, A Professional Corporation, to
the effect that the merger will constitute a reorganization within the meaning
of the Internal Revenue Code. iShip.com shareholders should be aware that the
tax opinions do not bind the Internal Revenue Service and the Internal Revenue
Service is therefore not precluded from successfully asserting a contrary
opinion.

A successful Internal Revenue Service challenge to the reorganization
status of the merger would result in iShip.com shareholders recognizing
taxable gain or loss with respect to each share of stock of iShip.com
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, as of the time of completion of the merger,
of the Stamps.com common stock received in exchange therefor. In such event, a
shareholder's aggregate basis in the Stamps.com common stock so received would
equal its fair market value, and the stockholder's holding period for such
stock would begin the day after the merger is completed.

49
<PAGE>

RELATED AGREEMENTS

Support Agreements

In connection with the merger agreement, Stamps.com entered into support
agreements with certain shareholders of iShip.com holding an aggregate of
6,722,448 shares of common stock and 17,213,336 shares of preferred stock of
iShip.com. These amounts represent greater than a majority of the common stock
and two-thirds of the preferred stock (voting together as a class) of
iShip.com, respectively. Under these agreements, each of these iShip.com
shareholders has agreed to vote in favor of the merger and against any
competing proposal at any special meeting of shareholders or written consent
to approve the merger. Each shareholder also has agreed not to engage in
certain solicitation activities. The shareholders that have executed
agreements are as follows:

<TABLE>
<CAPTION>
Number of iShip.com Shares Beneficially Owned (Excluding
Name of Shareholder Warrants)
------------------- --------------------------------------------------------
<S> <C>
Stephen M. Teglovic 1,740,000 Common Stock
John M. Dietz 2,140,000 Common Stock
William W. Smith 2,040,000 Common Stock
John E. Jamerson 661,224 Common Stock
Draper Fisher Jurvetson 5,333,334 Series A Preferred and 1,333,334 Series B Preferred
United Parcel Service 2,133,334 Series A Preferred and 1,013,332 Series B Preferred
Intel Corporation 1,333,334 Series A Preferred and 733,334 Series B Preferred
Mail Boxes Etc. 5,333,334 Series B Preferred
</TABLE>

Employment Agreements

In connection with the merger agreement with iShip.com, Stamps.com entered
into two-year employment agreements with Stephen Teglovic, John Jamerson, John
Dietz and William Smith. Each agreement becomes effective on the closing of
the merger. Under the terms of the employment agreements, each of Messrs.
Teglovic, Jamerson, Dietz and Smith has agreed not to compete with Stamps.com
for a one-year period following any termination of his employment with
Stamps.com. In addition, each of Messrs. Teglovic, Jamerson, Dietz and Smith
will be liable for damages to Stamps.com if he voluntarily terminates his
employment or if his employment is terminated by Stamps.com for cause. Any
potential damages payable under this provision of the employment agreements
are secured by Stamps.com shares received by each of Messrs. Teglovic,
Jamerson, Dietz and Smith in the merger.

Lock-Up Agreements

In connection with the merger and the follow-on offering, Stamps.com
received lock-up agreements from the shareholders of iShip.com who will
receive at least 95% of the shares of Stamps.com common stock issued in the
proposed acquisition of iShip.com. These shareholders have executed agreements
with the underwriters that they will not offer or sell any shares Stamps.com
common stock for a period of 60 days after the date of the prospectus for the
follow-on offering without the prior written consent of Goldman, Sachs & Co.
On the 60th day after the date of the prospectus for the follow-on offering,
the lock-up will expire for 20% of the shares held by these stockholders. On
the 90th day after the date of the prospectus for the follow-on offering, the
lock-up will expire for the remaining 80% of the shares held by these
stockholders. Prior to this date, these shares cannot be offered or sold
without the prior written consent of Goldman, Sachs & Co. In addition, the
merger agreement with iShip.com provides that Stamps.com are not obligated to
file an S-8 registration statement for options assumed in the acquisition
until the expiration of the 90 day lock-up period.

50
<PAGE>

APPROVAL OF AMENDMENT TO STAMPS.COM'S 1999
STOCK INCENTIVE PLAN

Stamps.com stockholders are being asked to approve an amendment to the
Stamps.com 1999 Stock Incentive Plan which will increase the number of shares
Stamps.com common stock reserved for issuance under such plan by an additional
2,500,000 shares. Stamps.com's board of directors adopted the amendment on
October 22, 1999, subject to stockholder approval at the special meeting.

The share increase will assure that a sufficient reserve of Stamps.com
common stock remains available under the 1999 plan in order to allow
Stamps.com to continue to utilize equity incentives to attract and retain the
services of key individuals essential to Stamps.com's long-term growth and
financial success. Options to purchase at least 1,500,000 shares of Stamps.com
common will be issued to former employees of iShip.com. Stamps.com relies
significantly on equity incentives in the form of stock option grants in order
to attract and retain key employees and believes that such equity incentives
are necessary for Stamps.com to remain competitive in the marketplace for
executive talent and other key employees. Option grants made to newly-hired or
continuing employees will be based on both competitive market conditions and
individual performance.

The following is a summary of the principal features of the 1999 plan, as
most recently amended. Any stockholder who wishes to obtain a copy of the
actual plan document may do so upon written request to the Stamps.com at 3420
Ocean Park Boulevard, Suite 1040, Santa Monica, California 94045. The 1999
plan serves as the successor to Stamps.com's 1998 Stock Plan which terminated
in connection with the initial public offering of Stamps.com common stock All
outstanding options under the 1998 plan at the time of such termination were
transferred to the 1999 plan.

Equity Incentive Programs

The 1999 plan consists of five separate equity incentive programs: (i) the
discretionary option grant program, (ii) the stock issuance program, (iii) the
salary investment option grant program, (iv) the automatic option grant
program for non-employee board members and (v) the director fee option grant
program. The principal features of each program are described below. The
compensation committee of Stamps.com's board of directors will have the
exclusive authority to administer the discretionary option grant and stock
issuance programs with respect to option grants and stock issuances made to
Stamps.com's executive officers and non-employee board members and will also
have the authority to make option grants and stock issuances under those
programs to all other eligible individuals. However, the Stamps.com board of
directors may at any time appoint a secondary committee of one or more board
members to have separate but concurrent authority with Stamps.com's
compensation committee to make option grants and stock issuances under those
two programs to individuals other than Stamps.com's executive officers and
non-employee board members. The compensation committee will also have complete
discretion to select the individuals who are to participate in the salary
investment option grant program, but all grants made to the selected
individuals will be governed by the express terms of that program.

The term plan administrator, as used in this summary, will mean
Stamps.com's compensation committee and any secondary committee, to the extent
each such entity is acting within the scope of its administrative jurisdiction
under the 1999 plan. However, neither the compensation committee nor any
secondary committee will exercise any administrative discretion under the
automatic option grant or director fee option grant program. All grants under
those programs will be made in strict compliance with the express provisions
of such programs.

Share Reserve

At present, 9,790,000 shares of Stamps.com common stock are reserved for
issuance over the term of the 1999 plan. Such share reserve consists of (i)
the 7,290,000 shares of Stamps.com common stock initially reserved for
issuance under the 1999 plan (including the shares of Stamps.com common stock
subject to the outstanding options under the Stamps.com predecessor 1998 plan
which have been transferred to the 1999 plan) plus (ii) the

51
<PAGE>

2.5 million-share increase which is the subject of this proposal. In addition,
the share reserve under the 1999 plan will automatically increase on the first
trading day of each calendar year, beginning in calendar year 2000, by an
amount equal to three percent of the total number of shares of Stamps.com
common stock outstanding on the last trading day of the preceding calendar
year, but in no event will any such annual increase exceed 1,564,715 shares,
subject to adjustment for subsequent stock splits, stock dividends and similar
transactions.

No participant in the 1999 plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
1,125,000 shares of Stamps.com common stock in total per calendar year,
subject to adjustment for subsequent stock splits, stock dividends and similar
transactions. Stockholder approval of this Proposal will also constitute
approval of that 1,125,000-share limitation for purposes of Internal Revenue
Code Section 162(m).

The shares of Stamps.com common stock issuable under the 1999 plan may be
drawn from shares of Stamps.com's authorized but unissued common stock or from
shares of Stamps.com common stock which Stamps.com acquires, including shares
purchased on the open market.

Shares subject to any outstanding options under the 1999 plan (including
options transferred from the 1998 plan) which expire or otherwise terminate
prior to exercise will be available for subsequent issuance. Unvested shares
issued under the 1999 plan which Stamps.com subsequently purchases, at the
option exercise or direct issue price paid per share, pursuant to Stamps.com's
purchase rights under the 1999 plan will be added back to the number of shares
reserved for issuance under the 1999 plan and will accordingly be available
for subsequent issuance. However, any shares subject to stock appreciation
rights exercised under the 1999 plan will not be available for reissuance.

Eligibility

Officers and employees, non-employee Stamps.com board members and
independent consultants in Stamps.com's service or in the service of
Stamps.com's parent and subsidiaries (whether now existing or subsequently
established) will be eligible to participate in the discretionary option grant
and stock issuance programs. Stamps.com executive officers and other highly
paid employees will also be eligible to participate in the salary investment
option grant program. Participation in the automatic option grant and director
fee option grant programs will be limited to the non-employee members of
Stamps.com board of directors.

Valuation

The fair market value per share of Stamps.com common stock on any relevant
date under the 1999 plan will be deemed to be equal to the closing selling
price per share on that date on the Nasdaq National Market.

Discretionary Option Grant Program

The plan administrator will have complete discretion under the
discretionary option grant program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.

Each granted option will have an exercise price per share determined by the
plan administrator, but the exercise price will not be less than one hundred
percent of the fair market value of the option shares on the grant date. No
granted option will have a term in excess of ten years. The shares subject to
each option will generally vest in one or more installments over a specified
period of service measured from the grant date. However, one or more options
may be structured so that they will be immediately exercisable for any or all
of the option shares. However, the shares acquired under those options will be
subject to repurchase by Stamps.com, at the exercise price paid per share, if
the optionee ceases service with us prior to vesting in those shares.

52
<PAGE>

Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent exercisable for
vested shares. The plan administrator will have complete discretion to extend
the period following the optionee's cessation of service during which his or
her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.

The plan administrator is authorized to issue tandem stock appreciation
rights under the discretionary option grant program which will provide the
holders with the right to surrender their options to Stamps.com for an
appreciation distribution. The amount of the distribution payable by
Stamps.com will be equal to the excess of (a) the fair market value of the
vested shares of Stamps.com common stock subject to the surrendered option
over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the plan administrator, be
made in cash or in shares of Stamps.com common stock.

The plan administrator will also have the authority to effect the
cancellation of outstanding options under the discretionary option grant
program (including options transferred from the 1998 plan) in return for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the common stock
on the new grant date.

Salary Investment Option Grant Program

Stamps.com's compensation committee will have complete discretion in
implementing the salary investment option grant program for one or more
calendar years and in selecting the executive officers and other eligible
individuals who are to participate in the program for those years. As a
condition to such participation, each selected individual must, prior to the
start of the calendar year of participation, file with the compensation
committee an irrevocable authorization directing Stamps.com to reduce his or
her base salary for the upcoming calendar year by a specified dollar amount
not less than $10,000 nor more than $50,000 and to apply that amount to the
acquisition of a special option grant under the program.

Each selected individual who files such a timely election will
automatically be granted a non-statutory option on the first trading day in
January of the calendar year for which that salary reduction is to be in
effect. Stockholder approval of the 2.5 million-share increase which is the
subject of this Proposal will also constitute pre-approval of each option
granted under the salary investment option grant program on the basis of such
increase and the subsequent exercise of that option in accordance with the
terms of the program summarized below.

The number of shares subject to each such option will be determined by
dividing the salary reduction amount by two-thirds of the fair market value
per share of Stamps.com common stock on the grant date, and the exercise price
will be equal to one-third of the fair market value of the option shares on
the grant date. As a result, the total spread on the option shares at the time
of grant (the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares) will be equal to the
salary reduction amount. The option will become exercisable in a series of
twelve equal monthly installments upon the optionee's completion of each
calendar month of service in the calendar year for which the salary reduction
is in effect and will become immediately exercisable in all the option shares
on an accelerated basis should Stamps.com experience certain changes in
ownership or control. Each option will remain exercisable for any vested
shares until the earlier of (i) the expiration of the ten-year option term or
(ii) the end of the three-year period measured from the date of the optionee's
cessation of service.

Stock Issuance Program

Shares may be issued under the stock issuance program at a price per share
not less than their fair market value, payable in cash or, in the discretion
of the plan administrator, through a promissory note. Shares may also be
issued as a bonus for past services without any cash outlay required of the
recipient. Shares of Stamps.com common stock may also be issued under the
program pursuant to share right awards which entitle the recipients

53
<PAGE>

to receive those shares upon the attainment of designated performance goals.
The plan administrator will have complete discretion under the program to
determine which eligible individuals are to receive such stock issuances or
share right awards, the time or times when those issuances or awards are to be
made, the number of shares subject to each such issuance or award and the
vesting schedule to be in effect for the stock issuance or share rights award.

The shares issued may be fully and immediately vested upon issuance or may
vest upon the completion of a designated service period or the attainment of
pre-established performance goals. The plan administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any and
all unvested shares outstanding under the stock issuance program.

Outstanding share right awards under the program will automatically
terminate, and no shares of Stamps.com common stock will actually be issued in
satisfaction of those awards, if the performance goals established for such
awards are not attained. The plan administrator, however, will have the
discretionary authority to issue shares of Stamps.com common stock in
satisfaction of one or more outstanding share right awards as to which the
designated performance goals are not attained.

Automatic Option Grant Program

Under the automatic option grant program, eligible non-employee members of
Stamps.com's board of directors will receive a series of option grants over
their period of board service. Each non-employee board member will, at the
time of his or her initial election or appointment to the board, receive an
option grant for 10,000 shares of Stamps.com common stock, provided such
individual has not previously been in Stamps.com's employ. In addition, on the
date of each annual stockholders meeting, each individual who is to continue
to serve as a non-employee board member will automatically be granted an
option to purchase 2,500 shares of Stamps.com common stock, provided he or she
has served as a non-employee board member for at least six months. There will
be no limit on the number of such 2,500-share option grants any one eligible
non-employee board member may receive over his or her period of continued
board service, and non-employee board members who have previously been in
Stamps.com's employ will be eligible to receive one or more such annual option
grants over their period of board service.

Stockholder approval of the 2.5 million-share increase which is the subject
of this proposal will also constitute pre-approval of each option granted
under the automatic option grant program on the basis of such increase and the
subsequent exercise of that option in accordance with the terms of the program
summarized below.

Each automatic grant will have an exercise price per share equal to the
fair market value per share of Stamps.com common stock on the grant date and
will have a maximum term of 10 years, subject to earlier termination following
the optionee's cessation of board service. Each automatic option will be
immediately exercisable for all of the option shares; however, any unvested
shares purchased under such option will be subject to repurchase by
Stamps.com, at the exercise price paid per share, should the optionee cease
board service prior to vesting in those shares. The shares subject to each
initial 10,000-share automatic option grant will vest in a series of 36
successive equal monthly installments upon the optionee's completion of each
month of board service over the 36-month period measured from the grant date.
However, the shares subject to each initial option grant will immediately vest
in full upon certain changes in control or ownership or upon the optionee's
death or disability while a board member. The shares subject to each annual
2,500-share automatic grant will be fully vested at the time of the option
grant. Following the optionee's cessation of board service for any reason,
each option will remain exercisable for a 12-month period and may be exercised
during that time for any or all shares in which the optionee is vested at the
time of such cessation of board service.

Director Fee Option Grant Program

The plan administrator will have complete discretion in implementing the
director fee option grant program for one or more calendar years. If the
program is implemented, each non-employee board member may elect,

54
<PAGE>

prior to the start of each calendar year, to apply all or any portion of any
annual retainer fee otherwise payable in cash for his or her period of service
on the board for that year to the acquisition of a below-market option grant.
The option grant will be a nonstatutory option and will automatically be made
on the first trading day in January in the calendar year for which such an
election is in effect. The option will have a maximum term of 10 years
measured from the grant date and an exercise price per share equal to one-
third of the fair market value of the option shares on such date. The number
of shares subject to each option will be determined by dividing the amount of
the retainer fee applied to the acquisition of that option by two-thirds of
the fair market value per share of Stamps.com common stock on the grant date.
As a result, the total spread on the option (the fair market value of the
option shares on the grant date less the aggregate exercise price payable for
those shares) will be equal to the portion of the retainer fee applied to the
acquisition of the option.

The option will become exercisable in a series of 12 successive equal
monthly installments upon the optionee's completion of each month of board
service in the calendar year in which the option is granted, subject to full
and immediate acceleration upon certain changes in control or ownership or
upon the optionee's death or disability while a board member. Each option
granted under the program will remain exercisable for vested shares until the
earlier of (i) the expiration of the ten-year option term or (ii) the
expiration of the 3-year period measured from the date of the optionee's
cessation of board service.

Limited Stock Appreciation Rights

Limited stock appreciation rights may be granted under the discretionary
option grant program to one or more of Stamps.com's officers or non-employee
board members as part of their option grants, and each option granted under
the salary investment option grant, automatic option grant and director fee
option grant program will automatically include such a limited stock
appreciation right. Upon the successful completion of a hostile tender offer
for more than fifty percent of Stamps.com's outstanding voting securities or a
change in a majority of Stamps.com's board of directors as a result of one or
more contested elections for board membership, each outstanding option with a
limited stock appreciation right may be surrendered to us in return for a cash
distribution. The amount of the distribution payable by us per surrendered
option share will be equal to the excess of (i) the fair market value per
share at the time the option is surrendered or, if greater, the tender offer
price paid per share in the hostile take-over over (ii) the exercise price
payable per share under such option.

Stockholder approval of the 2,500,000-share increase which is the subject
of this Proposal will also constitute pre-approval of each limited stock
appreciation right granted under the salary investment option grant, automatic
option grant or director fee option grant program on the basis of such
increase and the subsequent exercise of that right in accordance with the
foregoing terms.

Predecessor Plan

All outstanding options under the predecessor 1998 plan which were
transferred to the 1999 plan will continue to be governed by the terms of the
agreements evidencing those options, and no provision of the 1999 plan will
affect or otherwise modify the rights or obligations of the holders of the
transferred options with respect to their acquisition of Stamps.com common
stock. However, the plan administrator has complete discretion to extend one
or more provisions of the 1999 plan to the transferred options, to the extent
those options do not otherwise contain such provisions.

Stock Awards

The table below shows, as to Stamps.com's Chief Executive Officer,
Stamps.com's four other most highly compensated executive officers (with base
salary and bonus for the past fiscal year in excess of $100,000) and the other
individuals and groups indicated, the number of shares of Stamps.com common
stock subject to option grants made under the 1999 plan and the predecessor
1998 plan through October 31, 1999, together with the weighted average
exercise price payable per share. Stamps.com has not made any direct stock
issuances to date under the 1999 plan or the predecessor 1998 plan.

55
<PAGE>

OPTION TRANSACTIONS

<TABLE>
<CAPTION>
Number of
Shares Weighted
Underlying Average
Options Exercise Price
Name and Position Granted (#) Per Share ($)
----------------- ----------- --------------
<S> <C> <C>
John M. Payne................................... 0 $ --
Chairman and Chief Executive Officer (October
1998 to present)

John W. LaValle................................. 500,000 $7.48
Chief Financial Officer and Senior Vice
President of Operations

Mohan P. Ananda................................. 0 $ --
Chief Executive Officer and President (January
1998 to October 1998)

Douglas J. Walner............................... 366,357 $0.07
Senior Vice President of Business Development

All current executive officers as a group (#)... 1,816,757 $9.08

All current non-employee directors as a group 380,000 $6.89
(#)............................................

All employees, including current officers who
are not executive officers, as a group......... 4,885,657 $7.18
iShip.com management options to be granted upon
closing........................................ 360,000 $ --
</TABLE>

As of November 8, 1999, 7,082,414 shares of Stamps.com common stock were
subject to outstanding options under the 1999 plan and warrants and 2,707,586
shares remained available for future issuance, assuming stockholder approval
of this Proposal.

New Plan Benefits

No option grants or share issuances have been made to date on the basis of
the share increase which is the subject of this Proposal.

General Provisions

Acceleration. In the event that Stamps.com is acquired by merger or asset
sale, each outstanding option under the discretionary option grant program
which is not to be assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the discretionary option
grant and stock issuance programs will immediately vest, except to the extent
Stamps.com's repurchase rights with respect to those shares are to be assigned
to the successor corporation. The plan administrator will have complete
discretion to grant one or more options under the discretionary option grant
program which will become fully exercisable for all the option shares in the
event those options are assumed in the acquisition and the optionee's service
is involuntarily terminated within a designated period (not to exceed 18
months) following such acquisition. The vesting of outstanding shares under
the stock issuance program may be accelerated upon similar terms and
conditions. The plan administrator will also have the authority to grant
options which will immediately vest in the event Stamps.com is acquired,
whether or not those options are assumed by the successor corporation.

The plan administrator is also authorized under the discretionary option
grant and stock issuance programs to grant options and to structure repurchase
rights so that the shares subject to those options or repurchase rights will
immediately vest in connection with a change in ownership or control (whether
by successful tender offer for more than 50% of Stamps.com's outstanding
voting stock or by a change in the majority of Stamps.com's board of directors
by reason of one or more contested elections for board membership). Such
accelerated vesting

56
<PAGE>

may occur either at the time of such change in ownership or control or upon
the involuntary termination of the individual's service within a designated
period (not to exceed 18 months) following such change in ownership or
control.

The plan administrator will have the discretionary authority to extend any
of the acceleration provisions of the 1999 plan to one or more options
transferred from the 1998 plan which do not otherwise contain those
provisions. Currently, the transferred options are structured so that those
options will immediately vest if Stamps.com is acquired by merger or asset
sale and Stamps.com's repurchase rights with respect to the unvested shares
subject to those options are not to be assigned to the successor entity or
otherwise continued in effect. In addition, those options contain additional
acceleration provisions pursuant to which those options will vest upon an
involuntary termination of the optionee's employment within 18 months
following an acquisition in which Stamps.com's repurchase rights with respect
to the option shares continue in effect.

The shares subject to each option under the salary investment option grant,
automatic option grant and director fee option grant program will immediately
vest in the event (i) Stamps.com is acquired by merger or asset sale, (ii) a
tender offer for more than 50% of Stamps.com's outstanding voting stock or
(iii) there is a change in the majority of the board effected through one or
more contested elections for board membership.

The acceleration of vesting in the event of a change in the ownership or
control may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of us.

Stockholder Rights and Option Transferability. No optionee will have any
stockholder rights with respect to the option shares until such optionee has
exercised the option and paid the exercise price for the purchased shares.
Options are not assignable or transferable other than by will or the laws of
inheritance following optionee's death, and during the optionee's lifetime,
the option may only be exercised by the optionee. However, non-statutory
options may be transferred or assigned during optionee's lifetime to one or
more members of the optionee's family or to a trust established for one or
more such family members or to one or more other persons, to the extent such
transfer is in connection with the optionee's estate or pursuant to a domestic
relations order.

Changes in Capitalization. In the event any change is made to the
outstanding shares of Stamps.com common stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without Stamps.com's
receipt of consideration, appropriate adjustments will be made to (i) the
maximum number and/or class of securities issuable under the 1999 plan, (ii)
the maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the 1999 plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made under
the automatic option grant program to new and continuing non-employee board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option, (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option transferred from the predecessor 1998 plan to the 1999 plan and (vi)
the maximum number and/or class of securities by which the share reserve under
the 1999 plan is to increase automatically each year. Such adjustments will be
designed to preclude any dilution or enlargement of benefits under the 1999
plan or the outstanding options thereunder.

Financial Assistance. The plan administrator may institute a loan program
to assist one or more participants in financing the exercise of outstanding
options under the discretionary option grant program or the purchase of shares
under the stock issuance program through full-recourse interest-bearing
promissory notes. However, the maximum amount of financing provided any
participant may not exceed the cash consideration payable for the issued
shares plus all applicable taxes incurred in connection with the acquisition
of those shares.

Special Tax Election. The plan administrator may provide one or more
holders of options or unvested share issuances under the 1999 plan with the
right to have the Company withhold a portion of the shares otherwise issuable
to such individuals in satisfaction of the withholding taxes to which such
individuals become

57
<PAGE>

subject in connection with the exercise of those options or the vesting of
those shares. Alternatively, the plan administrator may allow such individuals
to deliver previously acquired shares of Stamps.com common stock in payment of
such withholding tax liability.

Amendment and Termination. The board may amend or modify the 1999 plan at
any time, subject to any required stockholder approval pursuant to applicable
laws and regulations. Unless sooner terminated by the board, the 1999 plan
will terminate on the earliest of (i) June 30, 2009, (ii) the date on which
all shares available for issuance under the 1999 plan have been issued as
fully-vested shares or (iii) the termination of all outstanding options in
connection with certain changes in control or ownership.

Federal Income Tax Consequences

Option Grants. Options granted under the 1999 plan may be either incentive
stock options which satisfy the requirements of Section 422 of the Internal
Revenue Code or non-statutory options which are not intended to meet such
requirements. The Federal income tax treatment for the two types of options
differs as follows:

Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made
the subject of a taxable disposition. For Federal tax purposes, dispositions
are divided into two categories: (i) qualifying and (ii) disqualifying. A
qualifying disposition occurs if the sale or other disposition of the shares
is made more than two years after the date the option for those shares is
granted and more than one year after the date the option is exercised for
those shares. If either of these two requirements is not satisfied, then a
disqualifying disposition will result.

Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized
upon the disposition will be recognized as a capital gain or loss by the
optionee.

If the optionee makes a disqualifying disposition of the purchased shares,
then Stamps.com will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition,
then Stamps.com will not be entitled to any income tax deduction.

Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.

If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by us in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee
will not recognize any taxable income at the time of exercise but will have to
report as ordinary income, as and when Stamps.com's repurchase right lapses,
an amount equal to the excess of (i) the fair market value of the shares on
the date the repurchase right lapses over (ii) the exercise price paid for the
shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
option an amount equal to the excess of (i) the fair market value of the
purchased shares on the exercise date over (ii) the exercise price paid for
such shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the repurchase right lapses.

58
<PAGE>

Stamps.com will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year in which such ordinary income is recognized by the optionee.

Stock Appreciation Rights. No taxable income is recognized upon receipt of
a stock appreciation right. The holder will recognize ordinary income, in the
year in which the stock appreciation right is exercised, in an amount equal to
the excess of the fair market value of the underlying shares of Stamps.com
common stock on the exercise date over the base price in effect for the
exercised right, and the holder will be required to satisfy the tax
withholding requirements applicable to such income.

Stamps.com will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable
year in which such ordinary income is recognized.

Direct Stock Issuances. The tax principles applicable to direct stock
issuances under the 1999 plan will be substantially the same as those
summarized above for the exercise of non-statutory option grants.

Deductibility of Executive Compensation. Stamps.com anticipates that any
compensation deemed paid by it in connection with the disqualifying
disposition of incentive stock option shares or the exercise of non-statutory
options with exercise prices equal to the fair market value of the option
shares on the grant date will qualify as performance-based compensation for
purposes of Code Section 162(m) and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain of Stamps.com's executive
officers. Accordingly, all compensation deemed paid with respect to those
options will remain deductible by us without limitation under Code Section
162(m).

Accounting Treatment

Under the current accounting principles in effect for equity incentive
programs such as the 1999 plan, the option grants under the discretionary
option grant and automatic option grant programs will not result in any direct
charge to Stamps.com's reported earnings. However, the fair value of those
options is required to be disclosed in the notes to Stamps.com's financial
statements, and Stamps.com must also disclose, in footnotes to Stamps.com's
financial statements, the pro-forma impact those options would have upon
Stamps.com's reported earnings were the fair value of those options at the
time of grant treated as a compensation expense. In addition, the number of
outstanding options may be a factor in determining Stamps.com's earnings per
share on a fully-diluted basis.

On March 31, 1999, the Financial Accounting Standards Board issued an
Exposure Draft of a proposed interpretation of APB Opinion 25, "Accounting for
Stock Issued to Employees." Under the proposed interpretation, option grants
made to non-employee consultants (but not non-employee board members) after
December 15, 1998 will result in a direct charge to Stamps.com's reported
earnings based upon the fair value of the option measured initially as of the
grant date and then subsequently on the vesting date of each installment of
the underlying option shares. Such charge will accordingly include the
appreciation in the value of the option shares over the period between the
grant date of the option (or, if later, the effective date of the final
amendment) and the vesting date of each installment of the option shares. In
addition, if the proposed interpretation is adopted, any options which are
repriced after December 15, 1997 will also trigger a direct charge to
Stamps.com's earnings measured by the appreciation in the value of the
underlying shares over the period between the grant date of the option (or, if
later, the effective date of the final amendment) and the date the option is
exercised for those shares.

Should one or more individuals be granted tandem stock appreciation rights
under the 1999 plan, then such rights would result in a compensation expense
to be charged against Stamps.com's reported earnings. Accordingly, at the end
of each fiscal quarter, the amount (if any) by which the fair market value of
the shares of Stamps.com common stock subject to such outstanding stock
appreciation rights has increased from the prior

59
<PAGE>

quarter-end would be accrued as compensation expense, to the extent such fair
market value is in excess of the aggregate exercise price in effect for those
rights.

Vote Required

The affirmative vote of at least a majority of the shares of Stamps.com
common stock present in person or by proxy at the special meeting and entitled
to vote is required for approval of the amendment to the 1999 plan. Should
such stockholder approval not be obtained, then the 2.5 million-share increase
to the share reserve under the 1999 plan will not be implemented, any stock
options granted under the 1999 plan on the basis of that increase will
immediately terminate without ever becoming exercisable for the shares of
Stamps.com common stock subject to those options, and no additional options or
stock issuances will be made on the basis of such share increase. The 1999
plan will, however, continue in effect, and option grants and direct stock
issuances may continue to be made under the 1999 plan until all the shares of
Stamps.com common stock available for issuance under the 1999 plan has been
issued pursuant to such option grants and direct stock issuances.

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<PAGE>

PRICE RANGE OF STAMPS.COM COMMON STOCK

Stamps.com common stock has been quoted on the Nasdaq National Market under
the symbol "STMP" since June 25, 1999. Prior to that time, there was no public
market for Stamps.com common stock. The following table sets forth, for the
periods indicated, the high and low closing prices per share of Stamps.com
common stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
1999 High Low
---- ------ ------
<S> <C> <C>
Second Quarter (since June 25, 1999)............................. $17.50 $13.25
Third Quarter.................................................... $48.00 $22.25
Fourth Quarter (through November , 1999)....................... $ $
</TABLE>

On November , 1999, the reported last sale price of the common stock on
the Nasdaq National Market was $ . See "Risk Factors--Stamps.com's stock
price could fluctuate dramatically which could result in losses to investors"
and "--the market price of Stamps.com common stock may be affected by the
Stamps.com follow-on offering."

DIVIDEND POLICY

Stamps.com has never declared nor paid cash dividends on Stamps.com common
stock. Stamps.com currently intends to retain all available funds for use in
the operation and expansion of Stamps.com's business and do not anticipate
paying any cash dividends in the foreseeable future.

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<PAGE>

CAPITALIZATION

The following table indicates Stamps.com's capitalization, as of September
30, 1999, on an actual basis and on a pro forma basis to give effect to the
acquisition and on as adjusted basis to give effect to the merger, the sale of
327,498 shares of Stamps.com common stock to America Online, Inc. at $33.59
per share and the follow-on offering of 5 million shares at an assumed price
of $57.50 per share, which was Stamps.com's closing price on October 29, 1999.
Stamps.com can not assure you that the acquisition or the follow-on offering
will be completed nor can Stamps.com assure you as of the market price of
Stamps.com common stock at the date of completion of either of them.

<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
(in thousands, except)
<S> <C> <C> <C>
Line of credit and capital lease obligations... $ 1,972 $ 4,000 $ 4,000
Preferred stock, par value $0.001; 5,000,000
shares authorized; no shares issued and
outstanding................................... -- -- --
Stockholders' equity:
Common stock, par value $0.001; 95,000,000
shares authorized, 35,569,402 shares issued
and outstanding; shares authorized,
41,493,305 issued and outstanding, pro
forma, 46,493,305 issued and outstanding, as
adjusted.................................... 35 41 46
Additional paid-in capital..................... 103,048 562,103 846,082
Notes receivable for stock sales............... (107) (107) (107)
Deferred compensation.......................... (8,086) (47,293) (47,293)
Accumulated deficit during development stage... (27,299) (27,299) (27,299)
Treasury Stock................................. (939) -- --
-------- -------- --------
Total stockholders' equity................... 66,652 487,445 771,429
-------- -------- --------
Total capitalization....................... $ 68,624 $491,445 $775,429
======== ======== ========
</TABLE>

The number of issued and outstanding shares set forth above excludes, as of
November 8, 1999:

. approximately 1.7 million shares of Stamps.com common stock issuable
upon exercise of options and warrants to be issued in connection with
the proposed iShip.com acquisition;

. 2,707,586 shares of Stamps.com common stock that may be issued upon
exercise of options that may be, but have not yet been, granted under
Stamps.com's stock incentive plan or that may be, but have not been,
issued under Stamps.com's stock purchase plan, assuming the stockholders
approve an increase to the 1999 Stock Incentive Plan from 7,290,000 to
9,790,000; and

. 7,082,414 shares of Stamps.com's common stock that may be issued upon
exercise of options and warrants at a weighted average exercise price of
$7.65 per share.

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<PAGE>

SELECTED FINANCIAL DATA
(dollar amounts in thousands, except per share data)

The following selected financial data should be read with Stamps.com's
financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this document. The statement of operations data for the
period from inception through December 31, 1998 and the balance sheet data at
December 31, 1998, are derived from Stamps.com's financial statements which
have been audited by Arthur Andersen LLP, Stamps.com's independent public
accountants, and are included elsewhere in this document. The statements of
operations data for the period January 9, 1998 (inception) through September
30, 1998 and the nine month period ended September 30, 1999, and the balance
sheet data at September 30, 1999, are derived from Stamps.com's unaudited
interim financial statements included elsewhere in this document. Stamps.com's
unaudited financial statements have been prepared on substantially the same
basis as the audited consolidated financial statements and, in the opinion of
Stamps.com's management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for these periods. Please be advised that historical results are
not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.

<TABLE>
<CAPTION>
January 9, 1998 January 9, 1998 Nine Months Ended
(inception) through (inception) through September 30,
December 31, 1998 September 30, 1998 1999
------------------- ------------------- -----------------
(In thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ --
Costs and expenses:
Research and
development.......... 1,532 548 5,049
Sales and marketing... 632 -- 10,856
General and
administrative....... 2,016 1,126 8,276
------- ------- --------
Total costs and
expenses........... 4,180 1,674 24,181
------- ------- --------
Loss from operations.... (4,180) (1,674) (24,181)
Interest expense, net... (16) (2) 1,078
------- ------- --------
Net loss................ $(4,196) $(1,676) $(23,103)
======= ======= ========
Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59)
======= ======= ========
Pro forma basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74)
======= ======= ========
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation............ 4,956 4,738 14,496
Weighted average shares
outstanding used in pro
forma basic and diluted
net loss per share
calculation............ 11,593 9,613 31,260
</TABLE>

<TABLE>
<CAPTION>
As of As of
December 31, September 30,
1998 1999
------------ -------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ 3,470 $61,198
Working capital...................................... 1,385 61,380
Total assets......................................... 4,426 74,185
Line of credit and capital lease obligations......... 1,473 1,972
Redeemable preferred stock........................... 5,978 --
Total stockholders' equity (deficit)................. (3,951) 66,652
</TABLE>

The statement of operations data for the period from inception through
December 31, 1998 excludes approximately $35,000 of expenses incurred prior to
incorporation. Prior to incorporation, the founders of Stamps.com primarily
investigated the feasibility of entering into the US Postal Service's
Information Based Indicia Program and initiated the certification process.

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<PAGE>

STAMPS.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of
Stamps.com's operations of Stamps.com should be read in conjunction with the
"Selected Financial Data" and Stamps.com's financial statements and the
related notes thereto. This discussion contains forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from historical results or anticipated results including those set
forth in "Risk Factors" and elsewhere in this document.

Overview

Stamps.com Inc. offers a convenient, cost effective and easy-to-use service
for purchasing and printing postage over the Internet. On October 22, 1999,
Stamps.com commercially launched its Internet Postage service. To date,
Stamps.com's operating activities have consisted primarily of our efforts to
promote our brand, build market awareness, attract new customers, recruit
personnel, build operating infrastructure and develop its Web site and
associated systems that Stamps.com uses to process customers' orders and
payments. As of October 29, 1999, Stamps.com's customer base consisted of over
15,000 users who had downloaded our software and registered for its service.

Stamps.com is currently offering two different service plans to our users:
a Business Plan and a Personal Plan. Under each plan, a user purchases postage
at cost and is charged a monthly convenience fee based on how much postage he
or she uses during the month. The Business Plan, which is targeted at high
volume users of postage, such as home offices and small offices and
businesses, assesses a convenience fee equal to 10% of the postage used during
the month. This plan has a monthly minimum fee of $3.99 and a monthly maximum
fee of $19.99. The Personal Plan, which is targeted at light volume personal
users of postage, charges a flat rate monthly convenience fee of $1.99 that
allows a customer to use up to $25 of postage per month. If a Personal Plan
customer uses more than $25 in postage in any given month, a 15% convenience
fee on the amount of additional postage used over $25 will be added to the
$1.99 flat rate. The maximum charge under the Personal Plan is $19.99 per
month. The Personal Plan offers customers the ability to pre-pay one year's
worth of $1.99 fees at a discounted rate of $19.99 with all other terms of the
Personal Plan the same as described. Under both plans, convenience fees are
calculated and charged at the end of a monthly billing cycle. Although
Stamps.com has established these initial pricing programs, Stamps.com may need
to change them given the lack of an established or proven commercial market
for Internet postage.

Certain options and shares granted to Stamps.com's employees from January
9, 1998 (inception) through September 30, 1999 have been considered to be
compensatory. Deferred compensation associated with such options and shares
amounted to $1.25 million for the fiscal year ended December 31, 1998 and
$9.51 million for the nine months ended September 30, 1999. Of these amounts,
$167,000 was operations for the nine months ended September 30, 1999 and the
balance of $8.1 million will be amortized over the vesting periods of the
applicable options through the fiscal year ending December 31, 2003.

In October 1999, we signed the merger agreement.

Upon completion of the acquisition, up to 8,000,000 shares of Stamps.com
common stock will be issued in exchange for all outstanding iShip.com capital
stock, options and warrants. In addition, if the acquisition is completed,
Stamps.com will record a significant amount of intangibles, the amortization
of which will significantly and adversely affect Stamps.com operating results.
Based on the closing price of $57.50 per share of Stamps.com common stock on
October 29, 1999, Stamps.com expects these intangibles to equal approximately
$455 million, which will be amortized over a four-year period. To the extent
Stamps.com does not generate sufficient cash flow to recover the amount of the
investment recorded, the investment may be considered impaired and could be
subject to an immediate write-down of up to the full amount of the investment.
In this event, Stamps.com's net loss in any given period could be greater than
anticipated. Stamps.com anticipates that the acquisition will close during the
fourth quarter of 1999. The acquisition is subject to a number of closing
conditions, including stockholder approval by both iShip.com and Stamps.com
and other customary conditions. As a result, Stamps.com cannot be certain that
the acquisition will be completed.

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<PAGE>

Results of Operations

Costs and Expenses

Sales and Marketing. Sales and marketing expenses principally consist of
costs associated with Stamps.com's strategic relationships, advertising and
promotional expenditures, compensation and related expenses for personnel
engaged in marketing and business development activities. Sales and marketing
expenses for the nine months ended September 30, 1999 were $10.9 million.
Stamps.com began its first phase of beta testing in August 1998 and therefore
we incurred no sales and marketing expenses during the nine months ended
September 30, 1998. The increase in sales and marketing expenses is
principally due to Stamps.com's marketing campaign and advertising of the
launch of Stamps.com's Internet Postage solution in October 1999, as well as
to an increase in marketing personnel. Stamps.com expects sales and marketing
expenses to increase significantly as it fully rolls out its Internet Postage
service and continues to promote the Stamps.com's brand through new strategic
relationships and marketing campaigns.

Research and Development. Research and development expenses principally
consist of compensation for personnel involved in the development of
Stamps.com's Internet Postage service and expenditures for consulting services
and third-party software. Research and development expenses for the nine
months ended September 30, 1999 were $5.0 million compared to $0.5 million for
the period from January 9, 1998 (inception) to September 30, 1998. The
increase is due to higher personnel and consulting costs and costs associated
with the ongoing development of Stamps.com's Internet Postage service.
Stamps.com believes that significant investments in research and development
are required to remain competitive and expect to incur increasing research and
development expenses.

General and Administrative. General and administrative expenses principally
consist of compensation and related costs for executive and administrative
personnel, facilities fees, fees for legal and other professional services,
and amortization of deferred compensation. General and administrative expenses
for the nine months ended September 30, 1999 were $8.3 million compared to
$1.1 million for the period from January 9, 1998 (inception) to September 30,
1998. Of the $7.2 million increase, $2.5 million is due to amortization of
deferred compensation. The remaining increase is principally due to increased
headcount and the expansion of our facilities related to the growth of
Stamps.com's business, as well as to legal fees related to the Pitney Bowes
patent infringement claim. Stamps.com expects general and administrative
expenses to increase as it grows its business and incur additional costs
related to the Pitney Bowes patent infringement claim.

Interest Income (Expense), Net. Interest income (expense), net consists of
income from our cash and cash equivalents net of interest expense related to
financing Stamps.com's obligations. Interest income (expense), net for the
nine months ended September 30, 1999 was $1.1 million compared to $(2,000) for
the period from January 9, 1998 (inception) to September 30, 1998. This
increase is due to earnings on a higher average cash equivalent balance as a
result of Stamps.com's initial public offering in June 1999.

Liquidity and Capital Resources

As of September 30, 1999, Stamps.com had approximately $61.2 million in
cash and cash equivalents. In June 1999, Stamps.com completed an initial
public offering in which the underwriters sold to the public 5,750,000 shares
of common stock at $11.00 per share. Stamps.com's net proceeds from the
offering were $10.23 per share, or $58.8 million in the aggregate. Stamps.com
regularly invests excess funds in short-term money market funds and commercial
paper and does not engage in hedging or speculative activities.

In October 1999, Stamps.com entered into a distribution and marketing
agreement with AOL that will require aggregate payments by Stamps.com of $56.0
million through April 2002. In addition, under this agreement, AOL purchased
$6.0 million of Stamps.com's common stock in October 1999 and has agreed to
purchase $5.0 million of our common stock concurrent with the closing of the
follow-on offering. AOL also holds a three-year warrant to purchase up to 50%
of the total number of shares it purchases from Stamps.com. See "Description
of Capital Stock-America Online Investment."

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<PAGE>

In May 1999, Stamps.com entered into a facility lease agreement for its
corporate headquarters with aggregate minimum lease payments of approximately
$4.8 million through May 2004. Stamps.com also entered into an agreement with
Intuit/Quicken.com in May 1999, which requires aggregate payments by
Stamps.com of $3.3 million through 2000.

Net cash used in operating activities was $22.6 million for the nine months
ended September 30, 1999 compared to $1.4 million for the period from January
9, 1998 (inception) to September 30, 1998. The increase in net cash used in
operating activities resulted primarily from increases in net loss,
principally due to sales and marketing expenses as well as research and
development and general expenditures.

Net cash used in investing activities was $4.8 million for the nine months
ended September 30, 1999 compared to $0.2 million for the period from January
9, 1998 (inception) to September 30, 1998. The increase in net cash used in
investing activities resulted primarily from increased capital expenditures
for computer equipment, purchased software and office equipment.

Net cash provided by financing activities was $85.1 million for the nine
months ended September 30, 1999 compared to $2.3 million for the period from
January 9, 1998 (inception) to September 30, 1998. The increase in net cash
provided by financing activities resulted principally from the initial public
offering in June 1999.

Stamps.com anticipates that its current cash balances together with the
proceeds of the follow-on offering will be sufficient to fund its operations
and the operations of iShip.com after the acquisition for at least the next 24
months. However, Stamps.com may require substantial working capital to fund
our business and may need to raise additional capital. Stamps.com cannot be
certain be certain that additional funds will be available on satisfactory
terms when needed, if at all. See "Risk Factors--Stamps.com's growth and
operating results could be impaired if we are unable to meet our future
capital requirements."

Year 2000

The US Postal Service requires participants in the Information Based
Indicia Program to maintain Year 2000 compliant systems and software. As a
result, Stamps.com has reviewed the Year 2000 compliance of Stamps.com's
systems. This review has included testing to determine how the systems will
function at and beyond the Year 2000. Since inception, Stamps.com has
internally developed substantially all of the systems for the operation of
Stamps.com's Internet postage service. These systems include the software used
to provide customer interaction and transactional and distribution functions
to Stamps.com's service, as well as monitoring and back-up capabilities. Based
upon assessments to date, Stamps.com believes that Stamps.com's systems are
Year 2000 compliant and have submitted Year 2000 readiness disclosure
statements to the US Postal Service to indicate Stamps.com's Year 2000
compliance. However, Stamps.com cannot be sure how Stamps.com's software will
integrate with other vendor-provided software.

Stamps.com uses and depends on third-party equipment and software,
including systems operated by the US Postal Service, which may not be Year
2000 compliant. Consequently, Stamps.com's ability to address Year 2000 issues
is, to a large extent, dependent upon the Year 2000 readiness of these third
parties' hardware and software products. Stamps.com is currently assessing the
Year 2000 readiness of other third-party supplied software, computer
technology and other services, and of Stamps.com's vendors. Stamps.com has
initiated communications or obtained information from Stamps.com's vendors and
suppliers of third-party equipment and software to validate that their
products and systems are Year 2000 compliant. Based on the representations
that

66
<PAGE>

Stamps.com has received and obtained from Stamps.com's third-party vendors and
suppliers, Stamps.com believes that their systems are Year 2000 compliant.
Stamps.com will develop and implement, if necessary, a remediation plan with
respect to third-party software, third-party vendors, and computer technology
and service that may fail to be Year 2000 compliant.

To date, the expenses associated with the assessment of Stamps.com's Year
2000 compliance have not been material and costs related to a potential
remediation plan cannot be determined at this time. If Year 2000 issues
prevent Stamps.com's users from accessing the Internet or Stamps.com's
service, purchasing postage or using their credit cards, Stamps.com's business
and operations will suffer. Any failure of third-party equipment or software
to operate properly could require us to incur unanticipated expenses, which
could seriously harm Stamps.com's business, operating results and financial
condition. For example, Stamps.com relies on the US Postal Service's secure
postage accounting vault to purchase postage credit for Stamps.com's
customers. If the US Postal Service systems are not Year 2000 compliant, users
of Stamps.com's service may not be able to purchase additional postage.

The Year 2000 readiness of the general infrastructure necessary to support
Stamps.com's operations is difficult to assess. For instance, Stamps.com
depends on the integrity and stability of the Internet to provide Stamps.com's
services. Stamps.com also depends on the Year 2000 compliance of the computer
systems and financial services used by consumers. Thus, the infrastructure
necessary to support Stamps.com's operations consists of a network of
computers and telecommunications systems located throughout the world and
operated by numerous unrelated entities and individuals, none of which has the
ability to control or manage the potential Year 2000 issues that may impact
the entire infrastructure. Stamps.com's ability to assess the reliability of
this infrastructure is limited and relies solely on generally available news
reports, surveys and comparable industry data. Based on these resources,
Stamps.com believes most entities and individuals that rely significantly on
the Internet are carefully reviewing and attempting to remediate issues
relating to Year 2000 compliance, but it is not possible to predict whether
these efforts will be successful in reducing or eliminating the potential
negative impact of Year 2000 issues. A significant disruption in the ability
of consumers to reliably access the Internet or to use their credit cards or
other electronic payment methods would have an adverse effect on demand for
Stamps.com's services and would harm Stamps.com's results of operations.

At this time, Stamps.com has not yet developed a contingency plan to
address situations that may result if Stamps.com or Stamps.com's vendors are
unable to achieve Year 2000 compliance. The cost of developing and
implementing this plan, if necessary, could be material. Any failure of
Stamps.com's material systems, Stamps.com's vendors' material systems or the
Internet to be Year 2000 compliant could have material adverse consequences
for us. These consequences could include difficulties in operating
Stamps.com's service effectively or conducting other fundamental parts of
Stamps.com's business.

Recently Issued Accounting Pronouncements

The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, Software for Internal Use," which provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. Currently, Stamps.com capitalizes costs of computer software
obtained for internal use in Stamps.com's Web design and network operations.
These capitalized costs are amortized based on their estimated useful life.
Payroll and related costs are not capitalized, as the amounts are immaterial
and principally relate to maintenance. Purchased or leased computer software
used in research and development activities are accounted for in accordance
with the provisions of Statement of Financial Accounting Standards No. 2.,
"Accounting for Research and Development Costs." Statement of Financial
Accounting Standards No. 2 generally requires all research and development
costs to be charged to expense when incurred if no alternative future uses
exist. Statement of Position No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. Stamps.com does not expect
that the adoption of Statement of Position No. 98-1 will have a material
impact on Stamps.com's financial statements.

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SELECTED FINANCIAL DATA OF ISHIP.COM

The following selected financial data of iShip.com should be read with the
financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
iShip.com included elsewhere in this document. The statement of operations
data for the period from May 27, 1997 through December 31, 1997, the year
ended December 31, 1998 and the balance sheet data at December 31, 1998 are
derived from iShip.com's financial statements which have been audited by Moss
Adams, LLP, iShip.com's independent public accountants, and are included
elsewhere in this document. The statements of operations data for the nine
months ended September 30, 1998 and the nine months ended September 30, 1999,
and the balance sheet data at September 30, 1999, are derived from iShip.com's
unaudited interim financial statements included elsewhere in this document.
iShip.com's unaudited financial statements have been prepared on substantially
the same basis as the audited consolidated financial statements and, in the
opinion of iShip.com's management, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for these periods. Please be advised that historical results are
not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.

<TABLE>
<CAPTION>
May 27, 1997 January 1, 1998 January 1, 1998
(inception) through through through Nine Months Ended
December 31, 1997 December 31, 1998 September 30, 1998 September 30, 1999
------------------- ----------------- ------------------ ------------------
(unaudited) (unaudited)
(Dollar amounts, except per share data, in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ -- $ --
Costs and expenses:
General and
administrative........ 255 1,039 756 2,028
Research and
development........... 204 779 505 1,419
Selling and marketing.. 1 79 6 234
Product
implementation........ 19 54 32 74
------ ------- ------- -------
Total costs and
expenses............. 479 1,951 1,299 3,755
------ ------- ------- -------
Loss from operations.... (479) (1,951) (1,299) (3,755)
Interest expense........ -- (9) (6) (18)
Interest Income......... 0 73 50 153
Other income ........... 72 32 32 1
------ ------- ------- -------
Net loss................ $ (407) $(1,855) (1,223) (3,619)
====== =======
Basic and diluted net
loss per share......... $(0.07) $ (0.29) $ (0.19) $ (0.55)
====== ======= ======= =======
Pro forma basic and
diluted net loss per
share.................. $(0.06) $ (0.14) $ (0.10) $ (0.17)
====== ======= ======= =======
Weighted average shares
outstanding used in
basic and diluted net
loss per share
calculation............ 6,123 6,419 6,367 6,594
Weighted average shares
outstanding used in pro
forma basic and diluted
net loss per share
calculation............ 6,654 13,136 12,330 21,084
</TABLE>

<TABLE>
<CAPTION>
As of As of
December 31, 1998 September 30, 1999
----------------- ------------------
(unaudited)
(Dollar amounts in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................ $ 386 $5,522
Working capital.......................... 1,272 4,499
Total assets............................. 1,627 7,849
Line of credit and capital lease
obligations............................. 215 1,763
Redeemable preferred stock...............
Total shareholders' equity............... 1,130 5,132
</TABLE>

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<PAGE>

ISHIP.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of
operations of iShip.com should be read in connection with the "Selected
Financial Data of iShip.com" and iShip.com's financial statements and the
related notes thereto. This discussion contains forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from historical results or anticipated results including those set
forth in "Risk Factors" and elsewhere in this document.

Overview

iShip.com was founded in May 1997 and has developed Web-based technology
that provides a complete, one-stop shipping and tracking solution. iShip.com's
tools are designed to help consumers, small businesses and large corporations
price, ship, track and manage shipments over the Internet. iShip.com's service
will enable online users to compare rates and services among multiple
carriers, including Airborne Express, Federal Express, UPS, the US Postal
Service and Yellow Freight, and will also allow users to print shipping labels
directly from desktop printers and manage their shipping history.

Following iShip.com's incorporation in May 1997, the founders began hiring
additional employees and commenced development of its technology. In September
1997 and April 1998, iShip.com raised $600,000 and $2,770,000, respectively,
in private placements of its Series A Preferred Stock. In April and May 1999
and August 1999, iShip.com raised $7,400,000 and $200,000, respectively, in
private placements of its Series B Preferred Stock. In May 1998, iShip.com
changed its name from MoveIt! Software, Inc. to iShip.com, Inc.

In April 1999, iShip.com entered into a five-year Manifest System Services
and Co-Branding agreement with Mail Boxes Etc. to be the exclusive provider of
an Internet-based retail package manifest system to its approximately 3,000
domestic retail centers. In October 1999, a Beta version of this service was
deployed in ten retail centers. In May 1999, iShip.com entered into a five-
year Co-Branding Agreement with eBay to provide fully integrated shipping
services to eBay auction customers. The first phase of this service launched
on eBay in July 1999.

Through September 30, 1999, iShip.com has recognized no revenues, as it has
not yet commenced revenue-based operations. In April 1998, iShip.com began
providing its Internet-based shipping services, including label printing and
package tracking to users. Under its agreement with Mail Boxes Etc., iShip.com
will receive transaction-based license fees from Mail Boxes Etc. and its
participating franchisees. iShip.com currently provides free information
regarding "zip-to-zip" shipping charges to eBay auction buyers and sellers,
and it is contemplated that in the future eBay shippers will pay iShip.com a
fee when they print shipping labels using iShip.com's service. With the
current limited use of its service and the lack of a commercial market for
internet shipping services, iShip.com cannot be sure that these anticipated
fees will be its ultimate pricing approach or that these fees will generate
significant revenues. As a result, iShip.com cannot predict whether any
contemplated pricing or fee structure will ever generate revenues or profits.

In October 1999, iShip.com entered into the merger agreement, pursuant to
which iShip.com will become a wholly owned subsidiary of Stamps.com and up to
8,000,000 shares of Stamps.com common stock will be issued in exchange for all
outstanding iShip.com capital stock and options and warrants to purchase
iShip.com capital stock. The acquisition is subject to a number of closing
conditions, including approval by the shareholders of iShip.com and the
stockholders of Stamps.com, and other customary conditions. As a result,
iShip.com cannot be certain that the acquisition will be completed.

iShip.com's Results of Operations

Cost of Revenues. Through September 30, 1999 iShip.com did not incur any
costs associated with revenues. iShip.com expects its cost of revenues to
primarily consist of costs associated with operating and

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<PAGE>

maintaining its data centers, customer and technical support activities,
depreciation of hardware and software utilized in its data centers, credit
card processing fees, internet connectivity, as well as overhead allocation.

General and Administrative Expenses. iShip.com's general and administrative
expenses have consisted primarily of salaries and related costs for general
corporate infrastructure, including costs relating to finance, accounting,
facilities and fees for legal and other professional services. iShip.com's
general and administrative expenses for the year ended December 31, 1998 were
$1.0 million. General and administrative expenses increased to $2.0 million
for the nine months ended September 30, 1999 from approximately $716,000 for
the nine months ended September 30, 1998. The increase is principally due to
an increase in personnel, facility costs and professional service fees.

Research and Development Expenses. iShip.com's research and development
expenses have principally consisted of compensation for personnel involved in
the development of its internet-based shipping services, including its Web
site and related systems, and other costs related to development. Research and
development expenses for the year ended December 31, 1998 were $779,000.
Research and development expenses increased to $1.4 million for the nine
months ended September 30, 1999 from $505,000 for the nine months ended
September 30, 1998. The increase results primarily from costs associated with
iShip.com's increased personnel. iShip.com believes that significant
investments in research and development will be required in the future to
remain competitive and expects to continue to incur significant research and
development expenses.

Sales and Marketing Expenses. Through September 30, 1999, iShip.com
incurred $234,000 in sales and marketing expenses. Costs related to its sales
and marketing efforts, which to date have not been significant, will
dramatically increase in future periods as iShip.com enters into the
production phase of its business. iShip.com expects its sales and marketing
expenses to consist of expenses related to compensation for sales and
marketing personnel, advertising, creative development, promotions,
commissions and travel. iShip.com expects the majority of these costs to be
directed to programs designed to build brand recognition, attract a customer
base and retain the anticipated customer base.

Product Implementation Expenses. Through September 30, 1999, iShip.com
incurred $74,158 in product implementation expenses. These costs primarily
consist of rent and lease payments on hardware and internet connectivity
charges. iShip.com believes these costs will increase significantly and be
included in cost of revenue once iShip.com enters the production phase of its
business and begins generating revenue.

Liquidity and Capital Resources

Since inception, iShip.com has financed its operations primarily through
the private placement of equity securities, raising $10,970,000 through
September 30, 1999. At September 30, 1999, iShip.com had $5.5 million in cash
and cash equivalents, and at September 30, 1998, iShip.com had $163,000 in
cash and cash equivalents and $1.8 million in short term investments.
iShip.com has had significant negative cash flows from operating activities in
each fiscal and quarterly period to date.

In July 1999, iShip.com entered into a new lease agreement relocating its
corporate headquarters. Minimum payments under this lease total approximately
$2.4 million through 2004.

In August 1999, iShip.com entered into a Loan and Security Agreement with
Imperial Bank, which expires in February 2003. The agreement includes $2.5
million for equipment purchases and $450,000 in a committed letter of credit
line. As of September 30, 1999, the outstanding balance under this credit line
was $1.7 million.

Net cash used in operating activities was $2.8 million for the nine months
ended September 30, 1999, $1.0 million for the nine months ended September 30,
1998 and $1.7 million for the year ended December 31, 1998. Cash used in
operating activities consisted primarily of net operating losses and increases
in prepaid expenses, which were partially offset by increases in accrued
expenses and accounts payable.

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<PAGE>

Net cash used in investing activities was $2 million for the nine months
ended September 30, 1999, $1.9 million for the nine months ended September 30,
1998 and $1.1 million for the year ended December 31, 1998. Net cash used in
investing activities in these periods consisted primarily of capital
expenditures for computer equipment, purchased software and office equipment
as well as the purchase of short-term investments.

Net cash provided by iShip.com's financing activities was $9.2 million for
the nine months ended September 30, 1999, $2.9 million for the nine months
ended September 30, 1998 and $2.9 million for the year ended December 31,
1998. Net cash provided by financing activities was principally attributable
to private placements of preferred stock and to the proceeds from an equipment
line.

iShip.com believes that its current cash balances will allow it to fund its
operations through at least the end of the first quarter of 2000. However,
iShip.com believes that it will require substantial working capital to fund
its business and will need to raise additional capital. iShip.com cannot be
certain that additional funds will be available on satisfactory terms when
needed, if at all.

Year 2000

iShip.com has reviewed the Year 2000 compliance of its systems. This review
has included testing to determine how iShip.com's systems will function at and
beyond the Year 2000. Since inception, iShip.com has internally developed
substantially all of the systems for the operation of its Internet-based
shipping service. These systems include the software used to provide customer
interaction and transactional and distribution functions to iShip.com's
service, as well as monitoring and back-up capabilities. Based upon its
assessment to date, iShip.com believes that its systems are Year 2000
compliant. However, iShip.com cannot be sure how its software will integrate
with other vendor-provided software.

iShip.com uses and depends on third-party equipment and software, including
systems operated by Microsoft, EMC, Resonate, BMC, Exodus, Level 3, US West,
MCI and Sprint, that may not be Year 2000 compliant. Consequently, its ability
to address Year 2000 issues is, to a large extent, dependent upon the Year
2000 readiness of these third parties' hardware and software products.
iShip.com is currently assessing the Year 2000 readiness of other third-party
supplied software, computer technology and other services and of its vendors.
iShip.com has initiated communications or obtained information from its
vendors and suppliers of third-party equipment and software to validate that
their products and systems are Year 2000 compliant. Based on the
representations that iShip.com has received and obtained from its third party
vendors and suppliers, iShip.com believes that their systems are Year 2000
compliant. iShip.com will develop and implement, if necessary, a remediation
plan with respect to third-party software, third-party vendors and computer
technology and service that may fail to be Year 2000 compliant.

To date, the expenses associated with the assessment of iShip.com's Year
2000 compliance have not been material, and potential remediation costs and
potential remediation plan cannot be determined at this time. If Year 2000
issues prevent users from accessing the Internet or iShip.com's service, or
using their credit cards, iShip.com's business and operations will suffer. Any
failure of third-party equipment or software to operate properly could require
iShip.com to incur unanticipated expenses, which could seriously harm its
business, operating results and financial condition. For example, iShip.com
relies on Cybersource and Vital systems for credit card payment services to
its customers. If the credit card processing systems are not Year 2000
compliant, users of iShip.com's services may not be able to purchase Internet-
based shipping services. The Year 2000 readiness of the general infrastructure
necessary to support iShip.com's operations is difficult to assess. For

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<PAGE>

instance, iShip.com depends on the integrity and stability of the Internet to
provide its services. iShip.com also depends on the Year 2000 compliance of
the computer systems and financial services used by consumers. Thus, the
infrastructure necessary to support its operations consists of a network of
computers and telecommunications systems located throughout the world and
operated by numerous unrelated entities and individuals, none of which has the
ability to control or manage the potential Year 2000 issues that may impact
the entire infrastructure. iShip.com's ability to assess the reliability of
this infrastructure is limited and relies solely on generally available news
reports, surveys and comparable industry data. Based on these sources,
iShip.com believes most entities and individuals that rely significantly on
the Internet are carefully reviewing and attempting to remediate issues
relating to Year 2000 compliance, but it is not possible to predict whether
these efforts will be successful in reducing or eliminating the potential
negative impact of Year 2000 issues. A significant disruption in the ability
of consumers to reliably access the Internet or to use their credit cards or
other electronic payment methods would have an adverse effect on demand for
iShip.com's services and would harm its business and results of operations.

At this time, iShip.com has not yet developed a contingency plan to address
situations that may result if it or its vendors are unable to achieve Year
2000 compliance. The cost of developing and implementing this plan, if
necessary, could be material. Any failure of its material systems, its
vendors' material systems or the Internet to be Year 2000 compliant could have
material adverse consequences for iShip.com. These consequences could include
difficulties in operating iShip.com's service effectively or conducting other
fundamental parts of iShip.com's business.

Recently Issued Accounting Pronouncements

The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, "Software for Internal Use," which provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. Currently, iShip.com capitalizes costs of computer software
obtained for internal use in its network operations. These capitalized costs
are amortized based on their estimated useful life. Payroll and related costs
are not capitalized, as the amounts are immaterial and principally relate to
maintenance. Purchased or leased computer software used in research and
development activities are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 2., "Accounting for Research
and Development Costs." Statement of Financial Accounting Standards No. 2
generally requires all research and development costs to be charged to expense
when incurred if no alternative future uses exist. Statement of Position No.
98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. iShip.com does not expect that the adoption of Statement of
Position No. 98-1 will have a material impact on its financial statements.

Market for iShip.com's Common Equity and Related Shareholder Matters

There is no established public trading market for any class of iShip.com's
capital stock. On August 18, 1999, the most recent date on which iShip.com
sold shares of its capital stock to a third-party investor, iShip.com sold
shares of its Series B Preferred Stock at a price of $0.75 per share.
iShip.com does not intend to pay a cash dividend for the foreseeable future.

iShip.com has never declared or paid cash dividends on its common stock and
preferred stock. The payment of dividends will be at the discretion of
iShip.com's board of directors.

Quantitative and Qualitative Disclosures About iShip.com's Market Risk

Interest Rate Risk

iShip.com's exposure to market risk for changes in interest rates relates
primarily to iShip.com's investment portfolio and bank credit line. iShip.com
places its investments with high credit quality issuers and, limits the amount
of credit exposure to any one issuer. iShip.com seeks to preserve its invested
funds by limiting default

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<PAGE>

risk, market risk and reinvestment risk. The interest rate on the bank credit
line fluctuates with Imperial Bank's prime rate.

iShip.com mitigates default risk by attempting to invest in high credit
quality securities that it believes to be low risk. iShip.com's portfolio is
limited to marketable securities with active secondary or resale markets to
ensure portfolio liquidity. As of September 30, 1999, iShip.com had $5,521,919
of cash and cash equivalents bearing an average annual interest rate of 5.5%
and holds no short-term or long-term investments.

iShip.com's only significant cash flow exposure is due to rate changes
under the bank credit line. iShip.com primarily enters into debt obligations
to support general corporate purposes including capital expenditures and
working capital needs.

Foreign Currency Risk

At this time, iShip.com does not transact business in foreign currencies
and does not have foreign operations. iShip.com, however, anticipates
transacting business in foreign currencies and establishing foreign operations
in future periods.

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<PAGE>

STAMPS.COM

This document contains forward looking statements that involve risks and
uncertainties. Actual results and the timing of events could differ materially
from those projected in the forward looking statements due to a number of
factors, including those set forth under "Risk Factors" and elsewhere in this
document.

Stamps.com

Stamps.com offers a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Stamps.com's core service
is designed to enable users to print information based indicia, or electronic
stamps, directly onto envelopes, labels or business documents using ordinary
laser or inkjet printers. No additional hardware is necessary for a user to
purchase and print Stamps.com's Internet postage; the user's existing PC,
printer and Internet set-up are sufficient. Accessing Stamps.com's service is
simple. A user obtains Stamps.com's free software either via a download from
the Internet or through an install from a CD-ROM. After installing the
software and completing a brief registration process, the user can connect via
the Internet to Stamps.com's secure Postage Server and purchase postage
electronically 24 hours a day, seven days a week. Stamps.com acts as an
ongoing intermediary between the US Postal Service and users by offering the
ability to purchase postage through Stamps.com's secure Postage Server.
Stamps.com's technology works within rigorous US Postal Service requirements
to provide secure access to postage. Stamps.com's Postage Server is designed
to interact with word processing, contact and address management, accounting
and corporate applications to stamp letters, invoices, statements, checks and
other business documents automatically.

On October 22, 1999, Stamps.com commercially launched its Internet Postage
service. As of October 29, 1999, Stamps.com's customer base consisted of over
15,000 users who had downloaded the Stamps.com software and registered for its
service.

Overview of Stamps.com's Industry

Growth of Internet Commerce

The Internet has emerged as a significant global communications medium,
enabling millions of people to share information and conduct business
electronically. A number of factors have contributed to the growth of the
Internet and its commercial use, including:

. the large and growing usage of personal computers in homes and
businesses;

. improvements in network infrastructure and bandwidth;

. easier and cheaper access to the Internet;

. increased awareness of the Internet among consumer and business users;
and

. the rapidly expanding availability of online content and commerce.

According to International Data Corporation, the number of Web users
worldwide will grow from an estimated 100 million in 1998 to 319 million by
2002. In addition, International Data Corporation estimates that the
percentage of Web users buying goods and services on the Internet will grow
from 22% in December 1998 to 36% in December 2003. International Data
Corporation further estimates that the total value of goods and services
purchased over the Web will increase from approximately $50.4 billion in 1998
to approximately $1.3 trillion in 2003. Business-to-business commerce is
expected to contribute significantly to the future growth of Internet
commerce. For example, International Data Corporation estimates that business-
to-consumer commerce on the Internet will grow from approximately $14.9
billion in 1998 to approximately $177.7 billion in 2003 while business-to-
business commerce on the Internet will grow from approximately $35.5 billion
in 1998 to approximately $1.1 trillion in 2003.

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<PAGE>

Rapid Growth in Internet Usage by Small Businesses

The small office/home office and small business markets represent a large
and growing customer segment. According to International Data Corporation,
there were a combined 44.7 million small businesses and home offices in the
United States in 1998, a number which International Data Corporation forecasts
will grow to 57.6 million by 2002. For 1998, International Data Corporation
reported that small businesses with less than 100 employees numbered 7.4
million of which 77% had fewer than 10 employees. In addition, home offices
numbered 37.3 million, of which 22.2 million were income producing home
offices, and the remainder were home offices used for corporate after hours
work or telecommuting.

Stamps.com believes that small businesses increasingly will rely on the
functionality and pervasiveness of the Internet to reach and serve a large and
global group of end users. The reduced cost of selling and marketing on the
Internet, the ability to build and serve a large base of customers
electronically and the potential for personalized low-cost customer
interaction provide significant economic advantages. These overall benefits,
combined with accessibility, have led to adoption of the Internet by small
businesses and home offices. According to International Data Corporation,
there will be 30.2 million US home offices accessing the Internet by 2002.
According to Cyber Dialogue/FindSVP's 1999 US Small Business Internet Survey,
43% of businesses with fewer than 100 employees are estimated to be online in
1999. Of those small businesses that are currently online, 63% are already
ordering products online and are spending an average of $171 monthly on
postage. The Cyber Dialogue/FindSVP survey also found that 64% of online small
businesses have employees who are online multiple times a day. This increased
use of the Internet has resulted in small businesses becoming significant
participants in the electronic commerce market. International Data Corporation
estimates that small businesses accounted for $4.4 billion of electronic
commerce in 1998 and will account for approximately $100.4 billion of
electronic commerce activity in 2002.

Traditional Postage Industry and the Emergence of the Internet Postage

The traditional postage industry is large and growing. According to the US
Postal Service Annual Report, the total postage market was $58.0 billion in
1998, of which $38.9 billion was represented by first class, priority and
express mail with the remainder consisting of other classes of mail including
periodicals, bulk and international. In addition, the US Postal Service
processed over 197 billion pieces of mail in 1998. Despite the growth in the
use of e-mail, the total US postage market increased by 3.1% in 1998 from
1997.

Despite this consistent growth in the postage market, the US Postal Service
has experienced:

. strong competition from overnight delivery services;

. loss of revenue due to postal fraud; and

. continued public demand for more convenient access to US Postal Service
products and services.

Recently, the General Accounting Office, in a report issued on October 21,
1999, stated that competition from alternatives such as online invoicing, bill
payment and financial transactions could lead to substantial declines in the
U.S. Postal Service's First Class Mail volume in the next decade.
Specifically, the report projects that First Class Mail will grow at an
average annual rate of 1.8% in fiscal years 1999 to 2002 and then decline at
an average annual rate of 2.5% in fiscal years 2003 to 2008. In addition, the
Postal Service also forecasts Standard A mail, which is primarily advertising
mail and includes letters, flats and parcels that are not sent by first-class
mail or priority mail, to increase by an average annual rate of 5.3% in fiscal
years 1999 through 2002 and to increase by an average annual rate of 3.3% in
fiscal years 2003 through 2008.

In response to these challenges, in 1995 the US Postal Service announced a
program for its first new postage method since the approval of the postage
meter in 1920. The Information Based Indicia Program is a ten-stage
certification process for commercial release of Information Based Indicia
products, or electronic postage, that can be purchased over the Internet and
printed from a computer using ordinary laser or inkjet printers. Indicia are a
new type of US Postal Service approved postage marks similar to stamps or
metered postage. Information Based Indicia, which are essentially digital
stamps, consist of a two dimensional bar code containing an

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encrypted digital signature that make each indicium unique. Through the
Information Based Indicia Program, the US Postal Service is seeking to enhance
user convenience with a new access channel for postage that allows users to
print postage from their personal computer 24 hours a day, seven days a week.
The Information Based Indicia Program is intended to achieve the US Postal
Service's security and revenue objectives by incorporating technological
security features in each unique digitally-signed indicium and a secure
postage accounting vault to provide greater revenue security. All Internet
postage products, including any subsequent enhancements or additional
implementation of a product, must complete US Postal Service testing and
evaluation to ensure operational reliability, financial integrity and security
to become certified for commercial distribution. Overall, the Information
Based Indicia Program aims to provide improved, accurate mail processing and
increased productivity, a result which is intended to:

. reduce US Postal Service costs and postal fraud;

. increase US Postal Service to underserved markets, including the rapidly
growing small office/home office and other small business markets; and

. improve the US Postal Service's competitive position against overnight
delivery services.

The emergence of Internet postage though the US Postal Service's
Information Based Indicia Program has created an attractive channel for the
sale of postage, particularly to small office/home office and other small
businesses. According to a 1997 US Postal Service survey of over 1,600 home
offices, 98% of the respondents would likely use commercial software products
to print postage directly from their computers, 88% of the respondents did not
use a postage meter and 43% of the respondents purchased over $50 of postage
per month. Stamps.com believes that small businesses consider cost-effective
mail generation, elimination of trips to the post office and the production of
professional-looking mail as key components of an effective mailing system.
Internet postage satisfies these requirements by providing 24 hours a day,
seven day a week access to metered mail from the desktop. Furthermore, when
considering the total cost of a traditional postage meter, including lease
fees for both the meter and scale, meter resetting fees and special ink
cartridges, small businesses pay a significant premium in addition to their
normal postage expenditures for leasing a postage meter. Leasing a postage
meter also requires space for additional hardware and the purchase of
specialized materials and supplies. Meanwhile, small businesses that find
leasing a postage meter uneconomical are still faced with the inconvenience of
travelling to the post office, ATM or other locations to purchase stamps.

The Stamps.com's Solution

Stamps.com offers a convenient, cost effective and easy to use service for
purchasing and printing postage over the Internet. Stamps.com targets the
small office/home office, other small business, corporate and consumer user
markets and provide an Internet service that is accessible via a free software
downloaded from the Internet or installed from a free CD-ROM; the user's
existing PC, printer and Internet set up are sufficient to purchase and print
postage. Using Stamps.com's service requires no purchase or installation of a
hardware device for a user's PC and users can access and print postage without
the US Postal Service address matching CD-ROM needed by hardware-based
Internet postage products. Stamps.com's Internet postage solution was the
first software-based service approved for commercial release by the US Postal
Service and provides the following benefits to the user and the US Postal
Service:

Benefits to the User. Stamps.com's Internet postage service is designed to
be convenient, cost effective and easy to use and provides the following
benefits to the user:

. unlimited, convenient access to postage from the desktop 24 hours a day,
seven days a week;

. prints address and postage in one easy step;

. secure and accurate tracking of postage expenditures;

. cost effective relative to traditional postage meter solutions; and

. no additional hardware or address matching CD-ROM is required.

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Once users determine the amount of postage required, they can purchase
postage with their PC from Stamps.com's secure servers where and when it is
most convenient. Stamps.com charges a monthly convenience fee based on usage
of Stamps.com's service. Stamps.com's solution allows users to avoid common
inconveniences, including running out of postage, using too much postage for a
letter or parcel and enduring long lines at the post office. The Stamps.com
service is designed to enable users to print postage in any denomination and
rely on secure, accurate management of their postal dollars. Finally,
Stamps.com will seek to enhance its convenient, easy-to-use service with other
benefits, including integrating our software with a wide range of software
applications to increase the efficiency of the everyday tasks of writing
letters, paying bills or generating invoices.

Benefits to the US Postal Service. Stamps.com's Internet postage service
provides several benefits to the US Postal Service including:

. increased convenience to the postal consumer;

. increased security to protect postal revenues;

. the ability to more effectively compete with overnight delivery
services;

. the use of advanced technology for more cost efficient mail processing
and tracking; and

. cost savings relating to printing and distribution of traditional
postage stamps.

Stamps.com believes Stamps.com's convenient, cost effective, easy to use
Internet postage solution addresses the US Postal Service's goals for the
Information Based Indicia Program. Stamps.com's service is designed to provide
a high level of security and auditing capabilities, helping to reduce the
millions of dollars of known postal fraud to the US Postal Service. As
additional security and as required by US Postal Service specifications,
Stamps.com's solution provides for the printing of unique, secure Information
Based Indicia, or electronic postage, on ordinary laser or inkjet printers.
Stamps.com's service is designed to promote postal efficiencies and cost
savings for the US Postal Service with address verification and correction and
extended zip code printing capabilities. Finally, Stamps.com's solution is
designed to allow the US Postal Service to capitalize on advances in
technology, especially as the US Postal Service seeks to phase out traditional
postage methods.

Stamps.com's Strategy

Our objective is to be the leading provider of convenient, cost effective
and easy to use software-based Internet postage services. To achieve this
objective, Stamps.com's strategy includes the following key elements:

Enhance Stamps.com's Brand Name. Stamps.com intends to increase
Stamps.com's brand recognition through a variety of marketing and promotional
techniques, including the prominent display of Stamps.com's logo on all pieces
of mail generated through Stamps.com's service and co-marketing and co-
branding agreements with strategic partners. Stamps.com also intends to
promote Stamps.com's brand by conducting an ongoing public relations campaign
and developing affiliations and affinity programs. Stamps.com believes that
building the brand awareness of Stamps.com's Internet Postage service is
critical to attracting and expanding Stamps.com's customer base.

Leverage Stamps.com's Strategic Partnerships. Stamps.com intends to develop
and utilize strategic partnerships to gain access to large numbers of
potential users, cooperatively market products and services, cross-sell
additional services and gain entry into new markets. As of October 1999,
Stamps.com has entered into strategic partnerships with AOL, IBM, Microsoft,
Office Depot Quicken.com and 3M, among others. Stamps.com believes that
Stamps.com can further utilize its strategic partnerships to enhance
Stamps.com's brand name and grow Stamps.com's customer base.

Exploit First-to-Market Advantages. On October 22, 1999, we commercially
launched our Internet Postage service. It is currently the only software-based
Internet Postage service approved for commercial release by the US Postal
Service. We have a significant first-to-market advantage as a software-based
solution in the

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Internet postage market. We believe our potential market position will be
enhanced by significant barriers to entry, including:

. a ten-step US Postal Service certification process, including a three
phase beta testing requirement;

. a software-based Internet Postage service that does not require
additional hardware;

. significant up-front time and investment by potential competitors in
technology and technical infrastructure;

. strong brand awareness for our software-based Internet Postage service;
and

. inconvenience of switching from one metered postage provider to another.

Rapidly Grow Stamps.com's Customer Base. Stamps.com intends to broaden
Stamps.com's customer base by enhancing Stamps.com's forming strategic
partnerships and first-to-market advantages. Stamps.com believes that
Stamps.com's service can achieve rapid distribution because there is no
investment in hardware beyond a PC and printer, and users can obtain
Stamps.com's software for free. Stamps.com is primarily targeting the small
office/home office and small business markets as well as various segments of
the corporate and consumer markets.

Leverage Stamps.com's Software-Based Solution and Technology. Stamps.com
intends to utilize Stamps.com's scaleable, e-commerce platform to enhance
Stamps.com's service offerings and expand the benefits of secure online
transactions. Stamps.com believes that Stamps.com has an inherent advantage
relative to Stamps.com's competitors in the Internet postage industry because
Stamps.com's solution does not require the use of additional hardware.
Stamps.com believes Stamps.com can achieve rapid distribution of Stamps.com's
services as users download or install Stamps.com's free software.
Additionally, Stamps.com provides increased flexibility and scalability over
competing solutions because transactions are processed through Stamps.com's
secure Postage Server while competing hardware solutions require each user to
utilize a CD-ROM and peripheral hardware device for each PC that is engaged in
a postage transaction. Stamps.com will continue to invest in and enhance
Stamps.com's technology in order to increase efficiency, reliability and
bandwidth, and to expand Stamps.com's services and reduce Stamps.com's costs.

Pursue Additional Revenue Opportunities. Stamps.com intends to utilize
Stamps.com's brand, electronic commerce capabilities, infrastructure and user
base to develop additional revenue opportunities. Stamps.com will consider the
following opportunities:

. Sale of Postage Related Products. Stamps.com intends to use its Web site
to offer mailing-related products, including labels and envelopes,
mechanical scales, PC-enabled digital scales and label printers.
Stamps.com also intends to offer package insurance to Stamps.com's
customers through third-party insurance companies.

. International Internet Postage Market. Stamps.com believes that if
foreign postal authorities accept the use of Internet postage there will
be significant opportunities in international markets for its Internet
postage service. Stamps.com intends to focus on those regions where
there is a critical mass of Internet use and a large current postage
market with a need for highly secure, transaction-oriented Internet
services.

. Document Fulfillment Market. Stamps.com will consider investing in
technology that will allow Stamps.com to extend Stamps.com's core
Internet postage technology to print authenticated documents, including
airline, movie and concert tickets, from laser or inkjet printers.

Stamps.com's Internet Postage Service

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existing PC, printer and Internet set-up are sufficient. As a complement to
Stamps.com's Internet Postage service, customers may purchase scales,
printers, mailing supplies and other general office supplies from Stamps.com's
online store.

Accessing Stamps.com's service is simple. A user obtains Stamps.com's free
software either via a download from the Internet or through an install from a
CD-ROM. After installing the software and completing a brief registration
process, the user can connect via the Internet to Stamps.com's secure Postage
Server and purchase postage electronically 24 hours a day, seven days a week.
Stamps.com acts as an ongoing intermediary between the US Postal Service and
users by offering users the ability to purchase postage through Stamps.com's
secure server. Stamps.com uses sophisticated technologies which meet strict US
government security standards and Stamps.com's service incorporates the US
Postal Service mandated address verification features to enhance the
efficiency of mail processing and delivery. Finally, Stamps.com's Postage
Server is designed to interact with word processing, contact and address
management, accounting and corporate applications to provide postage for
letters, invoices, statements, checks and other business documents
automatically.

Stamps.com assess its customers a convenience fee to access its Internet
Postage service. Customers may sign up for two different service plans: a
Business Plan and a Personal Plan. Under each plan, a customer purchases
postage at cost and is charged a monthly convenience fee based on how much
postage he or she uses during the month. The Business Plan, which is targeted
at high volume users of postage, such as home offices and small offices and
businesses, assesses a convenience fee equal to 10% of the postage used during
the month. This plan has a monthly minimum fee of $3.99 and a monthly maximum
fee of $19.99. The Personal Plan, which is targeted at light volume personal
users of postage, charges a flat rate monthly convenience fee of $1.99 that
allows a customer to use up to $25 of postage per month. If a Personal Plan
customer uses more than $25 postage in any given month, a 15% convenience fee
on the amount of additional postage used over $25 will be added to the $1.99
flat rate. The maximum charge under the Personal Plan is $19.99 per month. The
Personal Plan offers customers the ability the ability to pre-pay one year's
worth of $1.99 fees at a discounted rate of $19.99 with all other terms of the
Personal Plan the same as described. Under both plans, convenience fees are
calculated and charged at the end of a monthly billing cycle.

The US Postal Service Certification Process

All Internet postage products must complete extensive US Postal Service
testing and evaluation in the areas of operational reliability, financial
integrity and security to become certified for commercial distribution. Each
additional implementation of a particular product or function requires
additional evaluation and approval by the US Postal Service prior to
commercial delivery.

The US Postal Service certification process for Internet postage is a
standardized, ten-stage process concluding with commercial release. Each stage
requires US Postal Service review and authorization to proceed to the next
stage of the certification process. The US Postal Service has no published
timeline or estimated time to complete each of the ten stages of the program.

The ten stages of the US Postal Service certification process are defined
at the US Postal Service Web site and are as follows:

1. Letter of Intent 6. US Postal Service Address
2. Non-Disclosure Agreements Matching System
3. Concept of Operations 7. Product Submission/Testing
4. Provider Infrastructure Plan 8. Product Infrastructure Testing
5. Provider Infrastructure Plan 9. Three Phase Beta Test Approval
(Limited Distribution)
10. Vendor Product Approval (Full
Distribution)

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Stamps.com's Certification Progress and Commercial Release

In March 1997, Stamps.com submitted Stamps.com's letter of intent to join
the Information Based Indicia Program. From March 1997 through August 1998,
Stamps.com progressed through the first eight stages of the US Postal Service
certification process. On August 24, 1998, the US Postal Service announced
that Stamps.com was approved for beta testing and Stamps.com's Internet
postage service became the first software-based postage solution approved by
the US Postal Service for market testing. Between August 24, 1998 and August
9, 1999, Stamps.com successfully completed the three phase beta testing
required by the US Postal Service's certification process. On August 9, 1999
Stamps.com became the first software-based Internet postage solution approved
for commercial release by the US Postal Service. On October 22, 1999,
Stamps.com initiated the US Postal Service's mandated limited launch of 10,000
customers and will be subject to a limit of 100,000 customers until Stamps.com
receives further approval from the US Postal Service to continue our roll-out.
As of October 29, 1999, Stamps.com's customer base consisted of over 15,000
users who had downloaded its software and registered for its service.

Stamps.com's Strategic Distribution Partners

Stamps.com's objective is to achieve significant market penetration through
relationships with strategic partners in each of the four following
categories:

. Web portals, content sites and Internet service providers, including
AOL;

. independent software vendors, including Intuit/Quicken.com and
Microsoft;

. PC, printer and other equipment manufacturers, including IBM; and

. office/postal supplies vendors, including 3M Office Depot.

Stamps.com believes Stamps.com will benefit from these relationships by
achieving positive brand association and a cost effective means of customer
acquisition. Stamps.com believes Stamps.com's partners can utilize their
relationships with us to derive additional revenue opportunities, including
revenue-sharing arrangements with us, and provide more value-added services to
their customers. Our current strategic partners include:

<TABLE>
<S> <C> <C> <C> <C>
3M Concentrix Networks IBM Microsoft Quicken.com
Allbizdepot.comm Deluxe Financial Services iGo.com Mindspring Seiko Instruments
AllBusiness.com Dymo/CoStar Inc.com MySoftware USOPNet.com
America Online Galileo International Interland Office.com Westvaco
Avery Dennison HotOffice Lotus Office.Depot.com ZDNet

</TABLE>

Stamps.com's Marketing and Sales

Stamps.com intends to establish a strong brand name by allocating
significant resources to Stamps.com's marketing and distribution efforts.
Stamps.com distributes postage printing software through Stamps.com's Web
site. In addition, Stamps.com will rely on traditional media and several other
channels to achieve rapid distribution of Stamps.com's services, including:

Web Sites. Stamps.com intends to work with high traffic Web sites including
portals, commerce and content sites, and other high visibility Internet sites.
This channel will provide the opportunity for users to download Stamps.com's
software and access Stamps.com's Internet postage service.

Affiliate Programs. Stamps.com intends to utilize the traffic and customers
of other online sites by offering revenue-sharing opportunities to affiliates
that provide a link on their Web site to download Stamps.com's Internet
postage software and access other related services. Stamps.com can leverage
its affiliates abilities to offer new, value-added services and increase
repeat visits to their site.

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Preloaded/Bundled Hardware and Services. Stamps.com intends to take
advantage of relationships with vendors of hardware products, including
computers, printers and label makers, and with Internet service providers to
offer Stamps.com's software to buyers of their products. Stamps.com leverage
its resellers ability to promote new features on commodity, non-differentiated
products and services.

Embedded Software. Stamps.com intends to seek further partnerships with
software publishing companies. Software packages that would benefit from
Stamps.com's current services would include word processing, contact and
address management, accounting, billing and retail software.

Postal Supplies. Stamps.com will target companies in the postal supplies
industry, including manufacturers of envelopes, labels, checks, forms, digital
scales and postage meters.

Financial Services. Stamps.com will seek distribution and co-branding
opportunities with banks and brokerages by incorporating Stamps.com's Internet
postage service into online banking and investing offered by financial service
providers.

Direct Sales. Stamps.com will target specific large industries or vertical
markets where distributed use of the mail is prevalent, including insurance,
travel and hospitality, financial services, law firms or other businesses
where branch offices or agent organizational structures are common. Stamps.com
believes that significant benefits in the form of usability, convenience and
cost savings to large corporate users may result from integrating Stamps.com's
Internet postage service into the everyday work flow.

Customer Retention Programs. Stamps.com believes Stamps.com can increase
customer retention by offering co-branded affinity marketing programs,
including frequent flyer miles based on postage and other related
expenditures. Further, Stamps.com intends to create strong customer loyalty by
offering discounts to Stamps.com's online store that are tied to customer
postage volume.

Stamps.com's Competition

The market for Internet postage products and services is new and Stamps.com
expects it to be intensely competitive. The US Postal Service approved
Stamps.com's software-based Internet postage service and E-Stamp Corporation's
hardware-based Internet postage service for commercial release on August 9,
1999. At present, two other Internet postage vendors have hardware products
available for beta testing. One of the vendors also has a software-based
product in beta testing on September 20, 1999. As a result, Stamps.com
believes Stamps.com has a significant development lead over software-based
solutions given the length of time associated with security evaluation and
beta testing to which the US Postal Service subjects all new product
offerings.

The following is a summary of Stamps.com's competitors in the Information
Based Indicia Program:

E-Stamp Corporation. E-Stamp is a developer and marketer of a hardware-
based solution enabling users to generate postage transactions from their
existing personal computers and printers. E-Stamp was the first company to
gain US Postal Service approval for market testing of a hardware storage
device identified as the Postal Security Device. The US Postal Service
approved E-Stamp's PC Postal Security Device product for commercial release on
August 9, 1999.

Neopost Industrie. Neopost is a large French postage company with a small
percentage of US market share in the traditional postage meter industry.
Similar to E-Stamp, Neopost has developed an online postage product that
requires a special purpose hardware device, and announced their approval for
Phase I beta testing in September 1998. Neopost has also announced a software-
based postage product for which it is seeking US Postal Service certification.
On March 29, 1999, Neopost announced approval for their software based postage
product for Phase I beta testing. Finally, Neopost has commercially available
a specialty metering device that can be attached to a user's PC and allows a
user to download postage to the specialty device from the Internet. This
specialty metering device is not regulated by the Information Based Indicia
Program because it does not allow for the printing of postage from standard
inkjet or laser printers.

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Pitney Bowes, Inc. Pitney Bowes is the current market leader in the
traditional postage meter business and according to its most recent annual
report had approximately $4.2 billion in revenues in 1998. Pitney Bowes has
developed a product similar to E-Stamp which requires the use of a specialized
hardware device for postage transactions. See "Risk Factors--Success by Pitney
Bowes in its suit against Stamps.com alleging patent infringement could
prevent us from offering our Internet Postage service and severely harm our
business or cause it to fail."

In addition to competing with Internet postage vendors for market share of
Internet postage sales, Stamps.com will also compete with traditional postage
methods including stamps and metered mail. While Stamps.com believes
Stamps.com's Internet postage service provides benefits over traditional
postage methods, Stamps.com cannot be certain that Internet postage will be
adopted by postage consumers on a commercial scale, if at all. These customers
may continue to use traditional means to purchase postage, including
purchasing postage from their local post office. Any failure by us or other
Internet postage vendors to displace traditional postage methods would
seriously impact Stamps.com's ability to compete with providers of traditional
postage.

Stamps.com may also face competition from hardware-based products.
Although, Stamps.com believes Stamps.com's software-based solution is easier
to use than hardware-based products, hardware-based products have some
advantages. For example, Stamps.com's service requires a user to connect to
the Internet each time the user prints postage, while the hardware-based
solution allows users to download postage onto a storage device that is
connected to the user's computer. If users of hardware-based products do not
transition to software-based solution Stamps.com could face continuing
competition from this market.

Overall, Stamps.com may not be able to maintain a competitive position
against current or future competitors as they enter the markets in which
Stamps.com competes. This is particularly true with respect to competitors
with greater financial, marketing, service, support, technical, intellectual
property and other resources than us. Stamps.com's failure to maintain a
competitive position within the market could seriously harm Stamps.com's
business, financial condition and results of operations. Stamps.com believes
that the principal competitive factors in Stamps.com's market include:

. US Postal Service product certification;

. the ability to successfully achieve commercial release of an Internet
postage product;

. brand recognition;

. convenience;

. ease of use;

. price;

. accountability;

. security;

. compatibility;

. accuracy; and

. integration.

For further discussion of the competitive risks and factors to be
considering in making an investment in Stamps.com common stock, see "Risk
Factors--Intellectual property infringement claims, including a June 1999
claim against us by Pitney Bowes, could delay Stamps.com's development and
harm Stamps.com's results of operations" and "--If Stamps.com is unable to
compete successfully, particularly against large, traditional providers of
postage products such as Pitney Bowes who enter the online postage market,
Stamps.com's revenues and operating results will suffer."

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Stamps.com's Technology

Our service is comprised of the following key components:

System Architecture. Stamps.com's servers are located in a high-security,
off-site data center and operate with internally developed security software.
These servers create the information based indicia. These servers also process
postage purchases using secure technology that meets US Postal Service
security requirements.

Our service currently supports Windows-based client applications, which
Stamps.com believes is easier for customers to use and provides the power and
flexibility necessary to support a variety of label and envelope options and a
wide range of printers. In addition, Stamps.com's application employs an
internally developed user authentication mechanism for additional security.

Transaction Processing. Stamps.com's transaction processing servers are a
combination of secure, commercially available technologies that are designed
to provide secure and reliable transactions. Stamps.com's system implements
hardware to exceed the highest government standard for security and data
integrity currently in effect. The performance and scalability of Stamps.com's
Internet postage system allows a wide range of users to process postage
transactions through Stamps.com's Web site.

Database Processing. Stamps.com's database servers are designed to
complement industry leading database technologies and can be built to scale
incrementally as needed.

Client Module. Stamps.com's system utilizes a secure client module for
authentication, which has been designed to minimize transmission time over the
Internet. The client module is designed to be the building block for Internet
postage capabilities that are accessible from popular software applications.
Stamps.com's client module will be used by Stamps.com's postage application as
well as add-ins for popular word processing applications and third party
mailing and business systems.

Stamps.com's Intellectual Property

Stamps.com relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect
intellectual property rights in products, services, know-how and information.
Stamps.com has three issued US patents and have filed four patent applications
in the United States. Stamps.com has also applied for several trademarks and
service marks. Stamps.com's plans to apply for other patents in the future.

Despite efforts to protect Stamps.com's intellectual property rights,
Stamps.com faces substantial uncertainty regarding the impact that other
parties' intellectual property positions will have on the Internet postage
market. In particular, Pitney Bowes has sent formal comments to the US Postal
Service asserting that intellectual property of Pitney Bowes related to
postage metering and systems would be infringed by products meeting the
requirements of the Information Based Indicia Program's specifications.
Furthermore, in June 1999, Pitney Bowes filed two separate lawsuits in the
United States District Court for the District of Delaware against both us and
E-Stamp alleging infringement of Pitney Bowes patents. For a discussion of
claims by Pitney Bowes and risks associated with intellectual property, please
refer to "Risk Factors--Intellectual property infringement claims, including a
June 1999 claim against us by Pitney Bowes, could delay Stamps.com's
development and harm Stamps.com's results of operations" and "--Legal
Proceedings."

Stamps.com's Employees

As of September 30, 1999, Stamps.com had 158 full time employees, of which
48 were employed in research and development, 54 were employed in network
operations, 32 were employed in sales and marketing, and 24 were employed in
administrative positions. None of Stamps.com's employees are represented by a
labor union, and Stamps.com considers Stamps.com's employee relations to be
good. Stamps.com intends to expand significantly Stamps.com's employee base in
1999. See "Risk Factors--Stamps.com relies on a relatively new management team
and need additional personnel to grow Stamps.com's business."

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Stamps.com's Properties

Our corporate headquarters is located in a 41,000 square foot facility in
Santa Monica, California under a lease expiring on May 31, 2004. Stamps.com
also has a 5,000 square foot satellite research and development site in
Irvine, California under a lease expiring in February 2001. If the iShip.com
acquisition is completed, Stamps.com will also have a lease for approximately
21,000 square feet in Bellevue, Washington, expiring in August 2004.
Stamps.com believes that Stamps.com's current facilities and other facilities
that will be available to us will be adequate to accommodate Stamps.com's
needs for the foreseeable future.

Legal Proceedings

On June 16, 1999, Pitney Bowes sued us for alleged patent infringement in
the United States District Court for the District of Delaware. The suit
alleges that Stamps.com is infringing two patents held by Pitney Bowes related
to postage application systems and electronic indicia. The suit seeks treble
damages, a preliminary and permanent injunction from further alleged
infringement, attorneys' fees and other unspecified damages. Stamps.com filed
an answer to the complaint on August 6, 1999, denying the allegations of
patent infringement and asserting a number of affirmative defenses. Pitney
Bowes filed a similar complaint in early June 1999 against one of Stamps.com's
competitors, E-Stamp Corporation, alleging infringement of seven Pitney Bowes
patents.

The outcome of the litigation that Pitney Bowes has brought against
Stamps.com is uncertain. Therefore, Stamps.com can give no assurance that
Pitney Bowes will not prevail in its suit against us. See "Risk Factors--
Success by Pitney Bowes in its suit against Stamps.com alleging patent
infringement could prevent Stamps.com from offering our Internet Postage
service and severely harm Stamps.com's business or cause it to fail."

Stamps.com is not currently involved in any other material legal
proceedings, nor has Stamps.com been involved in any such proceedings that has
had or may have a significant effect on Stamps.com's financial position.
Stamps.com is not aware of any other material legal proceedings pending
against us. [update?]

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ISHIP.COM

This discussion contains forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results including those set forth under
"Risk Factors" and elsewhere in this document.

iShip.com was founded in May 1997 and has developed Web-based technology
that provides a complete, one-stop shipping and tracking solution. iShip.com's
tools are designed to help consumers, small businesses and large corporations
price, ship, track and manage shipments over the internet. iShip.com's service
will enable online users to compare rates and services among multiple
carriers, including Airborne Express, Federal Express, UPS, the US Postal
Service and Yellow Freight, and will also allow users to print shipping labels
directly from desktop printers and manage their shipping history.

Traditional Shipping Industry and the Emergence of Internet-Based Shipping

Based on publicly available information from major national package
carriers, there are about six billion packages shipped each year in the United
States. By 2003, Forrester Research predicts that the number of residential
packages shipped from online sales will top 2.1 billion per year. Forrester
Research also projects that total residential package deliveries will grow
from 2.98 million packages per day in 1999 to 6.53 million packages per day in
2003. International Data Corporation predicts a sharp rise in the number of
Internet users making purchases, from 31 million in 1998 to more than 183
million in 2003. With the growth in e-commerce activities, there is also
increasing demand for package shipments relating to online commerce
transactions in the business-to-consumer and business-to-business markets.
iShip.com believes that technology is and will continue to play an
increasingly important role in creating efficiencies in package shipments. A
major goal of package carriers is to capture shipping information
electronically in order to reduce costs, increase accuracy, and speed tracking
and billing. The internet provides an ideal medium through which this
information can be distributed and managed.

The iShip.com Solution

iShip.com offers a convenient and easy to use Web-based technology that
enables users to choose and purchase shipping services, print labels, and
track shipments directly from their personal computers. iShip.com's core
technology provides a platform for serving consumers, small businesses and
large corporate enterprises. iShip.com's multi-carrier shipping solution
provides simplified functionality for consumers, a broader feature set for the
small business, and extensive management tools for the large corporate
enterprise user.

Benefits to the User. iShip.com's internet shipping service is designed to
be convenient, cost effective and easy to use, and to provide the following
benefits to the user:

. accurate, complete, reliable shipping and tracking information;

. multi-carrier service and rate comparison;

. shipping labels printed from laser jet printers;

. address book and shipping history;

. e-mail based notification and tracking; and

. administration and reporting features.

iShip.com's Strategy

iShip.com's objective is to be the leading Web-based shipping solution. To
achieve this objective, iShip.com's strategy includes the following key
elements:

Enhance the iShip.com Brand. iShip.com intends to increase its brand
recognition through a variety of marketing and promotional techniques,
including co-marketing and co-branding agreements with strategic

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partners, affiliate programs, and ongoing public relations campaigns.
iShip.com believes that building brand awareness of its services and
technology is critical to attracting and expanding its customer base.

Leverage Strategic Partnerships and Relationships. iShip.com intends to
develop and utilize strategic partnerships to gain access to large numbers of
potential users, cooperatively market products and services, cross-sell
additional services and gain entry into new markets. iShip.com has entered
into strategic partnerships with Mail Boxes Etc., eBay and Yellow Freight,
among others, and UPS is a principal shareholder of iShip.com. iShip.com
intends to utilize its strategic partnerships and relationships to enhance its
brand and grow its customer base.

Leverage iShip.com's Scaleable Technology. iShip.com intends to utilize its
scaleable technology platform to enhance and broaden its service offerings
across multiple market segments. iShip.com's scaleable multi-carrier shipping
solution provides simplified functionality for consumers, a broader feature
set for the small business, and extensive management tools for the large
corporate enterprise user.

Pursue Additional Revenue Opportunities. Once iShip.com has developed a
customer base, iShip.com intends to utilize its brand, electronic commerce
capabilities, infrastructure and user base to develop additional revenue
opportunities in areas such as management report generation, data backup,
archival and retrieval, and shipment analysis.

iShip.com's Internet-Based Shipping Service

iShip.com has developed Web-based technology provides online customers a
complete, one-stop multi-carrier shipping and tracking solution. iShip.com's
tools are designed to help consumers, small businesses and large corporations
price, ship, track and manage shipments over the Internet. iShip.com's core
service is designed to enable shippers to:

. select the optimal shipping solution every time they ship a package;

. print shipping labels from their desktop laser jet printers or high-
speed thermal printers;

. track packages, including in-bound packages;

. send and receive e-mail notifications of the status of shipped packages;

. maintain a shipping log and history of packages shipped;

. generate reports to help them better manage their shipping process; and

. provide shipping data to the package carriers' back-end host systems.

iShip.com's Strategic Partners

iShip.com's objective is to achieve significant market penetration through
relationships with strategic partners in various markets, including: consumer-
to-consumer online auction communities, business-to-business online auction
communities, small business online communities, major online retailers, online
commerce service providers and Web-based enterprise applications. As the
internet is increasingly an application environment, vendors of traditional
application categories such as Enterprise Resource Planning, Customer
Relationship Management and Warehouse Management Software are redesigning
their services for the Web, which may create additional opportunities for
iShip.com to enter into relationships to offer such vendors a shipping
solution.

iShip.com believes that its strategic partnerships and relationships will
provide positive brand association, a cost-effective means of customer
acquisition, additional revenue opportunities and an enhanced offering of
products and services for its customers.

In April 1999, iShip.com entered into a five-year Manifest System Services
and Co-Branding Agreement with Mail Boxes Etc. Under the terms of this
agreement, iShip.com is the exclusive provider of an Internet-based manifest
system for the approximately 3,000 domestic Mail Boxes Etc. franchisees to
process packages for

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shipment, and iShip.com will provide Mail Boxes Etc. with extensive Internet-
based management and reporting tools. As of October 31, 1999, approximately
1,300 Mail Boxes Etc. franchisees have entered into subscription agreements to
use this system. Under the agreement, iShip.com will receive transaction-based
payments from Mail Boxes Etc. and its franchisees. Upon expiration of the
initial five-year term, Mail Boxes Etc. has the option to extend the agreement
for additional two-year terms subject to mutually agreed pricing terms.

In May 1999, iShip.com entered into a five-year Co-Branding Agreement with
eBay to provide integrated package shipping services to eBay auction sellers
and buyers. It is contemplated that in the future eBay shippers will pay
iShip.com a fee when they print shipping labels using iShip.com's service.

In October 1999, iShip.com entered into a two-year Shipping Interface
Agreement with Yellow Freight Systems, Inc. to feature Yellow Freights'
shipping rates and other related information on the Web sites of iShip.com and
its partners. iShip.com will receive transaction fees for each Yellow Freight
shipment originated by iShip.com or through its services.

iShip.com's Sales and Marketing

iShip.com intends to market and sell its services to consumers, small
businesses and corporate enterprises through different channels. iShip.com
intends to distribute its shipping and tracking tools and utilities widely
across the Internet through affiliate and other marketing programs. iShip.com
intends to market and sell its small business shipping as a subscription-based
service accessed through its Web site and the Web site of its distribution
partners. The corporate enterprise service will be marketed and sold through a
direct sales force to shipping professionals within large organizations, as a
service they can provide to all employees throughout the enterprise.

Web Sites. iShip.com intends to work with high traffic and high visibility
Web sites, including portals, commerce and content sites, to provide Internet
users with greater access to its Internet-based shipping service.

Affiliate Programs. iShip.com intends to utilize the traffic and customers
of other Web sites by offering revenue-sharing opportunities to affiliates
that provide iShip.com's shipping and tracking tools and services, often
through co-branded pages or sites. Affiliates can capitalize on the ability to
offer new value-added services to attract and retain users.

Direct Sales. Using a direct sales force, iShip.com intends to target large
corporate enterprises that require improved management of their package
shipping activities. iShip.com believes that integration of its service into
the everyday work flow of large corporate users will result in significant
benefits in the form of improved control, greater cost containment, more
accurate reporting, and enhanced data warehousing and management.

iShip.com's Competition

The market for Internet-based shipping services is new and iShip.com
expects it to be intensely competitive. At present, iShip.com's principal
competitors fall into two general categories: traditional package carriers and
providers of online shipping information.

The major domestic package carriers include UPS, FDX Corporation (FedEx and
RPS), the US Postal Service and Airborne Express. Additionally, there are
hundreds of local and regional domestic package carriers. Most of the major
carriers offer various services to their customers via Internet technology.
These carriers also have deep and longstanding ties to their customers, and
their customers may not utilize iShip.com's technology.

Other companies which compete with iShip.com's Internet-based shipping
services include the following:

Pitney Bowes, through an affiliated Web site located at www.valueship.com,
provides multi-carrier package pricing and tracking features similar to
iShip.com's services. Additionally, Pitney Bowes has a long relationship with
numerous businesses to whom they provide multi-carrier shipping software.

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<PAGE>

Virtan, Inc. operates a Web site with a URL of www.smartship.com that
provides multi-carrier pricing and tracking features similar to iShip.com's
services. Additionally, this Web site provides users the ability to process
their shipments with a regional package carrier.

BITS, Inc. operates a Web site with a URL of www.intershipper.net that is
competitive with iShip.com.

Express Shipping Centers, Inc. operates a Web site located at
www.packagenet.com that provides a single-carrier Web-based shipping service.

Recently, a Web site with a URL of www.goship.com announced that they
intend to build a Web site that provides multi-carrier pricing and tracking
features substantially similar to services offered by iShip.com.

In addition, other companies provide traditional and Internet-based multi-
carrier shipping and tracking software but do not presently operate publicly
accessible Web sites which provide shipping services, including TanData
Corporation and Kewill Systems plc, the parent company of Aristo and Tracer
Research.

iShip.com may not be able to maintain a competitive position against
current or future competitors as they enter the markets in which iShip.com
competes. This is particularly true with respect to competitors that have
greater financial, marketing, service, support, technical, intellectual
property and other resources than iShip.com. iShip.com's failure to maintain a
competitive position within the market could seriously harm its business,
financial condition and results of operations. iShip.com believes that the
principal competitive factors in its market include:

. brand recognition

. functionality and feature sets;

. convenience and ease of use;

. cost effectiveness;

. reliability and accuracy; and

. scaleability

iShip.com's Technology

iShip.com's service is comprised of the following key components:

System Architecture. iShip.com's service is offered to customers via
Internet browsers, and its server environment utilizes Microsoft Windows NT.
The iShip.com service is designed on a three-tier architecture comprised of
customer, transactional and database technology layers.

Transaction Processing. iShip.com's transaction processing servers are a
combination of secure commercially available technologies that are designed to
provide secure and reliable transactions. The performance and scaleability of
iShip.com's Internet shipping system allows a wide range of users to process
shipping transactions through its Web site.

Database Processing. iShip.com's database servers are designed and built
with industry leading database technologies and hardware and can be scaled
incrementally as needed. Its production servers are located in a high security
off-site data center, and its development and test data centers are located at
its corporate headquarters, allowing iShip.com to test releases in stages.

iShip.com's Intellectual Property

iShip.com relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect its
intellectual property rights in products, services, know-how and

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information. iShip.com has filed a US patent application and has applied to
register two trademarks and service marks. In addition, iShip.com presently
intends to apply for other patents and trademarks in the future.

Despite efforts to protect its intellectual property rights, iShip.com
faces substantial uncertainty regarding the impact that other parties'
intellectual property positions will have on the Internet-based shipping
market.

iShip.com's Employees

As of October 25, 1999, iShip.com had 82 full time employees, 39 of which
are involved in the development of its Internet-based technology. None of its
employees are represented by a labor union, and it considers its employee
relations to be good.

iShip.com's Properties

iShip's corporate headquarters are located in Bellevue, Washington in a
facility consisting of approximately 21,000 square feet that is leased through
July 31, 2004. iShip.com believes that its current facilities and other
facilities that will be available to it will be adequate to accommodate its
needs for the foreseeable future.

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MANAGEMENT

Stamps.com's Directors and Executive Officers

The following table sets forth certain information regarding Stamps.com's
executive officers and directors as of November 8, 1999(1):

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John M. Payne............... 43 Chief Executive Officer, President and Director
(Class I, expires 2000)

Loren E. Smith.............. 61 President, Chief Operating Officer and Director
(Class III, expires 2002)

John W. LaValle............. 42 Chief Financial Officer, Senior Vice President
of Operations, and Secretary

Christopher S. Hylen........ 38 Senior Vice President, Marketing

Timothy A. Von Kaenel....... 34 Senior Vice President, Product Development

Michael D. Walther.......... 45 Senior Vice President, Network Operations

Douglas J. Walner........... 30 Vice President, Business Development

Candelario J. Andalon....... 30 Corporate Controller

Michael A. Zuercher......... 32 Senior Director, Legal Affairs and Secretary

Thomas H. Bruggere(3)....... 53 Chairman of the Board of Directors (Class I,
expires 2000)

Mohan P. Ananda............. 52 Director (Class II, expires 2001)

David C. Bohnett(2)......... 43 Director (Class I, expires 2000)

Jeffrey J. Brown(2)......... 38 Director (Class III, expires 2002)

Thomas N. Clancy(3)......... 41 Director (Class II, expires 2001)

G. Bradford Jones(3)........ 44 Director (Class I, expires 2000)

Marvin Runyon(2)............ 74 Director (Class II, expires 2001)

Carolyn Ticknor............. 52 Director (Class III, expires 2002)
</TABLE>
- --------
(1) iShip.com has the right to appoint two persons to Stamps.com's board of
directors if, as and when the acquisition is completed. No decision has
been made as to these nominees or the incumbent directors, if any, who
would resign to provide vacant seats for iShip.com's nominees.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.

John M. Payne has been Stamps.com's Chief Executive Officer and President
and a Director since October 1998, and was a consultant to us from May 1998 to
October 1998. From June 1994 to January 1998, Mr. Payne served as the
President and Chief Operating Officer and later the President and Chief
Executive Officer of Airmedia, Inc., a wireless communications software and
service provider. On April 15, 1999, Airmedia filed for Chapter 11 bankruptcy
protection. From October 1992 to June 1994, Mr. Payne was the founding Chief
Executive Officer of Fingertip Technologies, Inc., a software company.
Previously, Mr. Payne co-founded and served as President of two specialty
software firms, Financial Microsystems from June 1986 to October 1992, and
LoanStar Computer from September 1979 to November 1986. Mr. Payne received his
B.A. in Economics from the University of California, Irvine.

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Loren E. Smith has been Stamps.com's President and Chief Operating Officer
since October 1999 and has served as a Director since February 1999. Since
November 1996, Mr. Smith has been a Principal at Threshold Management, a
consulting firm that specializes in strategic growth management for leading
businesses in a diverse range of industries. He was also employed as a
Principal at Threshold Management from July 1993 to October 1994. From October
1994 to October 1996, he served as the Senior Vice President and Chief
Marketing Officer of the US Postal Service. In 1985, Mr. Smith joined Citibank
and was responsible for establishing the national marketing organization of
its Consumer Services Group. From 1975 to 1995, he founded Threshold
Management. Previously, Mr. Smith held various management positions at General
Foods Corporation and Colgate Palmolive Co. Mr. Smith received his A.B. in
Economics from Albion College and his M.B.A. from the University of Michigan.

John W. LaValle has been Stamps.com's Chief Financial Officer, Senior Vice
President of Operations, and Secretary since September 1998. From July 1997 to
September 1998, Mr. LaValle served as Chief Financial Officer of Comcore
Semiconductor, Inc., a semiconductor manufacturer. From November 1994 to July
1997, he was the Chief Financial Officer of Trikon Technologies; a
semiconductor equipment manufacturer. Previously, Mr. LaValle served as the
Chief Financial Officer at Superconductor Technologies, a manufacturer of high
temperature thin film superconductors used in cellular base station
applications from September 1989 to November 1994. From April 1987 to
September 1989, he was the Chief Financial Officer of PS Medical, a
manufacturer of implantable neurosurgery products. From August 1984 to
February 1987, Mr. LaValle served as a senior financial analyst for Chevron
Corporation, and from December 1980 to September 1982, he served as a senior
analyst for Andersen Consulting. Mr. LaValle received his B.A. in Government
from Boston College and his M.B.A. from Harvard University.

Christopher S. Hylen has been Stamps.com's Senior Vice President of
Marketing since June 1999. From September 1995 through June 1999, Mr. Hylen
served as Vice President of Interactive Services and Vice President of
Business Development and Small Business Services of American Express Corp., a
financial services company. From 1990 to September 1995, Mr. Hylen served as
Vice President of Business Development and Vice President of Product
Development of Comdata Corporation, a transaction processing company. Mr.
Hylen received his B.S. in Chemical Engineering from Widener University and
his M.B.A. from Harvard University.

Timothy A. Von Kaenel has been Stamps.com's Senior Vice President of
Product Development since January 1999. From July 1998 to January 1999, Mr.
Von Kaenel was Director, Product Management at IMA, a customer service
software company. From July 1995 to July 1998, Mr. Von Kaenel was Senior Vice
President of Product Development at AirMedia, Inc., a wireless communications
software and service provider. On April 15, 1999, Airmedia filed for Chapter
11 bankruptcy protection. Before AirMedia, Mr. Von Kaenel was Vice President,
Interactive Technologies at Advanced Media, a multimedia software and
interactive services company. In 1990, he founded and was President of Vision
Imaging, an international developer and publisher of multimedia software
products, which was later acquired by Advanced Media. Mr. Von Kaenel received
his B.A. in Economics and M.B.A. from the University of California, Irvine.

Douglas J. Walner has been Stamps.com's Vice President of Business
Development since September 1998, and from March 1998 to August 1998, Mr.
Walner served as a business development and strategic relationship consultant.
From January 1996 to March 1998, Mr. Walner was the Director of Business
Development at CyberMedia, a software company. Mr. Walner served as the
Original Equipment Manufacturer Sales Manager at Airmedia, Inc., from April
1994 to January 1996. Prior to 1994, Mr. Walner served as a Program Manager at
Mortgage Capital Group/City National Bank. Mr. Walner received his B.A. in
History from Tulane University.

Michael D. Walther has been Stamps.com's Senior Vice President of Network
Operations since April 1999 after having served as a consultant since January
1999. From December 1997 to December 1998, Mr. Walther provided interim
CEO/COO support to early stage venture companies. In June 1994, he co-founded
Artios Corporation, an enterprise solutions company, and served as its
President until December 1997. From October 1989 to June 1994, Mr. Walther
served as President of AEI, a computer aided design software firm. Mr. Walther
received his B.S. in Computer Science from the Texas A&M University--School of
Commerce.

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Michael A. Zuercher has been a Senior Director of Legal Affairs since May
1999 and Stamps.com's Secretary since November 1999. From September 1996 to
May 1999, Mr. Zuercher was an associate at Brobeck, Phleger & Harrison LLP.
From September 1989 to June 1993, Mr. Zuercher was a Contracts Negotiator at
Hughes Aircraft Company, an electronics company. Mr. Zuercher received his
B.A. in Economics and Political Science from Stanford University and his J.D.
from the University of San Francisco.

Candelario J. Andalon has been Stamps.com's Corporate Controller since
October 1998. From September 1991 to September 1998, Mr. Andalon served in
various capacities at Ernst & Young LLP, most recently as Manager in the
firm's Technology, Communications and Entertainment group. Mr. Andalon
received his B.S. degree in Accounting from Loyola Marymount University and is
a Certified Public Accountant.

Thomas H. Bruggere was Stamps.com's Chairman of the Board of Directors from
April 1998 to October 1999. Since 1994, Mr. Bruggere has been a private
investor. In 1995 and 1996, Mr. Bruggere was the Democratic Nominee for the US
Senate from Oregon. Mr. Bruggere founded Mentor Graphics, an electronic design
automation software company, in 1981 and served as its Chief Executive Officer
until 1994. Mr. Bruggere also serves on the Board of Directors of Open Market,
Inc., a software development company, and several privately-held companies.
Mr. Bruggere received his B.S. in Mathematics from UC Santa Barbara, his M.S.
in Computer Science from the University of Wisconsin and his M.B.A. from
Pepperdine University.

Mohan P. Ananda has been a Director since January 1998. Mr. Ananda is a
founder and currently serves as the Chief Executive Officer and Chairman of
the Board of AmazingHitz.com, Inc., an Internet-based entertainment company.
From January 1997 to October 1998, Mr. Ananda served as Stamps.com's Chief
Executive Officer. From June 1986 to December 1996, Mr. Ananda was a partner
of Ananda & Krause, a law firm. Mr. Ananda also serves on the Board of
Directors of other privately-held companies. Mr. Ananda received his B.S. in
Engineering from Coimbature Institute of Technology in India, his M.S. in
Aeronautics from the California Institute of Technology, his Ph.D. in
Astrodynamics and Control from UCLA, and his J.D. from the University of West
Los Angeles.

David C. Bohnett has been a Director since March 1999. Until May 1999, Mr.
Bohnett served as Chairman of the Board and Secretary of GeoCities, an
Internet hosting company, which he founded in November 1994. From November
1994 to April 1998, Mr. Bohnett also served as GeoCities' Chief Executive
Officer and President. From November 1994 to November 1997, Mr. Bohnett also
served as GeoCities' Chief Financial Officer. Prior to founding GeoCities,
from February 1990 to May 1994, Mr. Bohnett served as Director of Product
Marketing at Goal Systems, which merged with LEGENT, a software company. From
1988 to 1990, Mr. Bohnett was Chief Financial Officer of Essential Software,
which merged with Goal Systems. Mr. Bohnett also was a director of GeoCities
until May 1999, and he continues to serve on the Board of Directors of several
private companies. Mr. Bohnett received his B.S. degree in Business
Administration from the University of Southern California and his M.B.A.
degree in Finance from the University of Michigan.

Jeffrey J. Brown has been a Director since February 1998. In June 1993, Mr.
Brown founded and, since that time, he has been a director, executive officer
and shareholder of Forrest Binkley & Brown Venture Co., the general partner of
Forrest Binkley & Brown L.P., the Managing Partner of SBIC Partners. Mr. Brown
is also a founder, director, executive officer and shareholder of Forrest
Binkley & Brown Venture Advisor Co., an affiliate of SBIC Partners. From 1987
to 1992, Mr. Brown served in various executive capacities at Security Pacific
Venture Capital Group. From April 1992 until June 1993, Mr. Brown acted as
Senior Vice President of BankAmerica Venture Capital Group. Mr. Brown is a
director of Golden State Vintners, Inc., a supplier of premium bulk wines and
wine processing services, and serves on the boards of a number of private
companies. Mr. Brown received his B.S. in Mathematics from Willamette
University and his M.B.A. from Stanford University.

Thomas N. Clancy has been a Director since February 1998. Mr. Clancy has
been a Venture Partner at Enterprise Partners Venture Capital since February
1997. Prior to joining Enterprise Partners in September 1996, Mr. Clancy was a
Partner at Technical Resource Connection, now Perot Systems, a provider of
information

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technology services, from March 1996 to July 1996. Previously, Mr. Clancy
served as the Chief Executive Officer at Expersoft from May 1994 to January
1996 and as Vice President of Product Marketing at Expersoft from October 1993
to May 1994. From March 1983 to November 1991, Mr. Clancy worked at Citibank
in engineering management and product development. Mr. Clancy serves on the
board of a number of private companies. Mr. Clancy received his Computer and
Systems Engineering degree from Rensselaer Polytechnic Institute in New York.

G. Bradford Jones has been a Director since October 1998. Mr. Jones is
currently a General Partner at Brentwood Venture Capital, which he joined in
1981. Mr. Jones also currently serves on the board of directors of Onyx
Acceptance Corporation, a specialized consumer finance company, Interpore
International, a medical device company, and ISOCOR, a software developer,
sandpiper Networks, an Internet content management and distribution company,
Trading Edge, an Internet-based fixedincome securities broker, and several
privately-held companies. Mr. Jones received his B.S. in Chemistry from
Harvard University, his Master degree in Physics from Harvard University and
his J.D./M.B.A. from Stanford University.

Marvin Runyon has been a Director since February 1999. From 1992 to 1999,
Mr. Runyon served as Postmaster General of the United States. Prior to joining
the US Postal Service, he served as Chairman of the Tennessee Valley Authority
from 1988 to 1992. From 1980 to 1988, Mr. Runyon was the founding President
and CEO of Nissan Motor Manufacturing Corporation U.S.A. Previously, Mr.
Runyon spent 37 years at Ford Motor Co., leaving in 1980 with the position of
Vice President, Body and Assembly Operations. Mr. Runyon serves as a board
member of Genesis Direct, Inc., a specialty retailer. Mr. Runyon received his
B.S. from Texas A&M University.

Carolyn M. Ticknor has served as a Director since July 1999. Ms. Ticknor is
currently a Vice President and a member of the Executive Committee of Hewlett-
Packard Company and the President and CEO of Hewlett-Packard's LaserJet
Imaging Systems. Since joining Hewlett-Packard in 1977, Ms. Ticknor has served
in various management roles in the Information Networks Division, the
Roseville Networks Division and the LaserJet Solutions Group. Prior to joining
Hewlett-Packard, Ms. Ticknor worked for Bank of America in computer services
from 1971 to 1975. Ms. Ticknor received her B.A. in Psychology from the
University of Redlands (Calif.), her M.S. in Industrial Psychology from San
Francisco State University and her M.B.A. from Stanford University.

Stamps.com's Classified Board of Directors

Stamps.com's board of directors is divided into three classes of directors
serving staggered three-year terms. As a result, approximately one-third of
Stamps.com's board of directors will be elected each year. These provisions,
together with the provision of Stamps.com's amended and restated certificate
of incorporation, allow the Stamps.com board of directors to fill vacancies of
or increase the size of Stamps.com's board of directors, and may deter a
stockholder from removing incumbent directors and filling such vacancies with
its own nominees in order to gain control of the board.

Stamps.com's Board Committees

Stamps.com board of directors has established an audit committee to meet
with and consider suggestions from members of management and Stamps.com's
internal accounting personnel, as well as Stamps.com's independent
accountants, concerning Stamps.com's financial operations. The audit committee
also has the responsibility to review Stamps.com audited financial statements
and consider and recommend the employment of, and approve the fee arrangements
with, independent accountants for both audit functions and for advisory and
other consulting services. The audit committee is currently comprised of
Messrs. Runyon, Bohnett and Brown. Stamps.com's board of directors has also
established a compensation committee to review and approve the compensation
and benefits for Stamps.com's key executive officers, administer Stamps.com's
stock purchase, equity incentive and stock option plans and make
recommendations to the full board of directors regarding these matters. The
Compensation Committee is currently comprised of Messrs. Bruggere, Clancy and
Jones.

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Stamps.com's Compensation Committee Interlocks and Insider Participation

The Stamps.com Compensation Committee consists of Messrs. Bruggere, Clancy
and Jones. Neither of these individuals was an employee of Stamps.com's at any
time since Stamps.com's formation. None of Stamps.com's executive officers
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of
Stamps.com's board of directors or compensation committee.

Stamps.com's Director Compensation and Other Arrangements

Stamps.com's directors receive no cash remuneration for serving on the
board of directors or any board committee. In February 1999, Messrs. Runyon,
and Smith and in March 1999 Mr. Bohnett, were each granted an option to
purchase 108,000 shares of common stock. The options were granted at fair
market value on the date of grant and vest ratably over three year periods. In
April 1999, Messrs. Clancy, Jones and Brown were each granted an option to
purchase 36,000 shares of Stamps.com common stock. These options were granted
at fair market value on the date of grant and vest in full on the first
anniversary of the grant. In addition, directors are reimbursed for all
reasonable expenses incurred by them in attending board and committee
meetings.

In February 1999, Stamps.com entered into a three-year consulting agreement
with Loren Smith under which he will provide marketing and strategic planning
services. Mr. Smith also agreed to serve as a director on Stamps.com's board
of directors and to serve as a member on a board committee. In exchange for
these services, Stamps.com compensated Mr. Smith $120,000 per year, and in
consideration of his consulting services, granted him an option to purchase
135,000 shares of Stamps.com common stock at $0.33 per share. This agreement
terminated in October 1999 upon Mr. Smith's appointment as Stamps.com's
President and Chief Operating Officer. In connection with Mr. Smith's
appointment as President and Chief Operating Officer, Stamps.com granted Mr.
Smith an option to purchase 300,000 shares of Stamps.com common stock at an
exercise price of $35.625 per share. The options were granted at fair market
value and vest over a period of two years.

On June 21, 1999, Stamps.com entered into a consulting services agreement
with Carolyn Ticknor to provide strategic planning and business development
advice, and other consulting services that Stamps.com may request. In exchange
for these services, Stamps.com granted Ms. Ticknor an option to purchase
10,000 shares of Stamps.com common stock at an exercise price of $11.00 per
share. This consulting agreement expired on October 1, 1999.

In October 1999, Stamps.com entered into a three-year consulting agreement
with Marvin Runyon under which he will provide strategic planning services. In
exchange for these services, Stamps.com granted Mr. Runyon an option to
purchase 36,000 shares of common stock at an exercise price of $35.625 per
share. These options were granted at fair market value and vest ratably over a
three-year period. In November 1999, this agreement was amended to provide
that Mr. Runyon receive $2,000 per day in compensation for any special
projects on which Stamps.com requires his services.

Stamps.com's Executive Compensation

The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 1998 by
Stamps.com's Chief Executive Officer and each of Stamps.com's other four
highest paid executive officers whose total compensation exceeded or would
have exceeded $100,000 during 1998 had those officers provided services to us
for the entire fiscal year.

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Summary Compensation Table for Fiscal Year 1998

<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Securities
-------------------- Other Annual Underlying All Other
Name and Principal Positions Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
---------------------------- ---------- --------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
John M. Payne................. 27,897 -- -- -- 112,800(1)
President and Chief Executive
Officer (October 1998 to
present)

John W. LaValle............... 42,000 -- -- 395,802 --
Chief Financial Officer and
Senior Vice President of
Operations

Mohan P. Ananda............... 85,500 -- -- -- --
Chief Executive Officer and
President (January 1998 to
October 1998)

Douglas J. Walner............. 35,000 25,000 -- 366,357 7,434(2)
Vice President of Business
Development
</TABLE>
- --------
(1) Represents total payments to Mr. Payne for consulting services performed
during the period from May 1998 to October 1998.
(2) Represents total payments to Mr. Walner for consulting services performed
during the period from August 1998 to September 1998.

Stock Options Granted During Fiscal Year 1998

During the fiscal year ended December 31, 1998, Stamps.com granted options
to purchase 2,347,471 shares of Stamps.com common stock. All options were
granted at an exercise price equal to the fair market value of Stamps.com
common stock as determined by Stamps.com's Board of Directors on the date of
grant. The exercise price may be paid in cash, check, promissory note, shares
of Stamps.com common stock valued at fair market value on the exercise date or
a cashless exercise procedure involving a same-day sale of the purchased
shares. The following table indicates information regarding options to
purchase common stock granted to Stamps.com's officers listed in the Summary
Compensation Table.

<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at
------------------------------------------------------ Assumed Annual
Number of Rates of Stock
Securities Percentage of Appreciate
Underlying Total Options For Option Term
Options Granted to Exercise Price Expiration ---------------
Name Granted Employees in 1998 Per Share Date 5% 10%
---- ---------- ----------------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
John W. LaValle......... 395,802 17.1% $0.07 9/24/08 $16,594 $42,054
Douglas J. Walner....... 366,357 15.6% $0.07 8/20/08 $15,360 $38,925
</TABLE>

Each option listed in the table was granted under Stamps.com's 1998 Stock
Plan, which was succeeded by Stamps.com's 1999 Stock Incentive Plan. The
options shown in the table are immediately exercisable. The shares underlying
the options are subject to a repurchase option which expires over a four year
period. The purchase price per share upon exercise of the repurchase option by
us is equal to the exercise price paid by the optionee to originally purchase
the shares. One year after the option grant date, 1/4 of the shares are no
longer subject to the repurchase option and the repurchase option expires for
1/48 of the shares each month thereafter. The shares underlying the options
may also vest fully upon a change in control. See "--1999 Stock Incentive
Plan."

95
<PAGE>

Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical gains
that could be achieved for the respective options if exercised at the end of
the option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission
and do not represent Stamps.com's estimate or projection of Stamps.com's future
common stock prices. These amounts represent assumed rates of appreciation in
the value of the common stock from the fair market value on the date of grant.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the common stock and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved.

Aggregated Option Exercises and Year-End Option Values

The following table indicates the number and value of unexercised options
held by Stamps.com's officers listed on the Summary Compensation Table. There
was no public trading market for the common stock as of December 31, 1998.
Accordingly, these values of unexercised options have been calculated by
subtracting the exercise price from the fair market value of the underlying
securities as determined by the Board of Directors. No options were exercised
by Stamps.com's executive officers in 1998.

<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 31, 1998 at December 31, 1998
---------------------- ----------------------
Name Vested Unvested Vested Unvested
---- --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
John W. LaValle................ 0 395,802 0 $ 105,547
Douglas J. Walner.............. 0 366,357 0 $ 97,695
</TABLE>

Employment Agreements and Change in Control Arrangements

John M. Payne has entered into a letter agreement, effective as of October
29, 1998, to serve as Stamps.com's President and Chief Executive Officer. Mr.
Payne's 1999 compensation includes a base salary of $210,000 per year and a
potential bonus of $90,000. In addition, Stamps.com gave Mr. Payne benefits
that Stamps.com makes available to Stamps.com's employees in comparable
positions, and upon his execution of the letter agreement, Stamps.com sold
1,500,000 shares of Stamps.com common stock to him at $0.07 per share, the fair
market value on the purchase date. Mr. Payne is an at-will employee and his
employment may be terminated at any time by him or by us. If Mr. Payne's
employment is constructively terminated or terminated by us or a successor
entity involuntarily within 12 months following a change in control, or if
Stamps.com terminates or constructively terminates Mr. Payne's employment for
any reason other than for cause, he will be entitled to receive monthly
installments of his base salary for six months and all of his unvested stock
will become immediately vested. After two years of employment, Mr. Payne's
severance period will increase to nine months, and after three years of
service, the severance period will increase to one year.

John W. LaValle entered into a letter agreement, effective as of August 16,
1998, to serve as Stamps.com's Chief Financial Officer and Senior Vice
President. Mr. LaValle receives a base salary of $156,000 per year and was
granted an option to purchase 395,802 shares of Stamps.com common stock at
$0.07 per share, the fair market value on the grant date. In addition, Mr.
LaValle receives standard medical and dental benefits available to Stamps.com's
other employees. Mr. LaValle is an at-will employee and his employment can be
terminated at any time by him or by us. If Mr. LaValle's employment is
constructively terminated or terminated by us or a successor entity within 12
months following a change in control, all of his unvested stock will become
immediately vested.

For purposes of Messrs. Payne and LaValle, "constructive termination" shall
occur upon the following:

. a relocation without consent;

. disability or death;

96
<PAGE>

. an assignment to a new position that is not commensurate with the
individual's seniority and compensation level; or

. any reduction in the individual's compensation.

Mohan P. Ananda entered into an employment agreement, effective as of
January 20, 1998, under which Mr. Ananda served as Stamps.com's President,
Chief Executive Officer and the Chairman of the Board of Directors. Mr. Ananda
received an initial base salary of $60,000, which was increased to $120,000
per year in October 1998. In addition, Stamps.com sold 2,172,595 shares of
Stamps.com common stock to Mr. Ananda at $0.01 per share, the fair market
value on the purchase date. Mr. Ananda has ceased active involvement with
Stamps.com's operations, but he continues as a director.

Douglas J. Walner is subject to an agreement which partially accelerates
the vesting of his options upon a change in control and his subsequent
termination.

In April 1999, Stamps.com amended Stamps.com's 1998 Stock Plan to adopt a
change in control provision. As a result of this provision, should any
optionee have his or her service involuntarily terminated within eighteen
months following a Corporate Transaction in which his or her options are
assumed by the successor corporation and do not otherwise accelerate at that
time, then those options will accelerate and become fully exercisable for all
of the option shares as fully-vested shares of Stamps.com common stock upon an
involuntary termination. A "Corporate Transaction" under the 1998 Stock Plan
is defined as a merger or consolidation in which securities possessing more
than 50% of the total combined voting power of Stamps.com's outstanding
securities are transferred to a person or persons different from those who
held those securities immediately prior to the transaction, or the sale,
transfer or other disposition of all or substantially all of Stamps.com's
assets in complete liquidation of us. "Involuntary Termination" is defined
under the 1998 Stock Plan as the optionee's involuntary dismissal or discharge
by us for reasons other than misconduct, or the optionee's voluntary
resignation following:

. a change in his or her position with us which materially reduces his or
her responsibilities;

. a reduction in his or her level of compensation by more than 15%; or

. a relocation of the optionee's place of employment by more than 50
miles, and this change, reduction or relocation is effected by us
without the optionee's consent.

Our 1999 Stock Incentive Plan is a successor plan to Stamps.com's 1998
Stock Plan, and includes change in control provisions which may result in the
accelerated vesting of outstanding option grants and stock issuances.

1999 Stock Incentive Plan

The 1999 Stock Incentive Plan serves as the successor program to
Stamps.com's 1998 Stock Plan, and the principal features of Stamps.com's 1999
plan are summarized above in "Approval of Amendment to Stamps.com's 1999 Stock
Incentive Plan."

1999 Employee Stock Purchase Plan

Introduction. Stamps.com's 1999 Employee Stock Purchase Plan was adopted by
the board and approved by the stockholders in June 1999. The plan became
effective on June 24, 1999. The plan is designed to allow Stamps.com's
eligible employees and the eligible employees of Stamps.com's participating
subsidiaries to purchase shares of Stamps.com common stock, at semi-annual
intervals, with their accumulated payroll deductions.

Share Reserve. 300,000 shares of Stamps.com common stock have initially
been reserved for issuance. The reserve will automatically increase on the
first trading day in January each year, beginning in calendar year 2000, by an
amount equal to one percent of the total number of outstanding shares of
Stamps.com common stock on the last trading day in December in the prior year.
In no event will any annual increase exceed 521,571 shares.

97
<PAGE>

Offering Periods. The plan has a series of successive offering periods,
each with a maximum duration of 24 months. The initial offering period
commenced on June 24, 1999 and ends on the last business day in July 2001. The
next offering period will start on the first business day in August 2001, and
subsequent offering periods will be set by Stamps.com's compensation
committee.

Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of February and August each
year. Individuals who become eligible employees after the start date of an
offering period may join the plan on any subsequent semi-annual entry date
within that offering period.

Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will
be applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per
share on the participant's entry date into the offering period or, if lower,
85% of the fair market value per share on the semi-annual purchase date.

Semi-annual purchase dates will occur on the last business day of January
and July each year. In no event, however, may any participant purchase more
than 1,200 shares on any purchase date, and not more than 75,000 shares may be
purchased in total by all participants on any purchase date.

Reset Feature. If the fair market value per share of Stamps.com common
stock on any purchase date is less than the fair market value per share on the
start date of the two-year offering period, then that offering period will
automatically terminate, and a new two-year offering period will begin on the
next business day. All participants in the terminated offering will be
transferred to the new offering period.

Change in Control. Should Stamps.com be acquired by merger or sale of
substantially all of Stamps.com's assets or more than fifty percent of
Stamps.com's voting securities, then all outstanding purchase rights will
automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the participant's entry date into the offering period in which an
acquisition occurs or, if lower, 85% of the fair market value per share
immediately prior to the acquisition.

Plan Provisions. The following provisions are also in effect under the
plan:

. The plan will terminate no later than the last business day of June
2009.

. The board may at any time amend, suspend or discontinue the plan.
However, some amendments may require stockholder approval.

iShip.com's Executive Officers

The following table sets forth certain information as of October 31, 1999,
regarding iShip.com's executive officers who will serve as executive officers
of Stamps.com if the acquisition is completed:

<TABLE>
<CAPTION>
Name Age Position at iShip.com
---- --- ---------------------
<S> <C> <C>
Stephen M. Teglovic........ 39 President, Chief Executive Officer and Director
John E. Jamerson........... 46 Chief Financial Officer
John M. Dietz.............. 38 Vice President of Operations
William W. Smith........... 36 Vice President, Engineering
</TABLE>

Stephen M. Teglovic has been the President and Chief Executive Officer and
a director of iShip.com since its founding in May 1997. Before launching
iShip.com, from November 1995 to April 1997, Mr. Teglovic served as General
Manager of Velleb, Inc., a wholly owned subsidiary of UPS that was responsible
for the design and development of UPS Online Professional. Prior to Velleb,
from January 1993 to October 1995, Mr. Teglovic served as both vice president
of engineering and vice president of consulting for ConnectSoft, Inc., which
built

98
<PAGE>

custom software systems, primarily for Fortune 1000 companies. Mr. Teglovic
previously served in the Airborne Infantry of the United States Army and as a
commissioned officer in the California National Guard. Mr. Teglovic received
his B.S. in Management Information Systems from California Polytechnic, San
Luis Obispo.

John E. Jamerson has been the Chief Financial Officer of iShip.com since
May 1997 and served as a director of iShip.com from July 1997 to April 1999.
Prior to joining iShip.com, from April 1994 to April 1997, Mr. Jamerson
founded and served as president of Lancaster Holding, Inc., where he advised
and raised capital for private companies. From September 1985 to March 1994,
Mr. Jamerson founded and served as president of Lancaster Capital Corporation,
a commercial real estate development firm. From September 1981 to August 1985,
Mr. Jamerson served as senior vice president of Dean Witter Realty Inc. in San
Francisco. From September 1977 to September 1981, Mr. Jamerson served as vice
president of Dean Witter Reynolds Investment Banking in New York. Mr. Jamerson
received his Bachelor's of Business Administration from the University of
Michigan and has an M.B.A. from the M.I.T. Sloan School of Management.

John M. Dietz has been Vice President of Operations of iShip.com since
helping found iShip.com in May 1997 and served as a director of iShip.com from
May 1997 to April 1999. From November 1995 to April 1997, Mr. Dietz served as
Vice President of Engineering for Velleb, Inc., a wholly owned subsidiary of
UPS. While at Velleb, Inc., Mr. Dietz managed the delivery of UPS Online
Professional, a PC-based shipping application. Mr. Dietz also served as
director of development for ConnectSoft, Inc. from January 1994 to October
1995, where he supervised many projects involving customized software systems,
primarily for Fortune 1000 companies. From August 1985 to December, 1993, Mr.
Deitz worked at The Boeing Company as a software engineer for the U.S.
Government's Strategic Defense Initiative. Mr. Dietz holds a B.S. in Computer
Science from Texas A&M College of Engineering, as well as a B.S. in Poultry
Science from Texas A&M University.

William W. Smith has been Vice President, Engineering of iShip.com since
its inception in May 1997 and served as a director of iShip.com from May 1997
to April 1999. From November 1995 to April 1997, Mr. Smith served as Chief
Engineer of Velleb, Inc., a wholly owned subsidiary of UPS where he was the
primary architect of UPS Online Professional, a PC-based shipping application.
Prior to Velleb, Inc., from January 1994 to October 1995, Mr. Smith worked as
a Senior Software Engineer for ConnectSoft, Inc., building custom software
systems for other companies. From March 1989 to December 1993, Mr. Smith
worked as a systems analyst for Boeing Computer Services where he applied his
training in human factors to the design of aircraft cockpits. He holds a B.S.
in Industrial Engineering from the University of Michigan and an M.S. in Human
Factors from Virginia Tech University.

99
<PAGE>

RELATED PARTY TRANSACTIONS

Sales of Securities

Stamps.com has issued shares of Stamps.com common stock to several of
Stamps.com's directors, executive officers and founders. John M. Payne,
Stamps.com's President and Chief Executive Officer, purchased 1,500,000 shares
of Stamps.com common stock in November 1998 for a purchase price of
$100,000.00, which amount includes a note payable to Stamps.com for
$99,000.00. Thomas Bruggere, Stamps.com's Chairman of the Board of Directors,
purchased 488,475 shares of Stamps.com common stock in October 1998 and
December 1998 for a total purchase price of $28,460.00. Mohan Ananda, a member
of Stamps.com's board of directors, purchased 2,172,595 shares of Stamps.com
common stock in January 1998 for a total purchase price of $28,967.94. As
payment of the purchase price, Mr. Ananda assigned to us intellectual property
rights in his inventions developed for us and received a license back from us
to use those intellectual property rights in a restricted field of use. A more
detailed description of transactions with Mr. Ananda appears below. In January
1998, Stamps.com also sold 423,993 shares of Stamps.com common stock to each
of Stamps.com's co-founders, James McDermott, Ari Engelberg and Jeffrey Green,
for a total purchase price of $16,959.72, which amount includes $9,000.00 in
notes payable to Stamps.com.

Stamps.com has issued, in private placement transactions, shares of
preferred stock as follows:

. 3,762,500 shares of Series A preferred stock at $0.40 per share in
February 1998;

. 6,020,000 shares of Series B preferred stock at $0.75 per share in
August, October and November 1998; and

. 5,464,486 shares of Series C preferred stock at $5.49 per share in
February and March 1999.

Transactions with Mr. Ananda

Stamps.com paid $61,000 in March 1998 to Safeware Corporation for employee
salary and patent prosecution expenses incurred on Stamps.com's behalf to
attain patents for us. These patent prosecution expenses consisted primarily
of fees paid to patent counsel and fees paid to the US Patent and Trademark
Office. Mr. Ananda is the majority shareholder in Safeware Corporation.
Stamps.com also reimbursed Mr. Ananda for approximately $20,000 for expenses
incurred on Stamps.com's behalf.

Under Stamps.com's previous agreements with Mr. Ananda, Stamps.com owns all
of the intellectual property developed by Mr. Ananda during the course of his
employment and all of the intellectual property he developed for us before his
formal employment began. Mr. Ananda resigned as Stamps.com's Chief Executive
Officer on January 1, 1999. In May 1999, Stamps.com entered into a separation
agreement and a license agreement with Mr. Ananda to formalize his resignation
and to redefine his intellectual property rights relative to us. The new
license agreement reaffirmed Stamps.com's ownership of the intellectual
property invented by Mr. Ananda. In addition, the license agreement clarified
and narrowed Mr. Ananda's field of use restrictions to limit his license to a
few narrowly defined electronic commerce applications that do not compete with
Stamps.com's Internet postage service.

Consulting Services

Stamps.com paid Mr. Payne $112,800 for consulting services he rendered to
us between May 1998 and October 1998.

In February 1999, Loren Smith, a director, entered into a three-year
consulting agreement with us to provide marketing and strategic planning
services. In exchange for his consulting services, Mr. Smith will receive
consulting fees of $120,000 per annum and an option to purchase 135,000 shares
of Stamps.com common stock at $0.33 per share. The term of this agreement
expires in February 2002.

100
<PAGE>

On June 21, 1999, Stamps.com entered into a consulting services agreement
with Carolyn Ticknor, a director, to provide us with strategic planning and
business development advice, and other consulting services that Stamps.com may
request. In exchange for these services, Stamps.com granted Mrs. Ticknor an
option to purchase 15,000 shares of Stamps.com common stock at an exercise
price of $11.00 per share. This agreement expires on October 1, 1999.

In October 1999, Stamps.com entered into a three-year consulting agreement
with Marvin Runyon under which he will provide strategic planning services. In
exchange for these services, Stamps.com granted Mr. Runyon an option to
purchase 36,000 shares of Stamps.com common stock. These options were granted
at fair market value and vest ratably over a three-year period. In November
1999, this agreement was amended to provide that Mr. Runyon receive $2,000 per
day in compensation for any special projects on which we require his services.

101
<PAGE>

PRINCIPAL STAMPS.COM STOCKHOLDERS

The following table indicates beneficial ownership of Stamps.com common
stock as of September 30, 1999 by:

. each stockholder whom Stamps.com knows to beneficially own 5% or more of
the outstanding shares of Stamps.com common stock;

. each of Stamps.com's directors and Stamps.com's executive officers named
in the Summary Compensation Table; and

. all of Stamps.com's directors and executive officers as a group.

Unless otherwise indicated, the address of each beneficial owner listed
below is c/o Stamps.com Inc., 3420 Ocean Park Boulevard, Suite 1040, Santa
Monica, California 90405.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by the footnotes below,
Stamps.com believes, based on information furnished to us, that the persons
and entities named in the table below have sole voting and investment power
with respect to all shares of Stamps.com common stock shown as beneficially
owned by them. Percentage of beneficial ownership is based on 34,864,807
shares of Stamps.com common stock outstanding as of September 30, 1999. In
computing the number of shares of Stamps.com common stock subject to options
held by that person that are exercisable within 60 days of September 30, 1999,
these shares are deemed outstanding for the purpose of determining the
percentage ownership of the optionee. These shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
stockholder.

<TABLE>
<CAPTION>
Number of Shares Percentage of Shares
Name of Beneficial Owner Beneficially Owned Beneficially Owned
- ------------------------ ------------------ --------------------
<S> <C> <C>
Named executive officers and Directors:
Thomas N. Clancy(1)................... 5,467,448 15.7%
Jeffrey J. Brown(2)................... 5,457,448 15.6%
G. Bradford Jones(3).................. 5,457,448 15.6%
Mohan P. Ananda(4).................... 2,174,095 6.2%
John M. Payne(5)...................... 1,500,100 4.3%
Thomas H. Bruggere(6)................. 488,475 1.4%
John W. LaValle(7).................... 398,696 1.1%
Douglas J. Walner(8).................. 366,357 1.0%
Loren E. Smith(9)..................... 244,500 *
David C. Bohnett(10).................. 198,468 *
Marvin Runyon(11)..................... 141,831 *
Carolyn Ticknor(12)................... 20,000 *
Other 5% Stockholders:(13)
Brentwood Venture Capital(14)......... 5,421,448 15.5%
11150 Santa Monica Blvd, Suite 1200
Los Angeles, CA 90025
Enterprise Partners IV, L.P.(15)...... 5,421,448 15.5%
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
SBIC Partners, L.P. .................. 5,421,448 15.5%
201 Main Street, Suite 2302
Fort Worth, TX 76102
Vulcan Ventures Inc. ................. 2,732,241 7.8%
110-110th Ave., N.E.,
Suite 550 Bellevue, WA 98004
Chase Venture Capital Partners, 2,185,792 6.3%
L.P. ................................
380 Madison Ave., 12th Floor
New York, NY 10017
All directors and executive officers as 61.2%
a group (17 people)(16)............... 22,565,447
</TABLE>

102
<PAGE>

- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Stamps.com common stock.
(1) Includes 4,987,732 shares and 433,716 shares held by Enterprise Partners
IV, L.P. and Enterprise Partners IV Associates, L.P., respectively.
Thomas N. Clancy is a General Partner at Enterprise Partners Venture
Capital. Mr. Clancy disclaims beneficial ownership of these shares except
to the extent of his pecuniary interest therein. Also includes 10,000
shares of Stamps.com common stock and 36,000 shares subject to options,
all of which are presently exercisable within 60 days from September 30,
1999.
(2) Includes 5,421,448 shares held by SBIC Partners, L.P. Jeffrey Brown is a
director and executive officer of Forrest Binkley & Brown Venture Co.,
the general partner of Forrest Binkley & Brown L.P., the Managing Partner
of SBIC Partners. Mr. Brown disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein. Also
includes 36,000 shares subject to options, all of which are presently
exercisable within 60 days from September 30, 1999.
(3) Includes 5,204,590 shares and 216,858 shares held by Brentwood Associates
VIII, L.P. and Brentwood Affiliates Fund, L.P., respectively. G. Bradford
Jones is a General Partner at Brentwood Venture Capital. Mr. Jones
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest therein. Also includes 36,000 shares subject to
options, all of which are presently exercisable within 60 days from
September 30, 1999.
(4) Includes 240,000 shares held in trust for the benefit of Mr. Ananda's
family.
(5) Includes 75,000 shares held in trust for the benefit of Mr. Payne's
family.
(6) Includes 75,000 shares held in trust for the benefit of his children as
to which Mr. Bruggere disclaims beneficial ownership.
(7) Includes 398,696 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999. Does not include 101,304 shares granted to Mr. La Valle in October
1999, none of which are presently exercisable or will be exercisable
within 60 days from September 30, 1999.
(8) Includes 366,357 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999.
(9) Includes 243,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999. Does not include 300,000 shares subject to options, none of which
are presently exercisable or will be exercisable within 60 days from
September 30, 1999.
(10) Includes 108,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999.
(11) Includes 110,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999. Does not include 34,000 shares subject to options granted to Mr.
Runyon in October 1999, none of which are presently exercisable or will
be exercisable within 60 days of September 30, 1999.
(12) Includes 20,000 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days from September 30,
1999.
(13) Based on the current holdings of the stockholders of iShip.com,
Stamps.com does not anticipate that any shareholder of iShip.com will be
a 5% stockholder of Stamps.com if the iShip.com acquisition is completed.
(14) Includes 5,204,590 shares and 216,858 shares held by Brentwood Associates
VIII, L.P. and Brentwood Affiliates Fund, L.P., respectively. G. Bradford
Jones is a General Partner at Brentwood Venture Capital. Mr. Jones
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest therein.
(15) Includes 4,987,732 shares and 433,716 held by Enterprise Partners IV,
L.P. and Enterprise Partners IV Associates, L.P., respectively. Thomas N.
Clancy is a Venture Partner at Enterprise Partners Venture Capital. Mr.
Clancy disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(16) Includes 1,990,934 shares subject to options, all of which are presently
exercisable or will become exercisable within 60 days of September 30,
1999.

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<PAGE>

PRINCIPAL ISHIP.COM SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of iShip.com Common Stock as of October 22, 1999 by:

. by each person or entity known by iShip.com to beneficially own more
than 5% of the outstanding shares of iShip.com Common Stock (including
preferred stock on an as-converted basis);

. by each executive officer and director of iShip.com; and

. by all executive officers and directors of iShip.com as a group.

Unless otherwise indicated, the address of each beneficial owner listed
below is c/o iShip.com, Inc., 3535 Factoria Blvd SE, 5th Floor, Bellevue,
Washington 98006.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Percentage of beneficial ownership is based
on 26,612,722 shares of Stamps.com common stock outstanding as of October 22,
1999 (including 8,986,668 shares of Series A Preferred Stock and 10,133,334
shares of Series B Preferred Stock on an as-converted basis). As of October
22, 1999, there were approximately 53 holders of iShip.com's common stock, 11
holders of iShip.com's Series A Preferred Stock and 16 holders of iShip.com's
Series B Preferred Stock. Except as indicated in the footnotes to this table,
the persons named in the table have sole voting and investment power with
respect to all shares of iShip.com common stock shown as beneficially owned by
them, subject to community property laws where applicable.

iShip.com Shares Beneficially Owned
Prior to the Merger
----------------------------------------
Percentage of
Shares
Name and Address of Beneficial Number of Shares Beneficially
Owner Beneficially Owned Owned
------------------------------ -------------------- ---------------
<S> <C> <C>
Named executive officers and
directors:
Stephen M. Teglovic(1)........ 1,740,000 6.5%
John M. Dietz(2).............. 2,140,000 8.0%
John E. Jamerson(3)........... 661,224 2.5%
William W. Smith(4)........... 2,040,000 7.7%
Jerry Aurelio(5).............. 3,146,666 11.8%
Brian Finn(6)................. 8,333,332 28.4%
Jennifer Fonstad(7)........... 6,666,668 25.1%
Thomas K. Herskowitz(6)....... 8,333,332 28.4%
Other 5% Shareholders:
Mail Boxes Etc. USA, Inc(6)... 8,333,332 28.4%
6060 Cornerstone Court West
San Diego, CA 92121-3762
Draper Fisher Funds(7)........ 6,666,668 25.1%
Draper Fisher & Jurvetson
400 Seaport Court, Suite 250
Redwood City, CA 94063
United Parcel Services General
Services Co.(5).............. 3,146,666 11.8%
55 Glenlake Parkway, N.E.
Building 1, 7th Floor
Atlanta, GA 30328
Intel Corporation............. 2,066,668 7.8%
c/o Willy Agatstein
1900 Prairie City Road
MS FMS-27
Folsom, CA 95630
eBay Incorporated............. 1,333,334 5.0%
2005 Hamilton Avenue, Suite
350
San Jose, California 95125
All directors and executive
officers as a group (8
people)(8).................... 24,727,890 84.3%
</TABLE>

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- --------
(1) Includes 200,000 shares held by the Steve and Pam Teglovic LLC. Mr.
Teglovic disclaims beneficial ownership of the shares held by the Steve
and Pam Teglovic LLC except to the extent of his pecuniary interest in
them.
(2) Includes 200,000 shares held by the John and Carla Dietz Family LLC,
40,000 shares held by John and Carla Dietz, 100,000 shares held by Mr.
Dietz as Trustee of Trust FBO Colton Michael Teglovic and 100,000 shares
held by Mr. Dietz as Trustee of Trust FBO Morgan Mariah Teglovic. Mr.
Dietz disclaims beneficial ownership of the shares held by the John and
Carla Dietz Family LLC and the shares held in trust for Michael Teglovic
and Mariah Teglovic except to the extent of his pecuniary interest in
them.
(3) Includes 30,612 shares held by Kristin Anderson Jamerson, the spouse of
Mr. Jamerson, and 160,000 shares held by the Jamerson--iShip.com, L.L.C.
Mr. Jamerson disclaims beneficial ownership of the shares held by the
Jamerson--iShip.com, L.L.C. except to the extent of his pecuniary interest
in them.
(4) Includes 200,000 shares held by the Fairweather Bay LLC, 20,000 shares
held by Mr. Smith as Trustee of Trust FBO Andrew Bryson Dietz, 20,000
shares held by Mr. Smith as Trustee of Trust FBO Sarah Ashley Dietz and
20,000 shares held by Mr. Smith as Trustee of Trust FBO Breanna Christine
Dietz. Mr. Smith disclaims beneficial ownership of the shares held by the
Fairweather Bay LLC, and the shares held in trust for Andrew Bryson Dietz,
Sarah Ashley Dietz and Breanna Christine Dietz except to the extent of his
pecuniary interest in them.
(5) All of these shares are held by United Parcel Services General Services
Co. ("UPS"). Mr. Aurelio is Business Officer Portfolio Manager of UPS and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in them.
(6) Consists of (i) 5,333,333 held directly by Mail Boxes Etc. USA, Inc.
("MBE"), (ii) 2,666,666 shares subject to a warrant issued by iShip.com to
MBE on April 27, 1999 which will be assumed by Stamps.com in connection
with the merger, (iii) 100,000 shares held directly by Mr. Finn, (iv)
66,666 shares subject to an option held by Mr. Finn which is presently
exercisable and (v) 166,666 shares held directly by Grosvenor Street
Partners III, LLC. Mr. Finn is a principal and a director of Clayton,
Dubilier & Rice, Inc. and a member of the board of directors of US Office
Products Company. MBE is a wholly owned subsidiary of US Office Products
Company. Clayton, Dubilier & Rice, Inc. is the largest stockholder of US
Office Products Company. Grosvenor Street Partners III, LLC is an
investment partnership comprised of individual principals of Clayton,
Dubilier & Rice, Inc. Mr. Herskowitz is Executive Vice President of MBE.
Mr. Herskowitz, Mr. Finn and Grosvenor Street Partners III, LLC disclaim
beneficial ownership of all of these shares except to the extent of their
pecuniary interest in them.
(7) Includes 6,200,000 shares held by Draper Fisher Associates Fund IV, LP and
466,668 shares held by Draper Fisher Partners Fund IV, LLC. Ms. Fonstad is
a partner of Draper Fisher Jurvestson, a general partner in both Draper
Fisher Associates Fund IV, LP and Draper Fisher Partners Fund IV, LLC. Ms.
Fonstad disclaims beneficial ownership of these shares except to the
extent of her pecuniary interest in them.
(8) Includes 66,666 shares subject to options, all of which are presently
exercisable, and 2,666,666 shares subject to a warrant issued by iShip.com
to MBE on April 27, 1999 which will be assumed by Stamps.com in connection
with the merger.

Certain Relationships and Related Transactions

John Dietz, Stephen Teglovic, William Smith and John Jamerson are parties
to an Amended and Restated Voting Agreement with iShip.com and certain holders
of iShip.com preferred stock and dated as of April 27, 1999 under which they
have agreed to vote their shares of iShip.com common stock in favor of
specified nominees for directors. This voting agreement will terminate upon
closing of the acquisition.

iShip.com issued 2,000,000 shares of its common stock to each of John M.
Dietz, William W. Smith and Stephen M. Teglovic pursuant to Stock Purchase
Agreements, dated as of June 16, 1997. iShip.com has a right to repurchase the
shares from such persons at cost after termination of their employment, with
5/6ths of the total number of such shares subject to repurchase at the time
such agreements were entered into and 1/36th of the

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<PAGE>

total number of such shares being released each month beginning December 31,
1997. iShip.com's repurchase rights under these agreements will terminate in
full upon closing of the acquisition.

In connection with the execution and delivery of the merger agreement, each
of John M. Dietz, John E. Jamerson, William W. Smith and Stephen M. Teglovic
entered into an employment agreement with Stamps.com which will become
effective upon completion of the acquisition. See "Related Agreements--
Employment Agreements."

Each holder of an option to purchase the common stock of iShip.com issued
pursuant to its 1997 Amended and Restated Stock Plan before October 2, 1999
will receive, upon the closing of the merger, acceleration of vesting with
respect to only one-third of the unvested portion of such option. In addition,
if these options are held by executive officers of iShip.com, the option
holder will receive full acceleration of vesting if such executive officer's
employment is terminated within one year of the consummation the acquisition.

Each holder of an option to purchase the common stock of iShip.com issued
pursuant to its 1997 Amended and Restated Stock Plan on or after October 2,
1999 will receive full acceleration of vesting if the optionee is
involuntarily terminated (as defined in the option agreement) within 18 months
of the consummation the acquisition.

The Series B Preferred Stock Purchase Warrant issued by iShip.com to MBE on
April 27, 1999 will be modified upon closing of the merger to be exercisable
for common stock of Stamps.com. The share and per share amounts will be
adjusted by the appropriate exchange ratio set forth in the merger agreement,
but all other provisions of the warrant will remain in effect.

Venture Law Group, A Professional Corporation, and certain directors of
Venture Law Group hold options to purchase up to an aggregate of 40,000 shares
of iShip.com's common stock which will vest in full upon the closing of the
acquisition.

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DESCRIPTION OF STAMPS.COM CAPITAL STOCK

The following description of Stamps.com's securities and provisions of
Stamps.com's certificate of incorporation and bylaws is only a summary. You
should also refer to the copies of Stamps.com's certificate of incorporation
and bylaws which have been filed with the Securities and Exchange Commission
as exhibits to Stamps.com's registration statement, of which this document
forms a part. Stamps.com's authorized capital stock consists of 95,000,000
shares of Stamps.com common stock, par value $0.001 per share, and 5,000,000
shares of preferred stock, par value $0.001 per share.

Common Stock

Holders of Stamps.com common stock are entitled to one vote for each share
held on all matters submitted to a vote of Stamps.com's stockholders. Holders
of Stamps.com common stock are entitled to receive dividends ratably, if any,
as may be declared by the board of directors out of legally available funds,
subject to any preferential dividend rights of any outstanding preferred
stock. Upon Stamps.com's liquidation, dissolution or winding up, the holders
of Stamps.com common stock are entitled to receive ratably Stamps.com's net
assets available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. Holders of
Stamps.com common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Stamps.com common stock are, and
the shares offered by us in connection with the acquisition will be, upon
receipt of payment for the shares, fully paid and nonassessable. The rights,
preferences and privileges of holders of Stamps.com common stock are subject
to, and may be adversely affected by, the rights of holders of shares of any
series of preferred stock which Stamps.com may designate and issue in the
future without further stockholder approval. Currently, there are no shares of
preferred stock outstanding.

Preferred Stock

Stamps.com's board of directors is authorized without further stockholder
approval, to issue from time to time up to a total of 5,000,000 shares of
preferred stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each series, including the dividend rights, dividend rates,
conversion rights, voting rights, term of redemption, redemption price or
prices, liquidation preferences and the number of shares constituting any
series or designations of these series without further vote or action by the
stockholders. Stamps.com's issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of Stamps.com's
management without further action by the stockholders and may adversely affect
the voting and other rights of the holders of Stamps.com common stock.
Stamps.com's issuance of preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of Stamps.com common stock,
including the loss of voting control to others. Stamps.com has no present
plans to issue any shares of preferred stock.

Warrant

On May 1, 1998, Stamps.com issued a warrant which is currently exercisable
for 7,050 shares of Stamps.com common stock at $0.27 per share. The warrant
may be exercised at any time on or before May 1, 2005.

America Online Investment

In October 1999, Stamps.com entered into a common stock and warrant
purchase agreement with AOL for the purchase of up to $11 million of common
stock by AOL and a warrant which allows AOL to purchase up to 50% of the
number of shares of common stock issued to it. The warrant also allows for the
purchase of additional shares of common stock (50%) of the unexercised portion
of the warrant) in the event Stamps.com is unable to cure a material breach of
the payment provisions of our marketing agreement with AOL.

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<PAGE>

On October 29, 1999, Stamps.com issued 178,638 shares of Stamps.com common
stock under the purchase agreement for $6.0 million in the aggregate, or
$33.59 per share. Stamps.com also issued the warrant, which is exercisable for
89,318 shares of Stamps.com common stock as of October 31, 1999, at an
exercise price of $33.59 per share. The warrant may be exercised at any time
on or before October 29, 2002, unless the term of exercisability is extended
to compensate for any required regulatory filings.

In addition, AOL has agreed to invest an additional $5.0 million in
Stamps.com common stock concurrent with the closing of the follow-on offering.
The number of shares issuable will be equal to the quotient of $5 million
divided by the lesser of (a) 433.588 or (b) the price per share of the
offering net of any underwriter discounts or commissions. The number of shares
issuable upon exercise of the warrant will be increased by an amount equal to
50% of the shares issued at the closing of the $5 million investment. The
closing of the $5 million investment by AOL is contingent on the closing of
the follow-on offering.

Anti-Takeover Effects of Provisions of Delaware Law and Stamps.com's
Certificate of Incorporation and Bylaws

Delaware Section 203. Stamps.com is subject to the provisions of Section
203 of the Delaware General Corporation Law. Subject to exceptions, Section
203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years from the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained this status
with the approval of the board of directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. Subject to exceptions, an "interested stockholder" is
a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock. This statute
could prohibit or delay the accomplishment of mergers or other takeover or
change in control in attempts with respect to us and, accordingly, may
discourage attempts to acquire us.

In addition, provisions of Stamps.com's certificate of incorporation and
bylaws, may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider
in his best interest, including those attempts that might result in a premium
over the market price for the shares held by Stamps.com's stockholders.

Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at Stamps.com's principal executive
offices not less than 120 days prior to the date of Stamps.com's annual
meeting. The bylaws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations
for directors at an annual meeting of stockholders.

Authorized But Unissued Shares. Stamps.com's authorized but unissued shares
of Stamps.com common stock and preferred stock are available for future
issuance without stockholder approval. These additional shares may be utilized
for a variety of corporate purposes, including future public offerings to
raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued shares of Stamps.com common stock and
preferred stock could render more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or otherwise.

Classified Board of Directors; Removal. Stamps.com's directors are divided
into three classes. The classification of the Board of Directors has the
effect of requiring at least two annual stockholder meetings, instead of one,
to replace a majority of the directors which could have the effect of delaying
or preventing a change in control of Stamps.com. Subject to the rights of the
holders of any outstanding series of preferred stock, Stamps.com's certificate
of incorporation authorizes only Stamps.com's board of directors to fill
vacancies,

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<PAGE>

including newly created directorships. The certificate of incorporation also
provides that directors may be removed by stockholders only for cause and only
by the affirmative vote of holders of two-thirds of the outstanding shares of
voting stock.

Supermajority Vote to Amend Charter and Bylaws. Stamps.com's certificate of
incorporation and bylaws each provides that our bylaws may only be amended by
a two-thirds vote of the outstanding shares. In addition, Stamps.com's
certificate of incorporation provides that its provisions related to bylaw
amendments, staggered board and indemnification may only be amended by a two-
thirds vote of the outstanding shares.

Registration Rights

Holders of approximately 25,043,074 shares of Stamps.com common stock are
entitled to registration rights with respect to their shares. Of these shares,
2,172,595 shares of Stamps.com common stock do not have demand registration
rights and are only entitled to "piggy-back" registration rights. The holders
of securities with registration rights can require us to register all or part
of their shares at any time following December 30, 1999. In addition these
holders may also require Stamps.com to include their shares in future
registration statements that Stamps.com files and may require us to register
their shares on Form S-3. Upon registration, these shares are freely tradable
in the public market without restriction.

Transfer Agent and Registrar

The Transfer Agent and Registrar for Stamps.com common stock is U.S. Stock
Transfer Corporation.

Listing

Stamps.com common stock is quoted on the Nasdaq National Market under the
trading symbol "STMP."

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RIGHTS OF DISSENTING ISHIP.COM SHAREHOLDERS

Generally, shareholders of a Washington corporation who dissent from a
merger of the corporation for which a shareholders' vote is required are
entitled to appraisal rights, requiring the surviving corporation to purchase
the dissenting shares at fair value. In accordance with Chapter 23B.13 of the
Washington Business Corporation Act, holders of shares of capital stock of
iShip.com stock will be entitled to dissenters' rights in connection with the
merger.

If the merger is consummated, dissenting shareholders of iShip.com will be
entitled to be paid the fair value of their shares immediately prior to the
effective time of the merger by complying with the provisions of the WBCA. The
following is a brief summary of the WBCA provisions relating to dissenters'
rights. It is qualified in its entirety by reference to the applicable
statutory provisions of the WBCA, a copy of which is attached hereto as Annex
C and which is incorporated by reference. Shareholders should consult their
legal counsel for advice concerning dissenters' rights as failure to follow
the dissenting procedures exactly could result in the loss of such rights.
iShip.com shareholders should assume that iShip.com will take no action to
perfect any appraisal rights of any shareholder.

If the merger is consummated, iShip.com shareholders who have not consented
to the merger will have the right to demand an appraisal of the fair value of
their shares of iShip.com Common Stock, iShip.com Series A Preferred Stock or
iShip.com Series B Preferred Stock in accordance with the provisions of
Section 23B.13 of the WBCA, which sets forth the rights and obligations of
iShip.com shareholders demanding an appraisal and the procedures to be
followed. Shareholders who properly perfect appraisal rights will not be
entitled to surrender their shares of iShip.com common stock, iShip.com Series
A Preferred Stock or iShip.com Series B Preferred Stock for payment in the
manner otherwise provided in the merger agreement.

The demand for appraisal must be delivered to the address set forth below
prior to the later of 20 days after delivery or this document to you and the
date on which iShip.com receives sufficient shareholder approval of the
merger. The demand for appraisal must be executed by or for the holder of
record, fully and correctly, as such holder's name appears on the holder's
certificates evidencing shares of iShip.com stock. If the shares are owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
the demand should be made in that capacity, and if the shares are owned of
record by more than one person, as in a joint tenancy or tenancy in common,
the demand must be made by or for all owners of record. An authorized agent,
including one or more joint owners, may execute the demand for appraisal for a
holder of record, but the agent must identify the record owner or owners and
expressly disclose in such demand that the agent is acting as agent for the
record owner or owners of such shares.

The written demand for appraisal should set forth the number of shares
covered by such demand. Unless a demand for appraisal specifies a number of
shares, the demand will be presumed to cover all shares of any class held in
the name of such record owner. A holder of record may assert dissenters'
rights as to fewer than all the shares registered in the shareholder's name
only if the shareholder dissents with respect to all shares beneficially owned
by any one person and notifies the corporation in writing of the name and
address of each person on whose behalf the shareholder asserts dissenters'
rights.

If the merger is approved by shareholders of iShip.com, iShip.com shall
send written notice not later than ten days after the effective time of the
merger to each of its dissenting shareholders stating where such shareholder
must send his or her written payment demand, stating where and when
certificates representing shares of capital stock of iShip.com must be
deposited, containing a form for demanding payment which requires that the
dissenter certify whether or not he or she acquired beneficial ownership
before the first public announcement of the merger on October 25, 1999, and
setting a date by which such written payment demand must be received. An
iShip.com dissenting shareholder who does not demand payment, certify that
such shareholder acquired the shares on or before October 25, 1999, and
deposit his or her shares with in the time provided by such notice will not be
entitled to dissenters' rights.

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iShip.com shall pay to each iShip.com dissenting shareholder who complies
with the procedures described above, within thirty days after the later of the
effective time of the merger and the date the payment demand is received, the
amount that iShip.com estimates to be the fair value of his or her shares,
plus accrued interest. iShip.com will provide, along with such payment,
certain financial information, including iShip.com's balance sheet, income
statement and statement of changes in shareholders' equity for its last fiscal
year and iShip.com's latest available interim financial statements, an
explanation of how iShip.com estimated the fair value of the shares, an
explanation of how the accrued interest was calculated and certain other
information. iShip.com may elect to withhold such payment from any dissenter
who was not the beneficial owner of the shares as to which dissenters' rights
are asserted prior to October 25, 1999, and send a statement to such dissenter
setting forth its estimate of the fair value of such shares and offering to
pay such amount, with interest, as a final settlement of such dissenter's
demand for payment. Any dissenting shareholder who is dissatisfied with such
payment or such offer may, within thirty days of such payment or offer for
payment, notify iShip.com in writing of such shareholder's estimate of fair
value of his or her shares and the amount of interest due and demand payment
thereof.

If any iShip.com dissenting shareholder's demand for payment is not settled
within sixty days after receipt by iShip.com of such shareholder's payment
demand, the WBCA requires that iShip.com commence a proceeding in King County
Superior Court and petition the court to determine the fair value of the
shares and accrued interest, naming all iShip.com dissenting shareholders
whose demands remain unsettled as parties to the proceeding. The court may
appoint one or more persons as appraisers to receive evidence and recommend
the fair value of the shares. The dissenters will be entitled to the same
discovery rights as parties in other civil actions. Each dissenter made a
party to the proceeding will be entitled to judgment for the amount, if any,
by which the court finds the fair value of his or her own shares, plus
interest, exceeds the amount paid by iShip.com.

Holders of shares of capital stock of iShip.com should recognize that such
a determination of fair value could result in a price higher than, lower than
or equal to the price available to iShip.com shareholders pursuant to the
merger. Under the WBCA, a court may consider a variety of factors in
determining the fair value and may not give undue emphasis to any one factor.

Court costs and appraisal fees would be assessed against iShip.com, except
that the court may assess such costs against some or all of the dissenters to
the extent that the court finds the dissenters acted arbitrarily, vexatiously
or not in good faith in demanding payment. The court may also assess the fees
and expenses of counsel and experts of the respective parties in amounts that
the court finds equitable against iShip.com if the court finds that it did not
substantially comply with certain provisions of the WBCA concerning
dissenters' rights, or against the dissenter if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith. If the court finds that services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees should not be assessed against iShip.com, the court may
award to such counsel reasonable fees to be paid out of the amounts awarded to
dissenters who benefited from the proceedings.

Any iShip.com shareholder who elects to exercise appraisal rights must mail
or deliver the written demand for appraisal to: iShip.com, Inc., c/o Venture
Law Group, 4750 Carillon Point, Kirkland, Washington 98033-7355, Attn: David
R. Young.

NOTE: IF THE MERGER IS APPROVED, AND YOU DELIVER A WRITTEN DEMAND FOR
APPRAISAL PRIOR TO THE LATER OF 20 DAYS AFTER DELIVERY OF THIS DOCUMENT TO YOU
AND THE DATE ON WHICH ISHIP.COM RECEIVES SUFFICIENT SHAREHOLDER APPROVAL OF
THE MERGER, AND YOU DO NOT VOTE IN FAVOR OF THE MERGER, STAMPS.COM WILL SEND
YOU MORE INSTRUCTIONS ON YOUR DISSENTERS' RIGHTS. FAILURE TO TAKE ANY REQUIRED
STEP IN CONNECTION WITH EXERCISING DISSENTERS' RIGHTS MAY RESULT IN THE
TERMINATION OR WAIVER OF SUCH RIGHTS.

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SHARES ELIGIBLE FOR FUTURE SALE

Stamps.com estimates that approximately 6.0 million of the 34.9 million
outstanding shares of Stamps.com common stock are freely tradable. On December
22, 1999, upon the expiration of a lock-up entered into in connection with
Stamps.com's initial public offering, an additional 2.1 million outstanding
shares of common stock will become available for immediate sale. On the 60th
day after the commencement of the follow-on offering, the lock-up described
below will expire for approximately 6.8 million outstanding shares of common
stock and, on the 90th day after the date of commencement of the follow-on
offering, the lock-up described below will expire for all remaining shares
subject to the lock-up. All of the shares subject to the lock-up will be
available for immediate sale, subject to the volume and other restrictions
under Rule 144 of the Securities Act of 1933. Of these shares, approximately
22.5 million held by investment funds may be distributed by them from time to
time to their investors. Upon distribution, those shares will be available for
immediate resale.

Stamps.com is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for its common
stock, the personal circumstances of the sellers and other factors. Any future
sale of substantial amounts of Stamps.com common stock in the open market may
adversely affect the market price of the Stamps.com common stock offered by
this document.

As part of the follow-on offering, Stamps.com executive officers and
directors, other significant stockholders and iShip.com's significant
stockholders, who will receive at least 95% of the shares of Stamps.com common
stock to be issued in the acquisition of iShip.com, have executed agreements
with the underwriters that they will not offer or sell any shares of
Stamps.com common stock for a period of 60 days after the commencement of the
follow-on offering without the prior written consent of Goldman, Sachs & Co.
On the 60th day after the commencement of the follow-on offering, the lock-up
will expire for 20% of the shares held by these stockholders. On the 90th day
after the date of pricing of the follow-on offering, the lock-up will expire
for the remaining 80% of the shares held by these stockholders. Prior to this
date, these shares cannot be offered or sold without the prior written consent
of Goldman, Sachs & Co. This agreement does not apply to shares reserved for
issuance to non-director, non-execute officer employees under existing
employee benefit plans. In addition, the merger agreement provides that
Stamps.com is not obligated to file an S-8 registration statement for options
assumed in the acquisition until the expiration of the 90 day lock-up period.
Goldman, Sachs & Co. may, in its sole discretion, at any time and without
notice, release all or a portion of the shares of common stock subject to
these agreements. Sales of substantial amounts of Stamps.com common stock in
the public market, or the perception that these sales could occur, could
adversely affect the prevailing market price for the Stamps.com common stock
and could impair Stamps.com's ability to raise capital through a public
offering of equity securities.

LEGAL MATTERS

The validity of the shares of Stamps.com common stock offered by this
document will be passed upon for Stamps.com by Brobeck, Phleger & Harrison
LLP, Irvine, California. Brobeck, Phleger & Harrison LLP has also rendered an
opinion as to the disclosure under the caption "The Merger - Federal Income
Tax Consequences."

EXPERTS

The financial statements of Stamps.com Inc. as of December 31, 1998 and for
the period from January 9, 1998 (date of inception) to December 31, 1998
included in this document and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

The iShip.com financial statements included in this document and elsewhere
in the registration statement have been audited by Moss Adams LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.

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WHERE YOU CAN FIND ADDITIONAL INFORMATION

Stamps.com has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act with respect to
the shares of Stamps.com common stock to be issued in connection with the
merger. This document does not contain all the information contained in the
registration statement. For further information with respect to Stamps.com and
the shares of Stamps.com common stock to be issued in connection with the
merger, Stamps.com referred you to the registration statement and the exhibits
and schedules filed with the registration statement. Stamps.com has described
all material information for each contract, agreement or other document filed
with the registration statement in this document. However, statements
contained in this document as to the contents of any contract, agreement or
other document referred to are not necessarily complete. As a result, you
should refer to the copy of the contract, agreement or other document filed as
an exhibit to the registration statement for a complete description of the
matter involved.

You may read and copy all or any portion of the registration statement or
any reports, statements or other information that Stamps.com file at the
Securities and Exchange Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the Securities and
Exchange Commission. Please call the Securities and Exchange Commission at 1-
800-SEC-0330 for further information on the operation of the public reference
rooms. The Securities and Exchange Commission's filings, including the
registration statement are also available to you without charge on their Web
site (http://www.sec.gov).

STOCKHOLDER PROPOSALS FOR STAMPS.COM'S NEXT ANNUAL MEETING

Stamps.com expects to hold Stamps.com's next annual stockholders' meeting
in May 2000. Shareholder proposals for 2000 annual meeting must be received by
January 1, 2000, to be considered for inclusion in Stamps.com's proxy
statement for Stamps.com's next annual stockholders' meeting. Such proposals
should be addressed to Stamps.com's corporate secretary and must comply with
Stamps.com's bylaws. Stamps.com's bylaws are an exhibit to the registration
statement of which this document is a part.

113
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Stamps.com Inc.

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2

Balance Sheets at December 31, 1998 and September 30, 1999 (unaudited)... F-3

Statements of Operations for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to September 30, 1998 (unaudited), the nine months ended
September 30, 1999 (unaudited) and the period from January 9, 1998 (date
of inception) to September 30, 1999 (unaudited)......................... F-4

Statements of Stockholders' Equity (Deficit) for the period from January
9, 1998 (date of inception) through December 31, 1998 and the nine
months ended September 30, 1999 (unaudited)............................. F-5

Statements of Cash Flows for the period from January 9, 1998 (date of
inception) to December 31, 1998, the period from January 9, 1998 (date
of inception) to September 30, 1998 (unaudited), the nine months ended
September 30, 1999 (unaudited) and the period from January 9, 1998 (date
of inception) to September 30, 1999 (unaudited)......................... F-6

Notes to Financial Statements............................................ F-7

<CAPTION>
iShip.com, Inc.
---------------
<S> <C>
Independent Auditor's Report............................................. F-17

Balance Sheets at December 31, 1997 and 1998, and September 30, 1999
(unaudited)............................................................. F-18

Statements of Operations for the period from May 27, 1997 (date of
inception) to December 31, 1997, year ended December 31, 1998, the nine
months ended September 30, 1998 and 1999 (unaudited) and the period from
May 27, 1997 (date of inception) to September 30, 1999 (unaudited)...... F-19

Statements of Stockholders' Equity (Deficit) for the period from May 27,
1997 (date of inception) through December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1999
(unaudited)............................................................. F-20

Statements of Cash Flows for the period from May 27, 1997 (date of
inception) to December 31, 1997, the year ended December 31, 1998, the
nine months ended September 30, 1998 and 1999 (unaudited) and the period
from May 27, 1997 (date of inception) to September 30, 1999
(unaudited)............................................................. F-21

Notes to Financial Statements............................................ F-22

<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
------------------------------------------------------------
<S> <C>
Unaudited Pro Forma Condensed Combined Financial Information ............ F-29

Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30,
1999 ................................................................... F-30

Unaudited Pro Forma Condensed Combined Statement of Operations for the
year ended December 31, 1998 ........................................... F-31

Unaudited Pro Forma Condensed Combined Statement of Operations for the
nine months ended September 30, 1999.................................... F-32

Notes to Unaudited Pro Forma Condensed Combined Financial Information.... F-33
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Stamps.com Inc.:

We have audited the accompanying balance sheet of Stamps.com Inc. (a
Delaware corporation in the development stage) as of December 31, 1998, and
the related statements of operations, stockholders' equity (deficit) and cash
flows for the period from January 9, 1998 (date of inception) through December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stamps.com Inc. as of
December 31, 1998, and the results of its operations and its cash flows for
the period from January 9, 1998 (date of inception) through December 31, 1998
in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP

Los Angeles, California
January 13, 1999

F-2
<PAGE>

STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 3,470,207 $ 61,198,260
Prepaid advertising............................... -- 6,531,018
Prepaid expenses.................................. 48,118 684,495
----------- ------------
Total current assets.......................... 3,518,325 68,413,773
Property and equipment, net......................... 670,301 5,339,565
Other assets........................................ 237,193 432,138
----------- ------------
Total assets.................................. $ 4,425,819 $ 74,185,476
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit.................................... $ 1,000,000 $ 1,000,000
Accounts payable.................................. 392,372 2,331,566
Accrued expenses.................................. 192,528 1,850,055
Accrued payroll and related....................... 140,942 1,079,823
Accrued professional.............................. 200,000 300,000
Current portion of capital lease obligations...... 207,683 472,000
----------- ------------
Total current liabilities..................... 2,133,525 7,033,444
Capital lease obligations, less current portion..... 265,070 500,214
Commitments
Redeemable preferred stock, $.001 par value
(Series A, B & C):
Authorized shares 10,000,000 at December 31, 1998
and none at September 30, 1999..................
Issued and outstanding shares 9,782,500 at
December 31, 1998 and none at September 30,
1999............................................ 5,978,344 --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value:
Authorized shares none at December 31, 1999 and
5,000,000 at September 30, 1999.................
Issued and outstanding none at December 31, 1999
and September 31, 1999.......................... -- --
Common stock, $.001 par value: 6,901 35,569
Authorized shares 20,000,000 at December 31, 1998
and 95,000,000 at September 30, 1999............
Issued and outstanding shares 6,900,975 at
December 31, 1998; Issued shares 35,569,402 and
outstanding shares 34,864,807 at September 30,
1999............................................
Additional paid-in capital........................ 1,437,859 103,047,686
Notes receivable from stock sales................. (117,000) (107,000)
Deferred compensation............................. (1,083,000) (8,086,000)
Deficit accumulated during the development stage.. (4,195,880) (27,298,977)
Treasury stock at cost (704,595 outstanding)...... -- (939,460)
----------- ------------
Total stockholders' equity (deficit).......... (3,951,120) 66,651,818
----------- ------------
Total liabilities and stockholders' equity
(deficit).................................... $ 4,425,819 $ 74,185,476
=========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Period from Period from Period from
January 9, 1998 January 9, 1998 Nine Months January 9, 1998
(inception) to (inception) to Ended (inception) to
December 31, September 30, September September 30,
1998 1998 30, 1999 1999
--------------- --------------- ------------ ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development.......... 1,531,811 548,200 5,049,459 6,581,270
Sales and marketing... 632,349 -- 10,856,087 11,488,436
General and
administrative....... 2,015,930 1,125,584 8,275,706 10,291,636
----------- ----------- ------------ ------------
Total costs and
expenses........... 4,180,090 1,673,784 24,181,252 28,361,342
----------- ----------- ------------ ------------
Loss from operations.... (4,180,090) (1,673,784) (24,181,252) (28,361,342)
Other income (expense):
Interest expense...... (27,624) (4,814) (121,968) (149,592)
Interest income....... 11,834 2,682 1,200,123 1,211,957
----------- ----------- ------------ ------------
Net loss................ $(4,195,880) $(1,675,916) $(23,103,097) $(27,298,977)
=========== =========== ============ ============

Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59) $ (2.44)
=========== =========== ============ ============
Pro forma basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74) $ (1.10)
=========== =========== ============ ============
Weighted average shares
outstanding used in
basic and diluted per-
share calculation...... 4,955,913 4,738,400 14,495,600 11,186,100
Weighted average shares
outstanding used in pro
forma basic and diluted
per-share calculation.. 11,593,380 9,612,800 31,259,500 24,794,800
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Deficit
Notes Accumulated Cost of
Shares of Common Stock Common Additional Receivable During the Common
---------------------- Stock Paid-In from Stock Deferred Development Stock in
Issued In Treasury Issued Capital Sales Compensation Stage Treasury Total
---------- ----------- ------- ------------ ---------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 9, 1998
(inception) -- -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock.... 4,912,500 -- 4,913 61,387 (18,000) -- -- -- 48,300
Issuance of
restricted
common stock.... 1,988,475 -- 1,988 126,472 (99,000) -- -- -- 29,460
Deferred
compensation.... -- -- -- 1,250,000 -- (1,250,000) -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 167,000 -- -- 167,000
Net loss........ -- -- -- -- -- -- (4,195,880) -- (4,195,880)
---------- -------- ------- ------------ --------- ----------- ------------ --------- -----------
Balance at
December 31,
1998............ 6,900,975 -- 6,901 1,437,859 (117,000) (1,083,000) (4,195,880) -- (3,951,120)
Exercise of
stock options
(unaudited)..... 47,948 -- 48 5,728 -- -- -- -- 5,776
Repurchase of
common stock
(unaudited)..... -- (704,595) -- -- 7,000 -- -- (939,460) (932,460)
Conversion of
redeemable
preferred stock
(unaudited)..... 22,870,479 -- 22,870 34,255,069 -- -- -- -- 34,277,939
Issuance of
common stock
(unaudited)..... 5,750,000 -- 5,750 57,836,030 -- -- -- -- 57,841,780
Repayment on
note receivable
(unaudited)..... -- -- -- -- 3,000 -- -- -- 3,000
Deferred
compensation
(unaudited)..... -- -- -- 9,513,000 -- (9,513,000) -- -- --
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- 2,510,000 -- -- 2,510,000
Net loss
(unaudited)..... -- -- -- -- -- -- (23,103,097) -- (23,103,097)
---------- -------- ------- ------------ --------- ----------- ------------ --------- -----------
Balance at
September 30,
1999
(unaudited)..... 35,569,402 (704,595) $35,569 $103,047,686 $(107,000) $(8,086,000) $(27,298,977) $(939,460) $66,651,818
========== ======== ======= ============ ========= =========== ============ ========= ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

STAMPS.COM INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
January 9, Period from Period from
1998 January 9, January 9,
(inception) 1998 Nine Months 1998
to (inception) to Ended (inception) to
December 31, September 30, September 30, September 30,
1998 1998 1999 1999
------------ -------------- ------------- --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities:
Net loss.................................... $(4,195,880) $(1,675,916) $(23,103,097) $(27,298,977)
Adjustments to reconcile net loss to net
cash
used in operating activities:
Depreciation and amortization.......... 81,540 27,032 555,166 636,706
Amortization of deferred compensation.. 167,000 34,000 2,510,000 2,677,000
Changes in operating assets and
liabilities:
Prepaid expenses...................... (48,118) (14,202) (7,167,395) (7,215,513)
Accounts payable...................... 392,372 78,573 1,939,194 2,331,566
Accrued expenses...................... 533,470 131,658 2,696,408 3,229,878
----------- ----------- ------------ ------------
Net cash used in operating activities....... (3,069,616) (1,418,855) (22,569,724) (25,639,340)

Investing activities:
Capital expenditures....................... (195,297) (113,781) (4,562,263) (4,757,560)
Other...................................... (209,071) (95,978) (197,591) (406,662)
----------- ----------- ------------ ------------
Net cash used in investing activities....... (404,368) (209,759) (4,759,854) (5,164,222)

Financing activities:
Net proceeds from line of credit........... 1,000,000 300,000 -- 1,000,000
Repayment of capital lease obligations..... (81,945) (53,397) (150,059) (232,004)
Issuance of redeemable preferred stock,
net....................................... 5,978,344 2,063,344 28,299,594 34,277,938
Issuance of common stock................... 47,792 18,332 57,841,780 57,889,572
Repurchase of common stock................. -- -- (939,460) (939,460)
Proceeds from exercise of stock options.... -- -- 5,776 5,776
----------- ----------- ------------ ------------
Net cash provided by financing activities... 6,944,191 2,328,279 85,057,631 92,001,822
----------- ----------- ------------ ------------

Net increase in cash and cash equivalents 3,470,207 699,665 57,728,053 61,198,260
Cash and cash equivalents at beginning of
period..................................... -- -- 3,470,207 --
----------- ----------- ------------ ------------
Cash and cash equivalents at end of period.. $ 3,470,207 $ 699,665 $ 61,198,260 $ 61,198,260
=========== =========== ============ ============
Cash paid for:
Interest................................... $ 27,624 $ 4,814 $ 121,968 $ 149,592
Income taxes............................... $ 800 $ 800 $ 800 $ 1,600
Noncash investing and financial activity:
Issuance of common stock in exchange for a
patent and a trademark name................ $ 29,968 $ 29,968 $ -- $ 29,968
Equipment acquired under capital lease...... $ 554,698 $ 470,938 $ 649,520 $ 1,204,218
Issuance of notes receivable from stock
sales...................................... $ 117,000 $ 117,000 $ -- $ 117,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

Stamps.com Inc. (Stamps.com Inc. or the Company) was incorporated in
Delaware on January 9, 1998, and is a development stage company. Its primary
activities since inception have been to develop an Internet-based postage
service for end-users and raise capital to finance operations.

The Company is subject to the normal risks associated with a development
stage enterprise in the technology industry. These risks include, among
others, the risks associated with product development, commercial roll-out of
its Internet postage service, US Postal Service regulation, acceptance of the
product by end users and the ability to raise additional capital to sustain
operations.

On August 9, 1999, the Company's Internet Postage service was approved by
the US Postal Service for commercial release. On October 22, 1999, the Company
commercially launched its Internet Postage service.

Unaudited Interim Financial Information

The interim financial statements of the Company for the period from January
9, 1998 (date of inception) to September 30, 1998 and the nine months ended
September 30, 1999, included herein have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at September 30, 1999,
the results of operations and its cash flows for the period from January 9,
1998 (date of inception) to September 30, 1998 and the nine months ended
September 30, 1999.

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 reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates and
such differences may be material to the financial statements.

Cash Equivalents

Cash equivalents include demand deposits and short-term investments with a
maturity of three months or less when purchased.

Concentration of Risk

The financial instrument that potentially exposes the Company to
concentrations of credit risks consists primarily of cash equivalents. The
Company places its cash equivalents with high quality financial institutions.
At times, such balances may be in excess of the FDIC insurance limit.

Reclassifications

Certain reclassifications have been made to prior periods to conform to
current period presentations.

F-7
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Computation of Historical Net Loss per Share and Pro Forma Net Loss Per Share

In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Computation of Earnings Per Share," basic earnings per share is computed
by dividing the net earnings available to common stockholders for the period
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing the net earnings for the
period by the weighted average number of common and common equivalent shares
outstanding during the period.

Common equivalent shares, consisting of unvested restricted Common Stock
and incremental common shares issuable upon the exercise of stock options and
warrants and upon conversion of convertible preferred stock, are excluded from
the diluted earnings per share calculation if their effect is anti-dilutive.

A summary of the shares used to compute earnings per share is as follows:

<TABLE>
<CAPTION>
Period from Period from Period from
January 9, 1998 January 9, 1998 January 9, 1998
(inception) to (inception) to Nine Months Ended (inception) to
December 31, 1998 September 30, 1998 September 30, 1999 September 30, 1999
----------------- ------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Weighted average common
shares used to compute
basic net loss per
share.................. 4,955,913 4,738,400 14,495,600 11,186,100
Effect of dilutive
securities............. -- -- -- --
---------- --------- ---------- ----------
Weighted average common
shares used to compute
dilutive net loss per
share.................. 4,955,913 4,738,400 14,495,600 11,186,100
---------- --------- ---------- ----------
Conversion of preferred
stock.................. 6,637,467 4,874,400 16,763,900 13,608,700
---------- --------- ---------- ----------
Weighted average common
shares used to compute
pro forma basic and
diluted net loss per
share.................. 11,593,380 9,612,800 31,259,500 24,794,800
========== ========= ========== ==========
</TABLE>

Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's Series A, B and C Preferred Stock into shares of
the Company's Common Stock effective upon the closing of the Company's Initial
Public Offering as if such conversion occurred at inception or the date of
original issuance, if later. Pro forma diluted earnings per share is computed
using the pro forma weighted average number of common and common equivalents
shares outstanding during the period, to the extent such shares are dilutive.

Advertising Costs

The Company generally expenses the costs of producing advertisements at the
time the advertising first runs, and expenses the costs of communicating
advertising in the period in which the advertising space or airtime is used.

F-8
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Internet advertising expenses are recognized based on specifics of the
individual agreements. Under impression based agreements, advertising expense
is recognized using the ratio of the number of impressions delivered over the
total number of contracted impressions while agreements based on a period of
time recognize advertising expense on the straight-line basis over the term of
the contract.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization
are computed principally on a straight-line method over the estimated useful
lives of the assets ranging from three to five years. Assets acquired under
capitalized lease arrangements are recorded at the present value of the
minimum lease payments. Amortization of assets capitalized under capital
leases is computed using the straight-line method over the life of the asset
or term of the lease, whichever is shorter. Expenditures for repairs and
maintenance are charged to expense as incurred.

Property and equipment is comprised of the following:

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Furniture and equipment........................... $ 32,315 $1,311,986
Computers and software............................ 717,679 4,649,790
-------- ----------
749,994 5,961,776
Accumulated depreciation.......................... (79,693) (622,211)
-------- ----------
$670,301 $5,339,565
======== ==========
</TABLE>
Other Assets

Patents, trademarks and other intangibles are included in other assets in
the accompanying balance sheets and are carried at cost less accumulated
amortization. Amortization is calculated on a straight-line basis over the
estimated useful lives of the assets, ranging from 5 to 15 years.

Income Taxes

The Company accounts for income taxes in accordance with FASB 109,
"Accounting for Income Taxes." Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statements
and the tax basis of assets and liabilities using the enacted tax rate in
effect for the years in which the differences are expected to reverse.

Research and Development Costs

Research and development costs are expensed as incurred. These costs
primarily consist of salaries, development materials, supplies and applicable
overhead expenses of personnel directly involved in the research and
development of new technology and products.

Stock-Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123)
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to continue to account for stock-based compensation using the intrinsic-value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."

F-9
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

2. Line of Credit

On May 1, 1998, the Company entered into a credit line agreement with a
lender. The initial $300,000 borrowing base was increased to $1 million based
on the Company's net equity balance, as defined, through December 31, 1998.
Borrowings bear interest at the lender's prime rate plus 1% (8.75% at December
31, 1998) and are collateralized by certain of the Company's assets. The
Company used the amount drawn for working capital purposes. The unpaid balance
due under the line of credit at February 9, 1999 may be converted to a term
loan payable in 24 equal monthly installments commencing on such date.
Otherwise, the credit line agreement matures on October 8, 1999.

In connection with this indebtedness agreement, the Company issued a
detachable warrant which permits the holder to purchase 7,050 shares of the
Company's Common Stock for $.27 per share. The term of this warrant is for a
period of seven years from the date of grant.

3. Income Taxes

The provision for income taxes consists solely of minimum state taxes. The
Company's effective tax rate differs from the statutory federal income tax
rate primarily as a result of the establishment of a valuation allowance for
the future benefits to be received from the net operating loss carryforwards
and research tax credit carryforwards. The tax effect of temporary differences
that give rise to a significant portion of the deferred tax assets and
liabilities at December 31, 1998 are presented below.

<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards............................. $ 537,154
Research credits............................................. 150,000
Depreciation................................................. (28,006)
Capitalized start-up costs................................... 988,403
Accruals..................................................... 46,068
-----------
Total deferred tax assets...................................... 1,693,619
Valuation allowance............................................ (1,693,619)
-----------
Net deferred tax assets........................................ $ --
===========
</TABLE>

Because the Company is uncertain when it may realize the benefits of its
favorable tax attributes in future returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets. In 1998, the
valuation allowance recorded was $1,693,619.

The Company has a net operating loss carryforward for federal and state
income tax purposes at December 31, 1998 of $1,348,467, and an available tax
credit carryforward at December 31, 1998 of $150,000, each of which can be
carried forward to offset future taxable income, if any. The Company's federal
net operating loss expires starting in 2018, state net operating loss expires
starting in 2006, and credits expire starting in 2018. The Federal Tax Reform
Act of 1986 and similar state tax laws contain provisions which may limit the
net operating losses carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interests.

F-10
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Capital Leases, Commitments and Contingencies

The Company leases certain equipment under capital lease arrangements
expiring on various dates through 2001. Included in property and equipment are
the following assets held under capital lease:

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(unaudited)
<S> <C> <C>
Computer equipment............................... $ 554,698 $1,204,218
Accumulated depreciation......................... (58,129) (201,059)
--------- ----------
$ 496,569 $1,003,159
========= ==========
</TABLE>

The following is a schedule of future minimum lease payments:

<TABLE>
<S> <C>
Year ending December 31, 1998:
1999............................................................. $254,148
2000............................................................. 254,520
2001............................................................. 31,007
--------
539,675
Less amount representing interest................................ (66,922)
--------
Present value of net minimum lease payments ($207,683 payable
currently)...................................................... $472,753
========
</TABLE>

The Company currently rents its facilities on a month-to-month basis or for
terms less than one year. Total rent expense for the period from January 9,
1998 through December 31, 1998 was $109,428 and includes $23,400 paid to a
stockholder/officer for rental of office space.

In December 1998, the Company entered into a Distribution and Marketing
Agreement with America Online, Inc. (AOL) that provides broad distribution and
marketing campaigns amongst AOL's diverse properties. In exchange for these
services, the Company is required to make minimum payments that approximate
$1,700,000 and $525,000 in 1999 and 2000, respectively. In exchange for these
services, the Company is required to pay $2.3 million in varied amounts
through February 2000 ($75,000 in 1998, $1,700,000 in 1999 and $525,000 in
2000). The Company may purchase additional advertising under this Marketing
and Distribution Agreement but it is not required. The Company will recognize
the related expense upon performance of services (see note 8).

5. Stock Options

In January 1998, the Company adopted the 1998 Stock Option Plan (the Plan)
which authorizes the Board of Directors to grant incentive stock options,
nonqualified stock options and stock purchase rights (collectively options) to
employees, directors, consultants and advisors of the Company. The maximum
number of shares of common stock to be issued under the Plan is 7,290,000. All
options granted under the Plan have been made at prices not less than fair
value of the stock at the date of grant, as determined by the Board of
Directors. Options granted under the Plan are generally exercisable
immediately, however, they vest 25% per year, and the Board of Directors has
the discretion with respect to vesting periods applicable to a particular
grant. During 1998, the Company issued options to purchase 2,347,471 shares of
common stock at prices which included approximately $600,000 of a compensation
element. The $600,000 is being recognized as expense over the vesting periods
of the related options and has been presented as a reduction of stockholders'
equity (deficit) in the accompanying balance sheets.

F-11
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following tabulation summarizes certain information related to options
for common stock:

<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding options at January 9, 1998................... -- $ --
Grants................................................... 2,347,471 .07
Surrendered, forfeited or expired........................ (36,562) .03
Exercised................................................ -- --
--------- ----
Outstanding options at December 31, 1998................. 2,310,909 $.06
========= ====
</TABLE>

As of December 31, 1998, all options were exercisable. However, no options
were vested and 1,904,091 were available for future grant. The weighted
average remaining contractual life of the outstanding stock options at
December 31, 1998, is 9.7 years.

Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair-value method of that statement. The fair value for these
options was estimated at the date of grant using the minimum-value method,
which utilizes a near-zero volatility factor. The remaining assumptions, which
are weighted average, under this method are as follows:

<TABLE>
<S> <C>
Expected life (years).................................................. 5
Risk-free interest rate................................................ 5.50%
Dividend yield......................................................... --
</TABLE>

This option-valuation method requires input of highly subjective
assumptions. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because change in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing method does not necessarily
provide a reliable single measure of the fair value of its employee stock
options. The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts and additional awards in future years are
anticipated.

If the Company recognized employee stock related compensation expense in
accordance with SFAS 123 under the minimum value method, its net loss for 1998
would not be materially different.

6. Related Party Transactions

The Company paid $61,000 in March 1998 to Safeware Corporation for employee
salary and patent prosecution expenses incurred to obtain a patent. These
patent prosecution expenses consisted primarily of fees paid to patent counsel
and fees paid to the US Patent and Trademark Office. A director of the Company
is the majority shareholder in Safeware Corporation. The Company also
reimbursed the director for approximately $20,000 for expenses incurred on its
behalf.

7. Stock Transactions

During 1998, the Company issued restricted stock to an employee and a
director totaling 1,988,475 shares. These shares vest one-fourth on May 30,
1999 and the remaining shares vest monthly over the subsequent thirty-six
months. The Company issued these shares at prices which included approximately
$650,000 of a compensation element. The $650,000 is being recognized as
expense over the vesting periods and has been presented as a reduction of
stockholders' equity (deficit) in the accompanying balance sheets.

F-12
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

In February 1998, the Company issued 3,762,500 shares of its Series A
Redeemable Preferred Stock at $0.40 per share and warrants to acquire
6,020,000 shares of the Company's its Series B Redeemable Preferred Stock at
$0.75 per share. In August and October 1998, 6,020,000 shares of Series B
Redeemable Preferred Stock were issued under these warrants.

Redeemable Preferred stock is convertible to common stock on a one-for-one
basis at the option of the holder at any time after issuance, subject to anti-
dilution protection. Each share of Redeemable Preferred Stock automatically
converts to Common Stock upon (i) the sale of Common Stock by the Company in
an underwritten public offering with a public offering price of $2.00 per
share and net proceeds of $15 million or (ii) written consent of the majority
holders of outstanding shares of Preferred Stock (see Note 8).

The holders of Redeemable Preferred Stock are entitled to receive non-
cumulative dividends in preference to the Common stock at a rate of $0.040 and
$0.075 per share per annum, respectively, or if greater (as determined on a
per annum basis and an as converted basis for Redeemable Preferred Stock), an
amount equal to that paid on any other outstanding share, payable quarterly
when, as and if declared. No dividends can be paid or declared on any Common
Stock unless full cash dividends, including past dividends declared, have been
paid on the Redeemable Preferred Stock.

The Series A and Series B Redeemable Preferred Stock have a liquidation
preference over Common Stock of $0.40 and $0.75 per share, respectively.

The Redeemable Preferred Stock may be redeemed at any time after February
26, 2003 at the written consent of the majority holders of outstanding shares
of Redeemable Preferred Stock. The redemption price for Series A and Series B
Redeemable Preferred Stock is $0.40 and $0.75 per share, respectively. Series
A and Series B Redeemable Preferred Stock has been reflected in the
accompanying balance sheets outside of stockholders' equity (deficit) due to
its redemption feature.

In connection with the issuance of Common Stock during the period, the
Company exchanged shares with a fair value of $117,000 for notes receivable of
the same amount. These notes receivable bear interest at 9% per annum and are
payable in February 2003.

8. Events Subsequent to the Date of the Auditors' Report (Unaudited)

Redeemable Preferred Stock

On February 10, 1999, the Board of Directors approved the sale of Series C
Redeemable Preferred Stock. In February and March 1999, the Company issued
5,464,486 shares of its Series C Redeemable Preferred Stock at $5.49 per
share. Series C Redeemable Preferred Stock is convertible to common stock on a
one-for-one basis at the option of the holder at any time after issuance,
subject to anti-dilution protection. In connection with the sale of Series C
Redeemable Preferred Stock, the board of directors amended the certificate of
incorporation and each share of Series A, Series B and Series C Redeemable
Preferred Stock automatically converts to Common Stock upon (i) the sale of
Common Stock by the Company in an underwritten public offer with a public
offering price of at least $10.98 per share and net proceeds of $20 million or
(ii) written consent of the majority of holders of outstanding shares of
Redeemable Preferred Stock. In connection with the Company's Initial Public
Offering in June 1999, all shares of Series A, B, and C Preferred Stock
converted into 22,870,479 shares of Common Stock.

F-13
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Authorized Stock and Stock Dividend

On February 17, 1999, the Company increased the number of authorized shares
of common stock and preferred stock to 40,000,000 shares and 15,500,000
shares, respectively. Subsequent to year end, the Board of Directors increased
the number of shares reserved for issuance under the 1998 Stock Option Plan to
7,290,000 shares.

In June 1999, the Board of Directors declared a stock dividend of 3 shares
of Common Stock for every 2 shares of Common Stock then outstanding, an action
which also resulted in an adjustment to the conversion ratio of the Series A,
B and C redeemable preferred stock to a three-for-two basis. The stock
dividend became effective on the date that the Company's public offering of
Common Stock closed. Accordingly, the accompanying financial statements and
footnotes have been restated to reflect the stock dividend. In addition the
board changed the number of authorized shares of Common Stock and Preferred
Stock to 95,000,000 and 5,000,000 shares, respectively.

Stock options

The following tabulation summarizes certain information related to options
for common stock for the period from January 1, 1999 through September 30,
1999:

<TABLE>
<CAPTION>
Weighted Average
Exercise Price
----------------
<S> <C> <C>
Outstanding options at December 31, 1998........... 2,310,909 $ .06
Grants (unaudited)................................. 4,097,356 3.98
Surrendered, forfeited or expired (unaudited)...... 103,400 .35
Exercised (unaudited).............................. 47,948 .12
--------- -----
Outstanding options at September 30, 1999
(unaudited)....................................... 6,256,917 $4.09
========= =====
</TABLE>

The estimated fair value for these options was estimated at the date of
grant using the minimum-value method using the same assumptions as Note 5.
From January 1, 1999 through September 30, 1999, the Company issued options to
purchase approximately 4,097,000 shares of common stock at prices which
included a compensation element of approximately $9,513,000. This compensation
element is being recognized as an expense over the vesting periods of the
related options and the unrecognized portion has been presented as a reduction
of stockholders' equity (deficit) in the accompanying balance sheets.

Commitments

In May 1999, the Company entered into a facility lease agreement for its
corporate headquarters with minimum lease payments totaling $4.8 million over
5 years.

Also in May 1999, the Company entered into a Sponsorship Agreement with
Intuit Inc. (Intuit) that markets our Internet postage service on various
Intuit internet sites and software. In exchange for this sponsorship, the
Company is required to pay $3.3 million ($2 million in 1999 and $1.3 million
in 2000). Additional payments may be required if this Sponsorship Agreement
results in certain customer levels. The related expense will be recognized as
the services are provided.

F-14
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

In October 1999, the Company entered into a three-year marketing and
distribution agreement with America Online, Inc. ("AOL"). This partnership is
an expansion of our agreement with AOL made in December 1998. Under the new
agreement, the Company will be provided with a specific number of advertising
impressions across several AOL brands featuring it as the exclusive provider
of Internet postage services. Stamps.com software will also be included in AOL
branded CD-ROMs for distribution.

In consideration, the Company has committed to pay $56.0 million over the
three-year term of the agreement. Of the $56.0 million total commitment, $20.5
million will be paid during the twelve months ended September 30, 2000. The
Company is recognizing these fees as sales and marketing expense over the term
of the contract based primarily on the ratio of the number of impressions
delivered over the total number contracted.

In connection with the new AOL agreement, the Company issued 178,638 shares
of common stock, under the purchase agreement, for $6 million in the aggregate
or $33.588 per share. AOL also agreed to invest an additional $5 million in
Company stock. The purchase price will be the lesser of (a) $33.588 or (b) the
price per share of the offering net of underwriter discounts or commissions.
The Company also issued AOL a warrant, which is exercisable at $33.588 per
share for 50 percent of the total Common shares purchased by AOL. The warrant
also allows for the purchase of additional Common shares (50 percent of the
unexercised portion of the warrant) in the event the Company is unable to cure
a material breach of the payment provisions of the marketing and distribution
agreement.

Related Party Transactions

In February 1999, a director entered into a three-year consulting agreement
with the Company to provide marketing and strategic planning services. In
exchange for his consulting services, the director will receive consulting
fees of $120,000 per annum and an option to purchase 135,000 shares of common
stock at $0.33 per share. The term of this agreement expires in February 2002.

On June 21, 1999, the Company entered into a consulting services agreement
with a director to provide us with strategic planning and business development
advice, and other consulting services that the Company may request. In
exchange for these services, the Company granted the director an option to
purchase 10,000 shares of common stock at an exercise price of $11.00 per
share. This agreement expired on October 1, 1999.

Legal Proceedings

On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against
the Company. The suit alleges that the Company is infringing two patents held
by Pitney Bowes related to postage application systems and electronic indicia.
The suit seeks treble damages, a preliminary and permanent injunction from
further alleged infringement, attorneys' fees and other unspecified damages.
The Company answered the complaint on August 6, 1999, denying the allegations
of patent infringement and asserting a number of affirmative defenses. Pitney
Bowes filed a similar complaint in early June 1999 against one of the
Company's competitors, E-Stamp Corporation, alleging infringement of seven
Pitney Bowes patents.

The outcome of the litigation that Pitney Bowes has brought against us is
uncertain. Therefore, the Company can give no assurance that Pitney Bowes will
not prevail in its suit against the Company.

F-15
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

If Pitney Bowes prevails in its claims against the Company, it may be
prevented from selling postage on the Internet. Alternatively, the Pitney
Bowes suit could result in limitations on how the Company implements its
service, delays and costs associated with redesigning its service and payments
of license fees and other payments. In addition, the litigation could result
in significant expenses and diversion of management time and other resources.
Thus, if Pitney Bowes prevails in its suit against the Company, its business
could be severely harmed or fail.

Initial Public Offering

In June and July 1999, the Company completed an initial public offering in
which the underwriters sold to the public 5,750,000 shares of Common Stock,
including 750,000 shares in connection with the exercise of the underwriters'
over-allotment option, at $11.00 per share. The Company's proceeds from the
offering, after deducting underwriting discounts and commissions, were $10.23
per share, or $58,822,500 in the aggregate. Upon the closing of that offering,
the Company repurchased 704,595 shares of Common Stock for $939,460 and
converted all the Company's Redeemable Preferred Stock to Common Stock. After
the offering, the Company's authorized capital consists of 95,000,000 shares
of Common Stock of which 34,864,807 shares were outstanding at September 30,
1999.

Acquisition

In October 1999, the Company entered into a merger agreement with
iShip.com, a development stage enterprise developing Internet-based shipping
technology. In connection with the proposed merger, an aggregate of up to
8,000,000 of the Company's common stock will be issued and reserved for
issuance. The agreement is subject to shareholder approval by both companies,
and other customary conditions.

The acquisition will be accounted for using the purchase method of
accounting. Accordingly, a portion of the purchase price will be allocated to
the tangible and intangible assets acquired and liabilities assumed based on
their respective fair values on the acquisition date. The company is currently
in process of preparing the final purchase price allocation and determining
the useful lives of the assets acquired. It is anticipated that the purchase
would result in intangible assets of approximately $455 million.

1999 Stock Option Plan

In October 1999, the Company's Board of Directors approved an increase of
2,500,000 shares to the number of shares eligible to be granted under the 1999
Stock Option Plan. Upon stockholder approval of the increase, the total shares
authorized for issuance under the 1999 Stock Option Plan will be 9,790,000.

F-16
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Stockholders
iShip.com, Inc.

We have audited the accompanying balance sheets of iShip.com, Inc. (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (May 27, 1997) to December 31, 1997 and for the year ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our 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, the financial statements referred to above present fairly,
in all material respects, the financial position of iShip.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception (May 27, 1997) to December 31, 1997 and
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.

/s/ Moss Adams LLP

Seattle, Washington
March 12, 1999

F-17
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
--------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
------

Current assets
Cash and cash equivalents.............. $ 218,876 $ 386,384 $ 5,521,919
Investments............................ -- 990,676 --
Stock subscriptions receivable......... 96,098 -- --
Prepaid expenses and other............. 37,850 12,516 102,270
--------- ----------- -----------
Total current assets................. 352,824 1,389,576 5,624,189
--------- ----------- -----------
Equipment, net........................... 175,936 237,094 2,224,403
--------- ----------- -----------
$ 528,760 $ 1,626,670 $ 7,848,592
========= =========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities
Accounts Payable....................... $ 2,377 $ 42,320 $ 605,131
Accrued liabilities.................... 201 19,514 82,771
Advances from shareholders............. 4,525 -- --
Current portion of long-term debt...... -- 7,200 389,920
Current portion of capital lease
obligations........................... 46,140 48,900 46,900
--------- ----------- -----------
Total current liabilities............ 53,243 117,934 1,124,722
--------- ----------- -----------
Long-term debt, net of current portion... -- 79,218 1,281,164
Deferred compensation.................... 150,000 168,750 168,750
Deferred rent payable.................... -- 50,845 96,606
Capital lease obligations, net of current
portion................................. 128,386 79,486 45,050
--------- ----------- -----------
Total long-term liabilities.......... 278,386 378,299 1,591,570
--------- ----------- -----------
Shareholders' equity
Series A Preferred stock, $.0005 par
value, 8,986,668 shares authorized,
shares issued and outstanding;
1,600,000 at December 31, 1997,
8,986,668 at December 31, 1998 and
September 30, 1999, liquidation
preference of $600,000 at December 31,
1997, and $3,369,801 at December 31,
1998 and September 30, 1999........... 800 4,493 4,493
Series B Preferred stock, $.0005 par
value, 12,800,000 shares authorized,
shares issued and outstanding; none at
December 31, 1997 and 1998, 10,133,334
at September 30, 1999, liquidation
preference of $7,600,000 at
September 30, 1999.................... -- -- 5,067
Common stock, $0.0005 par value,
60,000,000 shares authorized, shares
issued and outstanding; 6,132,448 at
December 31, 1997, 6,543,448 at
December 31, 1998, and 7,238,014 at
September 30, 1999.................... 3,066 3,272 3,619
Additional paid-in capital............. 599,570 3,383,120 10,998,903
Deficit accumulated during the
development stage..................... (406,305) (2,260,448) (5,879,782)
--------- ----------- -----------
197,131 1,130,437 5,132,300
--------- ----------- -----------
$ 528,760 $ 1,626,670 $ 7,848,592
========= =========== ===========
</TABLE>

See accompanying notes.

F-18
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(May 27, Nine Months Ended (May 27,
1997) to Year Ended September 30, 1997) to
December 31, December 31, ------------------------ September 30,
1997 1998 1998 1999 1999
------------ ------------ ----------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ --
--------- ----------- ----------- ----------- -----------

Operating Expenses:
General and
administrative........ 254,746 1,038,911 756,126 2,028,446 3,322,103
Research and
development........... 203,966 778,814 504,542 1,418,641 2,401,421
Selling and marketing.. 500 79,224 5,978 233,731 313,455
Product
implementation........ 19,297 53,574 32,324 74,158 147,029
--------- ----------- ----------- ----------- -----------
478,509 1,950,523 1,298,970 3,754,976 6,184,008
--------- ----------- ----------- ----------- -----------

Operating loss.......... (478,509) (1,950,523) (1,298,970) (3,754,976) (6,184,008)
--------- ----------- ----------- ----------- -----------

Other income (expense):
Interest income........ -- 73,030 49,657 152,609 225,639
Interest expense....... -- (8,879) (6,252) (17,872) (26,751)
Other income........... 72,204 32,229 31,795 905 105,338
--------- ----------- ----------- ----------- -----------
72,204 96,380 75,200 135,642 304,226
--------- ----------- ----------- ----------- -----------

Net loss................ $(406,305) $(1,854,143) $(1,223,770) $(3,619,334) $(5,879,782)
========= =========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-19
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Deficit
---------------- ----------------- Accumulated
Common Stock Series A Series B Additional During the
---------------- ---------------- ----------------- Paid-in Development
Shares Amount Shares Amount Shares Amount Capital Stage
--------- ------ --------- ------ ---------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 27, 1997
(inception)............ -- $ -- -- $ -- -- $ -- $ -- $ --
Common stock issued..... 6,132,448 3,066 -- -- -- -- 370 --
Preferred stock issued.. -- -- 1,600,000 800 -- -- 599,200 --
Net loss................ -- -- -- -- -- -- -- (406,305)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Balance, December 31,
1997................... 6,132,448 3,066 1,600,000 800 -- -- 599,570 (406,305)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Common stock issued..... 411,000 206 -- -- -- -- 15,207 --
Preferred stock issued.. -- -- 7,386,668 3,693 -- -- 2,766,308 --
Stock and stock options
granted to
consultants............ -- -- -- -- -- -- 2,035 --
Net loss................ -- -- -- -- -- -- -- (1,854,143)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Balance, December 31,
1998................... 6,543,448 3,272 8,986,668 4,493 -- -- 3,383,120 (2,260,448)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Common stock issued
(unaudited)............ 694,566 347 -- -- -- -- 18,028 --
Preferred stock issued
(unaudited)............ -- -- -- -- 10,133,334 5,067 7,594,933 --
Stock and stock options
granted to consultants
(unaudited)............ -- -- -- -- -- -- 2,822 --
Net loss for nine months
ended September 30,
1999 (unaudited)....... -- -- -- -- -- -- -- (3,619,334)
--------- ------ --------- ------ ---------- ------ ----------- -----------
Balance, September 30,
1999 (unaudited)....... 7,238,014 $3,619 8,986,668 $4,493 10,133,334 $5,067 $10,998,903 $(5,879,782)
========= ====== ========= ====== ========== ====== =========== ===========
</TABLE>

See accompanying notes.

F-20
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period From Period from
Inception Nine Months Ended Inception
(May 27, 1997) Year Ended September 30, (May 27, 1997)
to December 31, December 31, ------------------------- to September 30,
1997 1998 1998 1999 1999
--------------- ------------ ----------- ------------ ----------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss............... $(406,305) $(1,854,143) $(1,223,770) $ (3,619,334) $ (5,879,782)
Adjustments to
reconcile net loss to
net cash from
operating activites...
Depreciation........... 15,511 80,872 54,986 343,953 440,336
Amortization of
discount of
investments........... -- (48,445) (25,171) (146,561) (195,006)
Stock and stock options
issued for services... 375 2,448 2,210 2,100 4,923
Changes in assets and
liabilites:
Prepaid expenses and
other................ (37,850) 25,334 37,400 (89,754) (102,270)
Accounts payable...... 2,377 39,943 45,841 562,811 605,131
Accrued liabilities... 201 19,313 19,299 63,257 82,771
Deferred
compensation......... 150,000 18,750 18,750 -- 168,750
Deferred rent
payable.............. -- 50,845 35,592 45,761 96,606
--------- ----------- ----------- ------------ ------------
Net cash used in
operating activities... (275,691) (1,665,083) (1,034,863) (2,837,767) (4,778,541)
--------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property
and equipment......... (5,321) (142,030) (107,347) (2,331,262) (2,478,613)
Proceeds from sale of
investments........... -- 1,050,000 197,206 21,098,602 22,148,602
Purchase of
investments........... -- (1,992,231) (1,992,231) (19,961,365) (21,953,596)
--------- ----------- ----------- ------------ ------------
Net cash used in
investing activities... (5,321) (1,084,261) (1,902,372) (1,194,025) (2,283,607)
--------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long-term
debt.................. -- 86,418 38,686 1,591,866 1,678,284
Proceeds from issuance
of common stock....... 3,061 15,000 15,000 19,097 37,158
Proceeds from issuance
of preferred stock.... 600,000 2,770,001 2,770,001 7,600,000 10,970,001
Net change in stock
subscription
receivable............ (96,098) 96,098 96,098 -- --
Net change in
shareholder advance... 4,525 (4,525) (4,525) -- --
Payments on capital
lease obligations..... (11,600) (46,140) (34,305) (36,436) (94,176)
Payments on long-term
debt.................. -- -- -- (7,200) (7,200)
--------- ----------- ----------- ------------ ------------
Net cash provided by
financing activities... 499,888 2,916,852 2,880,955 9,167,327 12,584,067
--------- ----------- ----------- ------------ ------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............ 218,876 167,508 (56,280) 5,135,535 5,521,919
CASH AND CASH
EQUIVALENTS
Beginning of period.... -- 218,876 218,876 386,384 --
--------- ----------- ----------- ------------ ------------
End of period.......... $ 218,876 $ 386,384 $ 162,596 $ 5,521,919 $ 5,521,919
========= =========== =========== ============ ============
NONCASH TRANSACTIONS
Equipment purchased
through capital
lease................. $ 186,126 $ -- $ -- $ -- $ 186,126
========= =========== =========== ============ ============
CASH PAID FOR INTEREST.. $ -- $ 8,879 $ 6,336 $ 17,872 $ 26,751
========= =========== =========== ============ ============
</TABLE>

See accompanying notes.

F-21
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

Note 1--Summary of Significant Accounting Policies

Development Stage Operations--iShip.com, Inc. (the Company), a Washington
corporation, was incorporated on May 27, 1997 under the name MoveIt! Software,
Inc. On May 18, 1998, the Company changed its name to iShip.com, Inc. The
Company's office is located in Bellevue, Washington.

Since inception, the Company has been developing and marketing software
applications that enable customers to price, ship and track packages using its
website. The Company has devoted significant time to raising capital,
obtaining financing and administrative functions. These activities are
expected to continue until such time the software is released commercially.
During 1998, a "beta" version of the software was released. Limited revenues
have been recognized since inception related to miscellaneous service fees.

Unaudited Interim Financial Information--The interim financial statements
of the Company for the nine months ended September 30, 1998 and 1999 and the
period from May 27, 1997 (date of inception) to September 30, 1999, included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations relating to interim
financial statements. In the opinion of management, the accompanying unaudited
interim financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position of the Company at September 30, 1998 and 1999, the results of
operations and its cash flows for the nine months ended September 30, 1998 and
1999 and the period from May 27, 1997 (date of inception) to September 30,
1999.

Use of Estimates--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents--For the purposes of the statement of cash flows,
cash and cash equivalents are defined as short-term, highly liquid investments
that are readily convertible to cash and are so near maturity that
fluctuations in interest rates lead to insignificant risk of changes in
investment value.

Equipment--Equipment is stated at cost. The Company provides depreciation
on the cost of its equipment using straight-line methods over estimated useful
lives of three years. Expenditures for repairs and maintenance are charged to
expense as incurred.

Research and Development Costs--Research and development costs are charged
to expense as incurred. These costs primarily consist of salaries, development
materials, supplies and applicable overhead expenses of personnel directly
involved in the research and development of new technology.

Stock-Based Compensation--The Company accounts for stock-based compensation
to employees using the intrinsic value method, whereby, compensation cost is
recognized when the exercise price at the date of grant is less than the fair
market value of the Company's common stock. The Company discloses the proforma
effect of compensation cost based on the fair value method for determining
compensation cost. Stock-based compensation awarded to non-employees is
determined using the fair value method. Compensation cost is recognized over
the service or vesting period.

Income Taxes--Income taxes are accounted for using an asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
financial statement and tax basis of assets and liabilities at the applicable
enacted tax

F-22
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

rates. Generally accepted accounting principles require a valuation allowance
against deferred tax assets if, based on the weight of available evidence, it
is more likely than not that some or all of its deferred tax assets will not
be realized.

Risk Concentrations--At times, cash balances exceed federally-insured
limits. However, cash is held on deposit in major financial institutions and
is considered subject to minimum credit risk.

Note 2--Investment Securities

Investment securities are classified as "available-for-sale" under
generally accepted accounting principles. Available-for-sale securities are
recorded at estimated fair value, with the net unrealized gain or loss
included as a separate component of shareholders' equity, net of the related
tax effect. Realized gains or losses on dispositions are based on the net
proceeds and the adjusted carrying amount of securities sold, using the
specific identification method.

At December 31, 1998, the Company had commercial paper with an amortized
cost of $990,676, which approximates fair value. The expected maturities of
the securities range from 25 to 106 days.

Note 3--Equipment

Equipment is recorded at cost and consists of the following at December 31:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computer hardware....................................... $141,787 $245,865
Computer software....................................... 49,660 87,612
-------- --------
191,447 333,477
Accumulated depreciation................................ (15,511) (96,383)
-------- --------
$175,936 $237,094
======== ========
</TABLE>
Note 4--Long-Term Debt

The Company has an equipment line of credit with a bank providing for
equipment purchase advances up to $500,000 through September 4, 1999. Advances
are collateralized by substantially all assets of the Company. Interest on the
borrowings are at the bank's prime rate plus 0.5%. Monthly interest payments
are required through September 4, 1999. Commencing on October 4, 1999, the
unpaid principal balance of the advances shall be paid in 36 equal monthly
installments of principal plus interest.

Maturities of long-term debt for years ending December 31 are as follows:

F-23
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Note 5--Deferred Compensation

Three key officers of the Company deferred their salaries during the first
nine months of development stage operations. The deferred compensation amounts
to $150,000 and $168,750 as of December 31, 1997 and 1998, respectively. The
deferred salaries will be paid when the Company generates positive cash flows
from operations.

Note 6--Preferred Stock

Transactions--The Company issued 1,600,000 shares in 1997 and 7,386,668
shares in 1998 of Series A Preferred Stock at $0.375 per share. No direct
costs were incurred in relation to the shares issued.

Preference in Liquidation--In the event of voluntary or involuntary
liquidation, distribution of assets, dissolution or winding-up of the Company
before any distribution or payment to holders of the Company's common stock,
the holders of Series A Preferred Stock are entitled to receive payment of
$0.375 per outstanding share held by them.

Dividends--Dividends payable to holders of Series A Preferred Stock are at
the discretion of the Company's Board of Directors. As of December 31, 1997
and 1998, no dividends had been declared.

Conversion Rights--A holder of Series A Preferred Stock, at the holder's
option, has the right to convert shares of Series A Preferred Stock into
common stock on a one-for-one basis, subject to adjustment for stock splits
and dilutive issuances. In addition, Series A Preferred Stock would
automatically convert to common stock in the event of the closing of an
underwritten public offering which establishes a valuation of the Company of
at least $50 million and results in gross proceeds of at least $10 million or
upon the conversion of two-thirds of the shares of Series A Preferred Stock
originally issued.

Voting Rights--The holders of Series A Preferred Stock are entitled to one
vote for each share and are entitled to vote on all matters on which the
holders of common stock have the right to vote.

Note 7--Stock Option Plan

The Company has a stock option plan under which employees and consultants
may be awarded incentive or nonstatutory stock options. The plan authorizes
the grant of options for the purchase of up to 5,660,000 shares of common
stock. Under the plan, the option exercise price is generally no less than
fair market value at the date of grant. Options expire no later than ten years
from the grant date, and vesting is established at the time of grant provided
that options shall become exercisable at the rate of at least 20% per year
over five years.

As the Company uses the intrinsic value method in accounting for its stock
option plan, no compensation costs have been recognized for stock options
issued to employees. Had the compensation cost for stock options been
determined using the fair value method, the proforma net loss would have
increased by $11,000 to $417,305 for the period from inception to December 31,
1997 and by $9,000 to $1,863,143 for the year ended December 31, 1998.

The weighted average fair value of the options granted during 1998 and the
period from inception is estimated to be $0.015 using the Black-Scholes
option-pricing model with the following assumptions on the date of grant: 0%
dividend yield and volatility, 5% forfeitures per year, risk-free interest
rate of 4.47% to 5.80%, expected lives of nine years.

F-24
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Stock option activity is as follows:

<TABLE>
<CAPTION>
Common Shares Weighted
----------------------- Average
Available Options Exercise
for Grant Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
Inception, May 27, 1997........................ -- -- --
Authorized................................... 5,660,000 -- --
Granted...................................... (1,785,000) 1,785,000 $0.0375
Exercised.................................... -- (10,000) $0.0375
---------- ---------
Balance, December 31, 1997..................... 3,875,000 1,775,000 $0.0375
Granted...................................... (759,000) 759,000 $0.0430
Exercised.................................... -- (411,000) $0.0365
---------- ---------
Balance, December 31, 1998..................... 3,116,000 2,123,000 $0.0390
========== =========
</TABLE>

The following summarizes options outstanding at December 31, 1998:

<TABLE>
<CAPTION>
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise Number
Price Outstanding Life Price Exercisable
-------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$0.0375-0.050 2,123,000 9.1 years $0.039 420,312
</TABLE>

Included in common stock issued are 10,500 shares granted to certain
consultants for services provided. These shares were granted from shares
authorized for issue under the option plan. The fair value of the shares
granted to the consultants was $375 for the period from inception to
December 31, 1997 and $413 for the year ended December 31, 1998.

In December 1998, the Board of Directors approved additional grants of up
to 24,000 shares of common stock to consultants for services to be provided in
1999.

Note 8--Income Taxes

At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $1.9 million and research credit
carryforwards of $109,000 available to offset future federal taxable income,
if any. The net operating loss and research credit carryforwards generally
expire in 2018. The Internal Revenue Code may limit the net operating loss
carryforwards to be used in any given year upon the occurrence of certain
events, including significant change in ownership interest.

F-25
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Deferred taxes are comprised of the following at December 31:

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets (liabilities)
Net operating loss carryforwards..................... $ 70,500 $ 643,000
Research credits..................................... 16,500 109,000
Deferred compensation................................ 51,000 57,000
Other................................................ (1,200) 17,300
--------- ---------
Total deferred tax asset............................... 136,800 826,300
Valuation allowance.................................... (136,800) (826,300)
--------- ---------
$ -- $ --
========= =========
</TABLE>

A valuation allowance for the full amount of the net deferred tax asset has
been recorded as realization in the near term is not reasonably assured. The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate of 34% to earnings before taxes due to the
valuation allowance established for the current year's net operating loss and
nondeductible items.

Note 9--Capital Lease Obligation

At December 31, 1997 and 1998, the Company was obligated under the terms of
a capital lease for certain computer hardware and software from a related
party. The implicit interest rate for the leases ranges from 4.4% to 7.5% and
requires monthly payments of $4,534. Required minimum lease payments for the
years ending December 31 are as follows:

<TABLE>
<S> <C>
1999............................................................... $ 54,413
2000............................................................... 54,413
2001............................................................... 28,435
--------
137,261
Less amount representing interest.................................. 8,875
--------
$128,386
========
</TABLE>

Included in equipment at December 31, 1997 and 1998 is $186,126 held under
capital lease with accumulated amortization of $15,511 and $77,552,
respectively.

Note 10--Commitments and Contingency

Lease Commitments--The Company leases its office space and certain
leasehold improvements and office furniture under operating leases through
June 30, 2001 from a related party. Rent expense under all leases was $23,452
for the period from inception to December 31, 1997 and $269,885 for the year
ended December 31, 1998. Future minimum lease payments required under non
cancelable operating leases are as follows:

<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1999............................................................. $295,287
2000............................................................. 295,287
2001............................................................. 147,643
--------
$738,217
========
</TABLE>

F-26
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Given the Company's development stage operations, only a portion of the
standard lease payments are required in early months. The difference between
the actual lease payments and the standard monthly payments are recorded as
deferred rent payable. Total deferred rent was $50,845 as of December 31,
1998.

The Company subleases a portion of the office space to an unrelated party.
The sublease commenced on June 15, 1998 and provides for monthly rent of
$7,708. The original lease term is twelve months. The subtenant has the right
to extend the sublease for two additional periods of three months each. Rental
income from the sublease totaled $58,069 in 1998.

The Company also leases certain furniture and leasehold improvements to the
third party. Rental income from these leases amounted to $24,044 in 1998.

Note 11--Events Subsequent to the Date of the Auditors' Report (Unaudited)

Series B Preferred Stock--In April 1999 the Board of Directors, approved
the sale of Series B Preferred Stock. In April, May and August, 1999 the
Company issued 10,133,334 shares of its Series B Preferred Stock at $0.75 per
share. No direct costs were incurred in relation to the shares issued. The
proceeds of $7.6 million have been used to fund the operations of the Company
with excess funds at September 30, 1999 invested in short-term, highly-liquid
investments classified as cash equivalents. In the event of voluntary or
involuntary liquidation, distribution of assets, dissolution or winding-up of
the Company before any distribution or payment to holders of the Company's
common stock, the holders of Series B Preferred Stock are entitled to receive
payment of $0.75 per outstanding share held by them. Dividends payable to
holders of Series B Preferred Stock are at the discretion of the Company's
Board of Directors. A holder of Series B Preferred Stock, at the holder's
option, has the right to convert shares of Series B Preferred Stock into
common stock on a one-for-one basis, subject to adjustment for stock splits
and dilutive issuances. In addition, the Series B Preferred Stock would
automatically convert to common stock in the event of the closing of an
underwritten public offering which establishes a valuation of the Company of
at least $75 million and results in gross proceeds of at least $15 million or
upon the conversion of two-thirds of the shares of Series B Preferred Stock
originally issued. The holders of Series B Preferred Stock are entitled to one
vote for each share and are entitled to vote on all matters on which the
holders of common stock have the right to vote.

Stock Warrant--On April 27, 1999 the Company issued a warrant to a
strategic partner for a maximum of 2,666,666 shares of the Company's Series B
Preferred Stock at a purchase price of $1.50 per share. The actual number of
shares purchasable under the warrant is determined by a performance measure
based on qualifying revenues generated during a one year period beginning
March 1, 2000.

Lease Commitment--In July, 1999 the Company entered into a facility lease
agreement for its corporate headquarters with minimum lease payments
approximating $2.4 million over five years.

Stock Split--On August 6, 1999 the Board of Directors approved a 2 for 1
split of the Company's Common and Preferred Stock and an increase in the
number of authorized Common Stock shares to 60,000,000 and authorized
Preferred Stock shares to 21,786,688. Accordingly, the share information in
the accompanying financial statements and footnotes have been restated to
reflect the stock split.

F-27
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Finance Agreement--On August 20, 1999, the Company entered into a Loan and
Security Agreement with a bank for $2,950,000 of which $2.5 million is
available for equipment purchases through February 19, 2003 and $450,000 is
available through a revolving line maturing on August 19, 2000. Advances are
collateralized by substantially all assets of the Company. Interest on
borrowings are at the bank's prime rate plus 0.5%. Borrowings for equipment
purchases are payable in 30 equal monthly installments beginning March 19,
2000.

In connection with the agreement, the Company issued a Common Stock
purchase warrant which permits the holder to purchase up to 10,000 shares of
the Company's Common Stock at a purchase price of the lesser of $2.50 per
share and the price per share received by the Company in the next round of
financing. The warrant is exercisable only (i) after the Company's initial
public offering, (ii) immediately prior to a change in control and (iii) with
the written consent of the Company.

Proposed Merger Agreement--In October 1999, the Company entered into a
merger agreement with Stamps.com, Inc. a development stage enterprise
developing an Internet-based postage service for end-users. In connection with
the proposed merger, the Company will receive an aggregate 8 million shares of
Stamps.com Common Stock in exchange for all the outstanding Common and
Preferred Stock, and outstanding options and warrants of the Company. The
agreement is subject to shareholder approval by both companies and regulatory
approval.

Stock Options--The following tabulation summarizes certain information
related to options for common stock for the period from January 1, 1999
through September 30, 1999:

<TABLE>
<CAPTION>
Weighted
Available Average
for Options Exercise
Grant Outstanding price
---------- ----------- --------
<S> <C> <C> <C>
Balance, December 31, 1998.................. 3,116,000 2,123,000 $0.039
Granted (unaudited)......................... (1,641,606) 1,641,606 $0.159
Exercised (unaudited)....................... -- (694,566) $0.046
Balance, September 30, 1999................. 1,474,394 3,070,040 $0.102
</TABLE>

F-28
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On October 22,1999, Stamps.com entered into a merger agreement to acquire
iShip.com in exchange for 8,000,000 shares of Stamp.com's common stock.
Stamps.com's management has prepared the following unaudited pro forma
condensed combined financial information to give effect to this acquisition.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended December 31, 1998 and for the nine months ended September 30, 1999
give effect to the iShip.com acquisition as if it had taken place at the
beginning of each period. The Unaudited Pro Forma Condensed Combined Balance
Sheet as of September 30, 1999 gives effect to the iShip.com acquisition as if
it had taken place on such date.

The pro forma adjustments, which are based upon available information and
certain assumptions that Stamps.com believes are reasonable in the
circumstances, are applied to the historical financial statements of
Stamps.com and iShip.com. The iShip.com acquisition will be accounted for
using the purchase method of accounting. Stamps.com allocation of purchase
price is based upon management's current estimates of the fair value of assets
acquired and liabilities assumed in accordance with Accounting Principles
Board No. 16. The purchase price allocations reflected in the accompanying
unaudited pro forma condensed combined financial statements may be different
from the final allocation of the purchase price and such differences may be
material. The Company expects to complete a valuation and other procedures
during the fourth quarter of 1999.

The accompanying unaudited pro forma condensed combined financial
information should be read in conjunction with the historical financial
statements and the notes thereto for both Stamps.com and iShip.com, which are
included elsewhere in this prospectus. The unaudited pro forma condensed
combined financial information is provided for informational purposes only and
does not purport to represent what Stamps.com's financial position or results
of operations would actually have been had the iShip.com acquisition occurred
on such dates or to project Stamps.com's results of operations or financial
position for any future period.

F-29
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999

(Amounts in thousands)

<TABLE>
<CAPTION>
PRO FORMA
STAMPS.COM ISHIP.COM ADJUSTMENTS TOTAL
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
------

Current assets:
Cash and cash equivalents.......... $61,198 $5,522 $ -- $ 66,720
Prepaid expenses................... 7,216 102 -- 7,318
------- ------ -------- --------
Total current assets............... 68,414 5,624 -- 74,038
Property and equipment, net........ 5,339 2,225 -- 7,564
Intangibles, net................... -- -- 415,660 (2) 415,660
Other assets....................... 432 -- -- 432
------- ------ -------- --------
Total assets................... $74,185 $7,849 $415,660 $497,694
======= ====== ======== ========

LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
-----------------------------

Current liabilities:
Line of credit..................... $ 1,000 $ -- $ -- $ 1,000
Accounts payable................... 2,331 605 -- 2,936
Accrued expenses................... 3,230 83 -- 3,313
Current portion of capital lease
obligations....................... 472 437 -- 909
------- ------ -------- --------
Total current liabilities.......... 7,033 1,125 -- 8,158

Long-term liabilities.............. 500 1,591 -- 2,091
Stockholders' equity (deficit)..... 66,652 5,133 (39,207)(3) 487,445
454,867 (4)
------- ------ -------- --------
Total liabilities and
stockholders' equity
(deficit)..................... $74,185 $7,849 $415,660 $497,694
======= ====== ======== ========
</TABLE>

See notes to unaudited pro forma condensed combined financial information.

F-30
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998

(Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
PRO FORMA
STAMPS.COM ISHIP.COM ADJUSTMENTS TOTAL
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................ $ -- $ -- $ -- $ --
Cost of sales................... -- -- -- --
-------- ------- --------- ---------
Gross profit.................... -- -- -- --
Operating expenses:
Research and development........ 1,532 832 -- 2,364
Sales and marketing............. 632 79 -- 711
General and administrative...... 2,016 1,039 113,717 (5) 116,772
-------- ------- --------- ---------
4,180 1,950 113,717 119,847
Loss from operations............ (4,180) (1,950) (113,717) (119,847)
Other income (expense):
Interest expense................ (28) (9) -- (37)
Interest income................. 12 73 -- 85
Other, net...................... -- 32 -- 32
-------- ------- --------- ---------
Net loss........................ $ (4,196) $(1,854) $(113,717) $(119,767)
======== ======= ========= =========
Basic and diluted net loss per
share.......................... $ (0.85) $ (10.64)
======== =========
Pro forma basic and diluted net
loss
per share ..................... $ (0.36) $ (6.69)
======== =========
Weighted average shares
outstanding used in basic and
diluted per share calculation.. 4,956 6,304 11,260
======== ========= =========
Weighted average shares
outstanding used in pro forma
basic and diluted per share
calculation.................... 11,593 6,304 17,897
======== ========= =========
</TABLE>

See notes to unaudited pro forma condensed combined financial information.

F-31
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
Pro Forma
Stamps.com iShip.com Adjustments Total
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $ -- $ -- $ -- $ --
Cost of sales.................... -- -- -- --
-------- ------- -------- ---------
Gross profit..................... -- -- -- --

Operating expenses:
Research and development......... 5,049 1,493 -- 6,542
Sales and marketing.............. 10,856 234 -- 11,090
General and administrative....... 8,276 2,028 85,288 (6) 95,592
-------- ------- -------- ---------
24,181 3,755 85,288 113,224
Loss from operations............. (24,181) (3,755) (85,288) (113,224)
Other income (expense):
Interest expense................. (122) (18) -- (140)
Interest income.................. 1,200 153 -- 1,353
Other, net....................... -- 1 -- 1
-------- ------- -------- ---------
Net loss......................... $(23,103) $(3,619) $(85,288) $(112,010)
======== ======= ======== =========
Basic and diluted net loss per
share........................... $ (1.59) $ (5.39)
======== =========
Pro forma basic and diluted net
loss per share.................. $ (0.74) $ (2.98)
======== =========
Weighted average shares
outstanding used in basic and
diluted per share calculation... 14,496 6,304 20,800
======== ======== =========
Weighted average shares
outstanding used in pro forma
basic and diluted per share
calculation..................... 31,260 6,304 37,564
======== ======== =========
</TABLE>

See notes to unaudited pro forma condensed combined financial information.

F-32
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

The pro forma financial information gives effect to the following pro forma
adjustments:

The iShip.com merger will be accounted for using the purchase method of
accounting. In connection with the acquisition, Stamps.com will issue up to 8
million shares of Common Stock in exchange for all of the outstanding shares
of iShip.com capital stock, options and warrants. The aggregated estimated
purchase price is approximately $460 million based on $57.50 per share for
purposes of these pro forma financial statements, which was the last reported
sale price of our Common Stock on the Nasdaq National Market on October 29,
1999.

The iShip.com shares were first converted to Stamps.com equivalent shares
by taking the number of iShip.com shares over the total number of iShip.com
shares multiplied by 8,000,000 to arrive at Stamps.com shares for each
iShip.com share. This calculation has been made for purposes of these
financial statements only and does not represent the final exchange ratio,
which will be determined on the third trading day prior to the closing of the
transaction.

The purchase price was determined as follows (in thousands):

<TABLE>
<CAPTION>
Stamps.com
iShip shares shares Fair Value
------------ ---------- ----------
<S> <C> <C> <C>
Shares................................... 25,240 6,304 $362,485
Warrants................................. 2,690 672 38,633
Vested stock options..................... 1,370 342 19,675
Unvested stock options................... 2,730 682 39,207
------ ----- --------
32,030 8,000 $460,000
====== ===== ========
</TABLE>

The fair value of "shares" was calculated by taking the fair value of the
Stamps.com shares ($57.50 per share) times the number of Stamps.com shares to
be exchanged.

With respect to stock options exchanged as part of the iShip.com merger,
all vested and unvested iShip.com options exchanged for Stamps.com options are
included as part of the purchase price based on their fair value. The fair
value of the shares underlying options and warrants was calculated by taking
the vested and unvested options and warrants to purchase Stamps.com shares
(1,696,000 options) times the fair value of the stock ($57.50 per share).
Proceeds to be received from the option and warrant holders upon exercise were
excluded as the amounts are immaterial.

The pro forma financial information has been prepared on the basis of
assumptions described in these notes and include assumptions relating to the
allocation of the consideration paid for the assets and liabilities of
iShip.com based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the pro
forma financial information after valuations and other procedures to be
performed after the closing of the iShip.com acquisition.

F-33
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION--(Continued)

Below is a table of the estimated acquisition cost, purchase price
allocation and annual amortization of the intangible assets acquired (in
thousands):

<TABLE>
<CAPTION>
Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost:
Estimated purchase price............ $460,000
========
Purchase Price Allocation:
Estimated fair value of net tangible
assets of iShip.com at September
30, 1999........................... 5,133
Deferred compensation on unvested
stock options assumed.............. 39,207 4 9,802
Intangible assets acquired:
Goodwill............................ 415,660 4 103,915
--------
$460,000
========
</TABLE>

Tangible assets of iShip.com acquired in the iShip.com merger principally
include cash and fixed assets. Liabilities of iShip.com assumed in the
iShip.com merger principally include accounts payable, accrued payroll and
long-term debt.

2. The pro forma adjustment is for goodwill allocation of $415.66 million.

3. The pro forma adjustment is for deferred stock compensation associated
with the unvested iShip.com stock options to acquire approximately 2.73
million shares of iShip.com common stock to be assumed by Stamps.com.

4. The pro forma adjustment to "shareholders' equity" reflects the
elimination of iShip.com's shareholders' equity ($5.1 million) and the impact
of the issuance of Stamps.com's common stock ($460 million) in connection with
the iShip.com merger.

5. The pro forma adjustment is for amortization of deferred stock
compensation associated with the unvested iShip.com stock options assumed by
Stamps.com over the remaining vesting period of $9.8 million and amortization
of goodwill of $103.9 million for the year ended December 31, 1998.

6. The pro forma adjustment is for amortization of deferred stock
compensation of $7.4 million and amortization of goodwill of $77.9 million for
the nine months ended September 30, 1999.

F-34
<PAGE>

ANNEX A

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

AGREEMENT AND PLAN OF MERGER
BY AND AMONG
STAMPS.COM INC.,
ROCKET ACQUISITION CORP.
AND
ISHIP.COM, INC.
Dated as of October 22, 1999

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

A-1
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 THE MERGER.................................................... 5
1.1 The Merger..................................................... 5
1.2 Effective Time................................................. 6
1.3 Effect of the Merger on Constituent Corporations............... 6
1.4 Articles of Incorporation and Bylaws of Surviving Corporation.. 6
1.5 Directors and Officers of Surviving Corporation................ 6
1.6 Maximum Number of Shares of Parent Common Stock to be Issued;
Effect on Outstanding Securities of the Company................ 6
1.7 Dissenting Shares.............................................. 8
1.8 Exchange Procedures............................................ 9
1.9 No Further Ownership Rights in Company Capital Stock........... 9
1.10 Lost, Stolen or Destroyed Certificates......................... 10

ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 10
2.1 Organization and Qualification................................. 10
2.2 Authority Relative to this Agreement........................... 10
2.3 Capital Stock.................................................. 10
2.4 No Subsidiaries................................................ 11
2.5 No Conflicts................................................... 11
2.6 Books and Records; Organizational Documents.................... 12
2.7 Company Financial Statements................................... 12
2.8 Absence of Changes............................................. 12
2.9 No Undisclosed Liabilities..................................... 15
2.10 Taxes.......................................................... 15
2.11 Legal Proceedings.............................................. 16
2.12 Compliance with Laws and Orders................................ 16
2.13 Plans; ERISA................................................... 16
2.14 Title to Property.............................................. 19
2.15 Intellectual Property.......................................... 19
2.16 Contracts...................................................... 21
2.17 Insurance...................................................... 21
2.18 Affiliate Transactions......................................... 22
2.19 Employees; Labor Relations..................................... 22
2.20 Environmental Matters.......................................... 23
2.21 Substantial Partnerships....................................... 24
2.22 Accounts Receivable............................................ 24
2.23 Other Negotiations; Brokers; Third Party Expenses.............. 24
2.24 Foreign Corrupt Practices Act.................................. 24
2.25 Financial Projections.......................................... 24
2.26 Approvals...................................................... 24
2.27 Takeover Statutes.............................................. 25
2.28 Registration Statement; Information Sheet/Prospectus........... 25
2.29 Disclosure..................................................... 25

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....... 26
3.1 Organization and Qualification................................. 26
3.2 Authority Relative to this Agreement........................... 26
3.3 SEC Documents; the Parent Financial Statements................. 26
3.4 No Conflicts................................................... 27
3.5 Ownership of Merger Sub; No Prior Activities................... 27
</TABLE>

A-2
<PAGE>

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
3.6 Investment Advisors............................................ 27
3.7 Absence of Certain Changes or Events........................... 27
3.8 Compliance with Laws........................................... 27
3.9 Tax Matters.................................................... 28
3.10 Intellectual Property Rights................................... 28
3.11 Year 2000 Preparedness......................................... 28

ARTICLE 4 CONDUCT PRIOR TO THE EFFECTIVE TIME........................... 29
4.1 Conduct of Business of the Company............................. 29
4.2 No Solicitation................................................ 29

ARTICLE 5 ADDITIONAL AGREEMENTS......................................... 29
5.1 Proxy Statement/Prospectus; Registration Statement............. 29
5.2 Shareholder Approval........................................... 30
5.3 Access to Information.......................................... 30
5.4 Confidentiality................................................ 30
5.5 Expenses; Termination Fee...................................... 31
5.6 Public Disclosure.............................................. 31
5.7 Approvals...................................................... 31
5.8 Notification of Certain Matters................................ 31
5.9 Company Affiliate Agreements................................... 31
5.10 Additional Documents and Further Assurances.................... 31
5.11 Form S-8....................................................... 32
5.12 NNM Listing of Additional Shares Application................... 32
5.13 Company's Auditors............................................. 32
5.14 Takeover Statutes.............................................. 32
5.15 Supplemental Disclosure Letter................................. 32
5.16 Tax Treatment.................................................. 32
5.17 Parent Board Representation.................................... 32

ARTICLE 6 CONDITIONS TO THE MERGER...................................... 32
6.1 Conditions to Obligations of Each Party to Effect the Merger... 32
6.2 Additional Conditions to Obligations of the Company............ 33
Additional Conditions to the Obligations of Parent and Merger
6.3 Sub............................................................ 33

ARTICLE 7 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; ESCROW PROVISIONS................................. 35
Survival of Representations, Warranties, Covenants and
7.1 Agreements..................................................... 35
7.2 Escrow Provisions.............................................. 35

ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER............................. 40
8.1 Termination.................................................... 40
8.2 Effect of Termination.......................................... 40

ARTICLE 9 MISCELLANEOUS PROVISIONS...................................... 41
9.1 Notices........................................................ 41
9.2 Entire Agreement............................................... 41
9.3 Further Assurances; Post-Closing Cooperation................... 41
9.4 Amendment; Waiver.............................................. 42
9.5 Third Party Beneficiaries...................................... 42
9.6 No Assignment; Binding Effect.................................. 42
9.7 Headings....................................................... 42
9.8 Invalid Provisions............................................. 42
9.9 Governing Law.................................................. 42
</TABLE>

A-3
<PAGE>

<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
9.10 Construction..................................................... 42
9.11 Counterparts..................................................... 42
9.12 Specific Performance............................................. 42

ARTICLE 10 DEFINITIONS.................................................... 43
10.1 Definitions...................................................... 43
</TABLE>

Exhibit A--Form of Support Agreements
Exhibit B--Form of Articles of Merger
Exhibit C--Form of Company Affiliate Agreement

A-4
<PAGE>

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of October 22, 1999, by and among
Stamps.com Inc., a Delaware corporation (the "Parent"), Rocket Acquisition
Corp., a Washington corporation and a wholly owned subsidiary of the Parent
("Merger Sub"), and iShip.com, Inc., a Washington corporation (the "Company"),
and with respect to Section 7.2 only, U.S. Stock Transfer Corporation, as
Depositary. Capitalized terms used and not otherwise defined herein have the
meanings ascribed to them in Article 10.

RECITALS

A. The Boards of Directors of each of the Parent, Merger Sub and the
Company believe it is in the best interests of the Parent, Merger Sub and the
Company (as applicable) and their respective shareholders that the Parent
acquire the Company through the merger of Merger Sub with and into the Company
(the "Merger").

B. The Boards of Directors of each of the Parent, Merger Sub and the
Company have approved this Agreement, the Merger and the other transactions
contemplated hereby.

C. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, (i) all of the issued and outstanding shares
of capital stock of the Company shall be converted into the right to receive
shares of common stock, par value $0.001 per share, of the Parent ("Parent
Common Stock"), and (ii) all outstanding Company Options and Company Warrants
will become exercisable for Parent Common Stock, subject to the terms and
conditions set forth herein.

D. As an inducement to the Parent and Merger Sub to enter into this
Agreement, certain shareholders of the Company have, concurrently herewith,
entered into Support Agreements with the Parent in substantially the form
attached hereto as Exhibit A (the "Support Agreements") pursuant to which,
among other things, such shareholders have agreed to vote the shares of
Company Capital Stock owned by them in favor of the Merger.

E. The Parent, Merger Sub and the Company intend that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code,
and in furtherance thereof, intend that this Agreement shall be a "Plan of
Reorganization" within the meaning of Sections 354(a) and 361(a) of the Code.

F. The Company, the Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.

G. A portion of the shares of Parent Common Stock otherwise issuable or
reserved for issuance by the Parent in connection with the Merger shall be
placed in escrow as set forth in Article 7 herein.

H. As an inducement to the Parent and Merger Sub to enter into this
Agreement, certain officers and employees of the Company have entered into
employment agreements with the Parent (the "Employment Agreements") whose term
will commence on the Closing Date.

NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties set forth herein, the parties, intending to be
legally bound hereby, agree as follows:

ARTICLE 1
THE MERGER

1.1 The Merger. At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of the Washington
Code, Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue
as the surviving corporation (sometimes referred to herein as the "Surviving
Corporation").

A-5
<PAGE>

1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five Business Days following
satisfaction or waiver of the conditions set forth in Article 6, at the
offices of Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine,
California, unless another place or time is agreed to by the Parent and the
Company. The date upon which the Closing actually occurs is herein referred to
as the "Closing Date." On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing Articles of Merger (or like instrument), in
substantially the form attached hereto as Exhibit B (the "Articles of
Merger"), with the Secretary of State of the State of Washington, in
accordance with applicable Laws (the date and time of acceptance by the
Secretary of State of the State of Washington of such filing, or such later
time agreed to by the parties and set forth in the Articles of Merger, being
referred to herein as the "Effective Time").

1.3 Effect of the Merger on Constituent Corporations. At the Effective
Time, the Merger shall have the effects provided for in the applicable
provisions of the Washington Code. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Merger Sub and the Company shall
vest in the Surviving Corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of Merger Sub and the Company shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.

1.4 Articles of Incorporation and Bylaws of Surviving Corporation.

(a) At the Effective Time, the articles of incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the articles of
incorporation of the Surviving Corporation until thereafter amended as
provided by law and such articles of incorporation and bylaws of the Surviving
Corporation, except that Article I thereof shall be amended to read in its
entirety as follows: "The name of the Corporation is iShip.com, Inc."

(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended as provided by such bylaws, the articles of incorporation
and applicable law.

1.5 Directors and Officers of Surviving Corporation. The directors of
Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation, each to hold office in accordance with the articles
of incorporation and bylaws of the Surviving Corporation. The officers of
Merger Sub immediately prior to the Effective Time shall be the officers of
the Surviving Corporation, each to hold office in accordance with the bylaws
of the Surviving Corporation.

1.6 Maximum Number of Shares of Parent Common Stock to be Issued; Effect on
Outstanding Securities of the Company.

(a) The maximum number of shares of Parent Common Stock to be issued
(including Parent Common Stock to be reserved for issuance upon exercise of
any of the Company Options or Company Warrants to be assumed by the Parent as
provided herein) in the Merger and in exchange for all vested and unvested
Company Options and Company Warrants shall be the Aggregate Merger Share
Number. No increase shall be made in the number of shares of Parent Common
Stock issuable as a result of the transactions contemplated by this Agreement
arising from any consideration (except for deemed share consideration arising
from the net exercise provisions of any Company Options or Company Warrants,
which share consideration shall continue to be outstanding shares of Company
Capital Stock at the Closing and through the Escrow Period) received by the
Company from the date hereof to the Effective Time as a result of any
exercise, conversion or exchange of Company Options, or Company Warrants.

A-6
<PAGE>

(b) Subject to the terms and conditions of this Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
the Parent or Merger Sub, the Company or the holder of any shares of the
Company Capital Stock and Company Options or Company Warrants, the following
shall occur:

(i) Conversion of Company Common Stock. At the Effective Time, each
share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 1.6(b)(iv) and any Dissenting Shares (as
provided in Section 1.7)) will be converted automatically into the right to
receive that number of shares of Parent Common Stock equal to the Common
Stock Exchange Ratio, rounded down to the nearest whole share of Parent
Common Stock.

(ii) Conversion of Series A Preferred Stock. At the Effective Time, each
share of Company Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company
Series A Preferred Stock to be cancelled pursuant to Section 1.6(b)(iv) and
any Dissenting Shares (as provided in Section 1.7)) will be automatically
converted into the right to receive that number of shares of Parent Common
Stock equal to the Series A Exchange Ratio, rounded down to the nearest
whole share of Parent Common Stock.

(iii) Conversion of Series B Preferred Stock. At the Effective Time,
each share of Company Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company
Series B Preferred Stock to be cancelled pursuant to Section 1.6(b)(iv) and
any Dissenting Shares (as provided in Section 1.7)) will be automatically
converted into the right to receive that number of shares of Parent Common
Stock equal to the Series B Exchange Ratio, rounded down to the nearest
whole share of Parent Common Stock.

(iv) Cancellation of Parent-Owned and Company-Owned Stock. Each share of
Company Capital Stock owned by the Parent or the Company or any Subsidiary
of the Parent or the Company immediately prior to the Effective Time shall
be automatically canceled and extinguished without any consideration in
respect thereof and without any further action on the part of the Parent,
Merger Sub or the Company.

(v) Company Options and Stock Plan. At the Effective Time all unexpired
and unexercised Company Options and Company Warrants then outstanding,
whether vested or unvested, together with the Company's Amended and
Restated 1997 Stock Plan (the "Stock Plan"), shall be assumed by the Parent
in accordance with provisions described below.

(A) At the Effective Time, each unexpired and unexercised Company
Option and Company Warrant then outstanding, whether vested or
unvested, together with the Stock Plan, shall be, in connection with
the Merger, assumed by the Parent. Each Company Option and Company
Warrant so assumed by the Parent under this Agreement shall continue to
have, and be subject to, the same terms and conditions as were
applicable to such Company Option or Company Warrant immediately prior
to the Effective Time; provided that (1) such Company Option or Company
Warrant, as the case may be, shall be exercisable for that number of
whole shares of Parent Common Stock equal to the product of the number
of shares of Company Capital Stock that were issuable upon exercise of
such Company Option or Company Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio applicable to the
series or class of Company Capital Stock subject to the Company Option
or Company Warrant (rounded down to the nearest whole number of shares
of Parent Common Stock) and (2) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed
Company Option or Company Warrant, as the case may be, shall be equal
to the quotient determined by dividing the exercise price per share of
Company Capital Stock at which such Company Option or Company Warrant
was exercisable immediately prior to the Effective Time by the Exchange
Ratio applicable to the series or class of Company Capital Stock
subject to the Company Option or Company Warrant (rounded up to the
nearest whole cent).

(B) It is the intention of the parties that the Company Options
assumed by the Parent shall qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Code

A-7
<PAGE>

to the same extent the Company Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of
this Section 1.6(b)(v) shall be applied consistent with this intent.

(C) At the Effective Time, the Parent shall succeed to the Company's
rights and assume the Company's obligations under any Restricted Stock
Purchase Agreements. Any and all restrictions on the Company Restricted
Stock issued pursuant to the Stock Plan or such other agreements which
do not lapse in accordance with their terms as in effect on the date of
this Agreement shall continue in full force and effect until such
restrictions lapse pursuant to the terms of such agreements.

(D) Notwithstanding the foregoing, the Series B Preferred Stock
Purchase Warrant, dated April 27, 1999 (the "MBE Warrant"), by and
between the Company and Mail Boxes Etc. USA, Inc. ("MBE"), shall,
subject to the consent of MBE, be modified, at the Effective Time, to
be a warrant of the Parent on terms and subject to conditions identical
to the MBE Warrant, except that such warrant shall be exercisable for
the number of whole shares of Parent Common Stock equal to the product
of the number of shares of Series B Preferred Stock that were issuable
upon exercise of the MBE Warrant immediately prior to the Effective
Time multiplied by the Series B Exchange Ratio (rounded down to the
nearest whole number of shares of Parent Common Stock) and the per
share exercise price for the shares of Parent Common Stock issuable
upon exercise of such warrant shall be equal to the quotient determined
by dividing the exercise price per share of Series B Preferred Stock
under the MBE Warrant by the Series B Exchange Ratio (rounded up to the
nearest whole cent).

(vi) Adjustments to Exchange Ratios. The Exchange Ratios shall be
equitably adjusted to reflect fully the effect of any stock split, reverse
split, stock combination, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Capital Stock), reorganization, reclassification, recapitalization or other
like change with respect to Parent Common Stock or Company Capital Stock
occurring on or after the date hereof and prior to the Effective Time.

(vii) Capital Stock of Merger Sub. Each share of common stock, no par
value per share, of Merger Sub, issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, no par value
per share, of the Surviving Corporation. Each share certificate of Merger
Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.

1.7 Dissenting Shares.

(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock held by a holder who has demanded and
perfected dissenters' rights for such shares in accordance with Washington
Code and who, as of the Effective Time, has not effectively withdrawn or lost
such dissenters' rights ("Dissenting Shares") shall not be converted into or
represent a right to receive shares of Parent Common Stock pursuant to Section
1.6, but the holder thereof shall only be entitled to such rights as are
granted by the Washington Code.

(b) Notwithstanding the provisions of subsection (a) above, if any holder
of shares of Company Capital Stock who demands purchase of such shares under
the Washington Code shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's dissenters' rights, then, as of the later
of (i) the Effective Time or (ii) the occurrence of such withdrawal or loss,
such holder's shares shall automatically be converted into and represent only
the right to receive shares of Parent Common Stock as provided in Section 1.6,
without interest thereon, upon surrender of the certificate representing such
shares.

(c) The Company shall give the Parent (i) prompt notice of its receipt of
any written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments relating to the Merger
served pursuant to the Washington Code and received by the Company and (ii)
the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal of any shares of Company Capital Stock under
the Washington Code. The Company shall not, except with the prior written
consent of the Parent or as may be required under applicable law, voluntarily
make any payment with respect to any demands for appraisal of Company Capital
Stock or offer to settle or settle any such demands.

A-8
<PAGE>

1.8 Exchange Procedures.

(a) Parent Common Stock. On the Closing Date, the Parent shall issue in
accordance with this Article 1, the aggregate number of shares of Parent
Common Stock issuable in exchange for outstanding shares of Company Capital
Stock; provided, however, that, on behalf of the holders of Company Capital
Stock, the Parent shall deposit into an escrow account a number of shares of
Parent Common Stock equal to the Escrow Amount. The portion of the Escrow
Amount contributed on behalf of each holder of Company Capital Stock shall be
in proportion to the aggregate number of shares of Parent Common Stock which
such holder would otherwise be entitled to receive by virtue of ownership of
outstanding shares of Company Capital Stock.

(b) Exchange Procedures. At the Closing, each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to
the Effective Time represented outstanding shares of Company Capital Stock and
which shares were converted into the right to receive shares of Parent Common
Stock pursuant to Section 1.6, shall deliver the Certificates to the Parent.
Upon surrender of a Certificate for cancellation and a stock power indorsed in
blank with respect to the shares held pursuant to Article 7, the Parent shall
deliver to the holder of such Certificate in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock (less the
number of shares of Parent Common Stock to be deposited in the Escrow Fund on
such holder's behalf pursuant to Article 7 hereof), to which such holder is
entitled pursuant to Section 1.6, and the Certificate so surrendered shall be
canceled. As soon as practicable after the Effective Time, and subject to and
in accordance with the provisions of Article 7 hereof, the Parent shall cause
to be distributed to the Depositary a certificate or certificates (in such
denominations as may be requested by the Depositary), registered in the name
of each former shareholder of the Company, representing that number of shares
of Parent Common Stock equal to the Escrow Amount. Such shares shall be
beneficially owned by the holders on whose behalf such shares were deposited
in the Escrow Fund and shall be available to compensate the Parent as provided
in Article 7. Until surrendered, each outstanding Certificate will be deemed,
from and after the Effective Time, for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number of full shares
of Parent Common Stock into which such shares of Company Capital Stock shall
have been so converted.

(c) Distributions With Respect to Unexchanged Shares of Company Capital
Stock. No dividends or other distributions with respect to Parent Common Stock
declared or made after the Effective Time and with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby until
the holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole
shares of Parent Common Stock issued in exchange for any such unsurrendered
Certificates, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such shares of Parent Common Stock.

(d) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued pursuant to the Merger in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will
be a condition of the issuance thereof that the Certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange will have paid to the Parent, or any agent
designated by it, any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of the Parent or any agent designated by it
that such tax has been paid or is not payable.

1.9 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares
of Company Capital Stock, and there shall be no further registration of
transfers on the records of the Company of shares of Company Capital Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article
1.

A-9
<PAGE>

1.10 Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Parent shall issue certificates representing such shares of
Parent Common Stock in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof; provided, however, that the Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to provide an indemnity or deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may
be made against the Parent with respect to the Certificates alleged to have
been lost, stolen or destroyed.

ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to each of Parent and Merger
Sub, subject to such exceptions as are specifically disclosed with respect to
specific sections of this Article 2 in the Disclosure Letter as follows:

2.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing under the laws of the State of Washington, and has
full corporate power and authority to conduct its business as now conducted
and as currently proposed to be conducted and to own, use, license and lease
its Assets and Properties. The Company is duly qualified, licensed or admitted
to do business and is in good standing in each jurisdiction in which the
ownership, use, licensing or leasing of its Assets and Properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for such failures to be so duly qualified,
licensed or admitted and in good standing that could not reasonably be
expected to have a material adverse effect on the Business or Condition of the
Company. Section 2.1 of the Disclosure Letter sets forth each jurisdiction
where the Company is so qualified, licensed or admitted to do business and
separately lists each other jurisdiction in which the Company owns, uses,
licenses or leases its Assets and Properties, or conducts business or has
employees or engages independent contractors.

2.2 Authority Relative to this Agreement. Subject only to the requisite
approval of the Merger and this Agreement by the shareholders of the Company,
the Company has full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby, and the performance by the Company of its obligations
hereunder, have been duly and validly authorized by all necessary action by
the Board of Directors of the Company, and no other action on the part of the
Board of Directors of the Company is required to authorize the execution,
delivery and performance of this Agreement and the consummation by the Company
of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Merger Sub,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws relating to the
enforcement of creditors' rights generally and by general principles of
equity.

2.3 Capital Stock.

(a) The authorized capital stock of the Company consists only of 60,000,000
shares of Common Stock, $0.0005 par value per share (the "Company Common
Stock"), of which 7,492,720 shares of Company Common Stock are issued and
outstanding as of the date hereof, and 21,786,668 shares of Preferred Stock,
$0.0005 par value per share (the "Company Preferred Stock"). The designation
and status of the Company Preferred Stock is as follows: (i) 8,986,668 shares
are designated as Series A Preferred Stock, all of which are issued and
outstanding as of the date hereof, and (ii) 12,800,000 shares are designated
as Series B Preferred Stock, 10,133,334 of which are issued and outstanding as
of the date hereof. All of the issued and outstanding shares of Company Common
Stock and Company Preferred Stock are validly issued, fully paid and
nonassessable, and have not been issued in violation of any applicable
federal, state and foreign securities Laws or preemptive rights.

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Except for shares issuable upon conversion of the Series A Preferred Stock or
the Series B Preferred Stock or upon exercise of Company Options or Company
Warrants, no shares of Company Common Stock or Company Preferred Stock are
reserved for issuance. Section 2.3(a) of the Disclosure Letter lists the name
and state of residence of each holder of Company Common Stock and Company
Preferred Stock provided to the Company by such holder. With respect to any
Company Common Stock or Company Preferred Stock that has been issued subject
to a repurchase option on the part of the Company, Section 2.3(a) of the
Disclosure Letter sets forth the holder thereof, the number and type of
securities covered thereby, and the vesting schedule thereof (including a
description of the circumstances under which such vesting schedule can or will
be accelerated).

(b) As of the date hereof, there are no outstanding Company Options or
Company Warrants or agreements, arrangements or understandings to which the
Company is a party (written or oral) to issue Options with respect to the
Company and there are no preemptive rights or agreements, arrangements or
understandings to issue preemptive rights with respect to the issuance or sale
of Company Capital Stock created by statute, the articles of incorporation or
bylaws of the Company, or any agreement or other arrangement to which the
Company is a party or to which it is bound and there are no agreements,
arrangements or understandings to which the Company is a party (written or
oral) pursuant to which the Company has the right to elect to satisfy any
Liability by issuing Company Common Stock or Equity Equivalents. With respect
to each Company Option and Company Warrant, Section 2.3(b) of the Disclosure
Letter sets forth the holder thereof, the number and type of securities
issuable thereunder, and, if applicable, the exercise price therefor, the
exercise period and vesting schedule thereof (including a description of the
circumstances under which such vesting schedule can or will be accelerated).
All of the Company Options and Company Warrants were issued in compliance with
all applicable federal, state and foreign securities Laws. The Company is not
a party or subject to any agreement or understanding, and, to the Company's
knowledge, there is no agreement, arrangement or understanding between or
among any Persons which affects, restricts or relates to voting, giving of
written consents, dividend rights or transferability of shares with respect to
the Company Capital Stock, including without limitation any voting trust
agreement or proxy.

2.4 No Subsidiaries. The Company has no Subsidiaries and does not otherwise
hold any equity, membership, partnership, joint venture or other ownership
interest in any Person.

2.5 No Conflicts. The execution and delivery by the Company of this
Agreement does not, the performance by the Company of its obligations under
this Agreement and the consummation of the transactions contemplated hereby do
not and will not:

(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the articles of incorporation or bylaws of the
Company;

(b) except as could not reasonably be expected to have a material adverse
effect on the Business or Condition of the Company or be expected to prevent
or materially delay the consummation of the transactions contemplated by this
Agreement and subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.5 of the Disclosure
Letter, if any, conflict with or result in a violation or breach of any Law or
Order applicable to the Company or any of its Assets and Properties; or

(c) except as could not reasonably be expected to have a material adverse
effect on the Business or Condition of the Company or be expected to prevent
or materially delay the consummation of the transactions contemplated by this
Agreement, (i) conflict with or result in a violation or breach of, (ii)
constitute a default (or an event that, with or without notice or lapse of
time or both, would constitute a default) under, (iii) require the Company to
obtain any consent, approval or action of, make any filing with or give any
notice to any Person as a result or under the terms of, (iv) result in or give
to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments or performance under, (vi) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon the
Company or any of its Assets and Properties under or (vii) result in the loss
of a material benefit under, any of the terms, conditions or provisions of any
Contract or License to which the Company is a party or by which any of the
Company's Assets and Properties is bound.

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2.6 Books and Records; Organizational Documents. The minute books and stock
record books and other similar records of the Company that have been provided
or made available to the Parent or its counsel prior to the execution of this
Agreement are complete and correct in all respects and have been maintained in
accordance with sound business practices. Such minute books contain a true and
complete record of all actions taken at all meetings and by all written
consents in lieu of meetings of the directors, shareholders and committees of
the board of directors of the Company through the date hereof. The Company has
prior to the execution of this Agreement delivered to the Parent true and
complete copies of its articles of incorporation and bylaws, both as amended
through the date hereof. The Company is not in violation of any provision of
its articles of incorporation or bylaws.

2.7 Company Financial Statements.

(a) Section 2.7 of the Disclosure Letter sets forth the Company Financials.
The Company Financials are correct and complete in all material respects and
have been prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto, and, in the case of the Interim Financial
Statements, subject to normal year-end adjustments, which adjustments will not
be material in amount or significance). The Company Financials present fairly
and accurately the financial condition and operating results of the Company as
of the dates and during the periods indicated therein, subject, in the case of
the Interim Financial Statements, to normal year-end adjustments, which
adjustments will not be material in amount or significance and except that the
Interim Financial Statements may not contain footnotes. Since the Company's
inception, there has been no change in any accounting policies, principles,
methods or practices, including any change with respect to reserves (whether
for bad debts, contingent liabilities or otherwise), of the Company.

(b) The Company does not have as of the date hereof nor as of the Audited
Financial Statement Date assets with a book value greater than or equal to $10
million, and, with respect to the fiscal year ended on the Audited Financial
Statement Date, the Company, did not have revenues greater than or equal to
$10 million.

2.8 Absence of Changes. Since the date of the Interim Financial Statements,
there has not been any material adverse change in the Business or Condition of
the Company or any occurrence or event which, individually or in the
aggregate, could be reasonably expected to have any material adverse change in
the Business or Condition of the Company. In addition, without limiting the
foregoing, except as expressly contemplated hereby, there has not occurred
since the date of the Interim Financial Statements:

(a) the entering into of any Contract, commitment or transaction or the
incurrence of any Liabilities outside of the ordinary course of business
consistent with past practice;

(b) the entering into of any Contract in connection with any transaction
involving a Business Combination;

(c) the entering into of any Contract or other commitment relating to any
interest of the Company in any corporation, association, joint venture,
partnership or business entity;

(d) the entering into of any strategic alliance, joint development or joint
marketing Contract (other than joint marketing efforts in the ordinary course
of business consistent with past practice with its customers with whom the
Company had such a relationship at the date of the Interim Financial
Statements);

(e) any material amendment or other modification (or agreement to do so),
except in the ordinary course of business consistent with past practice, or
violation of the terms of, any of the Contracts disclosed in the Disclosure
Letter;

(f) the entering into of any transaction with any officer, director,
shareholder, Affiliate or Associate of the Company, other than pursuant to any
Contract in effect on the date of the Interim Financial Statements and
disclosed to the Parent pursuant to Section 2.18 of the Disclosure Letter or
other than pursuant to any contract of employment and listed in Section
2.16(a) of the Disclosure Letter;

(g) the entering into or amendment of any Contract pursuant to which any
other Person is granted manufacturing, marketing, distribution, licensing or
similar rights of any type or scope with respect to any

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products of the Company or Company Intellectual Property other than as
contemplated by the Company's Contracts or Licenses disclosed in the
Disclosure Letter or otherwise in the ordinary course of business consistent
with past practice with a Person with whom the Company had such a relationship
at the date of the Interim Financial Statements;

(h) the commencement of any Action or Proceeding involving or which could
reasonably be expected to involve the Company, or insofar as it relates to
their capacity as such, any officer, director, Affiliate or Associate of the
Company;

(i) the declaration, setting aside or payment of any dividends on or making
of any other distributions (whether in cash, stock or property) in respect of
any Company Capital Stock or Equity Equivalents, or any split, combination or
reclassification of any Company Capital Stock or Equity Equivalents or
issuance or authorization of the issuance of any other securities in respect
of, in lieu of or in substitution for shares of Company Capital Stock or
Equity Equivalents, or the repurchase, redemption or other acquisition,
directly or indirectly, of any shares of Company Capital Stock or Equity
Equivalents;

(j) except for (i) the issuance of shares of Company Capital Stock upon
exercise or conversion of then-outstanding Company Options, Company Warrants
or Company Preferred Stock listed in Section 2.3 of the Disclosure Letter, or
(ii) the issuance of options available for grant under the Stock Plan in the
ordinary course of business to employees who are not officers of the Company
consistent with past practice, the issuance, grant, delivery, sale or
authorization of or proposal to issue, grant, deliver or sell, or purchase or
proposal to purchase, any shares of Company Capital Stock, Equity Equivalents
or modification or amendment of the rights of any holder of any outstanding
shares of Company Capital Stock of Equity Equivalents (including to reduce or
alter the consideration to be paid to the Company upon the exercise of any
outstanding Company Options, Company Warrants or other Equity Equivalents),
nor have there been any agreements, arrangements, plans or understandings with
respect to any such modification or amendment;

(k) any amendments to the Company's articles of incorporation or bylaws;

(l) any transfer (by way of a License or otherwise) to any Person of rights
to any Company Intellectual Property other than non-exclusive transfers to the
Company's customers, distributors or other licensees at the date of the
Interim Financial Statements in the ordinary course of business consistent
with past practice;

(m) any disposition or sale of, waiver of rights to, license or lease of,
or incurrence of any Lien on, any Assets and Properties of the Company, other
than dispositions of inventory, or licenses of products to Persons to whom the
Company had granted licenses of its products at the date of the Interim
Financial Statements, in the ordinary course of business of the Company
consistent with past practice;

(n) any purchase of any Assets and Properties of any Person other than
acquisitions of inventory, or licenses of products, in the ordinary course of
business of the Company consistent with past practice;

(o) the making of any capital expenditures or commitments by the Company
for additions to property, plant or equipment of the Company constituting
capital assets individually or in the aggregate in an amount exceeding
$50,000;

(p) the write-off or write-down or making of any determination to write off
or write-down, or revalue, any of the Assets and Properties of the Company, or
change in any reserves or liabilities associated therewith, individually or in
the aggregate in an amount exceeding $50,000;

(q) the payment, discharge or satisfaction, in an amount in excess of
$25,000, in any one case, or $50,000 in the aggregate, of any claim or
Liability, other than the payment, discharge or satisfaction in the ordinary
course of business of Liabilities reflected or reserved against in the Company
Financial Statements or incurred in the ordinary course of business since the
date of the Interim Financial Statements;

(r) the failure to pay or otherwise satisfy Liabilities of the Company
consistent with the Company's past practices, except such as are being
contested in good faith;

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(s) the incurrence of any Indebtedness or guarantee of any Indebtedness in
an aggregate amount exceeding $50,000 or issuance or sale of any debt
securities of the Company or guarantee any debt securities of others;

(t) the grant of any severance or termination pay to any director, officer
employee or consultant, except payments made pursuant to written Contracts
outstanding on the date hereof, the terms of which are disclosed in the
Disclosure Letter;

(u) the increase of greater than five percent in salary, rate of
commissions, rate of consulting fees or any other compensation of any current
or former officer, director, shareholder, employee, independent contractor or
consultant of the Company;

(v) the payment of any consideration of any nature whatsoever (other than
salary, commissions or consulting fees and customary benefits paid to any
current or former officer, director, shareholder, employee or consultant of
the Company) to any current or former officer, director, shareholder,
employee, independent contractor or consultant of the Company;

(w) the establishment or modification of (i) targets, goals, pools or
similar provisions under any Plan, employment Contract or other employee
compensation arrangement or independent contractor Contract or other
compensation arrangement or (ii) salary ranges, increased guidelines or
similar provisions in respect of any Plan, employment Contract or other
employee compensation arrangement or independent contractor Contract or other
compensation arrangement;

(x) the adoption, entering into, amendment, modification or termination
(partial or complete) of any Plan (other than as required to comply with
applicable Laws or to maintain the qualified status of such plan under Section
401(a) of the Code);

(y) the payment of any discretionary or stay bonus;

(z) any action, including the acceleration of vesting of any Company
Options or Company Warrants, or other rights to acquire shares of capital
stock of the Company, which could jeopardize the tax-free reorganization
hereunder, except as expressly required by any Contract set forth in the
Disclosure Letter;

(aa) the making or changing of any material election in respect of Taxes,
adoption or change of any accounting method in respect of Taxes, the entering
into of any tax allocation agreement, tax sharing agreement, tax indemnity
agreement or closing agreement, settlement or compromise of any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes
with any Taxing Authority or otherwise;

(bb) other than in the ordinary course of business, the making of any
representation or proposal to, or engagement in substantive discussions with,
any of the holders (or their representatives) of any Indebtedness, or to or
with any party which has issued a letter of credit which benefits the Company;

(cc) the commencement or termination of, or change in, any line of
business;

(dd) the cancellation, material amendment or failure to renew any insurance
policy other than in the ordinary course of business consistent with past
practice, or failure to use commercially reasonable efforts to give all
notices and present all claims under all such policies in a timely fashion;

(ee) any material amendment, failure to renew, or failure to use
commercially reasonable efforts to maintain, its existing Approvals or failure
to observe any Law or Order applicable to the conduct of the Company's
business or the Company's Assets and Properties;

(ff) any physical damage, destruction or other casualty loss (whether or
not covered by insurance) affecting any of the real or personal property or
equipment of the Company individually or in the aggregate in an amount
exceeding $50,000;

(gg) the repurchase, cancellation or modification of the terms of any
Company Capital Stock, Equity Equivalents, Company Options or Company Warrants
or other financial instrument that derives the majority of its value from its
convertibility into Company Capital Stock or Equity Equivalents, other than
transactions

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entered into in the ordinary course of business and pursuant to either (i)
contractual provisions or (ii) the Stock Plan, in either case as in effect at
the date of this Agreement; or

(hh) any entering into of any Contract, or acquiescence by the Company in
respect of, an arrangement or understanding to do, engage in, cause or having
the effect of any of the foregoing, including with respect to any Business
Combination not otherwise restricted by the foregoing paragraphs.

2.9 No Undisclosed Liabilities. Except as reflected or reserved against in
the Company Financials, there are no Liabilities of, relating to or affecting
the Company or any of its Assets and Properties, other than Liabilities
incurred in the ordinary course of business consistent with past practice
since the date of the Interim Financial Statements and in accordance with the
provisions of this Agreement which, individually and in the aggregate, are not
material to the Business or Condition of the Company, and are not for tort or
for breach of contract.

2.10 Taxes.

(a) All Tax Returns required to have been filed by or with respect to the
Company or any affiliated, consolidated, combined, unitary or similar group of
which the Company is or was a member (a "Relevant Group") have been duly and
timely filed (including any extensions), and each such Tax Return correctly
and completely reflects Tax liability and all other material information
required to be reported thereon. All Taxes due and payable by the Company or
any member of a Relevant Group, whether or not shown on any Tax Return, or
claimed to be due by any Tax Authority, have been paid or accrued on the
Company Financials for all periods (or portions thereof) through and including
the date thereof. All such Tax Returns are true, complete and correct in all
material respects.

(b) The Company has not incurred any material liability for Taxes other
than as reflected on the Interim Financial Statements for all periods (or
portions thereof) through and including the date thereof and will not incur
additional Liabilities for Taxes through and including the Closing Date, other
than in the ordinary course of business. The unpaid Taxes of the Company (i)
did not, as of the most recent fiscal month end, exceed by any material amount
the reserve for liability for Income Tax (other than the reserve for deferred
taxes established to reflect timing differences between book and tax income)
set forth on the face of the Company's most recent balance sheet and (ii) will
not exceed by any material amount that reserve as adjusted for operations and
transactions through the Closing Date.

(c) The Company is not a party to any agreement extending the time within
which to file any Tax Return. No claim has ever been made by a Taxing
Authority of any jurisdiction in which the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction.

(d) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor or independent contractor.

(e) The Company does not have knowledge of any actions by any Taxing
Authority in connection with assessing additional Taxes against or in respect
of it for any past period. There is no dispute or claim concerning any Tax
liability of the Company either (i) threatened, claimed or raised by any
Taxing Authority or (ii) of which the Company is aware. There are no Liens for
Taxes upon the Assets and Properties of the Company other than Liens for Taxes
not yet due. Section 2.10 of the Disclosure Letter indicates those Tax
Returns, if any, of the Company that have been audited or examined by Taxing
Authorities, and indicates those Tax Returns of the Company that currently are
the subject of audit or examination. The Company has delivered to the Parent
complete and correct copies of all federal, state, local and foreign income
Tax Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, the Company since the fiscal
year ended December 31, 1997.

(f) There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any Tax Returns required to be filed by, or
which include or are treated as including, the Company or with respect to any
Tax assessment or deficiency affecting the Company or any Relevant Group.

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<PAGE>

(g) The Company has not received any written ruling related to Taxes or
entered into any agreement with a Taxing Authority relating to Taxes.

(h) The Company has no liability for the Taxes of any Person other than the
Company (i) under Section 1.1502-6 of the Treasury regulations (or any similar
provision of state, local or foreign Law), (ii) as a transferee or successor,
(iii) by Contract or (iv) otherwise.

(i) The Company (i) has neither agreed to make nor is required to make any
adjustment under Section 481 of the Code by reason of a change in accounting
method and (ii) is not a "consenting corporation" within the meaning of
Section 341(f)(1) of the Code.

(j) The Company is not a party to or bound by any obligations under any tax
sharing, tax allocation, tax indemnity or similar agreement or arrangement.

(k) The Company is not involved in, subject to, or a party to any joint
venture, partnership, Contract or other arrangement that is treated as a
partnership for federal, state, local or foreign Income Tax purposes.

(l) The Company was not included and is not includible in the Tax Return of
any Relevant Group with any corporation other than such a return of which the
Company is the common parent corporation.

(m) The Company has not made any payments, is not obligated to make any
payments, nor is a party to any Contract that under certain circumstances
could require it to make any payments that are not deductible as a result of
the provisions set forth in Section 280G of the Code or the treasury
regulations thereunder or would result in an excise tax to the recipient of
any such payment under Section 4999 of the Code (other than payments for which
shareholder approval meeting the requirements of Section 280G(c)(5) of the
Code will be obtained prior to the Closing Date).

(n) The Company is not nor has it ever been a United States real property
holding corporation within the meaning of Section 897(c)(1)(A)(ii) of the
Code.

2.11 Legal Proceedings.

(a) Except as set forth in Section 2.11 of the Disclosure Letter:

(i) there are no Actions or Proceedings pending or, to the knowledge of
the Company, threatened against, relating to or affecting the Company or
its Assets and Properties; and

(ii) the Company has not received notice, and does not otherwise have
knowledge, of any Orders outstanding against the Company.

(b) Prior to the execution of this Agreement, the Company has delivered to
the Parent all responses of counsel for the Company to auditor's requests for
information since the Company's inception (together with any updates provided
by such counsel) regarding Actions or Proceedings pending or threatened
against, relating to or affecting the Company. Section 2.11(b) of the
Disclosure Letter sets forth all Actions or Proceedings relating to or
affecting the Company or any of its Assets and Properties since the Company's
inception and prior to the date hereof.

2.12 Compliance with Laws and Orders. The Company has not violated, and is
not currently in default under, any Law or Order applicable to the Company or
any of its Assets and Properties, except for any such violations or defaults
that could not reasonably be expected to have a material adverse effect on the
Business or Condition of the Company.

2.13 Plans; ERISA.

(a) For purposes of this Agreement, the term "Plans" shall mean (i) all
"employee benefit plans" (as such term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
which any of the Company or any member of the same controlled group of
businesses as the Company within the meaning of Section 4001(a)(14) of ERISA
(an "ERISA Affiliate") is or ever was a sponsor

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or participating employer or as to which the Company or any of its ERISA
Affiliates makes contributions or is or has been required to make
contributions, and (ii) any similar employment, severance or other arrangement
or policy of any of the Company or any of its ERISA Affiliates (whether
written or oral) providing for health, life, vision or dental insurance
coverage (including self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits or
retirement benefits, fringe benefits, or for profit sharing, deferred
compensation, bonuses, stock options, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits.
Except as disclosed on Section 2.13 of the Disclosure Letter, (i) neither the
Company nor any of its ERISA Affiliates maintains or sponsors (or ever
maintained or sponsored), or makes or is required to make contributions to,
any Plans, (ii) none of the Plans is or was a "multi-employer plan", as
defined in Section 3(37) of ERISA, (iii) none of the Plans is or was a
"defined benefit pension plan" within the meaning of Section 3(35) of ERISA,
(iv) none of the Plans provides or provided post-retirement medical or health
benefits, other than as required under applicable Laws, (v) none of the Plans
is or was a "welfare benefit fund," as defined in Section 419(e) of the Code,
or an organization described in Sections 501(c)(9) or 501(c)(20) of the Code,
(vi) neither the Company nor any of its ERISA Affiliates is or was a party to
any collective bargaining agreement and (vii) neither the Company nor any of
its ERISA Affiliates has announced or otherwise made any commitment to create
or amend any Plan (other than as required to comply with applicable Laws or to
maintain the qualified status of a Plan under Section 401(a) of the Code).
Notwithstanding any statement or indication in this Agreement to the contrary,
there are no Plans (a) as to which the Parent will be required to make any
contributions or with respect to which the Parent shall have any obligation or
liability whatsoever, whether on behalf of any of the current employees of the
Company or on behalf of any other Person, after the Closing (other than
current deferred contributions to the Company's 401(k) plan and the current
month's premium for health plan coverage), or (b) which the Parent or the
Surviving Corporation will not be able to terminate immediately after the
Closing in accordance with their terms, ERISA and the Code. With respect to
each of such Plans, at the Closing there will be no unrecorded liabilities
with respect to the establishment, implementation, operation, administration
or termination of any such Plan, or the termination of the participation in
any such Plan by the Company or its ERISA Affiliates. The Company has
delivered to the Parent true and complete copies of: (i) each of the Plans and
any related funding agreements thereto (including insurance contracts)
including all amendments, all of which are legally valid and binding and in
full force and effect and there are no defaults thereunder, (ii) the currently
effective Summary Plan Description pertaining to each of the Plans, (iii) the
annual reports filed for each of the Plans since inception (including all
related schedules), if applicable, (iv) the most recently filed PBGC Form 1
(if applicable), (v) the most recent Internal Revenue Service determination
letter for each Plan which is intended to constitute a qualified plan under
Section 401 of the Code and each amendment to each of the foregoing documents
and (vi) for each unfunded Plan, if any, financial statements consisting of
(A) the consolidated statement of assets and liabilities of such Plan as of
its most recent valuation date, and (B) the statement of changes in fund
balance and in financial position or the statement of changes in net assets
available for benefits under such Plan for the most recently-ended plan year,
which such financial statements shall fairly present the financial condition
and the results of operations of such Plan in accordance with GAAP,
consistently applied, as of such dates.

(b) The present value of all accrued benefits under any Plans subject to
Title IV of ERISA shall not, as of the Closing Date, exceed the value of the
assets of such Plans allocated to such accrued benefits, based upon the
applicable provisions of the Code and ERISA, and each such Plan shall be
capable of being terminated as of the Closing Date in a "standard termination"
under Section 4041(b) of ERISA. With respect to each Plan that is subject to
Title IV of ERISA, (i) no amount is due or owing from the Company or any of
its ERISA Affiliates to the PGBC or to any "multi-employer Plan" as defined in
Section 3(37) of ERISA on account of any withdrawal therefrom and (ii) no such
Plan has been terminated other than in accordance with ERISA or at a time when
the Plan was not sufficiently funded. The transactions contemplated hereunder,
including, without limitation, the termination of any Plan at or prior to the
Closing, shall not result in any such withdrawal or other liability under any
applicable Laws.

(c) Neither the Company nor any of its ERISA Affiliates is subject to any
material liability, tax or penalty whatsoever to any person or agency
whomsoever as a result of engaging in a prohibited transaction under ERISA or
the Code, and neither the Company nor any of its ERISA Affiliates has any
knowledge of any circumstances

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<PAGE>

which reasonably might result in any material liability, tax or penalty,
including, but not limited to, a penalty under Section 502 of ERISA, as a
result of a breach of any duty under ERISA or under other Laws. Each Plan
which is required to comply with the provisions of Sections 4980B and 4980C of
the Code, or with the requirements referred to in Section 4980D of the Code,
has complied in all material respects. No event has occurred which could
subject any Plan to Tax under Section 511 of the Code. None of the Plans
subject to Title IV of ERISA has been completely or partially terminated nor
has there been any "reportable event," as such term is defined in Section
4043(b) of ERISA, with respect to any of the Plans since the effective date of
ERISA nor has any notice of intent to terminate been filed or given with
respect to any such Plan. There has been no (i) withdrawal by the Company or
any of its ERISA Affiliates that is a substantial employer from a single-
employer plan which is a Plan and which has two or more contributing sponsors
at least two of whom are not under common control, as referred to in Section
4063(b) of ERISA, or (ii) cessation by the Company or any of its ERISA
Affiliates of operations at a facility causing more than twenty percent of
Plan participants to be separated from employment, as referred to in Section
4062(f) of ERISA. Neither the Company nor any of its ERISA Affiliates, nor any
other organization of which any of them are a successor or parent corporation
as defined in Section 4069(b) of ERISA, have engaged in any transaction
described in Section 4069(a) of ERISA.

(d) None of the Plans nor any trust created thereunder has incurred any
"accumulated funding deficiency" as such term is defined in Section 412 of the
Code, whether or not waived, since the effective date of said Section 412, and
no condition has occurred or exists which by the passage of time could be
expected to result in an accumulated funding deficiency as of the last day of
the current plan year of any such Plan. Furthermore, neither the Company nor
any of its ERISA Affiliates has any unfunded liability under ERISA in respect
of any of the Plans (except with respect to current deferred contributions
under the Company's 401(k) plan and the current month's premium for health
plan coverage). Each of the Plans which is intended to be a qualified plan
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service or has time remaining to apply for a
determination letter and make such changes as may be required under the
remedial amendment period of Section 401(b) of the Code. Each Plan has been
operated in accordance with its terms and with the provisions of the Code. All
of the Plans have been administered and maintained in compliance with ERISA,
the Code and all other applicable Laws, except as could not have a material
adverse effect on the Business or Condition of the Company. All contributions
required to be made to each of the Plans under the terms of that Plan, ERISA,
the Code or any other applicable Laws have been timely made. Each Plan
intended to meet the requirements for tax-favored treatment under Subchapter B
of Chapter 1 of the Code meet such requirements. There are no Liens against
the property of the Company or any of its ERISA Affiliates under Section
412(n) of the Code or Section 302(f) or 4068 of ERISA. The Interim Financial
Statements properly reflect all amounts required to be accrued as liabilities
to date under each of the Plans. There is no contract, agreement or benefit
arrangement covering any employee of the Company or any Subsidiary which,
individually or collectively, could give rise to the payment of any amount
which would constitute an "excess parachute payment" (as defined in Section
280G of the Code) (other than payments for which shareholder approval meeting
the requirements of Section 280G(c)(5) of the Code will be obtained prior to
the Closing Date). Except as disclosed in Section 2.13(d) of the Disclosure
Letter, the execution and performance of this Agreement will not (i) result in
any obligation or liability (with respect to accrued benefits or otherwise) of
the Parent or the Surviving Corporation to the PBGC, any Plan, or any present
or former employee of the Parent or the Surviving Corporation, (ii) be a
trigger event under any Plan that will result in any payment (whether of
severance pay or otherwise) becoming due to any present or former employee,
officer, director, shareholder, contractor, or consultant, or any of their
dependents, or (iii) accelerate the time of payment or vesting, or increase
the amount, of compensation due to any employee, officer, director,
shareholder, contractor, or consultant of the Company (except as required in
connection with any termination or partial termination of a qualified Plan and
except for acceleration of options under the Stock Plan and accelerated
lapsing of repurchase rights under Company Common Stock purchase agreements).
With respect to any insurance policy which provides, or has provided, funding
for benefits under any Plan, (i) there is and will be no liability of the
Company or the Parent in the nature of a retroactive or retrospective rate
adjustment, loss sharing arrangement, or actual or contingent liability as of
the Closing Date, nor would there be any such liability if such insurance
policy were terminated as of the Closing Date, and (ii) no insurance company
issuing any such policy is in receivership, conservatorship,

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bankruptcy, liquidation, or similar proceeding, and, to the knowledge of the
Company, no such proceedings with respect to any insurer are imminent.

(e) Other than routine claims for benefits under the Plans, there are no
pending, or, to the best knowledge of the Company, threatened, Actions or
Proceedings involving the Plans, or the fiduciaries, administrators, or
trustees of any of the Plans or the Company or any of its ERISA Affiliates as
the employer or sponsor under any Plan, with any of the IRS, the Department of
Labor, the PBGC, any participant in or beneficiary of any Plan or any other
person whomsoever. The Company knows of no reasonable basis for any such
claim, lawsuit, dispute, action or controversy.

2.14 Title to Property. The Company has good and marketable title to all of
its properties, interests in properties and assets, real and personal,
reflected in the Company Financials or acquired after the Financial Statement
Date (except properties, interests in properties and assets sold or otherwise
disposed of since the Financial Statement Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes
not yet due and payable, (ii) such imperfections of title, liens and easements
as do not and will not materially detract from or interfere with the use of
the properties subject thereto or affected thereby, or otherwise materially
impair business operations involving such properties and (iii) liens securing
debt which is reflected on the Company Financials. The plants, property and
equipment of Company that are used in the operations of its business are in
good operating condition and repair, subject to normal wear and tear. All
properties used as of the applicable date in the operations of Company are
reflected in the Company Financials to the extent generally accepted
accounting principles require the same to be reflected.

2.15 Intellectual Property.

(a) Section 2.15(a) of the Disclosure Letter lists all Company Registered
Intellectual Property and lists any proceedings or actions pending as of the
date hereof before any court, tribunal (including the PTO or equivalent
authority anywhere in the world) related to any of the Company Registered
Intellectual Property.

(b) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Section 2.15(a) of the Disclosure
Letter is owned exclusively by the Company (excluding Intellectual Property
licensed to the Company under any License) and is free and clear of any Liens.
The Company (i) owns exclusively all trademarks, service marks and trade names
used in connection with the operation or conduct of the business of the
Company, including the sale of any products or technology or the provision of
any services by the Company and (ii) owns exclusively, and has good title to,
all copyrighted works that are Company products or other works of authorship
that the Company otherwise purports to own; provided, however, that such works
may incorporate copyrighted works or works of authorship of third parties
which are licensed to the Company or are in the public domain.

(c) To the extent that any Company Intellectual Property has been developed
or created by any Person other than the Company, the Company has a written
agreement with such Person with respect thereto and the Company has either (i)
obtained ownership of, and is the exclusive owner of, all such Intellectual
Property by operation of law or by valid assignment of any such rights or (ii)
has obtained a License under or to such Intellectual Property.

(d) Except pursuant to agreements listed in Section 2.15(d) of the
Disclosure Letter, the Company has not transferred ownership of or granted any
License or other right to use or authorized the retention of any rights to use
any Intellectual Property that is or was Company Intellectual Property, to any
other Person.

(e) The Company Intellectual Property constitutes all the Intellectual
Property used in and/or necessary to the conduct of the Company's business as
it currently is conducted, including, without limitation, the design,
development, distribution, marketing, manufacture, use, import, license, and
sale of the products, technology and services of the Company (including
products, technology, or services currently under development).

(f) The Contracts and Licenses listed in Section 2.15(f) of the Disclosure
Letter include all Contracts and Licenses to which the Company is a party with
respect to any Intellectual Property. No Person other than the

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Company has ownership rights to improvements made by the Company in
Intellectual Property which has been licensed to the Company.

(g) Section 2.15(g) of the Disclosure Letter lists all Contracts, Licenses
and agreements between the Company and any other Person wherein or whereby the
Company has agreed to, or assumed, any obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
obligation or Liability or provide a right of rescission with respect to the
infringement or misappropriation by the Company or such other Person of the
Intellectual Property of any Person other than the Company.

(h) To the knowledge of the Company, the operation of the business of the
Company as currently conducted or as presently proposed to be conducted,
including the Company's design, development, use, import, manufacture and sale
of the products, technology or services (including products, technology or
services currently under development) of the Company does not infringe or
misappropriate the Intellectual Property of any Person, violate the rights of
any Person (including rights to privacy or publicity and moral rights), or
constitute unfair competition or trade practices under any Laws, and the
Company has not received notice from any Person claiming that such operation
or any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property of any Person or constitutes unfair
competition or trade practices under any Law, including notice of third party
patent or other Intellectual Property rights from a potential licensor of such
rights.

(i) Each item of Company Registered Intellectual Property is valid and
subsisting, and all necessary registration, maintenance, renewal fees, annuity
fees and taxes in connection with such Registered Intellectual Property have
been paid and all necessary documents and certificates in connection with such
Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property. In each case in which the Company has
acquired any Intellectual Property rights from any Person, the Company has
obtained a valid and enforceable assignment sufficient to irrevocably transfer
all rights in such Intellectual Property (including the right to seek past and
future damages with respect to such Intellectual Property) to the Company and,
to the maximum extent provided for by, and in accordance with, applicable
Laws, the Company has recorded each such assignment with the relevant
Governmental or Regulatory Authority, including the PTO, the U.S. Copyright
Office, or their respective equivalents in any relevant foreign jurisdiction,
as the case may be.

(j) There are no Contracts or Licenses between the Company and any other
Person with respect to Company Intellectual Property under which there is any
dispute known to the Company regarding the scope of such Contract or License,
or performance under such Contract or License, including with respect to any
payments to be made or received by the Company thereunder.

(k) To the knowledge of the Company, no Person is infringing or
misappropriating any Company Intellectual Property.

(l) The Company has taken all reasonable steps to protect the Company's
rights in confidential information and trade secrets of the Company or
provided by any other Person to the Company subject to a duty of
confidentiality. Without limiting the foregoing, the Company has, and
enforces, a policy requiring each employee, consultant and independent
contractor to execute proprietary information, confidentiality and invention
and copyright assignment agreements substantially in the form set forth in
Section 2.15(l) of the Disclosure Letter, and all current and former
employees, consultants and independent contractors of the Company have
executed such an agreement.

(m) No Company Intellectual Property or product, technology or service of
the Company is subject to any Order or Action or Proceeding that restricts, or
that is reasonably expected to restrict in any manner, the use, transfer or
licensing of any Company Intellectual Property by the Company or that may
affect the validity, use or enforceability of such Company Intellectual
Property.

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(n) To the knowledge of the Company, no (i) product, technology, service or
publication of the Company, (ii) material published or distributed by the
Company or (iii) conduct or statement of the Company constitutes material,
false advertising or otherwise violates any Law.

(o) To the knowledge of the Company, the Company has taken all actions
necessary and appropriate to assure that there shall be no material adverse
change to its business or electronic systems or material interruptions in the
delivery of the Company's products and services by reason of the advent of the
year 2000, including, without limitation, that all of its products (including
products currently under development) will, without interruption or manual
intervention, continue to consistently, predictably and accurately record,
store, process, calculate and present calendar dates falling on and after (and
if applicable, spans of time including) January 1, 2000, and will
consistently, predictably and accurately calculate any information dependent
on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as such products record, store,
process, calculate and present calendar dates on or before December 31, 1999,
or calculate any information dependent on or relating to such dates.

(p) Neither this Agreement nor any transactions contemplated by this
Agreement will result in the Parent's granting any rights or licenses with
respect to the Intellectual Property of the Parent to any Person pursuant to
any Contract to which the Company is a party or by which any of its Assets and
Properties are bound.

(q) Neither this Agreement nor any transactions contemplated by this
Agreement will result in the Company losing any rights or licenses with
respect to any Intellectual Property pursuant to any Contract to which the
Company is a party or by which it has any rights or licenses with respect any
Intellectual Property.

2.16 Contracts.

(a) Section 2.16(a)(1) of the Disclosure Letter contains a true and
complete list of each of the Contracts (true and complete copies or, if none,
reasonably complete and accurate written descriptions of which, together with
all amendments and supplements thereto and all waivers of any terms thereof,
have been made available to the Parent prior to the execution of this
Agreement). Section 2.16(a)(2) of the Disclosure Letter contains a true and
complete list of each Contract of the Company not terminable by the Company
upon thirty days (or less) notice by the Company without penalty or obligation
to make payments based on such termination.

(b) Each Contract required to be disclosed in Section 2.16(a) of the
Disclosure Letter is in full force and effect and constitutes a legal, valid
and binding agreement, enforceable against the Company in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
Laws relating to the enforcement of creditors' rights generally and by general
principles of equity. To the knowledge of the Company, no other party to such
Contract is, nor has received notice that it is, in material violation or
material breach of or default under any such Contract (or with notice or lapse
of time or both, would be in material violation or material breach of or
default under any such Contract). To the knowledge of the Company, each such
contract is a legal, valid and binding obligation of each other party to such
Contract, enforceable against each other party to such contract, except as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Laws relating to the
enforcement of creditors' rights generally and by general principles of
equity.

(c) The Company is not a party to or bound by any Contract that (i)
automatically terminates or allows termination by the other party thereto upon
consummation of the transactions contemplated by this Agreement or (ii)
contains any covenant or other provision which limits the Company's ability to
compete with any Person in any line of business or in any area or territory.

2.17 Insurance. The Company has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of Company. There is no material claim pending under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums due
and payable under all such policies and bonds have been paid and the Company
is otherwise in compliance with the terms of such policies and

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bonds. The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.

2.18 Affiliate Transactions.

(a) Except as disclosed in Section 2.18(a) of the Disclosure Letter, (i)
there are no Contracts or Liabilities between the Company, on the one hand,
and (A) any current or former officer, director, shareholder, or to the
Company's knowledge, any Affiliate or Associate of the Company or (B) any
Person who, to the Company's knowledge, is an Associate of any such officer,
director, shareholder or Affiliate, on the other hand, (ii) the Company does
not provide or cause to be provided any assets, services or facilities to any
such current or former officer, director, shareholder, Affiliate or Associate,
(iii) neither the Company nor any such current or former officer, director,
shareholder, Affiliate or Associate provides or causes to be provided any
assets, services or facilities to the Company and (iv) the Company does not
beneficially own, directly or indirectly, any Investment Assets of any such
current or former officer, director, shareholder, Affiliate or Associate.

(b) Each of the Contracts and Liabilities listed in Section 2.18(a) of the
Disclosure Letter were entered into or incurred, as the case may be, on terms
no less favorable to the Company (in the reasonable judgment of the Company)
than if such Contract or Liability was entered into or incurred on an arm's-
length basis on competitive terms. Any Contract to which the Company is a
party and in which any director of the Company has a financial interest in
such Contract was approved in accordance with the Washington Code.

2.19 Employees; Labor Relations.

(a) Except as set forth in Section 2.19(a) of the Disclosure Letter, the
Company is not a party to any collective bargaining agreement and there is no
unfair labor practice or labor arbitration proceedings pending with respect to
the Company, or, to the knowledge of the Company, threatened, and there are no
facts or circumstances known to the Company that could reasonably be expected
to give rise to such complaint or claim. To the knowledge of the Company,
there are no organizational efforts presently underway or threatened involving
any employees of the Company or any of the employees performing work for the
Company but provided by an outside employment agency, if any. There has been
no work stoppage, strike or other concerted action by employees of the
Company.

(b) All employees of the Company are employed at will. Section 2.19(b) of
the Disclosure Letter sets forth, individually and by category, the name of
each officer, employee and consultant, together with such person's position or
function, annual base salary or wage and any incentive, severance or bonus
arrangements with respect to such person. Except as set forth in Section
2.19(b) of the Disclosure Letter, the completion of the transactions
contemplated by this Agreement will not result in any payment or increased
payment becoming due from the Company to any officer, director, or employee
of, or consultant to, the Company, and to the knowledge of the Company no
employee of the Company has made any threat, or otherwise revealed an intent,
to terminate such employee's relationship with the Company, for any reason,
including because of the consummation of the transactions contemplated by this
Agreement. The Company is not a party to any agreement for the provision of
labor from any outside agency. To the knowledge of the Company, there have
been no claims by employees of such outside agencies, if any, with regard to
employees assigned to work for the Company, and no claims by any governmental
agency with regard to such employees except as set forth in Section 2.19(b) of
the Disclosure Letter.

(c) Since the Company's inception, except as set forth in Section 2.19(c)
of the Disclosure Letter, there have been no federal or state claims based on
sex, sexual or other harassment, age, disability, race or other discrimination
or common law claims, including claims of wrongful termination, by any
employees of the Company or by any of the employees performing work for the
Company but provided by an outside employment agency, and there are no facts
or circumstances known to the Company that could reasonably be expected to
give rise to such complaint or claim. Except as could not reasonably be
expected to have a material adverse effect on the Business or Condition of the
Company, the Company has complied with all laws related to the employment of
employees. Except as set forth in Section 2.19(c) of the Disclosure Letter,
the Company has not received any notice of any claim that it has not complied
in any material respect with any Laws relating to the

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employment of employees, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, the payment of Social
Security and similar taxes, equal employment opportunity, employment
discrimination, the WARN Act, employee safety, or that it is liable for any
arrearages of wages or any taxes or penalties for failure to comply with any
of the foregoing.

(d) The Company has no written policies and/or employee handbooks or
manuals except as set forth in Section 2.19(d) of the Disclosure Letter.

(e) To the knowledge of the Company, no officer, employee or consultant of
the Company is obligated under any Contract or other agreement or subject to
any Order or Law that would interfere with the Company's business as currently
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business as presently conducted nor any activity
of such officers, employees or consultants in connection with the carrying on
of the Company's business as presently conducted, will conflict with or result
in a breach of the terms, conditions or provisions of, constitute a default
under, or trigger a condition precedent to any rights under any Contract or
other agreement under which any of such officer's, employees or consultants is
now bound.

2.20 Environmental Matters.

(a) The Company possesses any and all Environmental Permits necessary to or
required for the operation of its business. The Company will obtain any
Environmental Permits that must be obtained as of or immediately after the
Closing in order for the Surviving Corporation to conduct the business of the
Company as it was conducted prior to the Closing.

(b) The Company is in compliance with (i) all terms, conditions and
provisions of its Environmental Permits and (ii) all Environmental Laws.

(c) Neither the Company nor any predecessor of the Company nor any entity
previously owned by the Company has received any notice of alleged, actual or
potential responsibility for, or any inquiry regarding, (i) any Release or
threatened or suspected Release of any Hazardous Material, or (ii) any
violation of Environmental Law.

(d) Neither the Company nor any predecessor of the Company nor any entity
previously owned by the Company has any obligation or liability with respect
to any Hazardous Material, including any Release or threatened or suspected
Release of any Hazardous Material, and there are no past or present events,
facts or circumstances which could form the basis of any such obligation or
liability.

(e) No Releases of Hazardous Material(s) have occurred at, from, in, to,
on, or under any Site and no Hazardous Material is present in, on, about or
migrating to or from any Site.

(f) Neither the Company, nor any predecessor of the Company, nor any entity
previously owned by the Company, has transported or arranged for the
treatment, storage, handling, disposal or transportation of any Hazardous
Material at or to any location.

(g) No Site is a current or proposed Environmental Clean-up Site.

(h) There are no Liens under or pursuant to any Environmental Law on any
Site.

(i) There is no (i) underground storage tank, active or abandoned, (ii)
polychlorinated biphenyl containing equipment, (iii) asbestos-containing
material, (iv) radon, (v) lead-based paint or (vi) urea formaldehyde at any
Site. Any underground storage tank meets all 1998 upgrade requirements.

(j) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted with respect to any Site which have
not been delivered to the Parent prior to execution of this Agreement.

(k) The Company is not a party, whether as a direct signatory or as
successor, assign, third party beneficiary or otherwise, to, and is not
otherwise bound by, any lease or other contract under which the Company is
obligated or may be obligated by any representation, warranty, covenant,
restriction, indemnification or other

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<PAGE>

undertaking respecting Hazardous Materials or under which any other person is
or has been released respecting Hazardous Materials.

(l) The Company and any predecessors of the Company and any entity
previously owned by the Company have provided all notifications and warnings,
made all reports, and kept and maintained all records required pursuant to
Environmental Laws.

2.21 Substantial Partnerships. None of United Parcel Service General
Services Co. ("UPS"), MBE and eBay Incorporated ("eBay") intend, and none of
the foregoing have threatened, to terminate or refuse to perform their
obligations to, or adversely affect their relationship with, the Company as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby. In addition, each of UPS, MBE and eBay have
waived any express or implied rights of first refusal, rights of first offer
or termination rights which may be triggered by the execution of this
Agreement and the contemplation and consummation of the transactions described
in this Agreement.

2.22 Accounts Receivable. The accounts and notes receivable of the Company
reflected on the Company Financials, and all accounts and notes receivable
arising subsequent to the Unaudited Financial Statement Date, (a) arose from
bona fide sales transactions in the ordinary course of business, consistent
with past practice, and are payable on ordinary trade terms, (b) are legal,
valid and binding obligations of the respective debtors enforceable in
accordance with their respective terms, (c) are not subject to any valid set-
off or counterclaim and (d) do not represent obligations for goods sold on
consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement.

2.23 Other Negotiations; Brokers; Third Party Expenses. Neither the Company
nor, to the knowledge of the Company, any of its Affiliates (nor any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of the Company or any such Affiliate)
(a) has entered into any Contract that conflicts with, or could be expected to
delay or prevent, any of the transactions contemplated by this Agreement or
(b) has entered into any Contract or had any discussions with any Person
regarding any transaction involving the Company which could result in the
Parent, the Company or any general partner, limited partner, manager, officer,
director, employee, agent or Affiliate of any of them being subject to any
claim for liability to said Person as a result of entering into this Agreement
or consummating the transactions contemplated hereby. Section 2.23 of the
Disclosure Letter sets forth the principal terms and conditions of any
Contract with respect to, and a reasonable estimate of, all Third Party
Expenses expected to be incurred by the Company in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby.

2.24 Foreign Corrupt Practices Act. Neither the Company, nor to the
knowledge of the Company, any agent, employee or other Person associated with
or acting on behalf of the Company has, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds, violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or made
any bribe, rebate, payoff, influence payment, kickback or other similar
unlawful payment.

2.25 Financial Projections. The Company has made available to the Parent
certain financial projections with respect to the Company's business which
projections were prepared for internal use only. The Company makes no
representation or warranty regarding the accuracy of such projections or as to
whether such projections will be achieved, except that the Company represents
and warrants that such projections were prepared in good faith and are based
on assumptions believed by it to be reasonable.

2.26 Approvals.

(a) Section 2.26(a) of the Disclosure Letter contains a list of all
material Approvals of Governmental or Regulatory Authorities relating to the
business conducted by the Company which are required to be given to or

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obtained by the Company from any and all Governmental or Regulatory
Authorities in connection with the consummation of the transactions
contemplated by this Agreement.

(b) Section 2.26(b) of the Disclosure Letter contains a list of all
material non-Governmental or Regulatory Authority Approvals which are required
to be given to or obtained by the Company from any and all third parties in
connection with the consummation of the transactions contemplated by this
Agreement.

(c) The Company has obtained all material Approvals from Governmental or
Regulatory Authorities necessary to conduct the business conducted by the
Company in the manner as it is currently being conducted and since its
inception, there has been no written notice received by the Company of any
material violation or material non-compliance with any such Approvals. All
material Approvals from Governmental or Regulatory Authorities necessary to
conduct the business conducted by the Company as it is currently being
conducted are set forth in Section 2.26(c) of the Disclosure Letter.

(d) The affirmative vote or consent of the holders of two-thirds of the
outstanding shares of each of (i) the Company Common Stock and (ii) the Series
A Preferred Stock and the Series B Preferred Stock, voting together as a
class, are the only votes of the holders of any of the Company Capital Stock
necessary to approve this Agreement and the Merger and the transactions
contemplated hereby.

(e) The shareholders of Company that have concurrently herewith entered
into Support Agreements constitute (x) the holders of a majority of the
Company Common Stock and (y) the Holders of two-thirds of the Series A
Preferred Stock and the Series B Preferred Stock, voting together as a class,
in each case approving this Agreement and the Merger and the transactions
contemplated hereby.

2.27 Takeover Statutes. No Takeover Statute applicable to the Company is
applicable to the Merger or the transactions contemplated hereby. The Company
has not adopted any shareholder rights plan or similar "poison pill"
arrangement, provision or understanding.

2.28 Registration Statement; Information Sheet/Prospectus. The information
supplied by the Company for inclusion in the Registration Statement on Form S-
4 of the Parent relating to the offer and sale of shares of Parent Common
Stock in connection with the transactions contemplated by this Agreement (the
"Registration Statement") pursuant to which the shares of Parent Common Stock
issuable hereunder will be registered for public resale shall not at the time
the Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, not
misleading. The information supplied by the Company for inclusion in the joint
proxy statement/prospectus to be sent to the stockholders of the Parent in
connection with the approval, under the NASD's rules, of the issuance of
shares of Parent Common Stock hereunder (such information statement/prospectus
as amended or supplemented is referred to herein as the "Proxy
Statement/Prospectus") shall not, on the date the Proxy Statement/Prospectus
is first mailed to the Parent's stockholders, on the date of the special
meeting of the stockholders of Parent convened for the purpose of voting on
(a) this Agreement and (b) an amendment to the Parent's 1999 Stock Incentive
Plan to increase the number of shares of Parent Common Stock issuable
thereunder (the "Parent Stockholders' Meeting") and at the Effective Time,
contain any statement which, at such time, is false or misleading, with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication which has
become false or misleading. If at any time prior to the Effective Time any
event or information should be discovered by the Company which should be set
forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement/Prospectus, the Company shall promptly inform the Parent.
Notwithstanding the foregoing, the Company makes no representation, warranty
or covenant with respect to any information supplied by the Parent or Merger
Sub which is contained in any of the foregoing documents.

2.29 Disclosure. No representation or warranty contained in this Agreement,
and no statement contained in the Disclosure Letter or in any certificate
delivered to the Parent pursuant to this Agreement (including the Company
Financials including the notes thereto) contains or will contain any untrue
statement of a material fact

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or omits or will omit to state a material fact necessary in order to make the
statements herein or therein, in the light of the circumstances under which
they were made, not misleading.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub hereby represent and warrant to the Company as
follows:

3.1 Organization and Qualification. Each of the Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the
Laws of its jurisdiction of incorporation, each with full corporate power and
authority to conduct its business as now conducted and as currently proposed
to be conducted and to own, use and lease its Assets and Properties. Each of
the Parent and Merger Sub are duly qualified, licensed or admitted to do
business and are in good standing in each jurisdiction in which the ownership,
use, licensing or leasing of its Assets and Properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary, except for such failures to be so duly qualified, licensed or
admitted and in good standing that could not reasonably be expected to have a
material adverse effect on the Business or Condition of the Parent and its
subsidiaries, taken as a whole.

3.2 Authority Relative to this Agreement. Each of the Parent and Merger Sub
has full corporate power and authority to execute and deliver this Agreement,
to perform their obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by the Parent and Merger Sub
of this Agreement and the consummation by the Parent and Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action by the Board of Directors of each of the Parent and Merger
Sub, and no other action on the part of the Board of Directors of either the
Parent or Merger Sub is required to authorize the execution, delivery and
performance of this Agreement and the consummation by the Parent and Merger
Sub of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Parent and Merger Sub and, assuming the
due authorization, execution and delivery hereof by the Company, constitutes a
legal, valid and binding obligation of the Parent and Merger Sub enforceable
against the Parent and Merger Sub in accordance with its respective terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar Laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.

3.3 SEC Documents; the Parent Financial Statements.

(a) As of their respective filing dates, all SEC Documents filed by the
Parent since June 30, 1999 and all SEC Documents filed after the date hereof
but before the Closing complied or will comply in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC thereunder, as the case may be, and none of the SEC
Documents contained or will contain any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent such SEC Documents are
corrected, updated or superseded by a document subsequently filed with the
SEC.

(b) The financial statements of the Parent, including the notes thereto,
included in the SEC Documents (the "Parent Financial Statements") comply as to
form in all material respects with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in
the case of unaudited statements, as permitted by Form 10-Q under the Exchange
Act) and present fairly the financial position of the Parent at the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited financial statements, to normal year-
end adjustments). There has been no change in the Parent's accounting policies
except as described in the notes to the Parent Financial Statements.

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(c) Except as reflected or reserved against in the Parent Financial
Statements, the Parent has no material Liabilities or other obligations,
except for Liabilities and obligations (i) incurred in the ordinary course of
business since the date of the most recent Parent Financial Statements or (ii)
that would not be required to be reflected or reserved against in the balance
sheet of the Parent prepared in accordance with GAAP.

3.4 No Conflicts. The execution and delivery by the Parent and Merger Sub
of this Agreement does not, and the performance by the Parent of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby do not and will not:

(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the certificate of incorporation of the Parent,
articles of incorporation of Merger Sub or bylaws of each of the Parent or
Merger Sub;

(b) conflict with or result in a violation or breach of any Law or Order
applicable to the Parent or Merger Sub or their respective Assets or
Properties;

(c) except as would not have a material adverse effect on the Business or
Condition of the Parent or Merger Sub, (i) conflict with or result in a
violation or breach of, (ii) constitute a default (or an event that, with or
without notice or lapse of time or both, would constitute a default) under,
(iii) require the Parent to obtain any consent, approval or action of, make
any filing with or give any notice to any Person as a result of the terms of,
(iv) result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to
any person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments or performance under, (vi) result in the
creation or imposition of (or the obligation to create or impose) any Lien
upon the Parent or Merger Sub or any of their respective Assets or Properties
or (vii) result in the loss of a material benefit under, any of the terms,
conditions or provisions of any Contract or License to which the Parent or
Merger Sub is a party or by which any of their Assets and Properties are
bound, except for (A) the expiration or termination of any waiting period
under the HSR Act and (B) consents, approvals or actions of third parties that
have been obtained.

3.5 Ownership of Merger Sub; No Prior Activities. As of the date hereof and
the Effective Time, except for obligations or Liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
and will not have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any Person.

3.6 Investment Advisors. Except for Thomas Weisel Partners LLC, no broker,
investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial advisor's or similar fee or commission in
connection with this Agreement and the transactions contemplated hereby based
on arrangements made by or on behalf of the Parent.

3.7 Absence of Certain Changes or Events. Since June 30, 1999 ("Parent
Balance Sheet Date"), the Parent has conducted its business in the ordinary
course in a manner consistent with past practice and there has not occurred:
(i) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of the Parent, or any direct or
indirect redemption, purchase or other acquisition by the Parent of any of its
shares of capital stock; (ii) any material amendment or change to the Parent's
certificate of incorporation or bylaws; or (iii) any negotiation or agreement
by the Parent to do any of the things described in the preceding clauses (i)
or (ii) (other than negotiations with the Company and its representatives
regarding the transactions contemplated by this Agreement).

3.8 Compliance with Laws. The Parent and its subsidiaries have complied
with, are not in violation of, and have not received any notices of violation
with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of their business, or the ownership or
operation of their business, except

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for such violations or failures to comply which would not reasonably be
expected to have a material adverse effect on the Parent and its subsidiaries,
taken as a whole.

3.9 Tax Matters. Neither the Parent nor any of its subsidiaries nor, to the
knowledge of the Parent, any of their respective Affiliates or agents is aware
of any agreement, plan or other circumstance that would prevent the Merger
from constituting a reorganization under Section 368(a) of the Code.

3.10 Intellectual Property Rights. Except as otherwise described in the
Parent's SEC Documents: (a) the Parent owns or possesses adequate rights to
use all patents, patent rights or licenses, inventions, collaborative research
agreements, trade secrets, know-how, trademarks, service marks, trade names
and copyrights which are necessary to conduct its businesses as currently
conducted, (b) the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not reasonably be
expected to result in a material adverse effect on the Parent and its
subsidiaries, taken as a whole, (c) the Parent has not received any notice of,
and has no knowledge of, any infringement of or conflict with asserted rights
of the Parent by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights
and (d) the Parent has not received any notice of, and has no knowledge of,
any infringement of or conflict with asserted rights of others with respect to
any patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names or copyrights which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would reasonably be
expected to have a material adverse effect on the Parent and its subsidiaries,
taken as a whole. Except as otherwise disclosed in the Parent's SEC Documents,
there is no claim being made against the Parent regarding patents, patent
rights or licenses, inventions, collaborative research, trade secrets, know-
how, trademarks, service marks, trade names or copyrights. Except as otherwise
disclosed in the Parent's SEC Documents, the Parent, to its knowledge, does
not in the current conduct of its business nor as or currently proposed to be
conducted infringe or conflict with any right or patent of any third party, or
any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Parent, which such
infringement or conflict is reasonably likely to result in a material adverse
effect on the Parent and its subsidiaries, taken as a whole.

3.11 Year 2000 Preparedness. There are no issues related to the Parent's
preparedness for the Year 2000 that (a) are of a character required to be
described or referred to in the Parent's SEC Documents which have not been
accurately described in the Parent's SEC documents or (b) would reasonably be
expected to result in any material adverse effect on the Parent and its
subsidiaries, taken as a whole, or that would reasonably be expected to
materially affect their Assets or Properties. To the Parent's knowledge, all
internal computer systems and each Constituent Component of those systems and
all computer-related products and each Constituent Component of those products
of the Parent fully comply with Year 2000 Qualification Requirements. "Year
2000 Qualification Requirements" means that the internal computer systems and
each Constituent Component of those systems and all computer-related products
and each Constituent Component of those products of the Parent (i) have been
reviewed to confirm that they store, process (including sorting and performing
mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition and calculations, and
date data interface values that reflect the century, (iii) accurately manage
and manipulate data involving dates and times, including single century
formulas and multi-century formulas, and will not cause an abnormal ending
scenario within the application or generate incorrect values or invalid
results involving such dates, (iv) accurately process any date rollover and
(v) accept and respond to two-digit year date input in a manner that resolves
any ambiguities as to the century. "Constituent Component" means all software
(including operating systems, programs, packages and utilities), firmware,
hardware, networking components, and peripherals provided as part of the
configuration. The Parent has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Parent's SEC Documents
any issues that would reasonably be expected to result in a material adverse
effect on the Parent and its subsidiaries, taken as a whole.

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ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME

4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (unless the Parent shall
give its prior consent in writing) to carry on its business in the ordinary
course consistent with past practice, to pay its Liabilities, including, but
not limited to, Taxes consistent with the Company's past practices, to pay or
perform other obligations when due consistent with the Company's past
practices, subject to any good faith disputes over such Liabilities and, to
the extent consistent with such business, to use reasonable efforts and
institute all policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, independent contractors, shareholders and other Persons having
business dealings with it, all with the express purpose and intent of
preserving unimpaired its goodwill and ongoing businesses at the Effective
Time. Except as expressly contemplated by this Agreement and as set forth in
Section 4.1 of the Disclosure Letter, the Company shall not, without the prior
written consent of the Parent, take, or agree in writing or otherwise to take,
any of the actions described in Sections 2.9(a) through (ii) above, or any
other action that could make any of its representations or warranties
contained in this Agreement untrue or incorrect or prevent the Company from
performing or cause the Company not to perform its agreements and covenants
hereunder.

4.2 No Solicitation. Until the earlier of the Effective Time and the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, shareholders, attorneys, investment advisors, agents,
representatives, Affiliates or Associates to) directly or indirectly, take any
of the following actions with any Person other than the Parent and its
designees: (a) solicit, initiate, entertain, review, or encourage any
proposals or offers from, or conduct discussions with or engage in
negotiations with, any Person relating to any possible Business Combination
with the Company or any of its Subsidiaries (whether such Subsidiaries are in
existence on the date hereof or are hereafter organized), (b) provide
information with respect to the Company to any Person, other than the Parent,
relating to, or otherwise cooperate with, facilitate or encourage any effort
or attempt by any such Person with regard to, any possible Business
Combination with the Company or any Subsidiary of the Company (whether such
Subsidiaries are in existence on the date hereof or are hereafter organized),
(c) enter into a Contract with any Person, other than the Parent, providing
for a Business Combination with the Company or any Subsidiary (whether such
Subsidiaries are in existence on the date hereof or are hereafter organized),
or (d) make or authorize any statement, recommendation or solicitation in
support of any possible Business Combination with the Company or any
Subsidiary (whether such Subsidiary is in existence on the date hereof or are
hereafter organized) other than by the Parent. Each of the foregoing
provisions (a) through (d) shall be a "Triggering Event." In addition to the
foregoing, if the Company receives prior to the Effective Time or the
termination of this Agreement any offer or proposal (formal or informal)
relating to any of the above, the Company shall immediately notify the Parent
thereof and provide the Parent with the details thereof including the identity
of the Person or Persons making such offer or proposal, and will keep the
Parent fully informed of the status and details of any such offer or proposal.
Each of the Company and the Parent acknowledge that this Section 4.2 was a
significant inducement for the Parent to enter into this Agreement and the
absence of such provision would have resulted in either (i) a material
reduction in the merger consideration to be paid to the shareholders of the
Company or (ii) a failure to induce the Parent to enter into this Agreement.

ARTICLE 5
ADDITIONAL AGREEMENTS

5.1 Proxy Statement/Prospectus; Registration Statement.

(a) As soon as practicable, the Parent and the Company shall prepare, and
the Parent shall file with the SEC, the Registration Statement. The Company
agrees to provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment
of the Company or its

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counsel, may be required or appropriate for inclusion in the Proxy
Statement/Prospectus or the Registration Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with
the other's counsel and auditors in the preparation of the same. The Company
will promptly advise the Parent, and the Parent will promptly advise the
Company, in writing if at any time prior to the Effective Time either the
Company or the Parent shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Registration Statement in
order to make the statements contained or incorporated by reference therein
not misleading or to comply with applicable law.

(b) The Proxy Statement/Prospectus shall include a recommendation of the
board of directors of each of the Parent and the Company that the Parent
stockholders or the Company shareholders, as the case may be, approve the
proposal submitted to them which are intended to facilitate the consummation
of the transactions contemplated by this Agreement.

5.2 Shareholder Approval.

(a) The Company shall take all action necessary in accordance with
Washington Code and its articles of incorporation and bylaws to convene a
meeting of the Company's shareholders to vote on the approval and adoption of
this Agreement and the Merger (the "Company Shareholders Meeting") or to
secure a written consent of its shareholders within twenty days of the date
the Registration Statement becomes Effective under the Securities Act. The
Company shall consult with the Parent regarding the date of the Company
Shareholders Meeting or written consent and use all reasonable efforts and
shall not postpone the date of the Company Shareholders Meeting or written
consent. The Company shall use its best efforts to solicit from shareholders
of Company proxies or written consent, as the case may be, in favor of the
Merger and shall take all other action necessary or advisable to secure the
vote or consent of shareholders required to effect the Merger.

(b) The Parent shall promptly after the date hereof take all action
necessary in accordance with the Delaware Code and its certificate of
incorporation and bylaws to convene the Parent Stockholders Meeting or to
secure the written consent of its stockholders. The Parent shall consult with
the Company regarding the date of the Parent Stockholders Meeting or written
consent of its stockholders and use all reasonable efforts and shall not
postpone or adjourn (other than for the absence of a quorum) the Parent
Stockholders Meeting. The Parent shall use its best efforts to solicit from
its stockholders' proxies or written consents in favor of the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
its stockholders required to effect the Merger.

5.3 Access to Information. Between the date of this Agreement and the
earlier of the Effective Time or the termination of this Agreement, upon
reasonable notice the Company shall (a) give the Parent, Merger Sub and their
respective officers, employees, accountants, counsel, financing sources and
other agents and representatives full access during the Company's normal
business hours to all buildings, offices, and other facilities and to all
Books and Records of the Company, whether located on the premises of the
Company or at another location, (b) permit Parent and Merger Sub to make such
inspections as they may reasonably require, (c) cause its officers to furnish
the Parent and Merger Sub such financial, operating, technical and product
data and other information with respect to the business and Assets and
Properties of the Company as the Parent and Merger Sub from time to time may
request, including without limitation financial statements and schedules,
(d) allow the Parent and Merger Sub the opportunity to interview third parties
and business partners and such employees and other personnel and Affiliates of
the Company with the Company's prior written consent, which consent shall not
be unreasonably withheld or delayed and (e) assist and cooperate with the
Parent and Merger Sub in the development of integration plans for
implementation by the Parent and the Surviving Corporation following the
Effective Time; provided, however, that no investigation pursuant to this
Section 5.3 shall affect or be deemed to modify any representation or warranty
made by the Company herein.

5.4 Confidentiality. The parties acknowledge that the Parent and Company
have previously executed a mutual non-disclosure agreement, dated May 14, 1999
(the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms.

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5.5 Expenses; Termination Fee.

(a) Whether or not the Merger is consummated, all fees and expenses
incurred in connection with the Merger including all legal, accounting,
financial advisory, consulting and all other fees and expenses of third
parties ("Third Party Expenses") incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby, shall be the obligation of the
respective party incurring such fees and expenses; provided, that, if the
Merger is consummated, the Parent agrees to pay the Estimated Third Party
Expenses (as set forth on Section 2.23 of the Disclosure Letter) incurred by
the Company which do not exceed $200,000 in the aggregate plus any Third Party
Expenses reasonably incurred in excess of such $200,000 directly attributable
to preparation of the Registration Statement and the Company agrees that the
Parent will have full recourse to the Escrow Fund for payment of Third Party
Expenses in excess of Estimated Third Party Expenses, whether such Third Party
Expenses have been paid by the Company, accrued by the Company or have been
incurred (and not accrued and paid) by the Company.

(b) In the event this Agreement is terminated by the Parent under Section
8.1(h), the Company shall promptly, but in no event later than one day after
the date of such termination, pay the Parent a fee equal to $5,000,000 in
immediately available funds.

5.6 Public Disclosure. Unless otherwise required by Law (including federal
and state securities laws) or, as to the Parent, by the rules and regulations
of the NASD, prior to the Effective Time, no disclosure (whether or not in
response to any inquiry) of the existence of any subject matter of, or the
terms and conditions of, this Agreement shall be made by any party hereto
unless approved by the Parent and the Company prior to release; provided,
however, that such approval shall not be unreasonably withheld or delayed.

5.7 Approvals. Each party shall use commercially reasonable efforts to
obtain the Approvals from Governmental or Regulatory Authorities or under any
of the Contracts or other agreements as may be required in connection with the
Merger so as to preserve all rights of and benefits to the Company thereunder
and each party shall provide the other party with such assistance and
information as is reasonably required to obtain such Approvals (the payment of
money for any such Approvals, other than filing fees, being unreasonable).

5.8 Notification of Certain Matters. The Company shall give prompt notice
to the Parent, and the Parent shall give prompt notice to the Company, of (i)
the occurrence or non-occurrence of any event, the occurrence or non-
occurrence of which is likely to cause any representation or warranty of the
Company, the Parent or Merger Sub, respectively, contained in this Agreement
to be untrue or inaccurate at or prior to the Closing Date and (ii) any
failure of the Company, the Parent or Merger Sub, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.8 shall not limit or otherwise affect any
remedies available to the party receiving such notice.

5.9 Company Affiliate Agreements. Schedule 5.9 of the Disclosure Letter
sets forth those persons who, in the Company's reasonable judgment, are or, as
of the Closing Date, may be "affiliates" of the Company within the meaning of
Rule 145 under the Securities Act (the "Company Affiliates"). The Company
shall provide the Parent such information and documents as the Parent shall
reasonably request for purposes of reviewing such list. The Company shall use
its commercially reasonable efforts to deliver or cause to be delivered to the
Parent on or prior to the Closing from each of the Company Affiliates, an
executed affiliate agreement in the form attached hereto as Exhibit C (a
"Company Affiliate Agreement").

5.10 Additional Documents and Further Assurances. Each party hereto, at the
request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things (including, but not
limited to, all action reasonably necessary to seek and obtain any and all
consents and approvals of any Government or Regulatory Authority or Person;
provided, however, that the Parent shall not be obligated to consent to any
divestitures or operational limitations or activities in connection therewith)
as may be necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby. The Company shall
cause its shareholders to appoint, not later than two Business Days prior to
the

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Closing Date, an individual, reasonably acceptable to the Parent, to act as
Shareholders' Agent as contemplated by Article 7.

5.11 Form S-8. The Parent shall file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Options to the extent the shares of Parent Common Stock issuable upon exercise
of such Company Options qualify for registration on Form S-8. Such Form S-8
shall be filed on the date of expiration of any lock-up period imposed by any
underwriter in connection with any follow-on stock offering by the Parent and
agreed to by all of the Parent's officers, directors and holders (other than
former shareholders of the Company) of five percent or more of the outstanding
shares of Parent Common Stock.

5.12 NNM Listing of Additional Shares Application. The Parent shall use its
commercially reasonable efforts to cause to be authorized for quotation on the
NNM the shares of Parent Common Stock issuable in connection with the Merger
and the shares of Parent Common Stock issuable upon exercise, after the
Closing Date, of the Company Options or the Company Warrants, in each case
upon official notice of issuance.

5.13 Company's Auditors. The Company will use commercially reasonable
efforts to cause its management and its independent auditors to facilitate on
a timely basis (i) the preparation of financial statements (including pro
forma financial statements if required) as required by the Parent to comply
with applicable SEC regulations, (ii) the review of any Company audit or
review work papers since the Company's inception, including the examination of
selected interim financial statements and data and (iii) the delivery of such
representations from the Company's independent accountants as may be
reasonably requested by the Parent or its accountants. The Company shall use
commercially reasonable efforts to obtain a binding fee quotation (on the same
basis as the Company's fee arrangement with such accountants) and the
engagement of its independent auditors to provide consents and comfort letters
requested by the Parent.

5.14 Takeover Statutes. If any Takeover Statute is or may become applicable
to the transactions contemplated hereby, the Board of Directors of the Company
will grant such approvals and take such actions as are necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate the effects of
any Takeover Statute on any of the transactions contemplated hereby.

5.15 Supplemental Disclosure Letter. The Company shall deliver on the
Closing Date a supplement to the Disclosure Letter updating all of the
disclosures accompanying the representations and warranties of the Company in
this Agreement. Such supplement to the Disclosure Letter shall not affect the
Parent's rights and remedies under Article 7.

5.16 Tax Treatment. The Parent, the Company and the Surviving Corporation
shall each use its best efforts (before and after the Effective Time) to cause
the Merger to qualify as a reorganization under the provisions of Section 368
of the Code and to obtain the opinions of counsel referred to in Section
6.1(c), including the execution of the letters of representation referred to
therein.

5.17 Parent Board Representation. The Parent shall use its commercially
reasonable efforts to cause two persons, nominated by the Company, at least
ten days prior to the date of the Parent Stockholders' Meeting (the "Board
Nominees"), to be elected to the board of directors of the Parent as of the
Effective Time.

ARTICLE 6
CONDITIONS TO THE MERGER

6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions, any of which may be waived, in writing, by agreement of
the parties hereto:

(a) Governmental and Regulatory Approvals. Approvals from any Governmental
or Regulatory Authority (if any) deemed appropriate or necessary by any party
to this Agreement shall have been timely

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obtained; and any waiting period under the HSR Act with respect to the receipt
of Parent Common Stock by a shareholder of the Company shall have expired or
been terminated.

(b) No Injunctions or Regulatory Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other Order issued
by any court of competent jurisdiction or Governmental or Regulatory Authority
or other legal or regulatory restraint or prohibition preventing the
consummation of the Merger shall be in effect; nor shall there be any action
taken, or any Law or Order enacted, entered, enforced or deemed applicable to
the Merger or the other transactions contemplated by the terms of this
Agreement that would prohibit the consummation of the Merger or which would
permit consummation of the Merger only if certain divestitures were made or if
the Parent were to agree to limitations on its business activities or
operations.

(c) Tax Opinions. The Parent and the Company shall each have received
written opinions from their counsel, in form and substance reasonably
satisfactory to each of them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. The parties
to this Agreement agree to make such reasonable representations as requested
by such counsel for the purpose of rendering such opinions.

(d) Stockholder/Shareholder Approval. The (a) increase in number of shares
of Parent Common Stock issuable under the Parent's 1999 Stock Incentive Plan
and (b) Agreement shall have been approved and adopted by the requisite votes
of the Parent's stockholders and the Merger shall have been approved by the
Company's shareholders in accordance with applicable Laws.

(e) Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order shall be in effect and no
Actions or Proceedings for that purpose shall be pending or, to the knowledge
of the parties hereto, threatened with respect to the Registration Statement.

6.2 Additional Conditions to Obligations of the Company. The obligations of
the Company to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:

(a) Representations and Warranties. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall be true and
correct in all material respects (if not qualified by materiality) and in all
respects (if qualified by materiality) when made and on and as of the
Effective Time as though such representation or warranty was made on and as of
the Effective Time, and any representation or warranty made as of a specified
date earlier than the Effective Time shall also have been true and correct in
all material respects (if not qualified by materiality) and in all respects
(if qualified by materiality) on and as of such earlier date.

(b) Performance. Parent and Merger Sub shall have performed and complied
with in all material respects each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by the Parent or Merger
Sub at or before the Effective Time.

(c) Officers' Certificate. The Parent shall have delivered to the Company a
certificate, dated the Closing Date and executed by an authorized officer
confirming the satisfaction of the conditions specified in Sections 6.2(a) and
6.2(b).

(d) NNM Listing. The shares of Parent Common Stock issuable to shareholders
of the Company pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger will be converted upon
disposition shall have been authorized for quotation on the NNM upon official
notice of issuance.

(e) Parent Board Representation. The Board Nominees shall have been elected
to the board of directors of the Parent.

6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Parent:

(a) Representations and Warranties. Each of the representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects (if not qualified by materiality) and in all

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respects (if qualified by materiality) when made and, after giving effect to
the supplement to the Disclosure Letter made pursuant to Section 5.15, on and
as of the Effective Time as though such representation or warranty was made on
and as of the Effective Time; provided, however, and any representation or
warranty made as of a specified date earlier than the Effective Time shall
also have been true and correct in all material respects (if not qualified by
materiality) and in all respects (if qualified by materiality) on and as of
such earlier date.

(b) Performance. The Company shall have performed and complied with in all
material respects each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by the Company on or before the
Effective Time.

(c) Officers' Certificate. The Company shall have delivered to the Parent a
certificate, dated the Closing Date and executed by its President and Chief
Executive Officer confirming the satisfaction of the conditions specified in
Sections 6.3(a) and 6.3(b).

(d) Third Party Consents. The Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers listed in Section 2.6 of the Disclosure Letter (except
for such consents, approvals and waivers the failure of which to receive could
not be expected to have a material adverse effect on the Business or Condition
of the Surviving Corporation).

(e) Limitation on Dissent. The holders of less than five percent of the
outstanding shares of Company Common Stock shall have exercised, nor shall
they have any continuing right to exercise, appraisal, dissenters' or similar
rights under applicable Law with respect to their shares arising out of or
related to the transactions contemplated by this Agreement.

(f) No Material Adverse Change. There shall have occurred no material
adverse change or event or circumstance which could reasonably be expected to
have a material adverse change in the Business or Condition of the Company
since the date hereof.

(g) Legal Proceedings. No Governmental or Regulatory Authority shall have
notified either party to this Agreement that it intends to commence
proceedings to restrain or prohibit the transactions contemplated hereby or
force rescission, unless such Governmental or Regulatory Authority shall have
withdrawn such notice and abandoned any such proceedings prior to the time
which otherwise would have been the Closing Date.

(h) Termination of Pension Plan. If required by the Parent in writing,
Company shall, immediately prior to the Effective Time, terminate the
Company's 401(k) Plan (the "401(k) Plan"); provided that the Parent shall pay
all reasonable costs reasonably incurred in connection with such termination
of the 401(k) Plan, and no further contributions shall be made to the 401(k)
Plan, except for contributions received from participants prior to the
termination date of the 401(k) Plan and contributions made on behalf of
Participants in the 401(k) Plan that are based on compensation earned on or
before such termination. The Company shall provide to the Parent (i) executed
resolutions by the board of directors of the Company authorizing the
termination and (ii) an executed amendment to the 401(k) Plan sufficient to
assure compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of the 401(k) Plan will be
maintained at the time of termination.

(i) Affiliate Agreements. Each Company Affiliate shall have executed and
delivered to the Company and the Parent a Company Affiliate Agreement and such
agreements shall be in full force and effect.

(j) Employees. The Employment Agreements shall continue to be in full force
and effect (and none of Persons a party thereto shall have given any notice or
other indication that they will not continue to be willing to be employed by
the Parent following the Merger). The number of engineering and R&D employees
of the Company as of the Closing shall be at least 95% of the number of such
employees as of the date of this Agreement (excluding any such employee who,
as of the date of this Agreement, has given notice or other indication that
they will not continue to be willing to be employed by the Parent following
the Merger); provided that the Parent shall take no action indicating that the
compensation and benefits of such employees after the Closing would, in the
aggregate, be less favorable than the compensation and benefits received by
such employees on the date of this Agreement.

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(k) Consents of UPS, MBE and eBay. The Support Agreements with each of UPS
and MBE shall continue to be in full force and effect and none of them or eBay
shall have given notice of their intent to materially change or terminate
their business relationship with the Company or that such party will not
continue to perform the terms of its business relationship with the Company.

(l) Lock-up Agreements. Each shareholder of the Company who is requested by
any underwriter of the Parent to deliver a lock-up agreement shall have
delivered an executed lock-up agreement in such form as required by any
underwriter of the Parent and agreed to by all of the Parent's officers,
directors and holders (other than former shareholders of the Company) of five
percent or more of the outstanding shares of Parent Common Stock.

(m) Appointment of Shareholders' Agent. By action of the holders of at
least two thirds of the outstanding shares of capital stock of the Company
(calculated on an as if converted basis) shall have appointed an individual,
reasonably acceptable to the Parent, to act as their agent and attorney-in-
fact in the manner contemplated by Article 7 (the "Shareholders' Agent"), who
shall have signed an agreement to be bound to this Agreement as Shareholders'
Agent.

ARTICLE 7
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; ESCROW PROVISIONS

7.1 Survival of Representations, Warranties, Covenants and
Agreements. Except as otherwise provided in Section 8.2, all of the
representations, warranties, covenants and agreements of the Company, Parent
and Merger Sub contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until the
first anniversary of the Closing Date (the "Expiration Date").

7.2 Escrow Provisions.

(a) Establishment of the Escrow Fund. As soon as practicable after the
Effective Time, the Escrow Amount, without any act of any shareholder of the
Company, will be deposited with the Depositary (plus a proportionate share of
any additional shares of Parent Common Stock as may be issued upon any stock
splits, stock dividends or recapitalizations effected by the Parent following
the Effective Time), such deposit to constitute the Escrow Fund to be governed
by the terms set forth herein. The portion of the Escrow Amount contributed on
behalf of each shareholder of the Company shall be in proportion to the
aggregate number of shares of Parent Common Stock which such holder would
otherwise be entitled under Section 1.6.

(b) Recourse to the Escrow Fund. The Escrow Fund shall be available to
compensate the Parent and the Surviving Corporation, and their respective
officers, directors, employees, agents, Affiliates and Associates for any and
all Losses (whether or not involving a Third Party Claim), incurred or
sustained by the Parent or Merger Sub, their respective officers, directors,
employees, agents, Affiliates or Associates, directly or indirectly, as a
result of any inaccuracy or breach of any representation, warranty, covenant
or agreement of the Company contained herein or in any instrument delivered
pursuant to this Agreement. The Parent, Merger Sub and the Company each
acknowledge that such Losses, if any, would relate to unresolved contingencies
existing at the Effective Time, which if resolved at the Effective Time would
have led to a reduction in the aggregate Merger consideration to be paid to
the shareholders of the Company. The Escrow Fund shall be the sole post
closing remedy of the Parent and the Surviving Corporation for any breach of
any representation, warranty, agreement or covenant contained herein (other
than claims for fraud or negligent misrepresentation; provided, that no former
shareholder of the Company shall be liable to the Parent or the Surviving
Corporation for acts of fraud or negligent misrepresentation by Persons other
than that former shareholder of the Company ).

(c) Escrow Period; Distribution of Escrow Fund upon Termination of Escrow
Period. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., Pacific Time, on the Expiration Date (the period of time from the
Effective Time through and including the Expiration Date is referred to herein
as the "Escrow Period"); and all shares of Parent

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Common Stock remaining in the Escrow Fund shall be distributed as set forth in
the last sentence of this Section 7.2(c); provided, however, that the Escrow
Period shall not terminate with respect to such amount (or some portion
thereof) that is necessary in the reasonable judgment of the Parent, subject
to the objection of the Shareholders' Agent and the subsequent arbitration of
the matter in the manner as provided in Section 7.2(g) hereof, to satisfy any
unsatisfied claims under this Section 7.2 concerning facts and circumstances
existing prior to the termination of such Escrow Period which claims are
specified in any Officer's Certificate delivered to the Depositary prior to
termination of such Escrow Period. As soon as all such claims, if any, have
been resolved, the Depositary shall deliver to the former shareholders of the
Company the remaining portion of the Escrow Fund not required to satisfy such
claims. Deliveries of shares of Parent Common Stock remaining in the Escrow
Fund to the former shareholders of the Company pursuant to this Section 7.2(c)
shall be made ratably in proportion to their respective contributions to the
Escrow Fund and the Parent shall use its commercially reasonable efforts to
have such shares delivered within five Business Days of such resolution.

(d) Protection of Escrow Fund.

(i) The Depositary shall hold and safeguard the Escrow Fund during the
Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of the Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms
hereof.

(ii) Any shares of Parent Common Stock or other Equity Equivalents
securities issued or distributed by the Parent ("New Shares") in respect of
Parent Common Stock in the Escrow Fund which have not been released from
the Escrow Fund shall be added to the Escrow Fund. New Shares issued in
respect of shares of Parent Common Stock which have been released from the
Escrow Fund shall not be added to the Escrow Fund but shall be distributed
to the record holders thereof. Cash dividends on Parent Common Stock shall
not be added to the Escrow Fund but shall be distributed to the former
shareholders of the Company ratably in proportion to their respective
contributions to the Escrow Fund.

(iii) Each former shareholder of the Company shall have voting rights
with respect to the shares of Parent Common Stock contributed to the Escrow
Fund by such former shareholder of the Company (and on any voting
securities added to the Escrow Fund in respect of such shares of Parent
Common Stock).

(e) Claims Upon Escrow Fund.

(i) Upon receipt by the Depositary at any time on or before the last day
of the Escrow Period of a certificate signed by any officer of the Parent
(an "Officer's Certificate"): (A) stating that the Parent has paid or
properly accrued or reasonably anticipates that it will have to pay or
accrue Losses, directly or indirectly, as a result of any inaccuracy or
breach of any representation, warranty, covenant or agreement of the
Company contained herein or in any instrument delivered pursuant to this
Agreement, and (B) specifying in reasonable detail the bona fide individual
items of Losses included in the amount so stated, the date each such item
was paid or properly accrued, or the bona fide basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty,
agreement or covenant to which such item is related, the Depositary shall,
subject to the provisions of Section 7.2(f) hereof, deliver to the Parent
out of the Escrow Fund, as promptly as practicable, shares of Parent Common
Stock held in the Escrow Fund in an amount equal to such Losses. No claim
may be made against the Escrow Fund until the aggregate indemnifiable
losses exceed $50,000 and then such claim may be made for such $50,000 of
indemnifiable Losses and any Losses in excess of $50,000.

(ii) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to the Parent out of the Escrow Fund pursuant
to Section 7.2(e)(i), the shares of Parent Common Stock shall be valued at
the Closing Price.

(f) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Depositary, a duplicate copy of such certificate shall be
delivered to the Shareholders' Agent and for a period of thirty days after
such delivery, the Depositary shall make no delivery to the Parent of any
Escrow Amounts pursuant to Section 7.2(e) hereof unless the Depositary shall
have received written authorization from the Shareholders' Agent to make such
delivery. After the expiration of such thirty-day period, the Depositary shall
make delivery

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of shares of Parent Common Stock from the Escrow Fund in accordance with
Section 7.2(e) hereof; provided that no such payment or delivery may be made
if the Shareholders' Agent shall object in a written statement to the claim
made in the Officer's Certificate, and such statement shall have been
delivered to the Depositary prior to the expiration of such thirty-day period.

(g) Resolution of Conflicts; Arbitration.

(i) In case the Shareholders' Agent shall object in writing to any claim
or claims made in any Officer's Certificate, the Shareholders' Agent and
the Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the
Shareholders' Agent and the Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Depositary. The Depositary shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock from the
Escrow Fund in accordance with the terms thereof.

(ii) If no such agreement can be reached after good faith negotiation,
either the Parent or the Shareholders' Agent may demand arbitration of the
dispute unless the amount of the damage or loss is at issue in a pending
Action or Proceeding involving a Third Party Claim, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either event the matter shall be
settled by arbitration conducted by three arbitrators, one selected by the
Parent and one selected by the Shareholders' Agent, and the two arbitrators
selected by the Parent and the Shareholders' Agent shall select a third
arbitrator. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery of
information relating to any dispute while allowing the parties an
opportunity, adequate as determined in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties
about the subject matter of the dispute. The arbitrators shall rule upon
motions to compel, limit or allow discovery as they shall deem appropriate
given the nature and extent of the disputed claim. The arbitrators shall
also have the authority to impose sanctions, including attorney's fees and
other costs incurred by the parties, to the same extent as a court of law
or equity, should the arbitrators determine that discovery was sought
without substantial justification or that discovery was refused or objected
to by a party without substantial justification. The decision of a majority
of the three arbitrators as to the validity and amount of any claim in such
Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 7.2(f) hereof, the
Depositary shall be entitled to act in accordance with such decision and
make or withhold payments out of the Escrow Fund in accordance therewith.
Such decision shall be written and shall be supported by written findings
of fact and conclusions regarding the dispute which shall set forth the
award, judgment, decree or order awarded by the arbitrators.

(iii) Judgment upon any award rendered by the arbitrators may be entered
in any court having competent jurisdiction. Any such arbitration shall be
held in the city and county of Los Angeles, California under the commercial
rules of arbitration then in effect of the American Arbitration
Association. For purposes of this Section 7.2(g), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, the Parent shall be deemed to be the Non-
Prevailing Party in the event that the arbitrators award the Parent less
than the sum of one-half of the bona fide disputed amount of any Losses;
otherwise, the former shareholders of the Company as represented by the
Shareholders' Agent shall be deemed to be the Non-Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the fees
of each arbitrator, the administrative costs of the arbitration and the
expenses, including without limitation, reasonable attorneys' fees and
costs, incurred by the other party to the arbitration.

(h) Shareholders' Agent of the Shareholders; Power of Attorney.

(i) In the event that the Merger is approved by the shareholders of the
Company, effective upon such vote, and without further act of any
shareholder, the Shareholders' Agent shall be appointed as agent and
attorney-in-fact for each former shareholder of the Company (except such
shareholders, if any, as shall have perfected their appraisal or
dissenters' rights under the Washington Code), for and on behalf of former
shareholders of the Company, to give and receive notices and
communications, to authorize delivery to the Parent of shares of Parent
Common Stock from the Escrow Fund in satisfaction of claims by the Parent,
to

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object to such deliveries, to agree to, negotiate, enter into settlements
and compromises of, and demand arbitration and comply with orders of courts
and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Shareholders' Agent
for the accomplishment of the foregoing. Such agency may be changed by the
former shareholders of the Company from time to time upon not less than
thirty days prior written notice to the Parent; provided, however, that the
Shareholders' Agent may not be removed unless holders of a two-thirds
interest in the Escrow Fund agree to such removal and to the identity of
the substituted shareholder agent. Any vacancy in the position of
Shareholders' Agent may be filled by approval of the holders of a majority
in interest of the Escrow Fund. No bond shall be required of the
Shareholders' Agent, and the Shareholders' Agent shall not receive
compensation for his services. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the former
shareholders of the Company.

(ii) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith and in
the exercise of reasonable judgment.

(i) Actions of the Shareholders' Agent. A decision, act, consent or
instruction of the Shareholders' Agent shall constitute a decision of all the
former shareholders of the Company for whom a portion of the Escrow Amount
otherwise issuable to them are deposited in the Escrow Fund and shall be
final, binding and conclusive upon each of such shareholders, and the
Depositary and the Parent may rely upon any such decision, act, consent or
instruction of the Shareholders' Agent as being the decision, act, consent or
instruction of every such shareholder of the Company. The Depositary and the
Parent are hereby relieved from any liability to any person for any acts done
by them in accordance with such decision, act, consent or instruction of the
Shareholders' Agent.

(j) Third-Party Claims. In the event the Parent becomes aware of a third-
party claim (a "Third Party Claim") which the Parent reasonably expects may
result in a demand against the Escrow Fund, the Parent shall notify the
Shareholders' Agent of such claim, and the Shareholders' Agent, as
representative for the shareholders of the Company, shall be entitled, at
their expense, to participate in any defense of such claim. The Parent shall
have the right in its sole discretion to settle any Third Party Claim;
provided, however, that if the Parent settles any Third Party Claim without
the Shareholders' Agent's consent (which consent shall not be unreasonably
withheld or delayed), the Parent may not make a claim against the Escrow Fund
with respect to the amount of Losses incurred by the Parent in such
settlement. In the event that the Shareholders' Agent has consented to any
such settlement, the Shareholders' Agent shall have no power or authority to
object under any provision of this Article 7 to the amount of any claim by the
Parent against the Escrow Fund with respect to the amount of Losses incurred
by the Parent in such settlement.

(k) Depositary's Duties.

(i) The Depositary shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Depositary may receive
after the date of this Agreement which are signed by an officer of the
Parent and the Shareholders' Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to
be genuine and to have been signed or presented by the proper party or
parties. The Depositary shall not be liable for any act done or omitted
hereunder as Depositary while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith.

(ii) The Depositary is hereby expressly authorized to comply with and
obey Orders of any court of law or Governmental or Regulatory Authority,
notwithstanding any notices, warnings or other communications from any
party or any other person to the contrary. In case the Depositary obeys or
complies with any such Order, the Depositary shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
notwithstanding any such Order being subsequently reversed, modified,
annulled, set aside, vacated or found to have been entered without
jurisdiction or proper authority.

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(iii) The Depositary shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.

(iv) The Depositary shall not be liable for the expiration of any rights
under any statute of limitations with respect to this Agreement or any
documents deposited with the Depositary.

(v) In performing any duties under the Agreement, the Depositary shall
not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Depositary. The
Depositary shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Depositary shall in good faith
believe to be genuine, nor will the Depositary be liable or responsible for
forgeries, fraud, impersonations or determining the scope of any
representative authority. In addition, the Depositary may consult with
legal counsel in connection with the Depositary's duties under this
Agreement and shall be fully protected in any act taken, suffered, or
permitted by it in good faith in accordance with the advice of counsel. The
Depositary is not responsible for determining and verifying the authority
of any person acting or purporting to act on behalf of any party to this
Agreement.

(vi) If any controversy arises between the parties to this Agreement, or
with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Depositary will not be required to determine the
controversy or to take any action regarding it. The Depositary may hold all
documents and shares of Parent Common Stock and may wait for settlement of
any such controversy by final appropriate legal proceedings or other means
as, in the Depositary's discretion, the Depositary may be required, despite
what may be set forth elsewhere in this Agreement. In such event, the
Depositary will not be liable for any damages. Furthermore, the Depositary
may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Depositary
is authorized to deposit with the clerk of the court all documents and
shares of Parent Common Stock held in escrow, except all costs, expenses,
charges and reasonable attorneys' fees incurred by the Depositary due to
the interpleader action and which the parties jointly and severally agree
to pay. Upon initiating such action, the Depositary shall be fully released
and discharged of and from all obligations and liability imposed by the
terms of this Agreement.

(vii) The parties and their respective successors and assigns agree
jointly and severally to indemnify and hold the Depositary harmless against
any and all Losses incurred by the Depositary in connection with the
performance of the Depositary's duties under this Agreement, including but
not limited to any litigation arising from this Agreement or involving its
subject matter.

(viii) The Depositary may resign at any time upon giving at least thirty
days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor
Depositary which shall be accomplished as follows: the parties shall use
their commercially reasonable efforts to mutually agree on a successor
depositary within thirty days after receiving such notice. If the parties
fail to agree upon a successor depositary within such time, the Depositary
shall have the right to appoint a successor depositary authorized to do
business in the State of California; provided, that such successor
depositary shall be consented to by the Parent and the Shareholders'
Representative (which consent shall not be unreasonably withheld or
delayed). The successor depositary shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested
with all the estates, properties, rights, powers, and duties of the
predecessor depositary as if originally named as Depositary. The Depositary
shall be discharged from any further duties and liability under this
Agreement.

(l) Fees. All fees of the Depositary for performance of its duties
hereunder shall be paid by the Parent in accordance with the fee schedule
previously delivered to the Parent. In the event that the conditions of this
Agreement are not promptly fulfilled, or if the Depositary renders any service
not provided for in this Agreement, or if the parties request a substantial
modification of its terms, or if any controversy arises, or if the Depositary
is made a party to, or intervenes in, any Action or Proceeding pertaining to
this escrow or its subject matter, the

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Depositary shall be reasonably compensated for such extraordinary services and
reimbursed for all costs, attorney's fees, and expenses occasioned by such
default, delay, controversy or Action or Proceeding. The Parent agrees to pay
these sums upon demand.

ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER

8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:

(a) by mutual agreement of the Company, Parent and Merger Sub;

(b) by the Parent, Merger Sub or the Company if: (i) the Effective Time has
not occurred before 5:00 p.m. (Pacific Time) on February 29, 2000 (provided,
however, that the right to terminate this Agreement under this clause
8.1(b)(i) shall not be available to any party whose failure to fulfill any
obligation hereunder has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental or Regulatory Authority that would make
consummation of the Merger illegal;

(c) by the Parent and Merger Sub, if there shall be any action taken, or
any Law or Order enacted, promulgated or issued or deemed applicable to the
Merger, by any Governmental or Regulatory Authority, which would: (i) prohibit
the Parent's or the Merger Sub's ownership or operation of all or any portion
of the business of the Company or (ii) compel the Parent or Merger Sub to
dispose of or hold separate all or a portion of the Assets and Properties of
the Company as a result of the Merger;

(d) by the Parent, if there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and (i) the Company has not cured such breach within fifteen days
following receipt by the Company of written notice of such breach or is not
using its commercially reasonable efforts to cure such breach after written
notice of such breach to the Company (provided, however, that, no cure period
shall be required for a breach which by its nature cannot be cured) and (ii)
as a result of such breach the conditions set forth in Section 6.3(a) or
6.3(b), as the case may be, would not then be satisfied;

(e) by the Company, if there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Parent or Merger Sub and (i) the Parent has not cured such breach within
fifteen days following receipt by the Company of written notice of such breach
or is not using its commercially reasonable efforts to cure such breach after
written notice of such breach to the Parent (provided, however, that no cure
period shall be required for a breach which by its nature cannot be cured),
and (ii) as a result of such breach the conditions set forth in Section 6.2(a)
or 6.2(b), as the case may be, would not then be satisfied;

(f) by the Parent, if the Merger shall not have been approved at the
Special Meeting by the requisite votes of the Company's shareholders in
accordance with the Washington Code;

(g) by the Company, if the Merger shall not have been approved by the
Parent's shareholders at the Parent Special Meeting; or

(h) by the Parent, if a Triggering Event (as defined in Section 4.2 hereof)
shall have occurred.

8.2 Effect of Termination. In the event of a valid termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of the Parent,
Merger Sub or the Company, or their respective officers, directors or
shareholders or Affiliates or Associates; provided, however, that each party
shall remain liable for any willful breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 5.4, 5.5,
5.6, 8.2, 9.6, 9.9 and 9.10 of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.

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ARTICLE 9
MISCELLANEOUS PROVISIONS

9.1 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission against
facsimile confirmation, return receipt requested, or mailed by overnight
courier prepaid, to the parties at the following addresses or facsimile
numbers:

If to the Parent or Merger Sub to:

Stamps.com Inc.
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
Facsimile No.: (310) 314-8523
Attn: Chief Executive Officer and
Attn: Senior Director, Legal Affairs

with a copy (which shall not constitute notice) to:

Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, California 92618
Facsimile No.: (949) 790-6301
Attn: Bruce R. Hallett

If to the Company to:

iShip.com, Inc.
3535 Factoria Boulevard SE, Suite 500
Bellevue, Washington 98006
Facsimile No.: (425) 602-5025
Attn: President and Chief Executive Officer

with a copy (which shall not constitute notice) to:

Venture Law Group, a Professional Corporation
4750 Carillion Point
Kirkland, Washington 98033
Facsimile No.: (425) 739-8750
Attn: Craig E. Sherman

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided for in this Section, be deemed given upon facsimile confirmation,
and (iii) if delivered by overnight courier to the address as provided in this
Section, be deemed given on the earlier of the first Business Day following
the date sent by such overnight courier or upon receipt (in each case
regardless of whether such notice, request or other communication is received
by any other Person to whom a copy of such notice is to be delivered pursuant
to this Section). Any party from time to time may change its address,
facsimile number or other information for the purpose of notices to that party
by giving notice specifying such change to the other party hereto.

9.2 Entire Agreement. This Agreement and the Confidentiality Agreement
supersedes all prior discussions and agreements between the parties with
respect to the subject matter hereof and thereof and contains the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof.

9.3 Further Assurances; Post-Closing Cooperation. At any time or from time
to time after the Closing, the parties shall execute and deliver to the other
party such other documents and instruments, provide such

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materials and information and take such other actions as the other party may
reasonably request to consummate the transactions contemplated by this
Agreement and otherwise to cause the other party to fulfill its obligations
under this Agreement and the transactions contemplated hereby.

9.4 Amendment; Waiver. Except as otherwise required by applicable law after
the shareholders of the Company approve the Merger and this Agreement, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto. Any term
or condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition. No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or condition of this
Agreement on any future occasion. All remedies, either under this Agreement or
by Law or otherwise afforded, will be cumulative and not alternative.

9.5 Third Party Beneficiaries. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights, and this Agreement does not confer any
such rights, upon any other Person other than any Person entitled to indemnity
under Article 7.

9.6 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party
and any attempt to do so will be void. Subject to the preceding sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.

9.7 Headings. The headings and table of contents used in this Agreement
have been inserted for convenience of reference only and do not define or
limit the provisions hereof.

9.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible.

9.9 Governing Law. Other than the mandatory provisions of the Washington
Code, this Agreement shall be governed by and construed in accordance with the
domestic laws of the State of California, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of
California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.

9.10 Construction. The parties hereto agree that this Agreement is the
product of negotiation between sophisticated parties, all of whom were
represented by counsel, and each of whom had an opportunity to participate in
and did participate in, the drafting of each provision hereof. Accordingly,
ambiguities in this Agreement, if any, shall not be construed strictly or in
favor of or against any party hereto but rather shall be given a fair and
reasonable construction without regard to the rule of contra preferentum.

9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

9.12 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were

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otherwise breached. Except where this Agreement specifically provides for
arbitration, it is agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy
to which they are entitled at law or in equity.

ARTICLE 10
DEFINITIONS

10.1 Definitions.

(a) As used in this Agreement, the following defined terms shall have the
meanings indicated below:

"Actions or Proceedings" means any action, suit, complaint, petition,
investigation, proceeding, arbitration, litigation or Governmental or
Regulatory Authority investigation, audit or other proceeding, whether civil
or criminal, in law or in equity, or before any arbitrator or Governmental or
Regulatory Authority.

"Affiliate" means, as applied to any Person, (a) any other Person directly
or indirectly controlling, controlled by or under common control with, that
Person, (b) any other Person that owns or controls (i) ten percent or more of
any class of equity securities of that Person or any of its Affiliates or (ii)
ten percent or more of any class of equity securities (including any equity
securities issuable upon the exercise of any option or convertible security)
of that Person or any of its Affiliates, or (c) any director, partner,
officer, manager, agent, employee or relative of such Person. For the purposes
of this definition, "control" (including with correlative meanings, the terms
"controlling," "controlled by," and "under common control with") as applied to
any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that Person,
whether through ownership of voting securities or by contract or otherwise.

"Aggregate Company Share Number" means the sum of (a) the aggregate number
of shares of Company Common Stock outstanding immediately prior to the
Effective Time (including all shares of Company Common Stock issued or
issuable upon exercise, conversion or exchange of all unvested and vested
Company Options or Company Warrants which are not exercised, converted,
exchanged or expired as of the Effective Time), (b) the aggregate number of
shares of Series A Preferred Stock outstanding immediately prior to the
Effective Time and (c) the aggregate number of shares of Series B Preferred
Stock outstanding immediately prior to the Effective Time.

"Aggregate Merger Share Number" means 8,000,000 shares of Parent Common
Stock (as appropriately adjusted to reflect the effect of any stock split,
stock dividend, stock combination, reorganization, reclassification or similar
change by the Parent occurring after the date of this Agreement and prior to
the Effective Time).

"Agreement" means this Agreement and Plan of Merger, the Exhibits and the
Disclosure Letter and the certificates and instruments delivered in connection
herewith, or incorporated by reference, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.

"Articles of Merger" has the meaning ascribed to it in Section 1.2.

"Approval" means any approval, authorization, consent, permit,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from or made with, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental or
Regulatory Authority or any other Person.

"Assets and Properties" of any Person means all assets and properties of
every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including, but not limited to, the
goodwill related thereto,

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operated, owned, licensed or leased by such Person, including cash, cash
equivalents, Investment Assets, accounts and notes receivable, chattel paper,
documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.

"Associate" means, with respect to any Person, any corporation or other
business organization of which such Person is an officer or partner or is the
beneficial owner, directly or indirectly, of ten percent or more of any class
of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.

"Audited Financial Statement Date" means December 31, 1998.

"Audited Financial Statements" means the audited balance sheets of the
Company as of each of the fiscal years ended December 31, 1997 and December
31, 1998, respectively, and the related audited statements of operations,
shareholders' equity and cash flows for each of the fiscal years then ended,
in each case, including the notes thereto.

"Books and Records" means all files, documents, instruments, papers, books
and records relating to the Business or Condition of the Company, including
financial statements, internal reports, Tax Returns and related work papers
and letters from accountants, budgets, pricing guidelines, ledgers, journals,
deeds, title policies, minute books, stock certificates and books, stock
transfer ledgers, Contracts, Licenses, customer lists, computer files and
programs (including data processing files and records), retrieval programs,
operating data and plans and environmental studies and plans.

"Business Combination" means, with respect to any Person, (i) any merger,
consolidation or other business combination to which such Person is a party,
(ii) any sale, dividend, split or other disposition of any capital stock or
other equity interests of such Person, (iii) any tender offer (including a
self tender), exchange offer, recapitalization, restructuring, liquidation,
dissolution or similar or extraordinary transaction, (iv) any sale, dividend
or other disposition of all or a material portion of the Assets and Properties
of such Person or (v) the entering into of any agreement or understanding, the
granting of any rights or options, or the acquiescence of the Company, with
respect to any of the foregoing.

"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of California are authorized or obligated to close.

"Business or Condition of the Company" means the business, condition
(financial or otherwise), results of operations, prospects or Assets and
Properties of the Company.

"Certificates" has the meaning ascribed to it in Section 1.8(b).

"Closing" means the closing of the transactions contemplated by Section
1.2.

"Closing Date" has the meaning ascribed to it in Section 1.2.

"Closing Price" means the average closing sales price of Parent Common
Stock as traded on the NNM and reported by The Wall Street Journal, for the
thirty consecutive trading days ending on and including the third trading day
prior to the Closing Date.

"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.

"Common Stock Exchange Ratio" means the quotient obtained by dividing (x)
the Aggregate Merger Share Number minus the Liquidation Share Number by (y)
the Aggregate Company Share Number.

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"Company" has the meaning ascribed to it in the forepart of this Agreement.

"Company Affiliates" has the meaning ascribed to it in Section 5.9.

"Company Affiliate Agreement" has the meaning ascribed to it in Section
5.9.

"Company Capital Stock" means the Company Common Stock and Company
Preferred Stock.

"Company Common Stock" has the meaning ascribed to it in Section 2.3(a).

"Company Financials" means the Audited Financial Statements and the Interim
Financial Statements.

"Company Intellectual Property" shall mean any Intellectual Property that
is (i) owned by; (ii) licensed to; or (iii) was developed or created by or for
the Company.

"Company Option(s)" means any Option to purchase Company Capital Stock,
excluding the Company Warrants.

"Company Preferred Stock" has the meaning ascribed to it in Section 2.3(a).

"Company Registered Intellectual Property" means all Registered
Intellectual Property owned by, or filed in the name of, the Company.

"Company Restricted Stock" means shares of Company Capital Stock which are
subject to a repurchase option by the Company.

"Company Warrants" means all of the warrants to purchase Company Capital
Stock listed on Section 2.3(b) of the Disclosure Letter.

"Contract" means any material contract, arrangement or understanding
(whether written, oral or otherwise), including without limitation:

(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;

(b) any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contact more than
$50,000 over the life of the contract;

(c) any contract that expires or may be renewed at the option of any
person other than the Company so as to expire more than one year after the
date of this Agreement;

(d) any trust indenture, mortgage, promissory note, loan agreement or
other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the
type required to be capitalized in accordance with generally accepted
accounting principles;

(e) any contract for capital expenditures in excess of $50,000 in the
aggregate;

(f) any contract limiting the freedom of the Company to engage in any
line of business or to compete with any other Person as that term is
defined in the Exchange Act, as defined herein, or any confidentiality,
secrecy or non-disclosure contract;

(g) any contract pursuant to which the Company is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;

(h) any contract with any person with whom the Company does not deal at
arm's length

(i) any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person; or

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(j) any contract granting or assigning Intellectual Property to or of
the Company, except for contracts granting non-exclusive licenses in the
ordinary course of business consistent with past practice.

"Delaware Code" means the General Corporation Law of the State of Delaware
and all amendments and additions thereto.

"Depositary" means U.S. Stock Transfer Corporation (or other institution
acceptable to the Parent and the Shareholders' Agent).

"Disclosure Letter" means the letter delivered on the date hereof to Parent
and Merger Sub by or on behalf of the Company, containing all lists,
descriptions, exceptions and other information and materials as are required
to be included therein in connection with the representations and warranties
made by the Company in Article 2 of this Agreement or otherwise.

"Dissenting Shares" has the meaning ascribed to it in Section 1.7(a).

"Effective Time" has the meaning ascribed to it in Section 1.2.

"Employment Agreements" has the meaning ascribed to it in the recitals.

"Environment" means air, surface water, ground water, or land, including
land surface or subsurface, and any receptors such as Persons, wildlife, fish,
biota or other natural resources.

"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on
any similar state list of sites relating to investigation or cleanup, or which
is the subject of any pending or threatened action, suit, proceeding, or
investigation related to or arising from any location at which there has been
a Release or threatened or suspected Release of a Hazardous Material.

"Environmental Law" means any federal, state, local or foreign
environmental, health and safety or other Law relating to of Hazardous
Materials, including without limitation, the Comprehensive, Environmental
Response Compensation and Liability Act, the Clean Air Act, the Federal Water
Pollution Control Act, the Solid Waste Disposal Act, the Federal Insecticide,
Fungicide and Rodenticide Act, and the California Safe Drinking Water and
Toxic Enforcement Act.

"Environmental Permit" means any permit, license, approval, consent or
authorization required under or in connection with any Environmental Law and
includes without limitation any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority.

"Equity Equivalents" means securities (including Options to purchase any
shares of Company Capital Stock) which, by their terms, are or may be
exercisable, convertible or exchangeable for or into common stock, preferred
stock or other securities at the election of the holder thereof.

"ERISA" has the meaning ascribed to it in Section 2.13(a).

"ERISA Affiliate" has the meaning ascribed to it in Section 2.13(a).

"Escrow Amount" means ten percent of the Aggregate Merger Share Number.

"Escrow Period" has the meaning ascribed to it in Section 7.2(c).

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder.

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"Exchange Ratios" means the Series A Exchange Ratio, the Series B Exchange
Ratio and the Common Stock Exchange Ratio.

"Expiration Date" has the meaning ascribed to it in Section 7.1.

"Financial Statement Date" means December 31, 1998.

"GAAP" means generally accepted accounting principles in the United States,
as in effect from time to time.

"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, postal service,
department, official or other instrumentality of the United States, any
foreign country, international treaty organization or any domestic or foreign
state, county, city or other political subdivision, and shall include any
stock exchange, quotation service and the NASD and any Person exercising the
powers of any of the foregoing.

"Hazardous Material" means (a) any chemical, material, substance or waste
including, containing or constituting petroleum or petroleum products,
solvents (including, but not limited to, chlorinated solvents), nuclear or
radioactive materials, asbestos in any form that is or could become friable,
radon, lead-based paint, urea formaldehyde foam insulation or polychlorinated
biphenyls, (b) any chemicals, materials, substances or wastes which are now
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants" or words of similar
import under any Environmental Law; or (c) any other chemical, material,
substance or waste which is regulated by any Governmental or Regulatory
Authority or which could constitute a nuisance.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.

"Income Tax" means (i) any income, alternative or add-on minimum tax, gross
income, gross receipts, franchise, profits, including estimated taxes relating
to any of the foregoing, or other similar tax or other like assessment or
charge of similar kind whatsoever, excluding any Other Tax, together with any
interest and any penalty, addition to tax or additional amount imposed by any
Taxing Authority responsible for the imposition of any such Tax (domestic or
foreign); or (ii) any liability of a Person for the payment of any taxes,
interest, penalty, addition to tax or like additional amount resulting from
the application of Treas. Reg. (S)1.1502-6 or comparable provisions of any
Taxing Authority in respect of a Tax Return of a Relevant Group.

"Indebtedness" of any Person means all obligations of such Person (a) for
borrowed money, (b) evidenced by notes, bonds, debentures or similar
instruments, (c) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(d) under capital leases and (e) in the nature of guarantees of any
obligations of any other Person.

"Intellectual Property" means all trademarks and trademark rights, trade
names and trade name rights, service marks and service mark rights, service
names and service name rights, patents and patent rights, utility models and
utility model rights, copyrights, works of authorship, moral rights, mask work
rights, brand names, trade dress, product designs, product packaging, business
and product names, logos, slogans, rights of publicity, trade secrets,
inventions (whether patentable or not), invention disclosures, improvements,
processes, formulae, algorithms, industrial models, designs, specifications,
technology, methodologies, computer software (including all source code and
object code), firmware, development tools, flow charts, annotations, all Web
addresses, sites and domain names, all data bases and data collections and all
rights therein, any other confidential and proprietary right or information,
whether or not subject to statutory registration, and all related technical
information, manufacturing, engineering and technical drawings, know-how and
all pending applications for and registrations of patents, utility models,
trademarks, service marks and copyrights, and the right to sue for past

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infringement, if any, in connection with any of the foregoing, and all
documents, disks, records, files and other media on which any of the foregoing
is stored.

"Interim Financial Statements" means the unaudited balance sheet of the
Company as of August 31, 1999, and the related unaudited statement of
operations and statement of cash flows for the eight-month period ended on
such date.

"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Company.

"IRS" means the United States Internal Revenue Service or any successor
entity.

"Laws" means any law, statute, order, decree, consent decree, judgment,
rule, regulation, ordinance or other pronouncement having the effect of law
whether in the United States, any foreign country, or any domestic or foreign
state, county, city or other political subdivision or of any Governmental or
Regulatory Authority.

"Liabilities" means all Indebtedness, obligations and other liabilities of
a Person, whether absolute, accrued, contingent (or based upon any
contingency), known or unknown, fixed or otherwise, or whether due or to
become due.

"License" means any Contract that grants a Person the right to use or
otherwise enjoy the benefits of any Intellectual Property (including, without
limitation, any covenants not to sue with respect to any Intellectual
Property).

"Lien(s)" means any mortgage, pledge, assessment, security interest, lease,
lien, easement, license, covenant, condition, restriction, adverse claim,
levy, charge, option, equity, adverse claim or restriction or other
encumbrance of any kind, or any conditional sale Contract, title retention
Contract or other Contract to give any of the foregoing, except for any (a)
restrictions on transfer generally arising under any applicable federal or
state securities law or (b) liens incurred in the ordinary course of business.

"Liquidation Share Number" means the quotient of (x) the Series A
Liquidation Preference plus the Series B Liquidation Preference divided by (y)
the Closing Price.

"Losses" means any and all damages, fines, fees, Taxes, penalties,
deficiencies, losses, costs (including, but not limited to, indemnification
payments made to any Persons) and expenses, including interest, reasonable
expenses of investigation, court costs, reasonable fees and expenses of
attorneys, accountants and other experts or other expenses of litigation or
other proceedings or of any claim, default or assessment (such fees and
expenses to include all fees and expenses, including the reasonable fees and
expenses of attorneys, incurred in connection with (i) the investigation or
defense of any Third Party Claims or (ii) asserting or disputing any rights
under this Agreement against any party hereto or otherwise).

"Merger" has the meaning ascribed to it in the recitals to this Agreement.

"Merger Sub" has the meaning ascribed to it in the forepart of this
Agreement.

"NASD" means the National Association of Securities Dealers, Inc.

"New Shares" has the meaning ascribed to it in Section 7.2(d)(ii).

"NNM" means the distinct tier of The Nasdaq Stock Market referred to as the
Nasdaq National Market.

"Officer's Certificate" has the meaning ascribed to it in Section
7.2(e)(i).

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"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares
of capital stock or other equity interests of such Person or any security of
any kind convertible into or exchangeable or exercisable for any shares of
capital stock or other equity interests of such Person; (ii) receive any
benefits or rights similar to any rights enjoyed by or accruing to the holder
of shares of capital stock or other equity interests of such Person, including
any rights to participate in the equity, income or election of directors or
officers of such Person, excluding, however, the Company Preferred Stock; or
(iii) whose value is in whole or in part dependent on the value of any class
or series of Company Capital Stock or the value of the equity interests of the
Company.

"Order" means any writ, judgment, decree, injunction or similar order of
any Governmental or Regulatory Authority (in each such case whether
preliminary or final and whether subject to appeal or review or not).

"Other Tax" means any sales, use, ad valorem, business license,
withholding, payroll, employment, excise, stamp, transfer, recording,
occupation, premium, property, value added, custom duty, severance, windfall
profit or license tax, governmental fee or other similar assessment or charge,
together with any interest and any penalty, addition to tax or additional
amount imposed by any Taxing Authority responsible for the imposition of any
such tax (domestic or foreign).

"Parent" has the meaning ascribed to it in the forepart of this Agreement.

"Parent Common Stock" has the meaning ascribed to it in the recitals.

"Parent Financial Statements" has the meaning ascribed to it in Section
3.3.

"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA.

"Permit" means any license, permit, franchise or authorization.

"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, postal service, trust, union, association or
Governmental or Regulatory Authority.

"Plan" has the meaning ascribed to it in Section 2.13(a).

"PTO" means the United States Patent and Trademark Office.

"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks and servicemarks,
applications to register trademarks, intent-to-use applications, other
registrations or applications to trademarks or servicemarks, or trademarks or
servicemarks in which common law rights are owned or otherwise controlled;
(iii) registered copyrights and applications for copyright registration; (iv)
any mask work registrations and applications to register mask works; and (v)
any other Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued by, filed with, or
recorded by, any state, government or other public legal authority.

"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of
a Hazardous Material into the Environment.

"Relevant Group" has the meaning ascribed to it in Section 2.10(a).

"Restricted Stock Purchase Agreements" means the Stock Purchase Agreements
listed on Schedule 1.6(b)(v) of the Disclosure Letter.

"SEC" means the Securities and Exchange Commission or any successor entity.

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"SEC Documents" means, with respect to any Person, each report, schedule,
form, statement or other document filed with the SEC by such Person pursuant
to Section 12 or 13(a) of the Exchange Act.

"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

"Series A Exchange Ratio" means (a) the Common Stock Exchange Ratio plus
(b) the quotient of (i) $0.375 divided by (ii) the Closing Price.

"Series A Liquidation Preference" means the product of (i) the number of
shares of Series A Preferred Stock outstanding immediately prior to the
Effective Time and (ii) $0.375.

"Series A Preferred Stock" means the Series A Preferred Stock of the
Company.

"Series B Exchange Ratio" means (a) the Common Stock Exchange Ratio plus
(b) the quotient of (i) $0.75 divided by (ii) the Closing Price.

"Series B Liquidation Preference" means the product of (i) the sum of the
number of shares of Series B Preferred Stock outstanding immediately prior to
the Effective Time and the number of shares of Series B Preferred Stock
issuable upon the exercise of the MBE Warrant and (ii) $0.75.

"Series B Preferred Stock" means the Series B Preferred Stock of the
Company.

"Shareholders' Agent" has the meaning ascribed to it in Section 6.3(m).

"Site" means any of the real properties currently or previously owned,
leased, occupied, used or operated by the Company, any predecessors of the
Company, or any entities previously owned by the Company, including all soil,
subsoil, surface waters and groundwater.

"Stock Plan" has the meaning ascribed to it in Section 1.6(c)(iv).

"Subsidiary" means any Person in which the Company or the Parent, as the
context requires, directly or indirectly through Subsidiaries or otherwise,
beneficially owns at least 50% of either the equity interest in, or the voting
control of, such Person, whether or not existing on the date hereof.

"Support Agreement" has the meaning ascribed to it in the recitals.

"Surviving Corporation" has the meaning ascribed to it in Section 1.1.

"Takeover Statute" means a "fair price," "moratorium," "control share
acquisition," "interested shareholder" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States.

"Tax" or "Taxes" means Income Taxes and/or Other Taxes, as the context
requires.

"Tax Laws" means the Code, federal, state, county, local or foreign laws
relating to Taxes and any regulations or official administrative
pronouncements released thereunder.

"Tax Returns" means any return, report, information return, schedule,
certificate, statement or other document (including any related or supporting
information) filed or required to be filed with, or, where none is required to
be filed with a Taxing Authority, the statement or other document issued by, a
Taxing Authority in connection with any Tax.

"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.

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"Third Party Claim" has the meaning ascribed to it in Section 7.2(j).

"Third Party Expenses" has the meaning ascribed to it in Section 5.5.

"Washington Code" means the Washington Business Corporations Act and all
amendments and additions thereto.

(b) Unless the context of this Agreement otherwise requires, (i) words of
any gender include each other gender and the neuter, (ii) words using the
singular or plural number also include the plural or singular number,
respectively, (iii) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement as a whole and not to any
particular Article, Section or other subdivision, (iv) the terms "Article" or
"Section" or other subdivision refer to the specified Article, Section or
other subdivision of the body of this Agreement, (v) the phrases "ordinary
course of business" and "ordinary course of business consistent with past
practice" refer to the business and practice of the Company, (vi) the words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation," and (vii) when a reference is made in this
Agreement to Exhibits, such reference shall be to an Exhibit to this Agreement
unless otherwise indicated. All accounting terms used herein and not expressly
defined herein shall have the meanings given to them under GAAP. The term
"party" or "parties" when used herein refer to the Parent and Merger Sub, on
the one hand, and the Company, on the other hand.

(c) When used herein, the phrase "to the knowledge of" any Person, "to the
best knowledge of" any Person, "known to" any Person or any similar phrase,
means (i) with respect to any Person who is an individual, the actual
knowledge of such Person, (ii) with respect to any other Person, the actual
knowledge of the directors and officers of such Person and other individuals
that have a similar position or have similar powers and duties as the officers
and directors of such Person, and (iii) in the case of each of (i) and (ii),
the knowledge of facts that such individuals should have after due inquiry.

IN WITNESS WHEREOF, the Parent, Merger Sub and Company and with respect to
Section 7.2 only, the Depositary have caused this Agreement to be signed by
their duly authorized representatives, all as of the date first written above.

STAMPS.COM INC. ISHIP.COM, INC.

By: /s/ John M. Payne By: /s/ Stephen M. Teglovic
---------------------------------- ----------------------------------
John M. Payne Stephen M. Teglovic
Chairman and Chief Executive President and Chief Executive
Officer Officer

ROCKET ACQUISITION CORP.

By: /s/ John M. Payne
----------------------------------
John M. Payne
Chairman and Chief Executive Officer

U.S. STOCK TRANSFER CORPORATION,
as Depositary

By: /s/ Carol J. Clays
----------------------------------
Name: Carol J. Clays
Title: Vice President

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<PAGE>

ANNEX B

LETTERHEAD OF THOMAS WEISEL PARTNERS MERCHANT BANKING

October 22, 1999

Board of Directors
Stamps.com Inc.
3420 Ocean Park Boulevard
Santa Monica, CA 90405

Members of the Board:

We understand that iShip.com, Inc., a Washington corporation (the
"Company"), Stamps.com Inc., a Delaware corporation (the "Parent"), and Rocket
Acquisition Corp., a Washington corporation and a wholly owned subsidiary of
the Parent ("Merger Sub") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Merger Sub will be merged
with and into the Company, which will be the surviving entity (the "Merger").
Pursuant to the Merger, as more fully described in the Merger Agreement, we
understand that (i) each outstanding share of common stock, $0.0005 par value
per share, of the Company ("Company Common Stock"), other than any shares of
Company Common Stock to be cancelled pursuant to Section 1.6(b) of the Merger
Agreement and any dissenting shares, will be converted into the right to
receive that number of shares of common stock, $0.001 par value per share, of
the Parent ("Parent Common Stock") equal to the Common Stock Exchange Ratio
(as defined in the Merger Agreement), rounded down to the nearest whole share
of Parent Common Stock, (ii) each outstanding share of Series A preferred
stock, $0.0005 par value per share, of the Company ("Company Series A
Preferred Stock"), other than any shares of Company Series A Preferred Stock
to be cancelled pursuant to Section 1.6(b) of the Merger Agreement and any
dissenting shares, will be converted into the right to receive that number of
shares of Parent Common Stock equal to the Series A Exchange Ratio (as defined
in the Merger Agreement), rounded down to the nearest whole share of Parent
Common Stock and (iii) each outstanding share of Series B preferred stock,
$0.0005 par value per share, of the Company ("Company Series B Preferred
Stock" and, together with the Company Common Stock and the Company Series A
Preferred Stock, the "Company Capital Stock"), other than any shares of
Company Series B Preferred Stock to be cancelled pursuant to Section 1.6(b) of
the Merger Agreement and any dissenting shares, will be converted into the
right to receive that number of shares of Parent Common Stock equal to the
Series B Exchange Ratio (as defined in the Merger Agreement), rounded down to
the nearest whole share of Parent Common Stock; provided that no more than
8,000,000 shares of Parent Common Stock will be issued in exchange for all
outstanding shares of Company Capital Stock and all vested and unvested
options and warrants of the Company. The number of shares of Parent Common
Stock to be issued in exchange for shares of Company Capital Stock pursuant to
the Merger is hereinafter referred to as the "Consideration". The terms and
conditions of the Merger are set forth in more detail in the Merger Agreement.

You have asked for our opinion as investment bankers as to whether the
Consideration is fair to the Parent from a financial point of view, as of the
date hereof. As you are aware, we were not retained to nor did we advise the
Parent with respect to alternatives to the Merger or the Parent's underlying
decision to proceed with or effect the Merger.

In connection with our opinion, we have, among other things; (i) reviewed
certain publicly available financial and other data with respect to the
Parent, including the consolidated financial statements for recent years and
interim periods to June 30, 1999 and certain other relevant financial and
operating data relating to the Parent made available to us from published
sources and from the internal records of the Parent; (ii) reviewed the

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consolidated financial statements of the Company for recent years and interim
periods to September 30, 1999 and certain other relevant financial and
operating data relating to the Company made available to us from the internal
records of the Company; (iii) reviewed the financial terms and conditions of a
draft dated October 20, 1999 of the Merger Agreement; (iv) reviewed certain
publicly available information concerning the trading of Parent Common Stock;
(v) compared the Company and the Parent from a financial point of view with
certain other Internet-based service companies which we deemed to be relevant;
(vi) considered the financial terms, to the extent publicly available, of
selected recent business combinations of Internet-based service companies
which we deemed to be comparable, in whole or in part, to the Merger; (vii)
completed a discounted cash flow analysis of the Company; (viii) reviewed and
discussed with representatives of the management of the Company and the Parent
certain information of a business and financial nature regarding the Company
and the Parent, furnished to us by them, including financial forecasts and
related assumptions of the Company and the Parent; (ix) made inquiries
regarding and discussed the Merger and the Merger Agreement and other matters
related thereto with the Parent's counsel; and (x) performed such other
analyses and examinations as we have deemed appropriate.

In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for the Company and the Parent provided to us by their respective
managements, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts have been reasonably prepared on
bases reflecting the best available estimates and judgments of their
respective managements at the time of preparation as to the future financial
performance of the Company and the Parent and that they provide a reasonable
basis upon which we can form our opinion. We have also assumed that there have
been no material changes in the Company's or the Parent's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to us. We have relied
on advice of counsel and independent accountants to the Parent as to all legal
and financial reporting matters with respect to the Parent, the Merger and the
Merger Agreement. We have assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes,
rules and regulations. In addition, we have not assumed responsibility for
making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of the Company or the
Parent, not have we been furnished with any such appraisals. You have informed
us, and we have assumed, that the Merger will be recorded as a purchase under
generally accepted accounting principles. Finally, our opinion is based on
economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof. Accordingly, although
subsequent developments may affect this opinion, we have not assumed any
obligation to update, revise or reaffirm this opinion.

We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the draft dated October
20, 1999 of the Merger Agreement, without any further amendments thereto, and
without waiver by the Parent of any of the conditions to its obligations
thereunder.

We will receive a fee for our services in rendering this opinion. In the
ordinary course of our business, we actively trade the equity securities of
the Parent for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of
securities of the Parent and performed various investment banking services for
the Parent.

Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration is fair to the Parent from a
financial point of view, as of the date hereof.

This opinion is directed to the Board of Directors of the Parent in its
consideration of the Merger and is not a recommendation to any shareholder as
to how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to the
Parent and does not address the relative merits of the Merger and any
alternatives to the Merger, the Parent's underlying decision to proceed with

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<PAGE>

or effect the Merger, or any other aspect of the Merger. This opinion may not
be used or referred to by the Parent, or quoted or disclosed to any person in
any manner, without our prior written consent. We hereby give consent to the
inclusion of this opinion in the joint proxy statement and consent
solicitation/prospectus (the "Proxy Statement and Consent
Solicitation/Prospectus") to be filed with the Securities and Exchange
Commission in connection with the Merger, provided that this opinion be
disclosed in its entirety in the Proxy Statement and Consent
Solicitation/Prospectus and that any description of or reference to us or
summary of this opinion or related valuation analyses be in form and substance
acceptable to us and to our legal counsel.

Very truly yours,

THOMAS WEISEL PARTNERS LLC

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ANNEX C

WASHINGTON BUSINESS CORPORATION ACT, 23B. 13

RCW 23B.13.010
Definitions.
As used in this chapter:

(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.

(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B. 13.200 through 23B. 13.280.

(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.

(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.

(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.

(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.

(7) "Shareholder" means the record shareholder or the beneficial
shareholder.

RCW 23B.13.020
Right to dissent.

(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:

(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW 23B. 11.030,
23B. 11.080, or the articles of incorporation and the shareholder is
entitled to vote oil the merger, or (ii) if the corporation is a subsidiary
that is merged with its parent under RCW 23B.11.040;

(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;

(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;

(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or

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(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action falls to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.

(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:

(a) The proposed corporate action is abandoned or rescinded;

(b) A court having Jurisdiction permanently enjoins or sets aside the
corporate action; or

RCW 23B.13.030
Dissent by nominees and beneficial owners.

(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the dissenter dissents and the dissenter's other shares were registered
in the names of different shareholders.

(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:

(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and

(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.

RCW 23B.13.200
Notice of dissenters' rights.

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.

(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them. the dissenters' notice described in RCW 23B.13.220.

RCW 23B.13.210
Notice of intent to demand payment.

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must (a) deliver to the corporation
before the vote is taken written notice of the shareholder's intent to demand
payment for the shareholder's shares if the proposed action is effected, and

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(b) not vote such shares in favor of the proposed action.

(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.

RCW 23B.13.220
Dissenters' notice.

(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.

(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:

(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;

(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;

(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;

(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and

(e) Be accompanied by a copy of this chapter.

RCW 23B.13.230
Duty to demand payment.

(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.

(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other
rights of a shareholder until the proposed corporate action is effected.

(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.

RCW 23B.13.240
Share restrictions.

(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23 B. 13.260.

(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.

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RCW 23B.13.250
Payment.

(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the
payment demand is received, the corporation shall pay each dissenter who
complied with RCW 23B.1 3.230 the amount the corporation estimates to be the
fair value of the shareholder's shares, plus accrued interest.

(2) The payment must be accompanied by:

(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;

(b) An explanation of how the corporation estimated the fair value of
the shares;

(d) A statement of the dissenter's right to demand payment under RCW
23B. 13.280; and

(e) A copy of this chapter.

RCW 23B.13.260
Failure to take action.

(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release any transfer restrictions imposed on uncertificated shares.

(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.

RCW 23B.13.270
After-acquired shares.

(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.

(2) To the extent the corporation elects to withhold Payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B. 13.280.

RCW 23B.13.280
Procedure if shareholder dissatisfied with payment or offer.

(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of
interest due, and demand payment of the dissenter's estimate, less any payment
under RCW 23B.13.250, or reject the corporation's offer under RCW 23B.13.270
and demand payment of the dissenter's estimate of the fair value of the
dissenter's shares and interest due, if

(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;

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(b) The corporation falls to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or

(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.

(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.

RCW 23B.13.
Court action.

(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.

(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.

(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.

(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.

(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.

(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
RCW 23B.13.270.

RCW 23B.13.310
Court costs and counsel fees.

(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously,
or not in good faith in demanding payment under RCW 23 B.13.280.

(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:

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(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B. 13.280; or

(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.

(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

The Amended and Restated Certificate of Incorporation (the "Certificate")
of Stamps.com Inc., a Delaware corporation (the "Company"), provides that,
except to the extent prohibited by the General Corporation Law of the State of
Delaware (the "DGCL"), the Company's directors shall not be personally liable
to the Company or its stockholders for monetary damages for any breach of
fiduciary duty as directors of the Company. Under the DGCL, the directors have
a fiduciary duty to the Company which is not eliminated by this provision of
the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the
DGCL for breach of the director's duty of loyalty to the Company, for acts or
omissions which are found by a court of competent jurisdiction to be not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws. The Company has obtained liability
insurance for its officers and directors.

Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out
of their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL and provides that the
Company shall fully indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.

The Company, with the approval of its board of directors, has obtained
directors' and officers' liability insurance. In addition, the Company has
entered into indemnification agreements with each of its directors and
executive officers, a form of which is Exhibit 10.10 hereto.

There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. Moreover, the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification. The Company believes that the foregoing indemnification
provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.

II-1
<PAGE>

Item 21. Exhibits and Financial Statement Schedules.

(a) Exhibits

The following Exhibits are furnished as required by Item 601 of Regulation
S-K:

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 22, 1999, by and
among the Company, Rocket Acquisition Corp. and iShip.com, Inc.(1)

3.1 The Certificate.(2)

3.2 Bylaws of the Company.(2)

4.1 Specimen common stock certificate.(2)

5.1* Opinion of Brobeck, Phleger & Harrison LLP.

8.1* Opinion of Brobeck, Phleger & Harrison LLP.

10.1 Series A Stock Purchase Warrant, dated May 1, 1998, between the
Company and Silicon Valley Bank.(2)

10.2 Amended and Restated Investors' Rights Agreement, dated February 17,
1999, between the Company and the investors named therein.(2)

10.3 Patent Assignment from Mohan P. Ananda to the Company, dated January
20, 1998.(2)

10.4 Assignment and License Agreement between the Company and Mohan P.
Ananda, dated January 20, 1998.(2)

10.5 Employment Offer Letter, dated October 29, 1998, by and between the
Company and John M. Payne.(2)

10.6 Employment Agreement dated, January 20, 1998, by and between the
Company and Mohan P. Ananda.(2)

10.7 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.(2)

10.8 1999 Stock Incentive Plan.(2)

10.9 1999 Employee Stock Purchase Plan.(2)

10.10 Form of Indemnification Agreement between the Company and its
directors and officers.(2)

10.11 Lease Agreement, dated August 27, 1998, between the Company and
Spieker Properties, L.P. and Amendment No. One, dated January 8,
1999.(2)

10.12+ Advertising Insertion Order, dated December 16, 1998, between the
Company and America Online, Inc. ("AOL").(2)

10.13 Master Lease Agreement between the Company and FirstCorp, dated June
5, 1998.(2)

10.14 Quick Start Loan and Security Agreement, dated May 1, 1998, between
the Company and Silicon Valley Bank.(2)

10.15 Employment Offer Letter, dated August 7, 1998, between the Company and
John W. LaValle.(2)

10.16 Consulting Agreement, dated February 1, 1999, between the Company and
Loren Smith.(2)

10.17 Lease, dated April 12, 1999, between the Company and Spieker
Properties, L.P.(2)

10.18+ Sponsorship Agreement, dated May 14, 1999, between the Company and
Intuit, Inc.(2)

10.19+ Distributor Agreement, dated December 10, 1998, between the Company
and Westvaco.(2)

10.20+ Distributor Agreement, dated January 15, 1999, between the Company and
Office Depot, Inc.(2)

10.21+ Distributor Agreement, dated March 31, 1999, between the Company and
Seiko Instruments USA, Inc.(2)
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.22+ Distributor Agreement, dated March 30, 1999, between the Company and
Avery Dennison Office Products Company.(2)

10.23+ Distributor Agreement, dated March 11, 1999, between the Company and
Dymo-Costar Corporation.(2)

10.24 Series A Preferred Stock and Warrant Purchase Agreement, dated
February 26, 1998, between the Company and certain investors.(2)

10.25 Amended and Restated Voting Agreement, dated February 17, 1999,
between the Company and certain investors.(2)

10.26 Separation Agreement and Release, dated May 13, 1999, between the
Company and Mohan Ananda.(2)

10.27 License Agreement, dated May 13, 1999, between the Company and Mohan
Ananda.(2)

10.28 Series C Preferred Stock Purchase Agreement, dated February 17, 1999,
between the Company and certain investors.(2)

10.29 Amendment Letter to AOL, dated June 4, 1999.(2)

10.30 Nondisclosure Agreement and Agreement to Release University from
damages caused by testing, dated December 6, 1998.(2)

10.31 Nondisclosure Agreement and Agreement to Release Carnegie Mellon, Inc.
from damages caused by testing, dated April 22, 1997.(2)

10.32 Letter of Intent from Stampmaster, Inc. and US Postal Service response
letter between Stampmaster, Inc. and the US Postal Service, dated
February 21, 1997 and April 23, 1997, respectively.(2)

10.33 Consulting Agreement, dated June 21, 1999, between the Company and
Carolyn Ticknor.(2)

10.34 Interactive Marketing and Distribution Agreement, dated October 15,
1999, between AOL and the Company.(3)

10.35 Common Stock and Warrant Purchase Agreement, dated October 20, 1999,
between AOL and the Company.(3)

10.36 Common Stock Purchase Warrant, dated October 29, 1999, between AOL and
the Registrant.(3)

10.37 Consulting Agreement dated October 20, 1999 between the Company and
Marvin Runyon.(3)

10.38 Amended and Restated Consulting Services Agreement dated November 15,
1999 between the Registrant and Marvin Runyon.

21.1 Subsidiaries of the Company.(3)

23.1* Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibits 5.1
and 8.1 hereto).

23.2* Consent of Thomas Weisel Partners LLC (Included in Annex B hereto).

23.3* Consent of Arthur Andersen LLP.

23.4* Consent of Moss Adams LLP.

24.1* Power of Attorney (Included on signature pages hereto).

27.1* Financial Data Schedule.

99.1* Action by Written Consent of the Shareholders of iShip.com, Inc.
99.2* Proxy Card.
</TABLE>
- --------
* Filed herewith.
(1) Incorporated by reference to the Company's Form 8-K filed with the
Securities and Exchange Commission (the "Commission") on October 29,
1999. (File No. 000-26427).
(2) Incorporated by reference herein to the Registration Statement on Form S-
1 filed with the Commission. (File No. 333-77025).
(3) Incorporated by reference to the Registration Statement on Form S-1 filed
with the Commission. (File No. 333-90115)
+ Confidential treatment requested and received as to certain portions.

II-3
<PAGE>

(b) Financial Statement Schedules

All such schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.

The opinion of Thomas Weisel Partners LLC is included as Annex B to the
joint proxy statement and consent solicitation/prospectus.

Item 17. Undertakings.

(a) The company hereby undertakes to respond to requests for information
that is incorporated by reference into the joint proxy statement and consent
solicitation/prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.

(b) The company hereby undertakes to supply by means of a post effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.

(1) to file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in a form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) that, for purpose of determining any liability under the Securities
Act, each such post effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) to remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering.

(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the Company has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Santa Monica, State of
California, on the 19th day of November, 1999.

Stamps.com Inc.

By: /s/ John M. Payne
_____________________________
John M. Payne
Chairman and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint John W. LaValle and John M. Payne, and each of them, his or her true
and lawful attorney-in-fact and agent, each with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement, or any related
registration statement filed pursuant to Rule 462(b) under the Securities Act,
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ John M. Payne Chairman, Chief Executive November 19, 1999
______________________________________ Officer and Director
John M. Payne (Principal Executive
Officer)

/s/ Loren E. Smith President, Chief Operating November 19, 1999
______________________________________ Officer and Director
Loren E. Smith

/s/ John W. LaValle Chief Financial Officer, November 19, 1999
______________________________________ (Principal Financial and
John W. LaValle Accounting Officer)

/s/ Thomas H. Bruggere Director November 19, 1999
______________________________________
Thomas H. Bruggere

Director
______________________________________
Mohan P. Ananda
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ David C. Bohnett Director November 19, 1999
______________________________________
David C. Bohnett

Director November , 1999
______________________________________
Jeffrey J. Brown

Director November , 1999
______________________________________
Thomas N. Clancy

Director November , 1999
______________________________________
G. Bradford Jones

/s/ Marvin Runyon Director November 19, 1999
______________________________________
Marvin Runyon

/s/ Carolyn M. Ticknor Director November 17, 1999
______________________________________
Carolyn M. Ticknor
</TABLE>

II-6

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF BROBECK, PHLEGER & HARRISON LLP]

November 19, 1999

Stamps.com Inc.
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405

Re: Stamps.com Inc. Registration Statement on Form S-4
for 8,000,000 Shares of Common Stock
------------------------------------

Ladies and Gentlemen:

We have acted as special counsel to Stamps.com Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 8,000,000 shares of the Company's common stock, par
value $0.001 per share (the "Shares"), pursuant to the Company's Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act").

This opinion is being furnished in accordance with the requirements of
Item 16(a) of Item 21(a) of Form S-4 and Item 601(b)(5)(i) of Regulation S-K.

We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related joint proxy statement and consent
solicitation/prospectus (as amended and supplemented through the date of
issuance) will be legally issued, fully paid and nonassessable

We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the joint proxy statement and consent solicitation/prospectus
which is part of the Registration Statement. In giving this consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act, the rules and regulations of the
Commission promulgated thereunder, or Item 509 of Regulation S-K.
<PAGE>

Stamps.com Inc. November 19, 1999
Page 2

This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.

Very truly yours,

BROBECK, PHLEGER & HARRISON LLP

<PAGE>

EXHIBIT 8.1

[LETTERHEAD OF BROBECK, PHLEGER & HARRISON LLP]

November 19, 1999

Stamps.com Inc.
3420 Ocean Boulevard, Suite 1040
Santa Monica, CA 90405

Ladies and Gentlemen:

This opinion is being delivered to you in connection with (i) the
Agreement and Plan of Merger, dated as of October 22, 1999 (the "Agreement"),
between Stamps.com Inc., a Delaware corporation ("Stamps.com"), Rocket
Acquisition Corp., a Washington corporation and a wholly owned subsidiary of
Stamps.com ("Merger Sub"), and iShip.com, Inc., a Washington corporation
("iShip.com"), and (ii) the preparation and filing with the Securities and
Exchange Commission of a Form S-4 Registration Statement relating to the Merger
(the "Registration Statement"). Pursuant to the Agreement, Merger Sub will merge
with and into iShip.com (the "Merger"), and iShip.com will become a wholly owned
subsidiary of Stamps.com.

Except as otherwise provided, capitalized terms referred to herein
have the respective meanings ascribed to them in the Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").

We have acted as legal counsel to Stamps.com in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all schedules and exhibits thereto):

1. The Agreement;

2. The Registration Statement; and

3. Such other instruments and documents related to Stamps.com,
iShip.com and Merger Sub and to the consummation of the Merger and the other
transactions contemplated by the Agreement as we have deemed necessary or
appropriate.

<PAGE>

Stamps.com Inc. November 19, 1999
Page 2

In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:

A. Original documents submitted to us (including signatures) are
authentic, documents submitted to us as copies conform to the original
documents, and there has been (or will be by the Effective Time) due execution
and delivery of all documents where due execution and delivery are prerequisites
to the effectiveness thereof; and

B. The Merger will be consummated in accordance with the Agreement
without any waiver or breach of any material provision thereof, and the Merger
will be effective under applicable state law.

Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that the statements regarding United States federal income tax
consequences set forth in the Registration Statement under the heading "The
Merger Agreement - Federal Income Tax Considerations," insofar as they
constitute statements of law or legal conclusions, are correct in all material
respects. We express no opinion as to any federal, state or local, foreign or
other tax consequences, other than as set forth in the Registration Statement
under the heading "The Merger Agreement - Federal Income Tax Considerations."

In addition to the assumptions and representations described above,
this opinion is subject to the exceptions, limitations and qualifications set
forth below.

(1) This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, will not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.

(2) No opinion is expressed as to any transaction other than the
Merger (whether or not undertaken in connection with the Merger) or as to any
transaction whatsoever, including the Merger, if all the transactions described
in the Agreement are not consummated in accordance with the terms of such
Agreement and without waiver or breach of any material provision thereof or if
all of the statements, representations, warranties and assumptions upon which we
relied are not true and accurate at all relevant times. In the event any one of
the
<PAGE>

Stamps.com Inc. November 19, 1999
Page 3

statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.

This opinion is rendered to you solely in connection with the filing
of the Registration Statement. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement. We also consent to the references
to our firm name wherever appearing in the Registration Statement with respect
to the discussion of the federal income tax consequences of the Merger,
including any amendments to the Registration Statement. This opinion may not be
relied upon for any other purpose, and may not be made available to any other
person, without our prior written consent.

Very truly yours,

BROBECK, PHLEGER & HARRISON LLP

<PAGE>

EXHIBIT 10.38

AMENDED AND RESTATED
CONSULTING SERVICES AGREEMENT

The following confirms the agreement between MARVIN RUNYON (the
"Consultant") and STAMPS.COM INC., (the "Company"), with respect to consulting
services to the Company:

1. Definitions.
-----------

a. "Company Materials" means documents or other media or tangible items
that contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company, whether such
documents have been prepared by me or by others including, without limitation,
financial models. financial forecasts. financial projections, drawings,
photographs, charts, graphs, notebooks, customer lists, computer software
(whether in executable, data or other form and in any format or structure
whatsoever), computer media or printouts, sound recordings and other printed,
typewritten or handwritten documents, as well as samples, prototypes, models,
products and the like.

b. "Inventions" means any and all improvements, inventions (whether or not
patentable), works of authorship, derivative works, trade secrets, technology,
computer software, application programming interfaces, ideas, designs,
processes, techniques, know-how and data made or conceived or reduced to
practice or developed by me (in whole or in part, either alone or jointly with
others).

c. "Proprietary Information" means any and all information (whether
conveyed orally or in writing) about algorithms, trade secrets, computer
software, designs, technology, ideas, know-how, products, services, customer
lists, finances, financial models, financial forecasts, financial projections,
processes, data, techniques, improvements, inventions (whether patentable or
not), works of authorship, business and product development plans, the salaries
and terms of compensation of employees, regulatory approval, the terms and
existence of third party agreements, negotiations with third parties and other
information concerning the Company's actual or anticipated business, research or
development, or which is received in confidence by or for the Company from any
third party.

d. "Rights" means any and all patent rights, copyright rights, mask work
rights, trade secret rights, moral rights and other intellectual property and
proprietary rights anywhere in the world.

e. "Results" means any and all deliverables or results of the Services
including, without limitation, all financial models, financial forecasts,
financial projections and Inventions.

f. "Services" means the consulting services provided by the Consultant to
the Company during the term of this Agreement. The Services include, without
limitation, strategic planning and business development advice.
<PAGE>

2. Proprietary Information. All Proprietary Information and all Rights in
-----------------------
connection therewith are the sole property of the Company. Consultant hereby
assigns to the Company any Rights Consultant may have or acquire in such
Proprietary Information. At all times, both during the term of this Agreement
and after its termination, Consultant will keep in confidence and trust and will
not use or disclose any Proprietary Information without the prior written
consent of the Company. Any assignment of copyright hereunder includes all
rights of paternity, integrity, disclosure and withdrawal and any other rights
that may be known as or referred to as "moral rights" (collectively "Moral
Rights"). To the extent such Moral Rights cannot be assigned under applicable
law and to the extent the following is allowed by the laws in the various
countries where Moral Rights exist, Consultant hereby waives such Moral Rights
and consents to any action of the Company that would violate such Moral Rights
in the absence of such consent. Consultant will confirm any such waivers and
consents from time to time as requested by the Company.

3. Company Materials. All Company Materials are the sole property of the
-----------------
Company. Consultant agrees that during the term of this Agreement, Consultant
will not remove any Company Materials from the business premises of the Company
or deliver any Company Materials to any third party except as may be necessary
and appropriate in the ordinary course of performing the Services. Consultant
further agrees that upon the Company's request and in any event upon completion
of the Services, Consultant shall deliver to the Company all Company Materials
and Results. At all times before or after completion of the Services, the
Company shall immediately have the right to examine the Results and any
materials relating there to ensure Consultant's compliance with the provisions
of this Agreement.

4. Consulting Services.
-------------------

a. This Agreement will terminate on October 31, 2002, unless terminated
earlier pursuant to Section 10 of this Agreement.

b. Consultant agrees to render the Services to the Company for the term of
this Agreement. Consultant acknowledges and agrees that the Company may from
time to time prescribe (in writing) additional duties which shall be deemed
"Services" under this Agreement. Consultant also agrees to promptly submit all
Results to the Company, in written form or other tangible form. Consultant
shall report directly to the Secretary of the Company and shall provide the
Services in accordance with the instructions of the Secretary, and with such
reasonable instructions given to him by any other officer of the Company.

c. As compensation for the Services, Consultant shall receive a grant of
non-qualified options to purchase 36,000 shares of the Company's Common Stock
with an exercise price equal to $35.625 (the closing price of the Company's
Common Stock on Nasdaq on October 20, 1999). The options shall vest in 36 equal
monthly installments beginning on the date of grant. In addition, the Company
shall pay Consultant an amount of $2,000 per day for any special projects for
which the Company requests Consultant's assistance. Finally the Company will
reimburse Consultant for reasonable long distance travel (transportation,
lodging and meals) and telephone expenses Consultant is required to incur in
providing the Services and approved in advance by the Company.

2
<PAGE>

d. Consultant shall provide the Company with bi-monthly invoices detailing
the consulting hours, fees and expense reimbursements which Consultant believes
are due under this Agreement, and shall itemize and provide receipts for
expenses upon request. The Company agrees to pay approved invoices within
thirty (30) days of receipt.

5. Intellectual Property.
---------------------

a. During the term of this Agreement and for one (1) year thereafter,
Consultant will promptly disclose (in writing) any and all Inventions to the
Company; provided that Consultant shall not be required to disclose items
conceived and developed in the course of employment for a third party where
Consultant is contractually precluded from disclosure. Such disclosures shall
be received by the Company in confidence to the extent they are not assigned in
Section 5.c below and do not extend such assignment. Consultant will not
disclose Inventions covered by this Section 5.a. to any person outside the
Company unless requested to do so by management personnel of the Company.

b. Consultant agrees that any and all Inventions are the sole property of
the Company. Consultant agrees to assign and hereby assigns to the Company all
Rights to all such Inventions. The Company shall be the sole owner of all
Rights in connection therewith. Furthermore, all works of authorship will be
"works made for hire" to the extent allowed by law.

c. Consultant agrees to perform, during and after the term of this
Agreement, all acts deemed necessary or desirable by the Company to permit and
assist it, at Consultant's hourly rate as stated in Section 4.c, in evidencing,
perfecting, obtaining, maintaining, defending and enforcing Rights and/or
Consultant's assignment of Inventions in any and all countries. Such acts may
include, but are not limited to, execution of documents and assistance or
cooperation in legal proceedings. Consultant hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents, as
Consultant's agents and attorneys-in-fact, with full power of substitution, to
act for and in its behalf and instead of Consultant, to execute and file any
documents and to do all other lawfully permitted acts to further the above
purposes with the same legal force and effect as if executed by Consultant.

d. If any Rights or Inventions assigned hereunder or any Results are based
on, or incorporate, or are improvements or derivatives of, or cannot be
reasonably made, used, reproduced and distributed without using or violating
technology or Rights owned or licensed by Consultant and not assigned hereunder,
Consultant hereby grants the Company a perpetual, irrevocable, worldwide, fully
paid-up royalty-free, non-exclusive, sublicensable right and license to exploit
and exercise all such technology and Rights in support of the Company's exercise
or exploitation of any Results or assigned Rights or Inventions (including any
modifications, improvements and derivatives thereof).

6. Prior Inventions. Consultant has attached hereto as Attachment A a complete
---------------- ------------
list of all existing Inventions to which Consultant claims ownership as of the
date of this Agreement and that Consultant desires to specifically clarify are
not subject to this Agreement, and Consultant acknowledges and agrees that such
list is complete. If no such list is attached to this Agreement,

3
<PAGE>

Consultant represents that Consultant has no such Inventions at the time of
signing this Agreement.

7. Non-Solicitation. During the term of this Agreement and for one (1) year
----------------
thereafter, Consultant will not encourage or solicit any employee or consultant
of the Company to leave the Company for any reason.

8. Intentionally Omitted.
---------------------

9. No Conflict with Obligation to Third Parties. Consultant represents that
--------------------------------------------
performance of all the terms of this Agreement will not breach any agreement to
keep in confidence proprietary information acquired by Consultant in confidence
prior to the execution of this Agreement. Consultant has not entered into, and
Consultant agrees not to enter into, any agreement (either written or oral) that
conflicts or might conflict with Consultant's obligations under this Agreement.

10. Terminable At-Will. Consultant agrees that this Agreement may be
------------------
terminated by either the Company or the Consultant at any time, for any reason,
with or without cause, by giving written notice to the other party; termination
to be effective upon the other party's receipt of notice.

11. Independent Contractor; Taxes. Consultant is an independent contractor and
-----------------------------
is solely responsible for all taxes, withholdings, and other similar statutory
obligations, including, but not limited to, Workers' Compensation Insurance; and
Consultant agrees to defend, indemnify and hold Company harmless from any and
all claims made by any entity on account of an alleged failure by Consultant to
satisfy any such tax or withholding obligations.

12. No Agency. Consultant has no authority to act on behalf of or to enter
---------
into any contract, incur any liability or make any representation on behalf of
the Company.

13. Compliance with Law. Consultant's performance under this Agreement shall
-------------------
be conducted with due diligence and in full compliance with the highest
professional standards of practice in the industry. Consultant shall comply
with all applicable laws and Company safety rules in the course of performing
the Services. If Consultant's work requires a license, Consultant has obtained
that license and the license is in full force and effect.

14. Indemnification. Consultant will indemnify and hold Company harmless, and
---------------
will defend Company against any and all loss, liability, damage, claims, demands
or suits and related costs and expenses to persons or property that arise,
directly or indirectly, from acts or omissions of Consultant, or breach of any
term or condition of this Agreement.

15. Survival. Consultant agrees that Sections 1 through 3 and Sections 5
--------
through 20 of this Agreement shall survive any termination of this Agreement,
and that the Company is entitled to communicate Consultant's obligations under
this Agreement to any future client or potential client of Consultant.

4
<PAGE>

16. Choice of Law; Severability. This Agreement shall be construed in
---------------------------
accordance with the laws of the State of California without regard to the
conflict of laws provisions thereof. If any provision of this Agreement is held
to be illegal or unenforceable, such provision shall be limited or excluded from
this Agreement to the minimum extent required so that this Agreement shall
otherwise remain in full force and effect and enforceable in accordance with its
terms.

17. Successors and Assigns; Assignment. This Agreement shall be binding upon
----------------------------------
Consultant, and inure to the benefit of, the parties hereto and their respective
heirs, successors, assigns, and personal representatives; provided, however,
that it shall not be assignable by Consultant.

18. Entire Agreement. This Agreement, together with all Attachments, contains
----------------
the entire understanding of the parties regarding its subject matter and can
only be modified by a subsequent written agreement executed by the parties.
This Agreement supersedes and replaces the Consulting Services Agreement dated
October 20, 1999 and that agreement shall be of no further force and effect.

19. Notices. All notices required under this Agreement shall be addressed to
-------
the address set forth below (or at such other address as may be provided by
written notice given in accordance with this Section 19) and provided by (i)
registered mail, return receipt requested; or (ii) facsimile, with a
confirmation copy as provided in clause (i), (iii) or (iv) of this Section 19;
or (iii) Federal Express, DHL, or an equivalent courier service with tracking
capabilities; or (iv) hand delivery.

20. Attorney Fees. If any action at law or in equity is necessary to enforce
-------------
or interpret the terms of this Agreement, the prevailing party shall be entitled
to all attorneys' fees, courts costs and necessary disbursements, in addition to
any other relief to which the party may be entitled.

Dated: November 15, 1999

Accepted and Agreed to:

STAMPS.COM INC. CONSULTANT

By: /s/ Michael A. Zuercher /s/ Marvin Runyon
------------------------------ ------------------------------
Consultant Signature
Name: Michael A. Zuercher
----------------------------

Title: Sr. Director, Legal Affairs
and Secretary
---------------------------

5
<PAGE>

ATTACHMENT A
------------

STAMPS.COM INC.
2900 31st Street, Suite 150
Santa Monica, California 90405

Gentlemen:

1. The following is a complete list of Inventions relevant to the
performance of consulting services for Stamps.com Inc. (the "Company") that have
been made, conceived, developed or first reduced to practice by me (in whole or
in part, either alone or jointly with others) prior to the execution of the
Company's Consulting Services Agreement (the "Agreement") that I desire to
clarify are not subject to the Agreement.

_______ No Inventions

_______ See below

_______ Additional sheets attached

Consultant Signature

Name

<PAGE>

EXHIBIT 23.3

[LETTERHEAD OF ARTHUR ANDERSEN]

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

/s/ Arthur Andersen LLP
Arthur Andersen LLP

Los Angeles, California
November 19, 1999

<PAGE>

EXHIBIT 23.4

[Letterhead of Moss Adams LLP]

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement registering 8,000,000 shares of Common Stock of
Stamps.com Inc. of our report dated March 12, 1999 on the audit of the
financial statements of iShip.com. We also consent to the reference to our
Firm under the heading "Experts" in the Prospectus.

/s/ Moss Adams L.L.P.

Seattle, Washington
November 19, 1999

<PAGE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 61,198,260
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,413,773
<PP&E> 5,961,777
<DEPRECIATION> (622,212)
<TOTAL-ASSETS> 74,185,476
<CURRENT-LIABILITIES> 7,033,444
<BONDS> 0
0
0
<COMMON> 35,569
<OTHER-SE> 66,616,249
<TOTAL-LIABILITY-AND-EQUITY> 74,185,476
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 24,181,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (121,968)
<INCOME-PRETAX> (23,103,097)
<INCOME-TAX> (23,103,097)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,103,097)
<EPS-BASIC> (1.59)
<EPS-DILUTED> (1.59)

</TABLE>

<PAGE>

EXHIBIT 99.1

ACTION BY WRITTEN CONSENT
OF THE SHAREHOLDERS
OF iSHIP.COM, INC.

November __, 1999

The undersigned, being the shareholders entitled to vote at meetings of
iShip.com, Inc., a Washington corporation (the "Company"), by this instrument in
-------
lieu of a meeting of the shareholders of the Company and pursuant to RCW Section
23B.07.040 and the bylaws of the Company, hereby consent to the adoption of the
following resolutions, and hereby waive any notices required by law with respect
thereto.

Merger Transaction
- ------------------

WHEREAS: The Company has entered into an Agreement and Plan of Merger
-------
dated as of October 22, 1999 ("the Merger Agreement"), with Stamps.com
----------------
Inc., a Delaware corporation ("Parent"), Rocket Acquisition Corp., a
------
Washington corporation and wholly-owned subsidiary of Parent ("Merger
------
Sub"), and U.S. Stock Transfer Corporation, whereby Merger Sub will merge
---
with and into the Company with the Company surviving as a wholly-owned
subsidiary of Parent (the "Merger"). Terms not otherwise defined in this
------
action by written consent shall have the meaning given them in the Merger
Agreement.

RESOLVED FURTHER: That the Merger and the terms of the Merger Agreement
----------------
and all other related agreements contemplated thereby including, without
limitation, the Support Agreements, the Articles of Merger, and the
Affiliate Agreements (the "Related Agreements") be, and hereby are,
------------------
approved, provided, however, that the officers of the Company are hereby
-------- -------
authorized to make such changes and amendments to such agreements as they
may deem necessary or appropriate.

RESOLVED FURTHER: The undersigned shareholder, acting in his, her or its
----------------
capacity as a shareholder of the Company, hereby consents to, and hereby
does, vote their shares of the Company in favor of the transactions
contemplated in the Merger Agreement and Related Agreements.

RESOLVED FURTHER: That the officers of the Company are hereby authorized
----------------
and directed to execute and deliver on behalf of the Company the Merger
Agreement and Related Agreements and thereafter to cause the Company to
perform all of its obligations and duties with respect to such agreements.

-1-
<PAGE>

RESOLVED FURTHER: That the prior actions by the officers of the Company in
----------------
connection with the Merger, the Merger Agreement and the Related Agreements
are hereby approved and ratified.

RESOLVED FURTHER: The undersigned shareholder hereby waives any and all
----------------
dissenters' rights such shareholder may have under Chapter 23B.13 of the
Washington Business Corporation Act, including but not limited to all
rights to receive notice of dissenters' rights, in connection with the
Merger.

RESOLVED FURTHER: The undersigned understands that by signing this Action
----------------
By Written Consent he, she or it will lose all of his, her or its
entitlement to exercise such dissenters' rights referenced above.

RESOLVED FURTHER: The undersigned shareholder agrees that it will not, and
----------------
will not permit any company, trust or other entity controlled by the
undersigned to, and will not permit any of its affiliates to, contract to
sell, sell, pledge or otherwise transfer or dispose of any of the shares of
the Company held by such shareholder immediately prior to the Merger or any
interest therein or securities convertible thereinto or any voting rights
with respect thereto, other than pursuant to the Merger or with the prior
written consent of Parent.

RESOLVED FURTHER: The undersigned shareholder agrees that at any meeting of
----------------
shareholders of the Company, however called, and in any action by written
consent of the shareholders of Company, the undersigned shall (i) vote all
of the shares of the Company beneficially owned by such shareholder or its
affiliates immediately prior to the Merger or over which the undersigned
shareholder or any of its affiliates has voting power or control, directly
or indirectly (including any common shares of the Company acquired after
the date to this consent) to approve the Merger and the Merger Agreement
and/or the transactions contemplated thereby, (ii) vote such shares against
any action or agreement that would result in a breach in any material
respect of any covenant, representation or warranty or any other obligation
of Company under the Merger Agreement, and (iii) vote such shares against
any action or agreement that would materially impede, interfere with or
attempt to discourage the Merger.

[SIGNATURE PAGE FOLLOWS]

-2-
<PAGE>

This Action by Written Consent may be executed in counterparts, each of
which shall be considered an original, and all of which, together will
constitute one instrument.

________________________________________
(Signature)

________________________________________
(Print Name of Individual signing above)

________________________________________
(Print Name of Shareholder, if different
from above)

________________________________________
Date of Execution

[SIGNATURE PAGE TO ACTION BY WRITTEN CONSENT
OF THE SHAREHOLDERS OF ISHIP.COM, INC.]

<PAGE>

EXHIBIT 99.2

PROXY

STAMPS.COM INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STAMPS.COM STOCKHOLDERS--December , 1999

The undersigned hereby appoints Messrs. John M. Payne and John W. LaValle,
and each of them, proxies with full power of substitution, for and in the name
of the undersigned to vote all shares of common stock, par value $0.001 per
share, of Stamps.com Inc., a Delaware corporation (the "Company"), that the
undersigned would be entitled to vote at the Company's 1999 Special Meeting of
Stockholders to be held on December , 1999 (the "Meeting"), AM, Local
Time, at , or at any and all adjournments and postponements thereof
upon the matters set forth in the Notice of the Meeting as stated hereon,
hereby revoking any proxy heretofore given.

The undersigned acknowledges receipt of the Notice of the Meeting and the
accompanying Joint Proxy Statement and Consent Solicitation/Prospectus.

(Continued and to be SIGNED on the other side)

<PAGE>

THE BOARD RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.

Please mark your vote as indicated in this example: [X]

1. Approval of the Agreement and Plan of Merger, dated as of October 22, 1999,
by and among Stamps.com Inc., Rocket Acquisition Corp. and iShip.com, Inc.

[_] FOR [_] AGAINST [_] ABSTAIN

2. Approval of the increase by 2.5 million the number of shares of Stamps.com
common stock issuable under Stamps.com's 1999 stock incentive plan.

[_] FOR [_] AGAINST [_] ABSTAIN

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR PROPOSALS 1 AND 2 SET FORTH ABOVE.

Date: _________________________

-------------------------------
Signature

Date: _________________________

-------------------------------
Signature

NOTE: Please sign exactly as
name appears hereon. Joint
owners should each sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full
title as such.