STAMPS COM INC, S-1/A, 1999-11-30

STAMPS COM INC
S-1/A, 1999-11-30
CATALOG & MAIL-ORDER HOUSES

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<PAGE>

As filed with the Securities and Exchange Commission on November 30, 1999
Registration No. 333-90115
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STAMPS.COM INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 5961 77-0454966
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
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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)
-------------
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:
<TABLE>
<S> <C>
Bruce R. Hallett, Esq. Edwin D. Williamson, Esq.
Allen Z. Sussman, Esq. Sullivan & Cromwell
Michael W. Chou, Esq. 1701 Pennsylvania Avenue, N.W.
Lilly S. Kim, Esq. Washington, DC 20006-5805
Brobeck, Phleger & Harrison LLP (202) 956-7500
38 Technology Drive
Irvine, California 92618
(949) 790-6300
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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(c)
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. [_]
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. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company 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 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this preliminary prospectus is not complete and +
+may be changed. These securities may not be sold until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This preliminary prospectus is not an offer to sell nor does it seek an offer +
+to buy these securities in any jurisdictions where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to Completion. Dated November 30, 1999.

5,000,000 Shares

[LOGO OF STAMPS.COM]

Common Stock

-----------

Stamps.com Inc. is offering 5,000,000 shares to be sold in the offering.
Stamps.com's common stock is traded on the Nasdaq National Market under the
symbol "STMP". The last reported sale price of the common stock on November 29,
1999 was $83.25 per share.

See "Risk Factors" beginning on page 5 to read about factors you should
consider before buying shares of the common stock.

-----------

Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

-----------

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial price to public.................................. $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Stamps.com................. $ $
</TABLE>

To the extent that the underwriters sell more than 5,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional 750,000
shares from Stamps.com at the initial price to public less the underwriting
discount.

-----------

The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.

-----------

Goldman, Sachs & Co. Salomon Smith Barney
Robertson Stephens
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company

-----------

Prospectus dated , 1999.
<PAGE>

INSIDE FRONT COVER
Using two Web site screen shots and a picture of an envelope with Internet
postage, the inside front cover of the prospectus illustrates the three steps a
consumer will use to obtain postage with Stamps.com. The following are the
steps to be taken: 1) Download software and sign-up: Start printing postage in
a matter of minutes. Simply download the free software from our web site, sign-
up and you're ready to go; 2) Select your address: Type in a new address or
select from an existing address book and Stamps.com automatically corrects and
formats your addresses online. Stamps.com also integrates with the most popular
contact managers and word processors; and 3) Print Postage: Just click print.
Your postage, bar code and address is printed from your inkjet or laser printer
right onto envelopes, labels or business forms. It's that easy.

INSIDE GATEFOLD (two pages)
The two-page spread is a picture of a printer with an envelope with postage
coming out. Across the top of both pages are the words POSTAGE FROM YOUR
PRINTER. (TM). The picture is blue and white. The right side of the two-page
spread has three small inset images representing the process of printing out
postage and the application of the postage onto mail. The following are
descriptions of the three images: 1) A woman sitting at her PC computer using
the Stamps.com service to print out internet postage; 2) An image of mailing
labels that have been printed using the Stamps.com service; and 3) An image of
mailing tubes with the printed postage labels applied to them. Next to the
three images is text which reads EASY, CONVENIENT AND COST-EFFECTIVE POSTAGE.
Stamps.com allows small businesses and consumers to print Internet postage from
their PCs onto envelopes, labels and business documents without having to leave
the office or home. Print First Class Mail, Priority Mail(R) and Express Mail
(SM) 24 hours a day, 7 days a week to send everything from packages to
postcards to letters. In the bottom right corner is the Stamps.com logo.

INSIDE BACK COVER
The inside back cover of the prospectus has an envelope with an enlarged
indicia. Each item of the indicia is explained in detail directly in the center
of the page. The explanation is as follows: There is a vertical barcode called
the FIM, or Facing Identification Mark. The Post Office uses this to sort the
mail. There is a postage amount in number format with human readable
information, including the postage value, mail class, and date. There is a two-
dimensional barcode. It contains information to make this mail piece unique,
such as delivery and routing information, postage value, and your digital
signature. Under the barcode on the left side is the licensing post office and
on the right side is the unique meter number for the mail piece. Across the
bottom section of this page is an iconic list of Stamps.com current
partnerships, which includes Quicken.com, 3M, Office Depot.com, America Online,
Avery, IBM, ZD Net Lotus, Microsoft and My Software.
<PAGE>

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding Stamps.com including the financial statements and notes
appearing elsewhere in this prospectus. Unless otherwise indicated, this
prospectus assumes no exercise of the underwriters' over-allotment option and
does not include up to 8,000,000 shares of our common stock that will be issued
in the proposed acquisition of iShip.com. This prospectus contains forward-
looking statements that involve risks and uncertainties. Our 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 prospectus.

Stamps.com Inc.

We offer a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. Our 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. Our 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 our service is simple. Our 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 our
service. Our 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, our
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, we commercially launched our Internet Postage service.
As of November 29, 1999, our customer base consisted of over 30,000 users who
had downloaded our software and registered for our service.

Our Strategy

Our objective is to be the leading provider of Internet postage and
shipping services. To achieve this objective, our strategy includes the
following key elements:

. Enhancing our brand name through a variety of marketing and promotional
techniques;

. Leveraging strategic partnerships with companies in the Internet, software,
original equipment manufacturer, office supply and media industries;

. Exploiting our first-to-market advantage as the first approved, commercially
available software-based Internet postage solution;

. Rapidly growing our customer base by capitalizing on our brand name,
strategic partnerships and first-to-market advantage;

. Utilizing our software-based solution and technology to enhance our service
offering and expand the benefits of secure online transactions; and

. Pursuing additional revenue opportunities, including postage and shipping-
related products and insurance, the international Internet postage market,
and authenticated document delivery.

1
<PAGE>

Recent Developments

In October 1999, we entered into a three-year marketing and distribution
agreement with America Online, Inc., or AOL. This partnership is an expansion
of our agreement with AOL made in December 1998, and under the agreement we
will become the exclusive provider of postage software available across several
AOL brands including AOL, CompuServe, Netscape Netcenter and Digital City. Our
software will also be bundled on AOL, Netscape and CompuServe branded CD-ROMs.
Under the new agreement, we will make aggregate payments of $56 million over
three years to AOL. In addition, AOL has agreed to make an $11 million equity
investment in Stamps.com. For a further description of the AOL investment, see
"Description of Capital Stock--America Online Investment".

In October 1999, we signed a definitive agreement to acquire iShip.com, a
privately-held company located in Bellevue, Washington. 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, United
Parcel Service, or UPS, the US Postal Service and Yellow Freight Systems. Under
the terms of the agreement, we will issue up to 8,000,000 shares of our common
stock for all outstanding shares, options and warrants of iShip.com. The
acquisition will be accounted for under the purchase method of accounting and
has been approved by the boards of directors of both companies. We anticipate
that the iShip.com acquisition will close during the first quarter of 2000. The
iShip.com 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, we cannot be certain that the iShip.com acquisition
will be completed.

In November 1999, we formed a subsidiary, EncrypTix, Inc., to develop
secure printing applications for the events, travel and financial services
industries. Initially, EncrypTix will be a wholly-owned subsidiary of
Stamps.com. Upon completion of licensing and other inter-company agreements
with us, EncrypTix intends to seek capital from strategic and financial
investors.

Corporate Information

In September 1996, our founders began to investigate the feasibility of
entering into the US Postal Service's Information Based Indicia Program and
initiated the certification process. In January 1998, we were incorporated in
Delaware as StampMaster, Inc. and changed our name to Stamps.com Inc. in
December 1998. Our executive offices are located at 3420 Ocean Park Boulevard,
Suite 1040, Santa Monica, California 90405, and our telephone number is (310)
581-7200. Information contained on our Web site does not constitute part of
this prospectus. References in this prospectus to "we", "us" or "our" refer to
Stamps.com and do not include iShip.com unless otherwise noted.

Stamps.com(TM), Internet Postage(TM), Postage from your printer(TM), the
Stamps.com logo, EncrypTix(TM) and the EncrypTix logo are our trademarks. This
prospectus also includes trademarks of entities other than Stamps.com.

2
<PAGE>

The Offering

The following information assumes that the underwriters do not exercise the
option granted by us to purchase additional shares in the offering. The number
of shares to be outstanding after the offering includes 178,638 shares of
common stock purchased by AOL in October 1999 and 148,860 shares of common
stock that AOL has agreed to purchase concurrently with the closing of this
offering, and excludes outstanding options and warrants to purchase a total of
7,152,564 shares of common stock with a weighted average exercise price of
$8.19 per share and the shares of our common stock to be issued in the proposed
iShip.com acquisition. See "Capitalization".

<TABLE>
<C> <S>
Common stock offered by Stamps.com................. 5,000,000 shares

Common stock to be outstanding after the offering.. 40,207,803 shares

Use of proceeds.................................... For general corporate
purposes, principally
expansion of our marketing
and distribution
partnerships, advertising
and brand promotion,
technology development,
and working capital.

Nasdaq National Market symbol...................... STMP
</TABLE>

3
<PAGE>

Summary Financial Data

The following summary financial information is derived from our financial
statements included elsewhere in this prospectus. You should read the following
summary financial information in conjunction with those financial statements
and the related notes.

The summary financial information below reflects that we were incorporated
on January 9, 1998. The statement of operations data displayed in the "Pro
Forma for iShip.com Acquisition" column give effect to the proposed iShip.com
acquisition as if it were completed on January 1, 1999, using an estimated
purchase price of $666.0 million, based on our closing price of $83.25 per
share on November 29, 1999. The pro forma general and administrative expenses
include expenses related to the amortization of intangibles, which were $123.9
million for the nine months ended September 30, 1999.

The balance sheet data displayed in the "As Adjusted" column reflect the
application of the net proceeds from the sale of 5,000,000 shares of common
stock offered by us at an assumed initial price to public of $83.25 per share,
which was our closing price on November 29, 1999, after deducting the
underwriting discount and commissions and estimated offering expenses payable
by us, and the sale of 327,498 shares of common stock to AOL at an assumed
offering price of $33.59 per share.

The balance sheet data displayed in the "As Adjusted and Pro Forma for
iShip.com Acquisition" column reflect the application of proceeds from the
offering as well as the effect of the proposed iShip.com acquisition as if it
were completed on September 30, 1999.

<TABLE>
<CAPTION>
Nine Months Ended
Period from September 30, 1999
January 9, 1998 Period from -------------------------
(inception) to January 9, 1998 Pro Forma for
December 31, (inception) to iShip.com
1998 September 30, 1998 Actual Acquisition
--------------- ------------------ ----------- -------------
(unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations:
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 8,276 134,217
------- ------- -------- ---------
Loss from operations.... (4,180) (1,674) (24,181) (151,849)
------- ------- -------- ---------
Net loss................ $(4,196) $(1,676) $(23,103) $(150,635)
======= ======= ======== =========

Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59) $ (7.24)
======= ======= ======== =========
Pro forma (for
conversion of preferred
shares into common
shares) basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74) $ (4.01)
======= ======= ======== =========
Weighted average shares
outstanding used in
basic and diluted per-
share calculation...... 4,956 4,738 14,496 20,800
Weighted average shares
outstanding used in pro
forma basic and diluted
per-share calculation.. 11,593 9,613 31,260 37,564
</TABLE>

<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------------------
As Adjusted and
Pro Forma for
iShip.com
Actual As Adjusted Acquisition
----------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............. $61,198 $467,456 $ 472,978
Working capital....................... 61,380 467,638 472,137
Intangibles, net...................... -- -- 604,102
Total assets.......................... 74,185 480,443 1,092,394
Line of credit, capital lease
obligations and other long-term
liabilities.......................... 1,972 1,972 4,000
Total stockholders' equity............ 66,652 472,910 1,082,145
</TABLE>

4
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently believe are immaterial may also impair our
business operations. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected, the value of our stock could decline, and you may lose all
or part of your investment.

We face risks associated with our operations

If we do not effectively manage the commercial release of our Internet Postage
service, our business will be harmed.

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

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

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

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

On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against
us. The suit alleges that we are 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. We 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 our 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, we can give no assurance that Pitney Bowes will not
prevail in its suit against us.

If Pitney Bowes prevails in its suit against us, we may be prevented from
selling postage on the Internet. Alternatively, the Pitney Bowes suit could
result in limitations on how we

5
<PAGE>

implement our service, delays and costs associated with redesigning our service
and payments of license fees and other payments. Thus, if Pitney Bowes prevails
in its suit against us, our 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 us, we were in license discussions with Pitney Bowes.
We intend to continue these discussions; however, we cannot predict whether
these discussions will continue, the outcome of these discussions or the impact
of Pitney Bowes' intellectual property claims on our business or the Internet
postage market. If Pitney Bowes is able to prevail in its claims against us and
if we do not enter into a license relationship with Pitney Bowes, our business
could be impacted severely or fail. In addition, as described above, Pitney
Bowes could obtain monetary and injunctive relief against us.

The Internet postage and shipping markets are new and uncertain and our
business may not develop.

The market for Internet postage has not developed, and its development is
subject to substantial uncertainty. We cannot assure you that the Internet
postage market will develop. We depend on the commercial acceptance of our
Internet Postage service. We cannot predict if our target customers will choose
the Internet as a means of purchasing postage, or if customers will be willing
to pay a fee to use our service, or if potential users will select our system
over our competitors. Our 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 U.S. Postal Service's First Class Mail volume in
the next decade. Such trends could limit the market opportunity for our
Internet Postage service.

In addition, if the iShip.com acquisition is completed, we 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 our business, financial condition or results of operations.

6
<PAGE>

The integration of our company and iShip.com will present significant
challenges. We may not be able to realize the benefits we anticipate from the
acquisition of iShip.com.

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

If the iShip.com acquisition is completed, we 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 our company and iShip.com successfully and to manage the
challenges presented by the integration process may result in our company 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 our
business. In particular, if the iShip.com acquisition is completed, we will
have operations in multiple facilities in geographically distant areas. We are
not experienced in managing facilities or operations in geographically distant
areas.

We have a history of losses and expect to incur losses in the future, and we
may never achieve profitability.

As of September 30, 1999, we had not generated any revenues and had a
deficit accumulated during the development stage of $27.3 million. Our lack of
revenues can be attributed primarily to the fact that our Internet Postage
service had not been released commercially until October 22, 1999. Due to the
need to establish our brand and service, we expect 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, we will need to generate significant revenues to
achieve and maintain profitability.

Our ability to generate gross margins generally assumes that if a market
for Internet postage develops, we must generate significant revenues from a
large base of active customers. We currently charge our customers a fee to use
our Internet Postage service. See "Business--Our Internet Postage Service".
However, given the lack of an established or proven commercial market for
Internet postage, we cannot be sure that customers will be receptive to our fee
structure. Even if we are able to establish a sizeable base of users, we 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, we expect that our 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.

7
<PAGE>

If we cannot effectively manage our growth, our ability to provide services
will suffer.

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

We may not be able to manage our growth effectively. Our current expansion
has and will continue to place a significant strain on our managerial,
operational and financial resources. Our current and planned personnel,
systems, procedures and controls may be inadequate to support our future
operations. If we are unable to manage our growth effectively or experience
disruptions during our expansion, our business will suffer and our financial
condition and results of operations will be seriously affected.

If we are unable to maintain and develop our strategic relationships and
distribution arrangements, our Internet Postage service may not achieve
commercial acceptance.

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

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

In addition, if the iShip.com 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.

8
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We face risks typical of early stage companies and of new and rapidly changing
markets.

You should consider our 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, our:

. ability to meet and maintain government specifications for our service,
specifically US Postal Service requirements;

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

. need to expand our sales and support organizations;

. ability to establish and promote our brand name;

. ability to expand our operations to meet the commercial demand for our
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 we do not achieve the brand recognition necessary to succeed in the Internet
postage market, our business will suffer.

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

System and online security failures could harm our business and operating
results.

Our services depend on the efficient and uninterrupted operation of our
computer and communications hardware systems. In addition, we must provide a
high level of security for the transactions we execute. We rely 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 our business and reputation and would likely result in the loss
of customers. Furthermore, if we are unable to provide adequate security, the
US Postal Service could prohibit us from selling postage over the Internet.

Our 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. We have entered into an
Internet hosting agreement with Exodus Communications, Inc. to maintain our
Internet postage servers at Exodus' data center in Southern California. Our
operations depend on Exodus' ability to protect its and our systems in its data
center against damage or interruption. Exodus does not guarantee that our
Internet access will be uninterrupted, error-free or secure. Our servers are
also vulnerable to computer viruses, physical, electrical or electronic break-
ins and similar disruptions. We have 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

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of data and could completely impair our ability to generate revenues from our
service. We do not presently have a formal disaster recovery plan in effect. We
have business interruption insurance; however, we cannot be certain that our
coverage will be sufficient to compensate us 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 our security measures could misappropriate
confidential information or cause interruptions in our operations. We may be
required to expend significant capital and other resources to protect against
potential security breaches or to alleviate problems caused by any breach. We
rely 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 we use
to protect customer transaction data. Should someone circumvent our security
measures, our reputation, business, financial condition and results of
operations could be seriously harmed. Security breaches could also expose us to
a risk of loss or litigation and possible liability for failing to secure
confidential customer information. As a result, we 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 we do not expand our product and service offerings, our business may not
grow.

We 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 our sources of revenue and
expand our product and service offerings outside the Internet postage market.
With the exception of our agreement to acquire iShip.com, we have no
commitments or agreements and are not currently engaged in discussions for any
material acquisitions or investments. We continue to evaluate incremental
revenue opportunities and derivative applications of our technology such as
ticketing, couponing and enterprise mailing systems and plan to pursue and
develop those opportunities with strategic partners and investors. For
instance, we announced on November 16, 1999 the formation of a subsidiary,
EncrypTix, to develop secure printing opportunities in the events, travel and
financial services industries. To the extent we pursue new or complementary
businesses, we may not be able to expand our service offerings and related
operations in a cost-effective or timely manner. We may experience increased
costs, delays and diversions of management's attention when integrating any new
businesses or service. We may lose key personnel from our operations or those
of any acquired business. Furthermore, any new business or service we launch
that is not favorably received by users could damage our reputation and brand
name in the Internet postage or other markets that we enter. We also cannot be
certain that we will generate satisfactory revenues from any expanded services
or products to offset related costs. Any expansion of our operations would also
require significant additional expenses, and these efforts may strain our
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
our business, financial condition and operating results. New issuances of
securities may also have rights, preferences and privileges senior to those of
our common stock.

Fluctuations in our operating results could cause our stock price to fall.

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

. the success of the commercial release of our Internet Postage service;

10
<PAGE>

. the costs of defending ourselves in the Pitney Bowes litigation or against
other intellectual property claims;

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

. the demand for our Internet Postage service;

. our ability to develop and maintain strategic distribution relationships;

. the number, timing and significance of new products or services introduced by
both us and our competitors;

. our ability to develop, market and introduce new and enhanced services on a
timely basis;

. the level of service and price competition;

. the increases in our operating expenses as we expand operations; and

. general economic factors.

Our 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 our service. In addition, a substantial
portion of our 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. Our operating expense levels are based, in
significant part, on our expectations of future revenues. If our 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
prospectus, you should not rely on period-to-period comparisons of our results
of operations as an indication of future performance. It is possible that in
some future periods our results of operations will be below the expectations of
public market analysts and investors. In this event, the market price of our
common stock is likely to fall.

We rely on a relatively new management team and need additional personnel to
grow our business.

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

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

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

A failure to protect our own intellectual property could harm our competitive
position.

We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and protect our rights in our
products, services, know-how and information. We have three issued US patents
and have filed 19 patent applications in the United States, and one
international patent application. We have also applied to register several
trademarks and service marks. We plan to apply for other patents in the future.
We may not receive patents for any of our patent applications. Even if patents
are issued to us, claims issued in these patents may not protect our
technology. In addition, any of our patents might be held invalid or
unenforceable by a court. If our patents fail to protect our technology, our
competitive position could be harmed. Even if our patents are upheld or are not
challenged, third parties may develop alternative technologies or products
without infringing our patents. We generally enter into confidentiality
agreements with our employees, consultants and other third parties to control
and limit access and disclosure of our confidential information. These
contractual arrangements or other steps taken to protect our 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 our
services or intellectual property rights to the same extent as do the laws of
the United States.

In addition, if the iShip.com acquisition is completed, we will face
additional risks 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 our
business, financial condition and results of operations. The loss of any
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 our business, financial condition and results
of operations.

If the internal and third-party equipment and software that we use are not Year
2000 compliant, our operating results, brand and reputation could be impaired
and we 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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<PAGE>

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

Our failure to make our service Year 2000 compliant could result in:

. a decrease in sales of our service;

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

. an increase in litigation costs relating to losses suffered by our 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 our service, which could seriously harm our business,
operating results and financial condition. We have conducted a preliminary
review of our internal computer systems to identify the systems that could be
affected by the Year 2000 issue. Based on this preliminary review, we believe
that our internal software systems are Year 2000 compliant. However, we
continually evaluate our systems and intend to develop a contingency plan to
address any Year 2000 issues.

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

Our growth and operating results could be impaired if we are unable to meet our
future capital requirements.

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

. market acceptance of our postage and shipping services;

. the level of promotion and advertising of our postage and shipping services;

. the level of our development efforts;

. rate of customer acquisition and retention of our postage and shipping
services; and

. changes in technology.

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<PAGE>

The various elements of our business and growth strategies, including our
plans to support fully the commercial release of our service, our introduction
of new products and services and our investments in infrastructure will require
additional capital. If we are unable to raise additional necessary capital in
the future, we may be required to curtail our 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.

We could be required to register as an investment company and become subject to
substantial regulation that would interfere with our ability to conduct our
business.

We plan to invest the proceeds of this offering in short-term instruments
consistent with prudent cash management and not primarily for the purpose of
achieving investment returns. This could result in our 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 we do not believe that we are engaged primarily in the business of
investing, reinvesting or trading in securities, we may invest our cash and
cash equivalents in government securities to the extent necessary to avoid
having over 40% of our 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 we have invested to date. Accordingly,
investing substantially all of our cash and cash equivalents in government
securities could result in lower levels of interest income, which could cause
our losses to increase.

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

Our management has broad discretion over use of the proceeds from this offering
and may not use the proceeds effectively.

The net proceeds of this offering will be approximately $395.3 million at
an assumed price to public of $83.25 per share, which was our closing price on
November 29, 1999, after deducting the underwriting discount and commissions
and estimated offering expenses payable by us. Our management will retain broad
discretion as to the allocation of the proceeds of this offering. See "Use of
Proceeds".

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<PAGE>

We face risks associated with our market

If we do not respond effectively to technological change, our service could
become obsolete and our business will suffer.

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

. rapid technological change;

. changes in user and customer requirements and preferences;

. 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 our existing technology and systems obsolete. Our success will depend,
in part, on our ability to:

. license or acquire leading technologies useful in our business;

. enhance our existing service;

. develop new services and technology that address the increasingly
sophisticated and varied needs of our 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,
our business. Furthermore, we may not be successful in using new technologies
effectively or adapting our technology and systems to user requirements or
emerging industry standards on a timely basis. Our ability to remain
technologically competitive may require substantial expenditures and lead time.
If we are unable to adapt in a timely manner to changing market conditions or
user requirements, our business, financial condition and results of operations
could be seriously harmed.

If we are unable to compete successfully, particularly against large,
traditional providers of postage products such as Pitney Bowes who enter the
online postage market, our revenues and operating results will suffer.

The market for Internet postage products and services is new and we expect
it to be intensely competitive. At present, E-Stamp has a hardware-based
product commercially available and Pitney Bowes and Neopost Industrie 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
our competitors, including Pitney Bowes, could provide the same or similar
service as us, our operations could be adversely impacted. See "--Success by
Pitney Bowes in its suit against us alleging patent infringement could prevent
us from offering our Internet Postage service and severely harm our business or
cause it to fail".

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, we may not be able to establish or maintain a competitive position
against current or future competitors as they enter the market. Many of our
competitors have longer operating histories, larger customer bases, greater
brand recognition, greater financial,

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<PAGE>

marketing, service, support, technical, intellectual property and other
resources than us. As a result, our 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 us. This increased competition may result in reduced operating
margins, loss of market share and a diminished brand. We 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 our business.

If the market for Internet postage develops, we could face competitive
pressures from new technologies or the expansion of existing technologies
approved for use by the US Postal Service. We 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 our competitors or charge us a
substantial fee for inclusion. Our competitors may also be acquired by, receive
investments from or enter into other commercial relationships with larger,
better-established and better-financed companies as use of the Internet and
other online services increases. In addition, changes in postal regulations
could adversely affect our service and significantly impact our competitive
position. We may be unable to compete successfully against current and future
competitors, and the competitive pressures we face could seriously harm our
business.

If the iShip.com acquisition is completed, we 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 our business will depend on the continued growth of the Internet
and the acceptance by customers of the Internet as a means for purchasing
postage.

Our 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. We cannot
predict the extent to which customers will be willing to shift their purchasing
habits from traditional to online postage purchasing. To be successful, our
customers must accept and utilize electronic commerce to satisfy their product
needs. Our 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 our 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. Our 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.

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<PAGE>

US Postal Service regulation may cause disruptions or the discontinuance of our
business.

We are 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 our service at
any time. Any changes in requirements or specifications for Internet postage
could adversely affect our pricing, cost of revenues, operating results and
margins by increasing the cost of providing our 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 we 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. Our business would suffer dramatically if we are unable to adapt our
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 introduce competitive
programs or amend Internet postage requirements to make certification easier to
obtain, which could lead to more competition from third parties or the US
Postal Service itself. See "--If we are unable to compete successfully,
particularly against large, traditional providers of postage products such as
Pitney Bowes who enter the online postage market, our revenues and operating
results will suffer".

In addition, US Postal Service regulations may require that our personnel
with access to postal information or resources receive security clearance prior
to doing relevant work. We may experience delays or disruptions if our
personnel cannot receive necessary security clearances in a timely manner, if
at all. The regulations may limit our 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.

Our operating results could be impaired if we or the Internet become subject to
additional government regulation and legal uncertainties.

With the exception of US Postal Service and Department of Commerce
regulations, we are 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 our products and services and increase our 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. Our 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 our business, or the
application of existing laws and regulations to the Internet and other online
services could also harm our business.

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<PAGE>

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

If we market our Internet Postage service internationally, government
regulation could disrupt our operations.

One element of our strategy is to provide service in international markets.
Our 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, our 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 our service in the future, and if we
obtain the necessary foreign certification or approvals, we 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 us. As a result, we cannot predict when, or if, international markets will
become a viable source of revenues for a postage service similar to ours.

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

If we achieve significant international acceptance of our Internet Postage
service, our 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 our intellectual property
rights and actions by third parties that would restrict or eliminate our
ability to do business in these jurisdictions. If we begin to transact business
in foreign currencies, we will become subject to the risks attendant to
transacting in foreign currencies, including the potential adverse effects of
exchange rate fluctuations.

We face risks associated with our stock in this offering

Our stock price could fluctuate significantly, which could result in
substantial losses to investors.

The market price of our common stock could fluctuate significantly in
response to various factors and events, including:

. operating results below market expectations;

. developments in, and the outcome of, our litigation with Pitney Bowes;

. announcements of technological innovations or new products by us or our
competitors;

. loss of any strategic relationship;

. changes in, or our failure to meet, financial estimates by securities
analysts;

. industry developments;

. economic and other external factors; and

. period-to-period fluctuations in our financial results.

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<PAGE>

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 our common stock. Past
stock price performance is not an indication of future performance.

The rights of our stockholders could be adversely affected because of the
concentrated control of our stock.

After this offering, our executive officers, directors and 5% stockholders
will control approximately 53.5% of our 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 our company, 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.

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

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

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

Sales of substantial amounts of our common stock in the public market after
this offering could adversely affect the prevailing market price of our common
stock. We estimate that prior to the sale of the 5,000,000 shares we are
offering by this prospectus, approximately 6.0 million of our 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 our initial
public offering, an additional 2.1 million shares of our outstanding common
stock will become available for immediate sale. On the 60th day after the date
of this prospectus, the lock-up described below will expire for approximately
6.8 million shares of our outstanding common stock and, on the 90th day after
the date of this prospectus, 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.

As part of this offering, our executive officers and directors, other
significant stockholders and iShip.com's significant stockholders, who will
receive at least 95% of the shares of common stock we issue in the proposed
acquisition of iShip.com, will execute agreements with the underwriters that
they will not offer or sell any shares of common stock for a period of 60 days
after the date of this prospectus without the prior written consent of Goldman,
Sachs & Co. On the 60th day after the date of this prospectus, the lock-up will
expire for 20% of the shares held by these stockholders. On the 90th day after
the date of this prospectus, 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-executive officer employees under existing employee benefit plans. In
addition, the merger agreement with iShip.com provides that we 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. 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 common stock in the public market, or the perception
that these sales could occur, could adversely affect the prevailing market
price for our common stock and could impair our ability to raise capital
through a public offering of equity securities.

19
<PAGE>

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

. our commercial release and future revenue opportunities;

. the outcome of the Pitney Bowes litigation;

. the national customer registration campaign for our Internet Postage
service;

. the integration of iShip.com;

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

. our 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);

. our strategic relationships and distribution relationships;

. our future capital needs;

. the effect of the year 2000 situation;

. the emergence of new technologies;

. our expansion of our marketing and sales force;

. our investment in new product development and enhancements;

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

. our acquisitions of complementary products, technologies and businesses;

. our use of net proceeds; and

. future financial pronouncements.

When we use words such as "believe", "expect", "anticipate" or similar words,
we are making forward-looking statements.

You should note that an investment in our common stock involves risks and
uncertainties that could affect our future business success or financial
results. Our 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 prospectus.

We believe that it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. Before you invest in our
common stock, you should be aware that the occurrence of the events described
in the risk factors and elsewhere in this prospectus could materially and
adversely affect our business, financial condition and operating results. We
undertake 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.

20
<PAGE>

USE OF PROCEEDS

Our net proceeds from the sale of the 5,000,000 shares of common stock
offered by this prospectus will be approximately $395.3 million based upon an
assumed price to public of $83.25 per share, which was our closing price on
November 29, 1999, and after deducting the underwriting discount and
commissions and estimated offering expenses payable by us.

Our principal purposes for engaging in this offering are to:

. fund sales and marketing expenses, principally strategic marketing and
distribution partnerships and advertising;

. fund development of our technology;

. increase the size of the public float for our common stock; and

. fund working capital, legal expenses associated with the Pitney Bowes
litigation and other general expenses.

Pending these uses, the net proceeds of the offering will be invested in
short-term, income-producing, investment-grade instruments.

In addition, AOL purchased $6.0 million of our common stock in October 1999
and has agreed to purchase $5.0 million of our common stock concurrent with the
closing of this offering.

From time to time, in the ordinary course of business, we may pursue the
acquisition of new or complementary businesses, products or technologies in an
effort to enter into new business areas, diversify our sources of revenue and
expand our product and service offerings. A portion of the net proceeds may be
used to fund acquisitions or investments. Except for the iShip.com acquisition,
we currently have no other arrangements, agreements or understandings, and are
not engaged in active negotiations for any other material acquisitions or
investments.

21
<PAGE>

PRICE RANGE OF COMMON STOCK

Our 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 the common stock. The following table sets forth, for the periods
indicated, the high and low closing prices per share of our 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 29, 1999)....................... 88.25 30.69
</TABLE>

On November 29, 1999, the reported last sale price of the common stock on
the Nasdaq National Market was $83.25. As of November 29, 1999, there were
approximately 180 stockholders of record.

DIVIDEND POLICY

We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain all available funds for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.

22
<PAGE>

CAPITALIZATION

The following table indicates our capitalization as of September 30, 1999
on an actual basis, on an as adjusted basis to give effect to the receipt of
the net proceeds from the sale of 5,000,000 shares of common stock at an
assumed price to the public of $83.25 per share, which was our closing price on
November 29, 1999, after deducting the underwriting discount and commissions
and estimated expenses payable by us, and the sale of 327,498 shares to AOL at
$33.59 per share, and on an as adjusted pro forma basis to give effect for the
proposed iShip.com acquisition as if completed September 30, 1999.

<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------
(unaudited)
As Adjusted and
Pro Forma
iShip.com
Actual As Adjusted Acquisition
-------- ------------ ---------------
(in thousands, except share data)
<S> <C> <C> <C>
Line of credit and capital lease
obligations............................ $ 1,972 $ 1,972 $ 4,000
Stockholders' equity:
Preferred stock, par value $0.001;
5,000,000 shares authorized, none
issued and outstanding................ -- -- --
Common stock, par value $0.001;
95,000,000 shares authorized;
35,569,402 shares issued and
34,864,807 outstanding; 40,192,305
issued and outstanding, pro forma as
adjusted, 46,496,305 issued and
outstanding, as adjusted and pro forma
for iShip.com acquisition............. 35 40 46
Additional paid-in capital.............. 103,048 508,361 1,174,355
Notes receivable for stock sales........ (107) (107) (107)
Deferred compensation................... (8,086) (8,086) (64,851)
Accumulated deficit during development
stage.................................. (27,299) (27,299) (27,299)
Treasury stock at cost (704,595
shares)................................ (939) -- --
-------- -------- ----------
Total stockholders' equity............. 66,652 472,910 1,082,145
-------- -------- ----------
Total capitalization.................. $ 68,624 $474,882 $1,086,145
======== ======== ==========
</TABLE>

The number of issued and outstanding shares set forth above excludes, as of
November 29, 1999:

. approximately 1,700,000 shares of our common stock issuable upon
exercise of options and warrants to be issued in connection with the
proposed iShip.com acquisition;

. 2,742,287 shares of common stock that may be issued upon exercise of
options that may be, but have not yet been, granted under our stock
incentive plan or that may be, but have not been, issued under our
stock purchase plan, assuming the stockholders approve an increase to
the 1999 Stock Incentive Plan from 7,290,000 to 9,790,000; and

. 7,152,564 shares of common stock that may be issued upon exercise of
options and warrants at a weighted average exercise price of $8.19 per
share.

23
<PAGE>

DILUTION

Our actual net tangible book value as of September 30, 1999 was
approximately $66.6 million, or $1.91 per share of common stock. Actual net
tangible book value per share represents the amount of our actual total
tangible assets less actual total liabilities divided by the actual number of
shares of common stock outstanding as of September 30, 1999. Without taking
into account any other changes in actual net tangible book value, other than to
give effect to the receipt of the net proceeds from the sale of 5,000,000
shares of common stock in this offering at an assumed price to public of
$83.25, after deducting the underwriting discount and commissions and estimated
offering expenses payable by us, and the sale of 327,498 shares of common stock
to AOL at a purchase price of $33.59 per share, the net tangible book value as
of September 30, 1999 would have been approximately $472.8 million or $11.76
per share of common stock. This represents an immediate increase in actual net
tangible book value of $9.85 per share to existing stockholders and an
immediate dilution in net tangible book value of $71.49 per share to investors
purchasing common stock in this offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed price to public per share................................. $83.25
Actual net tangible book value per share as of September 30,
1999........................................................... $1.91
Increase per share attributable to new investors................ 9.85
-----
Net tangible book value per share after this offering............. 11.76
------
Dilution per share to new investors............................... $71.49
======
</TABLE>

If the actual net tangible book value per share as of September 30, 1999
was adjusted to give pro forma effect to the proposed iShip.com acquisition as
if it was completed on September 30, 1999, it would have been $1.74 per share
and the pro forma net tangible book value per share after this offering would
have been $10.28, representing an increase in the pro forma net tangible book
value per share of $8.54 per share and a dilution in net tangible net book
value per share of $72.97 to investors purchasing common stock in this
offering.

The following table summarizes, on an as adjusted basis as of September 30,
1999, the difference between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
existing stockholders and by new investors. The information for new investors
is based on an assumed price to public in this offering of $83.25 per share,
which was our closing price on November 29, 1999, for 5,000,000 shares after
deducting the underwriting discount and commissions and estimated offering
expenses payable by us, and $33.59 per share for 327,498 shares sold to AOL.

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 34,864,807 86.7% $ 93,122,884 18.6% $ 2.67
New investors................. 5,327,498 13.3 406,257,812 81.4 $76.26
---------- ----- ------------ -----
Total....................... 40,192,305 100.0% $499,380,696 100.0%
========== ===== ============ =====
</TABLE>

The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options and warrants. As of September
30, 1999, options and warrants to purchase 6,427,716 shares of common stock
were outstanding at a weighted average exercise price of $4.83 per share. To
the extent that these options are exercised, new investors will experience
further dilution.

The preceding tables also exclude up to 8,000,000 shares of common stock to
be issued in connection with the proposed iShip.com acquisition.

24
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read with our 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 prospectus. 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 our financial statements which have been audited by
Arthur Andersen LLP, our independent public accountants, and are included
elsewhere in this prospectus. 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 our unaudited interim financial statements included
elsewhere in this prospectus. The statement of operations data displayed in the
"Pro Forma for iShip.com Acquisition" column give effect to the proposed
iShip.com acquisition as if it were completed on January 1, 1999, using an
estimated purchase price of $666.0 million, based on our closing price of
$83.25 per share on November 29, 1999. The pro forma general and administrative
expenses include expense related to the amortization of intangibles, which was
$123.9 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 application of proceeds from the offering as well as the
proposed iShip.com acquisition as if it were completed on September 30, 1999.
Our unaudited financial statements have been prepared on substantially the same
basis as the audited financial statements and, in the opinion of our
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
September 30, 1999
Period from -------------------------
January 9, 1998 Period from
(inception) to January 9, 1998 Pro Forma for
December 31, (inception) to iShip.com
1998 September 30, 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 8,276 134,217
------- ------- -------- ---------
Total costs and
expenses............. 4,180 1,674 24,181 151,849
------- ------- -------- ---------
Loss from operations.... (4,180) (1,674) (24,181) (151,849)
Interest expense, net... (16) (2) 1,078 1,214
------- ------- -------- ---------
Net loss................ $(4,196) $(1,676) $(23,103) $(150,635)
======= ======= ======== =========
Basic and diluted net
loss per share......... $ (0.85) $ (0.35) $ (1.59) $ (7.24)
======= ======= ======== =========
Pro forma basic and
diluted net loss per
share.................. $ (0.36) $ (0.17) $ (0.74) $ (4.01)
======= ======= ======== =========
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>

25
<PAGE>

<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------------------
As Adjusted and
As of Pro Forma for
December 31, iShip.com
1998 Actual As Adjusted Acquisition
------------ ----------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents.............. $ 3,470 $61,198 $467,456 $ 472,978
Working capital........... 1,385 61,380 467,638 472,137
Intangibles, net.......... -- -- -- 604,102
Total assets.............. 4,426 74,185 480,443 1,092,394
Line of credit, capital
lease obligations and
other long-term
liabilities.............. 1,473 1,972 1,972 4,000
Redeemable preferred
stock.................... 5,978 -- -- --
Total stockholders' equity
(deficit)................ (3,951) 66,652 472,910 1,082,145
</TABLE>

Our 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 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 our 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. Our pro forma calculations give
effect to the conversion of all outstanding shares of our preferred stock into
common stock upon closing of our initial public offering as if such conversion
occurred at inception or the date of original issue, if later.

26
<PAGE>

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 the Company should be read in conjunction with the "Selected
Financial Data" and the Company'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 prospectus.

Overview

Stamps.com offers a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. We were incorporated in
January 1998. On October 22, 1999, we commercially launched our Internet
Postage service. To date, our 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 our
Web site and associated systems that we use to process customers' orders and
payments. As of November 29, 1999, our customer base consisted of over 30,000
users who had downloaded our software and registered for our service.

We currently offer a single service plan to our users. The plan is month-
to-month and a user can cancel service at any time. Under our plan, a user
purchases postage at cost and is charged a monthly convenience fee based upon
how much postage he or she uses during the month. The current plan assesses a
convenience fee of 10% of the value of postage printed during a month. There is
a minimum monthly fee of $1.99 and a maximum monthly fee of $19.99. Convenience
fees are calculated and charged at the end of a monthly billing cycle. From
time to time, we may offer special promotions to attract new customers. For
instance, in November 1999, we began a promotion to waive the first month's
convenience fee for new customers. In addition, new customers receive $25 in
free postage, which is automatically credited to the user's account when he or
she enrolls in the service. Although we have established this single pricing
plan and are currently offering the special promotion described above, we may
need to change our pricing plans or promotions given the lack of an established
or proven commercial market for Internet postage.

Certain options and shares granted to our 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 charged to
operations for the fiscal year ended December 31, 1998, $2.51 million was
charged to 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.

27
<PAGE>

Upon completion of this acquisition, up to 8,000,000 shares of our common
stock will be issued in exchange for all outstanding iShip.com capital stock,
options and warrants. In addition, if the iShip.com acquisition is completed,
we will record a significant amount of intangibles, the amortization of which
will significantly and adversely affect our operating results. Based on our
closing price of $83.25 per share on November 29, 1999, we expect these
intangibles to equal approximately $604 million, which will be amortized over a
four-year period. To the extent we do 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, our net loss in any given period could
be greater than anticipated. We anticipate that the iShip.com acquisition will
close during the first quarter of 2000. The iShip.com 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, we cannot
be certain that the iShip.com acquisition will be completed.

Results of Operations

Costs and Expenses

Sales and Marketing. Sales and marketing expenses principally consist of
costs associated with our 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. We began our 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 our marketing
campaign and advertising of the launch of our Internet Postage solution in
October 1999, as well as to an increase in marketing personnel. We expect sales
and marketing expenses to increase significantly as we fully roll out our
Internet Postage service and continue to promote our 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 our
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 our Internet Postage service. We believe 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 our business, as
well as to legal fees related to the Pitney Bowes patent infringement claim. We
expect general and administrative expenses to increase as we grow our 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 our 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 our initial
public offering in June 1999.

28
<PAGE>

Results of Operations--iShip.com

Since inception, iShip.com has incurred significant operating losses and
has generated no sales to date. During the nine months ended September 30,
1999, iShip.com recorded a net loss of approximately $3.6 million. During the
nine months ended September 30, 1999, iShip.com incurred total operating
expenses of approximately $3.8 million, which consisted primarily of general
and administrative and research and development expenses. At September 30,
1999, iShip.com had working capital of approximately $4.5 million and a total
accumulated deficit of approximately $5.9 million.

Liquidity and Capital Resources

As of September 30, 1999, we had approximately $61.2 million in cash and
cash equivalents. In June 1999, we 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. Our net proceeds from the offering were $10.23 per share, or
$58.8 million in the aggregate. We regularly invest excess funds in short-term
money market funds and commercial paper and we do not engage in hedging or
speculative activities.

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

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

29
<PAGE>

We anticipate that our current cash balances together with the proceeds of
this offering will be sufficient to fund our operations and the operations of
iShip.com after its acquisition for at least the next 24 months. However, we
may require substantial working capital to fund our business and may need to
raise additional capital. We cannot be certain that additional funds will be
available on satisfactory terms when needed, if at all. See "--Our 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, we have reviewed the Year 2000 compliance of our systems. This review
has included testing to determine how the systems will function at and beyond
the Year 2000. Since inception, we have internally developed substantially all
of the systems for the operation of our Internet Postage service. These systems
include the software used to provide customer interaction and transactional and
distribution functions to our service, as well as monitoring and back-up
capabilities. Based upon assessments to date, we believe that our systems are
Year 2000 compliant and, accordingly, we have submitted Year 2000 readiness
disclosure statements to the US Postal Service to indicate our Year 2000
compliance. However, we cannot be sure how our software will integrate with
other vendor-provided software.

We use and depend on third-party equipment and software, including systems
operated by the US Postal Service, which may not be Year 2000 compliant.
Consequently, our 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. We are currently assessing the Year 2000 readiness of other
third-party supplied software, computer technology and other services, and of
our vendors. We have initiated communications or obtained information from our
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 we have received and obtained from our third-party vendors
and suppliers, we believe that their systems are Year 2000 compliant. We 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 our 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 our users
from accessing the Internet or our service, purchasing postage or using their
credit cards, our 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 our business, operating
results and financial condition. For example, we rely on the US Postal
Service's secure postage accounting vault to purchase postage credit for our
customers. If the US Postal Service systems are not Year 2000 compliant, users
of our service may not be able to purchase additional postage.

The Year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
Year 2000 compliance of the computer systems and financial

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services used by consumers. Thus, the infrastructure necessary to support our
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. Our 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, we believe most entities and individuals that rely
significantly on the Internet are carefully reviewing and attempting to
remediate issues relating to Year 2000 compliance. Despite this fact, 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 our services and would harm our results of
operations.

At this time, we have not yet developed a contingency plan to address
situations that may result if we, or our vendors, are unable to achieve Year
2000 compliance. While we do not believe that it will be necessary to develop a
contingency plan, the cost of developing and implementing this plan, if
necessary, could be material. Any failure of our material systems, our vendors'
material systems or the Internet to be Year 2000 compliant could have material
adverse consequences for us. These consequences could include service
interruptions or other difficulties in operating our service effectively or
conducting other fundamental parts of our 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, we capitalize costs of computer software obtained for
internal use in our 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. We do not expect that the adoption of Statement of Position No. 98-1
will have a material impact on our financial statements.

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BUSINESS

This prospectus 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
prospectus.

Our Company

We offer a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. Our 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. Our 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 our service is simple. Our 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 usage of our service.
Our 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, our
Internet Postage 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.

Overview of Our 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 142.2 million in 1998 to 502.4 million by
2003. 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 on the Internet 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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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.

We believe 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 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. 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:

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

. loss of revenue due to postal fraud; and

. strong competition from overnight delivery services and online transaction
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

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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 a 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
PCs 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. We believe 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.

Our Solution

We offer a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. We target the small
office/home office, other small business, corporate and consumer user markets
and provide an Internet service that is accessible via 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
our 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. Our
Internet Postage solution is the first commercially available software-based
service approved by the US Postal Service and provides the following benefits
to the user and the US Postal Service:

Benefits to the User. Our 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 a PC 24 hours a day, seven days
a week;

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. 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.

Once users determine the amount of postage required, they can purchase
postage with their PC from our secure servers where and when it is most
convenient. We charge a monthly convenience fee based on usage of our service.
Our 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, we will seek to enhance our 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. Our Internet Postage service provides
several benefits to the US Postal Service, including:

. increased convenience to the postal customer;

. increased security to protect postal revenues;

. the ability to compete more effectively 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.

We believe our convenient, cost-effective, easy-to-use Internet Postage
solution addresses the US Postal Service's goals for the Information Based
Indicia Program. Our 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, our solution provides for the printing of
unique, secure Information Based Indicia, or electronic postage, on ordinary
laser or inkjet printers. Our 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, our 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.

Our Strategy

Our objective is to be the leading provider of Internet postage and
shipping services. To achieve this objective, our strategy includes the
following key elements:

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

Leverage Our Strategic Partnerships. We intend 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 November 1999, we have entered into
strategic partnerships with AOL, IBM, Microsoft, Office Depot, Quicken.com and

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<PAGE>

3M, among others. We believe that we can further utilize our strategic
partnerships to enhance our brand name and grow our customer base.

Exploit Our 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 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 Our Customer Base. We intend to broaden our customer base by
capitalizing on our brand, strategic partnerships and first-to-market
advantages. We believe that our service can achieve rapid distribution because
there is no investment in hardware beyond a PC and printer, and users can
obtain our software for free. We are primarily targeting the small office/home
office and small business markets as well as various segments of the corporate
and consumer markets.

Leverage Our Software-Based Solution and Technology. We intend to utilize
our scaleable, e-commerce platform to enhance our service offerings and expand
the benefits of secure online transactions. We believe that we have an inherent
advantage relative to our competitors in the Internet postage industry because
our solution does not require the use of additional hardware. We believe we can
achieve rapid distribution of our services as users download or install our
free software. Additionally, we provide increased flexibility and scalability
over competing hardware solutions because transactions are processed through
our secure 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. We will continue to invest in and enhance our technology
in order to increase efficiency, reliability and bandwidth, and to expand our
services and reduce our costs.

Pursue Additional Revenue Opportunities. We intend to utilize our brand,
electronic commerce capabilities, infrastructure and user base to develop
additional revenue opportunities. We will consider the following opportunities:

. Document Fulfillment Market. We will consider investing in technology that
will allow us to extend our core Internet postage technology to print
authenticated documents, including airline, movie and concert tickets, from
laser or inkjet printers. For instance, we announced in November 1999 the
formation of a subsidiary, EncrypTix, to develop secure printing
opportunities in the events, travel and financial services industries.

. Sale of Postage Related Products. We intend to use our Web site to offer
mailing-related products, including labels and envelopes, mechanical scales,
PC-enabled digital scales and label printers. We also intend to offer
package insurance to our customers through third-party insurance companies.

. International Internet Postage Market. We believe that if foreign postal
authorities accept the use of Internet postage there will be significant
opportunities in international markets for our Internet Postage service. We
intend 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.

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Our Internet Postage Service

We offer a convenient, cost-effective and easy-to-use service for
purchasing and printing postage over the Internet. Our 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 our Internet postage; the user's existing PC, printer and Internet set-up
are sufficient. As a complement to our Internet Postage service, customers may
purchase scales, printers, mailing supplies and other general office supplies
from our online store.

[Insert Graphic--Description: Describe three steps to using our service.
Step 1 is download and install free software and complete brief registration
process. Step 2 is users print postage using their existing PC and printer
set-up. Step 3 is postage is printed on envelopes, lables or business
documents.]

Accessing our service is simple. A user obtains our 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 our secure server and purchase postage
electronically 24 hours a day, seven days a week. We act as an ongoing
intermediary between the US Postal Service and users by offering users the
ability to purchase postage through our secure server. We use sophisticated
technologies which meet strict US government security standards and our service
incorporates the US Postal Service mandated address verification features to
enhance the efficiency of mail processing and delivery. Finally, our 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.

We assess our customers a convenience fee to access our Internet Postage
service. We currently offer a single service plan to our users. The plan is
month-to-month and a user can cancel service at any time. Under our plan, a
user purchases postage at cost and is charged a monthly convenience fee based
upon how much postage he or she uses during the month. The current plan
assesses a convenience fee of 10% of the value of postage printed during a
month. There is a minimum monthly fee of $1.99 and a maximum monthly fee of
$19.99. Convenience fees are calculated and charged at the end of a monthly
billing cycle. From time to time, we may offer special promotions to attract
new customers. For instance, in November 1999, we began a promotion to waive
the first month's convenience fee for new customers. In addition, new customers
receive $25 in free postage, which is automatically credited to the user's
account when he or she enrolls in the

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service. Although we have established this single pricing plan and are
currently offering the special promotion described above, we may need to change
our pricing plans or promotions given the lack of an established or proven
commercial market for Internet postage.

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

Our Certification Progress and Commercial Release

In March 1997, we submitted our letter of intent to join the Information
Based Indicia Program. From March 1997 through August 1998, we progressed
through the first eight stages of the US Postal Service certification process.
On August 24, 1998, the US Postal Service announced that we were approved for
beta testing and our 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, we successfully completed the three-phase
beta testing required by the US Postal Service's certification process. On
August 9, 1999, we became the first software-based Internet postage solution
approved for commercial release by the US Postal Service. On October 22, 1999,
we 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 we receive
further approval from the US Postal Service to continue our roll-out. As of
November 29, 1999, our customer base consisted of over 30,000 users who had
downloaded our software and registered for our service.

Our Strategic Distribution Partners

Our 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 Quicken.com and Microsoft;

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

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

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We believe we will benefit from these relationships by achieving positive
brand association and a cost-effective means of customer acquisition. We
believe our 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 Deluxe Financial Services Inc.com Office.com ZDNet
Allbizdepot.com Dymo/CoStar Interland Office Depot.com
AllBusiness.com Galileo International Lotus Quicken.com
America Online HotOffice Microsoft Seiko Instruments
Avery Dennison IBM Mindspring USOPNet.com
Concentrix Networks iGo.com MySoftware Westvaco
</TABLE>

Our Marketing and Sales

We intend to establish a strong brand name by allocating significant
resources to our marketing and distribution efforts. We distribute our postage
printing software through our Web site and distribution partners. In addition,
we will rely on traditional media, direct marketing and several other channels
to achieve rapid distribution of our services, including:

Web Sites. We intend to work with high traffic Web sites including portals,
commerce and content sites, and other highly visible Internet sites. This
channel will provide the opportunity for users to download our software and
access our Internet Postage service.

Affiliate Programs. We intend 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 our Internet Postage software and
access other related services. We can leverage our affiliates' abilities to
offer new, value-added services and increase repeat visits to their site.

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

Embedded Software. We intend to seek further partnerships with software
publishing companies. Software packages that would benefit from our current
services would include word processing, contact and address management,
accounting, billing and retail software.

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

Financial Services. We will seek distribution and co-branding opportunities
with banks and brokerages by incorporating our Internet Postage service into
online banking and investing offered by financial service providers.

Direct Sales. We 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. We believe that
significant benefits in the form of usability, convenience and cost savings to
large corporate users may result from integrating our Internet Postage service
into the everyday work flow.

Customer Retention Programs. We believe we can increase customer retention
by offering co-branded affinity marketing programs, including frequent flyer
miles based on postage and other related expenditures. Further, we intend to
create strong customer loyalty by offering discounts to our online store that
are tied to customer postage volume.

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<PAGE>

Our Competition

The market for Internet postage products and services is new and we expect
it to be intensely competitive. The US Postal Service approved our 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, Pitney Bowes, also has a software-based product in
beta testing and was approved for the second stage of beta testing on
September 20, 1999. As a result, we believe we have 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 our 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.

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. Pitney Bowes announced the approval
of their hardware-based product for Phase II beta testing on March 9, 1999. See
"Risk Factors--Success by Pitney Bowes in its suit against us 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, we will also compete with traditional postage methods
including stamps and metered mail. While we believe our Internet Postage
service provides benefits over traditional postage methods, we 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 our ability to compete with
providers of traditional postage.

We may also face competition from hardware-based products. Although we
believe our software-based solution is easier to use than hardware-based
products, hardware-based products have some advantages. For example, our
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 switch to a software-based solution, we could
face continuing competition from this market.

40
<PAGE>

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

. US Postal Service product certification;

. successful commercial release;

. 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 our common stock, see "Risk Factors--
Success by Pitney Bowes in its suit against us alleging patent infringement
could prevent us from offering our Internet Postage service and severely harm
our business or cause it to fail" and "--If we are unable to compete
successfully, particularly against large, traditional providers of postage
products such as Pitney Bowes who enter the online postage market, our revenues
and operating results will suffer".

Our Technology

Our service is comprised of the following key components:

System Architecture. Our 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 we
believe 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, our application employs an internally developed user
authentication mechanism for additional security.

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

Database Processing. Our database servers are designed to complement
industry-leading database technologies and can be built to scale incrementally
as needed.

41
<PAGE>

Client Module. Our 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 our
Internet Postage capabilities that are accessible from popular software
applications. Our client module will be used by our Internet Postage
application as well as add-ins for popular word processing applications and
third party mailing and business systems.

Our Intellectual Property

We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and to protect our intellectual
property rights in products, services, know-how and information. We have three
issued US patents and have filed 19 patent applications in the United States,
and one international patent application. We have also applied to register
several trademarks and service marks. We plan to apply for other patents in the
future.

Despite efforts to protect our intellectual property rights, we face
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--Success
by Pitney Bowes in its suit against us alleging patent infringement could
prevent us from offering our Internet Postage service and severely harm our
business or cause it to fail" and "Business--Legal Proceedings".

Our Employees

As of September 30, 1999, we 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 our employees are represented by a labor union, and we
consider our employee relations to be good. If the iShip.com acquisition is
completed, we expect to gain an additional 60 employees. We intend to expand
significantly our employee base in 1999. See "Risk Factors--We rely on a
relatively new management team and need additional personnel to grow our
business".

Our Properties

Our corporate headquarters are located in a 41,000 square foot facility in
Santa Monica, California under a lease expiring on May 31, 2004. We also have 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, we will assume a lease for approximately 21,000 square feet in
Bellevue, Washington expiring in August 2004. We believe that our current
facilities and other facilities that will be available to us will be adequate
to accommodate our 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 we are 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

42
<PAGE>

and other unspecified damages. We 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 our 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, we 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 us alleging patent infringement could prevent us from offering
our Internet Postage service and severely harm our business or cause it to
fail".

We are not currently involved in any other material legal proceedings, nor
have we been involved in any such proceeding that has had or may have a
significant effect on our company. We are not aware of any other material legal
proceedings pending against us.

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<PAGE>

RECENT DEVELOPMENT
The iShip.com Acquisition

In October 1999, we signed a definitive agreement to acquire iShip.com, a
privately-held company located in Bellevue, Washington. 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 comparison of rates and services
among multiple carriers, including Airborne Express, Federal Express, UPS, the
US Postal Service and Yellow Freight. Under the terms of the agreement, we will
issue up to 8,000,000 shares of our common stock for all outstanding shares,
options and warrants of iShip.com. The acquisition will be effected by the
merger of our new wholly-owned subsidiary into iShip.com resulting in iShip.com
becoming our wholly-owned subsidiary. The acquisition, which will be accounted
for under the purchase method of accounting, has been approved by the boards of
directors of both companies and is subject to regulatory approval and approval
of both the stockholders of iShip.com and Stamps.com. We anticipate that the
iShip.com acquisition will close during the first quarter of 2000.

If the iShip.com acquisition is completed, we will record a significant
amount of intangibles, the amortization of which will significantly and
adversely affect our operating results. Based on our closing price of $83.25
per share on November 29, 1999, we expect these intangibles to equal
approximately $604 million, which will be amortized over a four-year period. To
the extent we do 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.
The acquisition is intended to qualify as a tax-free reorganization under
Section 368 of the Internal Revenue Code. As a result of the acquisition, we
will issue up to 8,000,000 shares of our common stock in exchange for all of
the outstanding shares of iShip.com capital stock, options and warrants. The
exchange ratio will be determined on the third business day prior to closing.
The aggregate estimated purchase price is approximately $666 million. The
purchase price is based on the closing price of our common stock on November
29, 1999 of $83.25 per share. Upon completion of the offering, we estimate that
the shares of our common stock to be issued in connection with the acquisition
will constitute no more than 17% of our common stock.

Under the acquisition agreement, iShip.com made customary representations
and warranties regarding such matters as its corporate good standing, authority
to enter into the acquisition, capital structure, intellectual property
ownership, pending litigation, assets and liabilities, employee relations,
material contracts, good tax standing, compliance with laws and regulations and
customers. We also made customary representations and warranties to iShip.com
regarding such matters as our corporate good standing, our authority to enter
into the acquisition, the disclosures set forth in the registration statement
of which this prospectus forms a part, and our compliance with laws and
regulations.

iShip.com has agreed to indemnify us and each of our officers, directors
and affiliates with respect to breaches of any representations, warranties,
covenants or other agreements made by iShip.com in the merger agreement. These
indemnification obligations are subject to minimum threshold limitations
specified in the merger agreement. To secure these indemnification obligations,
800,000 of the shares of our common stock to be issued to iShip.com
stockholders will be held in escrow for a period of up to one year after the
closing of the acquisition.

Upon consummation of the acquisition, two persons nominated by iShip.com
will be elected to our board of directors.

The iShip.com acquisition is subject to a number of closing conditions
specified in the merger agreement, including stockholder approval by both
iShip.com and Stamps.com and other customary closing conditions. As a result,
we cannot be certain that the iShip.com acquisition will be completed.

44
<PAGE>

MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information regarding our executive
officers and directors as of November 29, 1999:

<TABLE>
<CAPTION>
Name Age Position
------------------------ --- -----------------------------------------------
<C> <C> <S>
John M. Payne........... 43 Chairman of the Board and Chief Executive
Officer
Loren E. Smith.......... 61 President, Chief Operating Officer and Director
John W. LaValle......... 42 Chief Financial Officer and Senior Vice
President of Operations
Christopher S. Hylen.... 38 Senior Vice President, Marketing
Timothy A. Von Kaenel... 34 Senior Vice President, Product Development
Douglas J. Walner....... 30 Senior Vice President, Business Development
Michael D. Walther...... 45 Senior Vice President, Network Operations
Candelario J. Andalon... 30 Corporate Controller
Michael A. Zuercher..... 32 Senior Director, Legal Affairs and Secretary
Mohan P. Ananda......... 53 Director
David C. Bohnett (1).... 43 Director
Jeffrey J. Brown (1).... 38 Director
Thomas H. Bruggere (2).. 53 Director
Thomas N. Clancy (2).... 41 Director
G. Bradford Jones (2)... 44 Director
Marvin Runyon (1)....... 75 Director
Carolyn M. Ticknor...... 52 Director
</TABLE>
- --------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

John M. Payne has been our Chairman and Chief Executive Officer since
October 1999 and served as our Chief Executive Officer, President and a
Director from October 1998 until October 1999. Mr. Payne 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 as 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.

Loren E. Smith has been our 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.

45
<PAGE>

John W. LaValle has been our Chief Financial Officer and Senior Vice
President of Operations since September 1998. From September 1998 until
November 1999, Mr. LaValle also served as our Secretary. 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 our 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 our 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 our Senior Vice President of Business
Development since October 1999 and was our Vice President of Business
Development from September 1998 to October 1999. From March 1998 to August
1998, Mr. Walner served as a business development and strategic relationship
consultant to us. 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 our 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.

Candelario J. Andalon has been our 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.

46
<PAGE>

Mr. Andalon received his B.S. degree in Accounting from Loyola Marymount
University and is a Certified Public Accountant.

Michael A. Zuercher has been a Senior Director of Legal Affairs since May
1999 and our 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.

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 our 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
company that hosts communities of interest, 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 the company was acquired by Yahoo! in May 1999. Mr.
Bohnett serves on the Boards of Directors of NetZero, Inc., an Internet service
provider, NCR Corporation, a provider of information technology hardware and
software, and 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., and 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 H. Bruggere has been a Director since April 1998 and was our
Chairman of the Board of Directors from April 1998 until 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.

47
<PAGE>

Thomas N. Clancy has been a Director since February 1998. Mr. Clancy has
been a General Partner at Enterprise Partners Venture Capital since October
1999 and was a Venture Partner at Enterprise Partners from February 1997 to
October 1999. Prior to joining Enterprise Partners in September 1996, Mr.
Clancy was a Partner at Technical Resource Connection, now Perot Systems, a
provider of information 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, and a Managing Director of Redpoint Ventures, a firm he co-founded in
October 1999. 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, an Internet messaging and
directory software developer, Sandpiper Networks, an Internet content
management and distribution company, Trading Edge, an Internet-based fixed
income 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.

Under the terms of our merger agreement with iShip.com, iShip.com will be
entitled to appoint two board members to our board of directors upon the
closing of the transaction.

Classified Board of Directors

Our Board of Directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board
of directors will be elected each year. These provisions, together with the
provision of our amended and restated certificate of incorporation, allow the
board of directors to fill vacancies of or increase the size of the 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.

Our board has resolved that Messrs. Bohnett, Bruggere and Jones will serve
as Class I Directors whose terms expire at the 2000 annual meeting of
stockholders. Messrs. Ananda, Clancy and Runyon will serve as Class II
directors whose terms expire at the 2001 annual meeting of stockholders.
Messrs. Brown, Payne, Smith and Ms. Ticknor will serve as Class III directors
whose terms expire at the 2002 annual meeting of stockholders.

48
<PAGE>

Board Committees

The Board has established an Audit Committee to meet with and consider
suggestions from members of management and our internal accounting personnel,
as well as our independent accountants, concerning our financial operations.
The Audit Committee also has the responsibility to review our 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. The Board has also
established a Compensation Committee to review and approve the compensation
and benefits for our key executive officers, administer our stock purchase,
equity incentive and stock option plans and make recommendations to the Board
regarding these matters. The Compensation Committee is currently comprised of
Messrs. Bruggere, Clancy and Jones.

The Board has also established a Special Stock Option Committee for the
purpose of granting options to non-Section 16 employees and consultants. The
Special Stock Option Committee is currently comprised of Messrs. Bruggere,
Clancy, Jones and Payne, each of whom are individually authorized to make
option grants under our 1999 Stock Incentive Plan.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Messrs. Bruggere, Clancy and Jones.
These individuals have never been employed by us. None of our 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 our Board of Directors or Compensation Committee.

Director Compensation and Other Arrangements

Our 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 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, we 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 our Board of
Directors and to serve as a member on a board committee. In exchange for these
services, we compensated Mr. Smith $120,000 per year, and in consideration of
his consulting services, granted him an option to purchase 135,000 shares of
our common stock at $0.33 per share. This agreement terminated in October 1999
upon Mr. Smith's appointment as our President and Chief Operating Officer. In
connection with Mr. Smith's appointment as President and Chief Operating
Officer, we granted Mr. Smith an option to purchase 300,000 shares of 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, we entered into a consulting services agreement with
Carolyn Ticknor to provide strategic planning and business development advice,
and other consulting services that we may request. In exchange for these
services, we granted Ms. Ticknor an option to purchase 10,000 shares of our
common stock at an exercise price of $11.00 per share. This consulting
agreement expired on October 1, 1999.

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<PAGE>

In October 1999, we entered into a three-year consulting agreement with
Marvin Runyon under which he will provide strategic planning services. In
exchange for these services, we 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 we require his
services.

Directors who are also our employees are eligible to receive options and be
issued shares of common stock directly under our 1999 Stock Incentive Plan.
Non-employee directors will also receive automatic option grants under our 1999
Stock Incentive Plan. See "--1999 Stock Incentive Plan".

Executive Compensation

The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 1998 by our Chief
Executive Officer and each of our 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.

Summary Compensation Table for Fiscal Year 1998

<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
------------------ Securities
Name and Principal Other Annual Underlying All Other
Positions Salary($) Bonus($) Compensation($) Options(#) Compensation($)
------------------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John M. Payne
Chairman and Chief
Executive Officer
(October 1998 to
present)............... 27,897 -- -- -- 112,800(1)
John W. LaValle
Chief Financial Officer
and Senior Vice
President of
Operations............. 42,000 -- -- 395,802 --
Mohan P. Ananda
Chief Executive Officer
and President (January
1998 to October 1998).. 85,500 -- -- -- --
Douglas J. Walner
Senior Vice President
of Business
Development............ 35,000 25,000 -- 366,357 7,434(2)
</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.

50
<PAGE>

Stock Options Granted During Fiscal Year 1998

During the fiscal year ended December 31, 1998, we granted options to
purchase 2,347,471 shares of common stock. All options were granted at an
exercise price equal to the fair market value of our common stock as determined
by our Board of Directors on the date of grant. The exercise price may be paid
in cash, check, promissory note, shares of our 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 our officers
listed in the Summary Compensation Table.

<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------
Potential
Realizable
Value at
Percentage Assumed Annual
Number of of Total Rates of Stock
Securities Options Appreciation
Underlying Granted to for Option Term
Options Employees Exercise Price Expiration ---------------
Name Granted 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 our 1998 Stock Plan,
which was succeeded by our 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".

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 our estimate or projection of our 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 our 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 our executive officers in 1998.

<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised In-
Underlying the-Money
Unexercised Options at
Options at December 31,
December 31, 1998 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>

51
<PAGE>

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 our President and Chief Executive Officer. In October
1999, Mr. Payne was appointed to the offices of Chairman of the Board 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, we gave Mr.
Payne benefits that we make available to our employees in comparable positions,
and upon his execution of the letter agreement, we sold 1,500,000 shares of our
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 we terminate or constructively
terminate 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 our 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 common stock at $0.07 per share, the fair market
value on the grant date. In February 1999, Mr. LaValle's base salary was
increased to $185,000 per year. In October 1999, Mr. LaValle was granted an
option to purchase 104,198 shares of common stock with an exercise price of
$35.625, the fair market value on the grant date. In addition, Mr. LaValle
receives standard medical and dental benefits available to our 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;

. 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 our 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, we sold 2,172,595 shares of our 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 our 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, we amended our 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 18 months following a change in control
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
common stock upon an

52
<PAGE>

involuntary termination. A "change in control" 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 our 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 our assets in complete liquidation
or dissolution 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 our 1998 Stock Plan,
and includes change in control provisions which may result in the accelerated
vesting of outstanding option grants and stock issuances. See "--1999 Stock
Incentive Plan--Change in Control".

1999 Stock Incentive Plan

Introduction. The 1999 Stock Incentive Plan serves as the successor program
to our 1998 Stock Plan. The 1999 plan was adopted by the board and approved by
the stockholders in June 1999. The 1999 plan became effective on June 24, 1999.
At that time, all outstanding options under our existing 1998 plan were
transferred to the 1999 plan, and no further option grants can be made under
the 1998 plan. The transferred options will continue to be governed by their
existing terms, unless our compensation committee decides to extend one or more
features of the 1999 plan to those options. Except as otherwise noted below,
the transferred options have substantially the same terms as are in effect for
grants made under the discretionary option grant program of our 1999 stock
plan.

Share Reserve. 7,290,000 shares of our common stock have been authorized
for issuance under the 1999 plan. In October 1999, our board approved an
increase of 2,500,000 shares to the authorized number of shares issuable under
the 1999 plan. Upon stockholder approval of the proposed increase, the total
shares authorized for issuance under the 1999 plan will be 9,790,000. This
share reserve consists of the number of shares that were carried over from the
1998 plan. The share reserve under our 1999 plan will automatically increase on
the first trading day in January each year, beginning with calendar year 2000,
by an amount equal to three percent (3%) of the total number of shares of our
common stock outstanding on the last trading day of December in the prior year,
but in no event will this annual increase exceed 1,564,715 shares. In addition,
no participant in the 1999 plan may be granted stock options or direct stock
issuances for more than 1,125,000 shares of common stock in total in any
calendar year.

Programs. Our 1999 plan has five separate programs:

. the discretionary option grant program, under which eligible employees
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on
the grant date;

. the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or upon the completion of a period of service or
as a bonus for past services;

. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition
of special below market stock option grants;

53
<PAGE>

. the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and

. the director fee option grant program, under which our non-employee
board members may be given the opportunity to apply a portion of any
retainer fee otherwise payable to them in cash for the year to the
acquisition of special below-market option grants.

Eligibility. The individuals eligible to participate in our 1999 plan
include our officers and other employees, our board members and any consultants
we hire.

Administration. The discretionary option grant and stock issuance programs
are administered by our compensation committee. This committee determines which
eligible individuals will receive option grants or stock issuances under those
programs, the time or times when the grants or issuances are to be made, the
number of shares subject to each grant or issuance, the status of any granted
option as either an incentive stock option or a nonstatutory stock option under
the federal tax laws, the vesting schedule to be in effect for the option grant
or stock issuance and the maximum term for which any granted option is to
remain outstanding. The compensation committee also has the authority to select
the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is put into effect for one or more calendar years.

Plan Features. Our 1999 plan includes the following features:

. The exercise price for any options granted under the plan may be paid
in cash or in shares of our common stock valued at fair market value on
the exercise date. The option may also be exercised through a same-day
sale program without any cash outlay by the optionee.

. The compensation committee has the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1998 Stock 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 our
common stock on the new grant date.

. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election
to surrender their outstanding options for a payment from us equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the
payment in cash or in shares of our common stock. None of the options
under our 1998 Stock Plan have any stock appreciation rights.

Change in Control. The 1999 plan includes the following change in control
provisions which may result in the accelerated vesting of outstanding option
grants and stock issuances:

. In the event that we are 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 immediately
become exercisable for all the option shares, and all outstanding
unvested shares will immediately vest, except to the extent our
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 we are acquired, whether or not those options are
assumed by the successor corporation.

54
<PAGE>

. The compensation committee has complete discretion to grant one or more
options which will become exercisable for all the option shares in the
event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under our 1999 plan may be
accelerated upon similar terms and conditions.

. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the
majority of our board through one or more contested elections. This
accelerated vesting may occur either at the time of the transaction or
upon the subsequent termination of the individual's service.

. The options that were outstanding under our 1998 Stock Plan will
immediately vest in the event we are acquired and the acquiring company
does not assume those options unless an employee has less than one year
of service with us in which case the employee will receive the
equivalent of two years of vesting. Any options which are assumed will
immediately vest upon a constructive termination of the optionee's
employment within 18 months after the acquisition.

Salary Investment Option Grant Program. In the event the compensation
committee decides to put this program into effect for one or more calendar
years, each of our executive officers and other highly compensated employees
may elect to reduce his or her base salary for the calendar year by an amount
not less than $10,000 nor more than $50,000. Each selected individual who makes
this election will automatically be granted, on the first trading day in
January of the calendar year for which his or her salary reduction is to be in
effect, an option to purchase that number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of our common stock on the grant date. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date. As a result, the option will be structured so
that the fair market value of the option shares on the grant date less the
exercise price payable for those shares will be equal to the amount of the
salary reduction. The option will become exercisable in a series of twelve
equal monthly installments over the calendar year for which the salary
reduction is to be in effect.

Automatic Option Grant Program. Each individual who first becomes a non-
employee board member at any time after the effective date of this offering
will receive an option grant for 10,000 shares of common stock on the date such
individual joins the board. In addition, on the date of each annual
stockholders meeting, each non-employee board member who is to continue to
serve as a non-employee board member, including each of our current non-
employee board members, will automatically be granted an option to purchase
2,500 shares of common stock, provided such individual has served on the board
for at least six months.

Each automatic grant has an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid
per share, any shares purchased under the option which are not vested at the
time of the optionee's cessation of board service. The shares subject to each
annual automatic grant will be fully-vested when granted. 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 will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.

55
<PAGE>

Director Fee Option Grant Program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a below-
market option grant. The option grant will automatically be made on the first
trading day in January in the year for which the non-employee board member
would otherwise be paid the cash retainer fee in the absence of his or her
election. The option will have an exercise price per share equal to one-third
of the fair market value of the option shares on the grant date, and the number
of shares subject to the option will be determined by dividing the amount of
the retainer fee applied to the program by two-thirds of the fair market value
per share of our common stock on the grant date. As a result, the option will
be structured so that the fair market value of the option shares on the grant
date less the exercise price payable for those shares will be equal to the
portion of the retainer fee applied to that option. The option will become
exercisable in a series of 12 equal monthly installments over the calendar year
for which the election is in effect. However, the option will become
immediately exercisable for all the option shares upon the death or disability
of the optionee while serving as a board member.

Additional Program Features. Our 1999 plan also has the following features:

. Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50%
of our outstanding voting stock or a change in the majority of our
board through one or more contested elections.

. Limited stock appreciation rights are automatically included as part of
each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to
a cash distribution from us in an amount per surrendered option share
based upon the highest price per share of our common stock paid in that
tender offer.

. The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later
than the last business day of June 2009.

1999 Employee Stock Purchase Plan

Introduction. Our 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 our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.

Share Reserve. 300,000 shares of our 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 (1%) of the total number of outstanding shares of our
common stock on the last trading day in December in the prior year. In no event
will any annual increase exceed 521,571 shares.

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 our compensation committee.

56
<PAGE>

Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than five 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 our 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 we be acquired by merger or sale of substantially
all of our assets or more than 50% of our 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.

Limitation on Liability and Indemnification Matters

Our certificate of incorporation provides that, except to the extent
prohibited by the Delaware General Corporation Law, our directors will not be
personally liable to us or our stockholders for monetary damages for any breach
of fiduciary duty as directors. Under the Delaware General Corporation Law, the
directors have a fiduciary duty to Stamps.com which is not eliminated by this
provision of the certificate of incorporation and, in appropriate
circumstances, equitable remedies including injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the Delaware law for:

. breach of the director's duty of loyalty;

. acts or omissions which are found by a court of competent jurisdiction
to be not in good faith or which involve intentional misconduct, or
knowing violations of law;

. actions leading to improper personal benefit to the director; and

. payment of dividends or approval of stock repurchases or redemptions
that are prohibited by Delaware law.

This provision also does not affect the director's responsibilities under
any other laws, including the federal securities laws or state or federal
environmental laws. We have obtained liability insurance for our officers and
directors.

57
<PAGE>

Section 145 of the Delaware law 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:

. for any breach of the director's duty of loyalty to the corporation or
its stockholders;

. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. arising under Section 174 of the Delaware law; or

. for any transaction from which the director derived an improper
personal benefit.

The Delaware law 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 of
incorporation provides that we 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 by reason of the fact that the person is or was a director
or officer, or is or was serving at our request as a director or officer of
another entity or enterprise, against expenses, incurred by the person in the
defense of any action, suit or proceeding prior to its final determination to
the fullest extent authorized under Delaware law.

We have entered into indemnification agreements with our directors and our
executive officers containing provisions that may require us, among other
things, to indemnify our directors and officers against liabilities that may
arise by reason of their status or service as directors or officers other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' liability
insurance if maintained for other directors or officers.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.

58
<PAGE>

RELATED PARTY TRANSACTIONS

Sales of Securities

We have issued shares of common stock to several of our directors,
executive officers and founders. John M. Payne, our Chairman and Chief
Executive Officer, purchased 1,500,000 shares of common stock in November 1998
for a purchase price of $100,000, which amount includes a note payable to
Stamps.com for $99,000. Thomas Bruggere, a member of our board of directors,
purchased 488,475 shares of common stock in October 1998 and December 1998 for
a total purchase price of $28,460. Mohan Ananda, a member of our board of
directors, purchased 2,172,595 shares of common stock in January 1998 for a
total purchase price of $28,968. 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, we also sold 423,993 shares of
common stock to each of our co-founders, James McDermott, Ari Engelberg and
Jeffrey Green, for a total purchase price of $16,960, which amount includes
$9,000 in notes payable to Stamps.com.

We have 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

We paid $61,000 in March 1998 to Safeware Corporation for employee salary
and patent prosecution expenses incurred on our 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. We also reimbursed Mr.
Ananda for approximately $20,000 for expenses incurred on our behalf.

Under our previous agreements with Mr. Ananda, we own 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 our Chief Executive Officer on
January 1, 1999. In May 1999, we 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 our 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 our Internet postage service.

Consulting Services

We paid Mr. Payne $112,800 for consulting services he rendered to us
between May 1998 and October 1998.

In February 1999, we 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 our Board of
Directors and to serve as a member on a board committee. In exchange for these
services, we compensated Mr. Smith $120,000 per year, and in consideration of
his consulting services, granted him an option to purchase 135,000 shares of
our common stock at $0.33 per share. This agreement terminated in October 1999
upon Mr. Smith's appointment as our President and Chief Operating Officer. In
connection with Mr. Smith's appointment as President and Chief Operating
Officer, we granted Mr. Smith an option to purchase 300,000 shares of common
stock. The options were granted at fair market value and vest over a period of
two years.

59
<PAGE>

On June 21, 1999, we 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 we may request. In
exchange for these services, we granted Mrs. Ticknor an option to purchase
10,000 shares of our common stock at an exercise price of $11.00 per share.
This consulting agreement expired on October 1, 1999.

In October 1999, we entered into a three-year consulting agreement with
Marvin Runyon under which he will provide strategic planning services. In
exchange for these services, we granted Mr. Runyon an option to purchase 36,000
shares of 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.

60
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table indicates beneficial ownership of our common stock as
of September 30, 1999 by:

. each stockholder whom we know to beneficially own 5% or more of the
outstanding shares of common stock;

. each of our directors and our executive officers named in the Summary
Compensation Table, and

. all of our 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,
we believe, 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 common stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 34,864,807 shares of common
stock outstanding as of September 30, 1999 and 40,192,305 shares of common
stock outstanding after the completion of this offering. In computing the
number of shares of 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>
Percentage of
Shares
Beneficially
Number of Owned
Shares -----------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- -------------------------- ------------ -------- --------
<S> <C> <C> <C>
Named executive officers and directors:
Thomas N. Clancy(1).......................... 5,467,448 15.7% 13.6%
Jeffrey J. Brown(2).......................... 5,457,448 15.6 13.6
G. Bradford Jones(3)......................... 5,457,448 15.6 13.6
Mohan P. Ananda(4)........................... 2,174,095 6.2 5.4
John M. Payne(5)............................. 1,500,100 4.3 3.7
Thomas H. Bruggere(6)........................ 488,475 1.4 1.2
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 13.5
11150 Santa Monica Blvd, Suite 1200
Los Angeles, CA 90025
Enterprise Partners IV, L.P. (15)............ 5,421,448 15.5 13.5
5000 Birch Street, Suite 6200
Newport Beach, CA 92660
SBIC Partners, L.P........................... 5,421,448 15.5 13.5
201 Main Street, Suite 2302
Fort Worth, TX 76102
Vulcan Ventures Inc.......................... 2,732,241 7.8 6.8
110-110th Ave., N.E., Suite 550
Bellevue, WA 98004
Chase Venture Capital Partners, L.P.......... 2,185,792 6.3 5.4
380 Madison Ave., 12th Floor
New York, NY 10017
All directors and executive officers as a group
(17 people) (16).............................. 22,565,447 61.2% 53.5%
</TABLE>

61
<PAGE>

- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of 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 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 subject to options granted to Mr.
LaValle in October 1999, none 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 of
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, we do not
anticipate that any stockholder 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.

62
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The following description of our securities and provisions of our
certificate of incorporation and bylaws is only a summary. You should also
refer to the copies of our certificate and bylaws which have been filed with
the Securities and Exchange Commission as exhibits to our registration
statement, of which this prospectus forms a part. Our authorized capital stock
consists of 95,000,000 shares of common stock, par value $0.001, and 5,000,000
shares of preferred stock, par value $0.001.

Common Stock

As of November 29, 1999, there were 35,058,943 shares of common stock
outstanding and held of record by 180 stockholders. Based on the number of
shares outstanding as of that date and giving effect to the issuance of the
5,000,000 shares of common stock in this offering and 148,860 shares to AOL,
there will be 40,207,803 shares of common stock outstanding upon the closing of
the offering. In addition, as of November 29, 1999, there were 7,152,564 shares
of common stock issuable upon the exercise of outstanding options and warrants.

Holders of the common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders. Holders of 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 our liquidation,
dissolution or winding up, the holders of common stock are entitled to receive
ratably our 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 common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock are, and the shares
offered by us in this offering will be, upon receipt of payment for the shares,
fully paid and nonassessable. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of preferred stock which we may designate and
issue in the future without further stockholder approval. Currently, there are
no shares of preferred stock outstanding.

Preferred Stock

The 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. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of our management without further action by the stockholders
and may adversely affect the voting and other rights of the holders of common
stock. The issuance of preferred stock with voting and conversion rights may
adversely affect the voting power of the holders of common stock, including the
loss of voting control to others. We have no present plans to issue any shares
of preferred stock.

Warrants

On May 1, 1998, we issued a warrant which is currently exercisable for
7,050 shares of common stock at $0.27 per share. The warrant may be exercised
at any time on or before May 1, 2005.

63
<PAGE>

America Online Investment

In October 1999, we 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 we are unable to cure a material breach of the payment
provisions of our marketing agreement with AOL.

On October 29, 1999, we issued 178,638 shares of common stock under the
purchase agreement for $6.0 million in the aggregate, or $33.59 per share. We
also issued the warrant, which is exercisable for 89,318 shares of 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 our
common stock concurrent with the closing of this offering. The number of shares
issuable will be equal to the quotient of $5 million divided by the lesser of
(a) $33.588 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 this offering.

Anti-Takeover Effects of Provisions of Delaware Law and our Certificate of
Incorporation and Bylaws

We are 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 our 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 our 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 our principal executive offices not less
than 120 days prior to the date of our 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. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional

64
<PAGE>

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
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. Our 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, the certificate of
incorporation authorizes only the Board of Directors to fill vacancies,
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. Our 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, our 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

After this offering, holders of approximately 25,400,000 shares of common
stock will be entitled to registration rights with respect to their shares. Of
these shares, approximately 2,200,000 shares of 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 25, 1999.
In addition these holders may also require us to include their shares in
future registration statements that we file 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 our common stock is U.S. Stock
Transfer Corporation.

Listing

Our common stock is quoted on the Nasdaq National Market under the trading
symbol "STMP".

65
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

We estimate that prior to the sale of the 5,000,000 shares we are offering
by this prospectus, approximately 6.0 million of our 34.9 million shares of
outstanding common stock were freely tradable. On December 22, 1999, upon the
expiration of a lock-up entered into in connection with our initial public
offering, an additional 2.1 million shares of our outstanding common stock will
become available for immediate sale. On the 60th day after the date of this
prospectus, the lock-up described below will expire for approximately 6.8
million shares of our outstanding common stock and, on the 90th day after the
date of this prospectus, 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.

We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Any future sale of
substantial amounts of the common stock in the open market may adversely affect
the market price of the common stock offered by this prospectus.

As part of this offering, our executive officers and directors, other
significant stockholders and iShip.com's significant stockholders, who will
receive at least 95% of the shares of common stock we issue in the proposed
acquisition of iShip.com, will execute agreements with the underwriters that
they will not offer or sell any shares of common stock for a period of 60 days
after the date of this prospectus without the prior written consent of Goldman,
Sachs & Co. On the 60th day after the date of this prospectus, the lock-up will
expire for 20% of the shares held by these stockholders. On the 90th day after
the date of this prospectus, 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 with iShip.com provides that we 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. 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 common stock in the public market, or the perception
that these sales could occur, could adversely affect the prevailing market
price for our common stock and could impair our ability to raise capital
through a public offering of equity securities.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by Brobeck, Phleger & Harrison LLP, Irvine, California. As of
November 1, 1999, affiliates of Brobeck, Phleger & Harrison LLP beneficially
owned a total of approximately 84,000 shares of common stock. The validity of
the common stock in this offering will be passed upon for the underwriters by
Sullivan & Cromwell, Washington, D.C.

66
<PAGE>

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 prospectus 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 prospectus 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.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares to be
sold in the offering. This prospectus does not contain all the information
contained in the registration statement. For further information with respect
to Stamps.com and the shares to be sold in the offering, reference is made to
the registration statement and the exhibits and schedules filed with the
registration statement. We have described all material information for each
contract, agreement or other document filed with the registration statement in
the prospectus. However, statements contained in this prospectus 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 we 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).

67
<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 30, September 30,
1998 1998 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

F-12
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

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.

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

F-13
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

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.

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. This agreement was terminated in October 1999 upon the
director's appointment as an officer of the Company.

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.

In October 1999, a director entered into a three-year consulting agreement
with the Company to provide strategic planning services. In exchange for his
consulting services, the director received an option to purchase 36,000 shares
of common stock at $35.625 per share. In November 1999, this agreement was
amended to provide that the director will receive consulting fees of $2,000 per
day for any special projects on which the Company requires his services.

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

F-15
<PAGE>

STAMPS.COM INC.

NOTES TO FINANCIAL STATEMENTS--(Continued)

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 the
Company is uncertain. Therefore, the Company can give no assurance that Pitney
Bowes will not prevail in its suit against the Company.

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 $604 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 State 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.

F-22
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

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 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.

F-23
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Maturities of long-term debt for years ending December 31 are as follows:

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.

F-24
<PAGE>

iSHIP.COM, INC.
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

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.

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
Remaining Average
Number Contractual Exercise Number
Range of Exercise 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................... -- -- 604,102 (2) 604,102
Other assets....................... 432 -- -- 432
------- ------ -------- --------
Total assets................... $74,185 $7,849 $604,102 $686,136
======= ====== ======== ========

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 (56,765)(3) 675,887
660,867 (4)
------- ------ -------- --------
Total liabilities and
stockholders' equity
(deficit)..................... $74,185 $7,849 $604,102 $686,136
======= ====== ======== ========
</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 1,039 165,217 (5) 168,272
-------- ------- --------- ---------
4,180 1,950 165,217 171,347
Loss from operations............ (4,180) (1,950) (165,217) (171,347)
Other income (expense):
Interest expense................ (28) (9) -- (37)
Interest income................. 12 73 -- 85
Other, net...................... -- 32 -- 32
-------- ------- --------- ---------
Net loss........................ $ (4,196) $(1,854) $(165,217) $(171,267)
======== ======= ========= =========
Basic and diluted net loss per
share.......................... $ (0.85) $ (15.21)
======== =========
Pro forma basic and diluted net
loss
per share ..................... $ (0.36) $ (9.57)
======== =========
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 2,028 123,913 (6) 134,217
-------- ------- --------- ---------
24,181 3,755 123,913 151,849
Loss from operations............ (24,181) (3,755) (123,913) (151,849)
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) $(123,913) $(150,635)
======== ======= ========= =========
Basic and diluted net loss per
share.......................... $ (1.59) $ (7.24)
======== =========
Pro forma basic and diluted net
loss per share................. $ (0.74) $ (4.01)
======== =========
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 aggregate estimated purchase
price is approximately $666 million based on $83.25 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 November 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 $524,816
Warrants................................. 2,690 672 55,933
Vested stock options..................... 1,370 342 28,486
Unvested stock options................... 2,730 682 56,765
------ ----- --------
32,030 8,000 $666,000
====== ===== ========
</TABLE>

The fair value of "shares" was calculated by taking the fair value of the
Stamps.com shares ($83.25 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 ($83.25 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............ $666,000
========
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.............. 56,765 4 14,191
Intangible assets acquired:
Goodwill............................ 604,102 4 151,026
--------
$666,000
========
</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 $604.1 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 ($666.0 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 $14.2 million and amortization
of goodwill of $151.0 million for the year ended December 31, 1998.

6. The pro forma adjustment is for amortization of deferred stock
compensation of $10.6 million and amortization of goodwill of $113.3 million
for the nine months ended September 30, 1999.

F-34
<PAGE>

UNDERWRITING

Stamps.com and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co.,
Salomon Smith Barney Inc., BancBoston Robertson Stephens Inc., Thomas Weisel
Partners LLC and Volpe Brown Whelan & Company, LLC are the representatives of
the underwriters.

<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co. ..............................................
Salomon Smith Barney Inc. .........................................
BancBoston Robertson Stephens Inc. ................................
Thomas Weisel Partners LLC.........................................
Volpe Brown Whelan & Company, LLC..................................
----
Total............................................................
====
</TABLE>

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

If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 750,000
shares from Stamps.com to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Stamps.com. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase 750,000 additional shares.

Paid by Stamps.com
------------------
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total............................................ $ $
</TABLE>

Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $ per share from the initial
price to public. If all the shares are not sold at the initial price to public,
the representatives may change the offering price and the other selling terms.

Stamps.com has agreed with the underwriters not to dispose of or hedge any
of its common stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this prospectus continuing
through the date 90 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This agreement does not apply to
any shares reserved for issuance under existing employee benefit plans to
employees who are neither executive officers nor directors. See "Shares
Available for Future Sale" for a discussion of certain transfer restrictions.

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.

U-1
<PAGE>

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the The Nasdaq
National Market, in the over-the-counter market or otherwise.

Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
91 filed public offerings of equity securities, of which 73 have been
completed, and has acted as a syndicate member in an additional 48 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.

Stamps.com estimates that its share of the total expenses of the offerings,
excluding underwriting discounts and commissions, will be approximately
$930,000.

Stamps.com has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

U-2
<PAGE>

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

No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Information Regarding Forward-Looking Statements......................... 20
Use Of Proceeds.......................................................... 21
Price Range of Common Stock.............................................. 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Financial Data.................................................. 25
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations........................................................... 27
Business................................................................. 32
Recent Development....................................................... 44
Management............................................................... 45
Related Party Transactions............................................... 59
Principal Stockholders................................................... 61
Description Of Capital Stock............................................. 63
Shares Eligible For Future Sale.......................................... 66
Legal Matters............................................................ 66
Experts.................................................................. 67
Where You Can Find Additional Information................................ 67
Index To Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>

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

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

5,000,000 Shares

Stamps.com Inc.

Common Stock

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

[LOGO OF STAMPS.COM]

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

Goldman, Sachs & Co.

Salomon Smith Barney

Robertson Stephens

Thomas Weisel Partners LLC

Volpe Brown Whelan & Company

Representatives of the Underwriters

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD. All of the expenses
below will be paid by the Company.

<TABLE>
<CAPTION>
Item
- ----
<S> <C>
Registration fee...................................................... $ 70,984
NASD filing fee....................................................... 26,030
Nasdaq National Market listing fee.................................... 17,500
Blue sky fees and expenses............................................ 10,000
Printing and engraving expenses....................................... 250,000
Legal fees and expenses............................................... 480,000
Accounting fees and expenses.......................................... 50,000
Transfer Agent and Registrar fees..................................... 5,000
Miscellaneous......................................................... 20,486
--------
Total............................................................... $930,000
========
</TABLE>

Item 14. Indemnification of Directors and Officers.

The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that, except to the extent prohibited by the Delaware
General Corporation Law (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

II-1
<PAGE>

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 the 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 filed as 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.

The Underwriting Agreement (the form of which is filed as Exhibit 1.1
hereto) provides for indemnification by the Underwriters of the Company and its
officers and directors, and by the Company of the Underwriters, for certain
liabilities arising under the Securities Act or otherwise.

Item 15. Recent Sales of Unregistered Securities.

The following is a summary of transactions by the Company since the
Company's inception in September 1996 involving sales of the Company's
securities that were not registered under the Securities Act. Prior to the
Company's incorporation in Delaware in January 1998, it had been operating as a
sole proprietorship.

On January 20, 1998, we issued an aggregate of 4,897,500 shares of Common
Stock at $.01 per share to certain employees and consultants to the Company.
The total number of individuals who received stock in this transaction was 15.

On May 1, 1998, we granted a warrant to a lender to purchase up to 4,700
shares of Series A Preferred Stock at $0.40 per share.

In October 1998, we issued an aggregate of 307,875 shares of Common Stock
at $.05 per share to Thomas Bruggere.

In November 1998, we issued an aggregate of 1,500,000 shares of Common
Stock at $.07 per share to John Payne.

In December 1998, we issued an aggregate of 186,000 shares of Common Stock
at $.07 per share to Thomas Bruggere.

In December 1998, we issued 15,000 shares of Common Stock to Gregory Deeter
in exchange for all rights and goodwill in connection with the Stamps.com
domain name.

In January and February of 1998, we issued an aggregate of 3,762,500 shares
of our Series A Redeemable Preferred Stock to certain accredited investors for
an aggregate offering price of $1,505,000, or $0.40 per share, less $42,000 in
offering expenses.

In August, October and November of 1998, we issued an aggregate of
6,020,000 shares of Series B Redeemable Preferred Stock upon the exercise of
warrants to certain accredited investors for an aggregate offering price of
$4,515,000.50, or $0.75 per share.

II-2
<PAGE>

In February and March of 1999, we issued an aggregate of 5,464,486 shares
of Series C Redeemable Preferred Stock to certain accredited investors for an
aggregate offering price of $30,000,028, or $5.49 per share, less $1,645,000
in offering expenses.

From January 1998 to June 1999, we have granted options to purchase an
aggregate of 5,374,959 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $0.84.

In October 1999, we entered into a common stock and warrant purchase
agreement with America Online for the purchase of up to $11 million of common
stock by America Online and a warrant which allows America Online to purchase
50% of the number of shares of common stock issued in exchange for the $11
million in consideration delivered by America Online under the purchase
agreement. The warrant also allows for the purchase of additional shares of
common stock (50% of the unexercised portion of the warrant) in the event we
are unable to cure a material breach of the payment provisions of our
marketing agreement with America Online.

On October 29, 1999, we issued 178,635 shares of common stock under the
purchase agreement for $6 million in the aggregate, or $33.588 per share. We
also issued the warrant, which is exercisable for 89,318 shares of common
stock as of October 31, 1999, at an exercise price of $33.588 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 million in our
common stock concurrent with the closing of this offering. The number of
shares issuable in this private placement will be equal to the quotient of $5
million divided by the lesser of (a) $33.588 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 America Online is contingent on the
closing of this offering.

The foregoing transactions were effected under Section 4(2) or Rule 701 of
the Securities Act.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

The following Exhibits are attached hereto and incorporated herein by
reference:

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.

2.1 Agreement and Plan of Merger by and among the Registrant, Rocket
Acquisition Corp. and iShip.com, Inc. dated as of October 22, 1999
(Filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated October 22, 1999 and filed with the Commission on October 29,
1999 and incorporated herein by this reference.)

3.1 Amended and Restated Certificate of Incorporation of the
Registrant.(1)

3.2 Bylaws of the Registrant.(1)

4.1 See Exhibit 3.1 and 3.2 for provisions of the Registrant's Certificate
of Incorporation and Bylaws defining the rights of holders of the
Registrant's common stock. See Exhibit 10.2 for the rights of certain
holders of registration rights.(1)

4.2 Specimen common stock certificate.(1)

5.1 Opinion of Brobeck, Phleger & Harrison LLP.

10.1 Series A Stock Purchase Warrant dated May 1, 1998 between the
Registrant and Silicon Valley Bank.(1)

</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------

<C> <S>
10.2 Amended and Restated Investors' Rights Agreement dated February 17,
1999 between the Registrant and the investors named therein.(1)

10.3 Patent Assignment from Mohan P. Ananda to the Registrant dated January
20, 1998.(1)

10.4 Assignment and License Agreement between the Registrant and Mohan P.
Ananda dated January 20, 1998.(1)

10.5 Employment Offer Letter dated October 29, 1998 by and between the
Registrant and John M. Payne.(1)

10.6 Employment Agreement dated January 20, 1998 by and between the
Registrant and Mohan P. Ananda.(1)

10.7 1998 Stock Plan and Forms of Notice of Grant and Stock Option
Agreement.(1)

10.8 1999 Stock Incentive Plan.(1)

10.9 1999 Employee Stock Purchase Plan.(1)

10.10 Form of Indemnification Agreement between the Registrant and its
directors and officers.(1)

10.11 Lease Agreement dated August 27, 1998 between the Registrant and
Spieker Properties, L.P. and Amendment No. One dated January 8,
1999.(1)

10.12 Advertising Insertion Order dated December 16, 1998 between the
Registrant and America Online, Inc.(2)
10.13 Master Lease Agreement between the Registrant and FirstCorp dated June
5, 1998.(1)

10.14 Quick Start Loan and Security Agreement dated May 1, 1998 between the
Registrant and Silicon Valley Bank.(1)

10.15 Employment Offer Letter dated August 7, 1998 between the Registrant
and John W. LaValle.(1)

10.16 Consulting Agreement dated February 1, 1999 between the Registrant and
Loren Smith.(1)

10.17 Lease dated April 12, 1999 between the Registrant and Spieker
Properties, L.P.(1)

10.18 Sponsorship Agreement dated May 14, 1999 between Registrant and
Intuit, Inc.(2)

10.19 Distributor Agreement dated December 10, 1998 between Registrant and
Westvaco.(2)

10.20 Distributor Agreement dated January 15, 1999 between Registrant and
Office Depot, Inc.(2)

10.21 Distributor Agreement dated March 31, 1999 between Registrant and
Seiko Instruments USA, Inc.(2)

10.22 Distributor Agreement dated March 30, 1999 between Registrant and
Avery Dennison Office Products Company.(2)

10.23 Distributor Agreement dated March 11, 1999 between Registrant and
Dymo-Costar Corporation.(2)

10.24 Series A Preferred Stock and Warrant Purchase Agreement dated February
26, 1998 between Registrant and certain investors.(1)

10.25 Amended and Restated Voting Agreement dated February 17, 1999 between
Registrant and certain investors.(1)

10.26 Separation Agreement and Release dated May 13, 1999 between Registrant
and Mohan Ananda.(1)

10.27 License Agreement dated May 13, 1999 between Registrant and Mohan
Ananda.(1)

</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.28 Series C Preferred Stock Purchase Agreement dated February 17, 1999
between Registrant and certain investors.(1)

10.29 Amendment Letter to AOL dated June 4, 1999.(1)

10.30 Nondisclosure Agreement and Agreement to Release University from
damages caused by testing, dated December 6, 1998.(1)

10.31 Nondisclosure Agreement and Agreement to Release Carnegie Mellon,
Inc. from damages caused by testing, dated April 22, 1997.(1)

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.(1)

10.33 Consulting Agreement dated June 21, 1999 between Registrant and
Carolyn Ticknor. (Filed as Exhibit 10.33 to the Registrant's
Quarterly Report on Form 10-Q for the Quarterly Period Ended June 30,
1999 and incorporated herein by this reference.)

10.34**+ Interactive Marketing and Distribution Agreement dated October 15,
1999 between America Online, Inc. and the Registrant.

10.35** Common Stock and Warrant Purchase Agreement dated October 20, 1999
between America Online, Inc. and the Registrant.

10.36** Common Stock Purchase Warrant dated October 29, 1999 between America
Online, Inc. and the Registrant.

10.37** Consulting Agreement dated October 20, 1999 between Registrant and
Marvin Runyon.

10.38 Amended and Restated Consulting Services Agreement dated November 15,
1999 between the Registrant and Marvin Runyon.(3)

21.1 Subsidiaries of the Registrant.

23.1 Consent of Brobeck, Phleger & Harrison LLP (Included in Exhibit 5.1
hereto).

23.2 Consent of Arthur Andersen LLP.

23.3 Consent of Moss Adams LLP.

24.1 Power of Attorney (Included on signature pages hereto).

27.1** Financial Data Schedule.
</TABLE>
- --------

** Previously filed.

(1) Incorporated by reference herein to the Registration Statement on Form S-1
and all amendments thereto filed with the Securities and Exchange
Commission on April 26, 1999 and declared effective on June 24, 1999.
(File No. 333-77025).

(2) Confidential treatment requested and received as to certain portions.
These exhibits are incorporated by reference herein to the Registration
Statement on Form S-1 and all amendments thereto filed with the Securities
and Exchange Commission on April 26, 1999 and declared effective June 24,
1999. (File No. 333-77025).

(3) Incorporated by reference herein to the Registration Statement on Form S-4
filed with the Securities and Exchange Commission on November 19, 1999
(File No. 333-91377)

+ Confidential treatment has been requested and received for certain
confidential portions of this exhibit pursuant to Rule 406 under the
Securities Act. In accordance with Rule 406, these confidential portions
have been omitted from this exhibit.

(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.

II-5
<PAGE>

Item 17. Undertakings.

The undersigned Company hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Securities and Exchange 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.

The undersigned Company hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by us pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.

II-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, we have duly
caused this Amendment No. 2 to the 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 30th day of November, 1999.

STAMPS.COM INC.

/s/ John M. Payne
By: _________________________________
John M. Payne

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-1 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 and Chief Executive November 30, 1999
____________________________________ Officer (Principal Executive
John M. Payne Officer)

/s/ John W. LaValle Chief Financial Officer and November 30, 1999
____________________________________ Senior Vice President of
John W. LaValle Operations (Principal
Financial and Accounting
Officer)

Loren E. Smith* President, Chief Operating November 30, 1999
____________________________________ Officer and Director
Loren E. Smith

Thomas H. Bruggere* Director November 30, 1999
____________________________________
Thomas H. Bruggere

Mohan P. Ananda* Director November 30, 1999
____________________________________
Mohan P. Ananda

David C. Bohnett* Director November 30, 1999
____________________________________
David C. Bohnett

Jeffrey J. Brown* Director November 30, 1999
____________________________________
Jeffrey J. Brown
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Thomas N. Clancy* Director November 30, 1999
____________________________________
Thomas N. Clancy

G. Bradford Jones* Director November 30, 1999
____________________________________
G. Bradford Jones

Marvin Runyon* Director November 30, 1999
____________________________________
Marvin Runyon

Carolyn Ticknor* Director November 30, 1999
____________________________________
Carolyn Ticknor
</TABLE>

* Power of Attorney

/s/ John W. LaValle
By: ______________________________
John W. LaValle
Attorney-in-fact

II-8

<PAGE>

EXHIBIT 1.1

Underwriting Agreement

December __, 1999

Goldman, Sachs & Co.,
Salomon Smith Barney Inc.,
BancBoston Robertson Stephens Inc.,
Thomas Weisel Partners LLC,
Volpe Brown Whelan & Company, LLC,
As Representatives of the several Underwriters
named in Schedule A hereto
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.

Ladies and Gentlemen:

Introductory. Stamps.com Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 5,000,000 shares (the "Firm
- ----------
Shares") of its Common Stock, par value $0.001 per share (the "Common Shares").
In addition, the Company has granted to the Underwriters an option to purchase
up to an additional 750,000 Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". Goldman, Sachs & Co.,
Salomon Smith Barney Inc., BancBoston Robertson Stephens Inc., Thomas Weisel
Partners LLC and Volpe Brown Whelan & Company, LLC have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.

The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-90115), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated
<PAGE>

thereunder (collectively, the "Securities Act"), including any information
deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A
or Rule 434 under the Securities Act, is called the "Registration Statement".
Any registration statement filed by the Company pursuant to Rule 462(b) under
the Securities Act is called the "Rule 462(b) Registration Statement", and from
and after the date and time of filing of the Rule 462(b) Registration Statement
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of Goldman, Sachs & Co., elected to rely upon
Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated November 8, 1999 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").

The Company hereby confirms its agreements with the Underwriters as
follows:

Section 1. Representations and Warranties of the Company.

Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:

(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission.

Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and

-2-
<PAGE>

will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. Each preliminary prospectus and the Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.

(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.

(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.

(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.

(e) Authorization of the Shares To Be Sold by the Company. The Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.

(f) No Applicable Registration or Other Similar Rights. There are no
persons with preemptive, registration or other similar rights to have any
equity or debt securities registered for sale under the Registration Statement
or included in the offering contemplated by this Agreement, except for such
rights as have been duly waived.

-3-
<PAGE>

(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries listed in Exhibit 21.1 of the Registration Statement (the
"Subsidiaries"), taken as a whole (any such change or effect, where the context
so requires, is called a "Material Adverse Change" or a "Material Adverse
Effect"); (ii) neither the Company nor any of its Subsidiaries has incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or
repurchase or redemption by the Company or any of its Subsidiaries of any class
of capital stock.

(h) Independent Accountants. Each of Arthur Andersen LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) of the Company, and
Moss Adams LLP, who have expressed their opinion with respect to the financial
statements of iShip.com, a Delaware corporation ("iShip.com"), filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act.

(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus comply as to form in all material respects with the
requirements of the Securities Act and present fairly the respective financial
positions of the Company and iShip.com as of and at the dates indicated and the
results of their respective operations and cash flows for the periods specified.
The supporting schedules included in the Registration Statement present fairly
the information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto. No
other financial statements or supporting schedules are required to be included
in the Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Financial Data", "Selected
Financial Data" and "Capitalization" fairly present the information set forth
therein on a basis consistent with that of the audited financial statements
contained in the Registration Statement. The pro forma financial statements of
the Company and the related notes thereto included in the Prospectus and the pro
forma financial data set forth under the caption "Prospectus Summary--Summary
Financial Data", "Selected Financial Data" and elsewhere in the Prospectus, and
in the Registration Statement present fairly the information contained therein,
have been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and data and have been properly
presented on the bases described therein, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are

-4-
<PAGE>

appropriate to give effect to the transactions and circumstances referred to
therein. No other pro forma financial information is required to be included in
the Registration Statement.

(j) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(k) Subsidiaries of the Company. Other than the Subsidiaries, the Company
does not own or control, directly or indirectly, any corporation, association or
other entity.

(l) Incorporation and Good Standing of the Company. The Company has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is incorporated with full
corporate power and authority to own its properties and conduct its business as
described in the prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction which
requires such qualification except for such jurisdictions in which the failure
to be so qualified or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change.

(m) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" (other than for subsequent issuances, if any,
pursuant to employee benefit plans described in the Prospectus or upon exercise
of outstanding options described in the Prospectus). The Common Shares
(including the Shares) conform in all material respects to the description
thereof contained in the Prospectus. All of the issued and outstanding Common
Shares have been duly authorized and validly issued, are fully paid and
nonassessable and have been issued in compliance with federal and state
securities laws; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and (except for directors' qualifying shares and
employee shares and except as set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances, equities
or claims. None of the outstanding Common Shares were issued in violation of any
preemptive rights, rights of first refusal or other similar rights to subscribe
for or purchase securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company other than
those accurately described in the Prospectus. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights.

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(n) Nasdaq Listing. The Shares have been approved for inclusion on the
Nasdaq National Market, subject only to official notice of issuance.

(o) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.

(p) Non-Contravention of Existing Instruments or Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant to, (i) the
charter or by-laws of the Company, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the Company is
a party or bound or to which its or their property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree applicable to the
Company of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any of its
or their properties.

(q) No Defaults or Violations. Neither the Company nor any of its
Subsidiaries is in violation or default of (i) any provision of its charter or
by-laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its property
is subject or (iii) any statute, law, rule, regulation, judgment, order or
decree of any court, regulatory body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Company or any of its
properties, as applicable, except any such violation or default which would not,
singly or in the aggregate, result in a Material Adverse Change except as
otherwise disclosed in the Prospectus.

(r) No Actions, Suits or Proceedings. Except as otherwise disclosed in the
Prospectus, no action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company or any of its
Subsidiaries or its or their property is pending or, to the best knowledge of
the Company, threatened that, if determined adversely to the Company or any of
its Subsidiaries, would individually or in the aggregate (i) have a material
adverse effect on the performance of this Agreement by the Company or the
consummation by the Company of any of the transactions contemplated hereby or
(ii) have a Material Adverse Effect.

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<PAGE>

(s) All Necessary Permits, Etc. Except as otherwise disclosed in the
Prospectus, the Company possesses such valid and current certificates,
authorizations or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct its business, and the Company
has not received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.

(t) Title to Properties. The Company and its Subsidiaries have good and
marketable title to all the properties and assets reflected as owned in the
financial statements referred to in Section 1(i) above (or elsewhere in the
Prospectus), in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company and its Subsidiaries. The real property, improvements, equipment and
personal property held under lease by the Company and its Subsidiaries are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company and
its Subsidiaries.

(u) Tax Law Compliance. The Company has filed all necessary federal, state
and foreign income and franchise tax returns and have paid all taxes required to
be paid by any of them and, if due and payable, any related or similar
assessment, fine or penalty levied against any of them except as may be being
contested in good faith and by appropriate proceedings. The Company has made
adequate charges, accruals and reserves in the applicable financial statements
referred to in Section 1(i) above in respect of all federal, state and foreign
income and franchise taxes for all periods as to which the tax liability of the
Company has not been finally determined. The Company is not aware of any tax
deficiency that has been or might be asserted or threatened against the Company
that could result in a Material Adverse Change.

(v) Intellectual Property Rights. Except as otherwise described in the
Prospectus: (a) the Company 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 described in the
Registration Statement and Prospectus; (b) the expiration of any patents, patent
rights, trade secrets, trademarks, service marks, trade names or copyrights
would not result in a Material Adverse Change; (c) the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and (d) the Company 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, might
have a Material Adverse Change. Except as otherwise disclosed in the Prospectus,
there is no claim being made against the Company 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

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<PAGE>

Prospectus, the Company, to its knowledge, does not in the conduct of its
business as now or proposed to be conducted as described in the Prospectus
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 Company, which such
infringement or conflict is reasonably likely to result in a Material Adverse
Change.

(w) Year 2000 Preparedness. There are no issues related to the Company's
preparedness for the Year 2000 that (i) are of a character required to be
described or referred to in the Registration Statement or Prospectus by the
Securities Act which have not been accurately described in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in any
Material Adverse Change or that might materially affect its properties, assets
or rights. To the Company's knowledge, all internal computer systems and each
Constituent Component (as defined below) of those systems and all computer-
related products and each Constituent Component (as defined below) of those
products of the Company fully comply with Year 2000 Qualification Requirements.
"Year 2000 Qualifications Requirements" means that the internal computer systems
and each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company (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 Company has inquired of all third parties with which
the Company or any of its Subsidiaries has a relationship material to the
business of the Company as to their preparedness for the Year 2000 and has
disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in any Material Adverse Change.

(x) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.

(y) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the

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<PAGE>

"Investment Company Act"). The Company is not, and after receipt of payment for
the Shares will not be, an "investment company" or an entity "controlled" by an
"investment company" within the meaning of the Investment Company Act and will
conduct its business in a manner so that it will not become an "investment
company" or an entity "controlled" by an "investment company" within the meaning
of the Investment Company Act.

(z) Insurance. The Company is insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for their businesses including, but not limited to, policies covering
real and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and earthquakes, general liability and Directors
and Officers liability. The Company has no reason to believe that it will not be
able (i) to renew its existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and at a cost
that would not result in a Material Adverse Change. The Company has not been
denied any insurance coverage which it has sought or for which it has applied.

(aa) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers that might be expected to result in
a Material Adverse Change.

(bb) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.

(cc) Lock-Up Agreements. Each officer and director of the Company and each
beneficial owner of two or more percent of the outstanding issued share capital
of the Company, each of whom is listed on Schedule B hereto, has agreed to sign
----------
an agreement substantially in the form attached hereto as Exhibit A (the "Lock-
----------
up Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
Lock-up Agreements presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Goldman, Sachs & Co.

(dd) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person required to
be described in the Prospectus which have not been described as required.

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<PAGE>

(ee) No Unlawful Contributions or Other Payments. Neither the Company nor,
to the best of the Company's knowledge, any employee or agent of the Company,
has made any contribution or other payment to any official of, or candidate for,
any federal, state or foreign office in violation of any law or of the character
required to be disclosed in the Prospectus.

Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.

Section 2. Purchase, Sale and Delivery of the Shares.

(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective numbers
of Firm Shares set forth opposite their names on Schedule A. The purchase price
----------
per Firm Share to be paid by the several Underwriters to the Company shall be
$______ per share.

(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. Pacific Standard time, at the offices of Brobeck
Phleger & Harrison LLP located at 38 Technology Drive, Irvine, California (or at
such other place as may be agreed upon among the Representatives and the
Company), on __________, 1999 or such other time and date as Goldman, Sachs &
Co. and the Company may agree in writing, such time and date of payment and
delivery being herein called the "Closing Date"; provided, however, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later that two (2)
full business days following delivery of copies of the Prospectus to the
Representatives.

(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of 750,000 Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any overallotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the

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<PAGE>

number of Option Shares (subject to such adjustments to eliminate fractional
shares as the Representatives may determine) that bears the same proportion to
the total number of Option Shares to be purchased as the number of Firm Shares
set forth on Schedule A opposite the name of such Underwriter bears to the total
----------
number of Firm Shares. The Representatives may cancel the option at any time
prior to its expiration by giving written notice of such cancellation to the
Company.

(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, has
determined is advisable and practicable.

(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available funds to the order of the Company.

It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
Goldman, Sachs & Co., individually and not as the Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Shares to
be purchased by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.

(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company
shall also deliver, or cause to be delivered a credit representing the Option
Shares the Underwriters have agreed to purchase at the First Closing Date (or
the Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.

(g) Delivery of Prospectus to the Underwriters. Not later than 3:00 p.m.,
New York City time, on the next business day following the date hereof, the
Company shall deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representatives shall request.

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<PAGE>

Section 3. Covenants of the Company.

The Company further covenants and agrees with each Underwriter as follows:

(a) Registration Statement Matters. The Company will (i) cause the
Registration Statement to become effective and prepare the prospectus in a form
approved by the Representatives and, if the procedure in Rule 430A of the
Securities Act is followed, to prepare and timely file with the Commission under
Rule 424(b) under the Securities Act a Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Securities Act no later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A (a)(3) under the
Securities Act and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which the Representatives shall not previously
have been advised and furnished with a copy or to which the Representatives
shall have reasonably objected in writing or which is not in compliance with the
Securities Act. If the Company elects to rely on Rule 462(b) under the
Securities Act, the Company shall file a Rule 462(b) Registration Statement with
the Commission in compliance with Rule 462(b) under the Securities Act prior to
the time confirmations are sent or given (and in any event prior to 10:00 p.m.,
Washington D.C. time, on the date of this Agreement), as specified by Rule
462(b)(2) under the Securities Act, and shall pay the applicable fees in
accordance with Rule 111 under the Securities Act.

(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any post-
effective amendment thereto shall have become effective, (ii) of receipt of any
comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.

(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in

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<PAGE>

effect for so long a period as the Representatives may reasonably request for
distribution of the Shares.

(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.

(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.

(f) Insurance. The Company shall maintain Directors and Officers
liability insurance with minimum primary coverage of $5 million and minimum
secondary coverage of $20 million.

(g) Notice of Subsequent Events. If at any time during the ninety day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.

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<PAGE>

(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.

(i) Transfer Agent. The Company shall maintain, at its expense, a
registrar and transfer agent for the Company Shares.

(j) Earnings Statement. As soon as practicable, but in any event not
later than eighteen months after the effective date of the Registration
Statement (as defined in Rule 158(c) under the Securities Act), the Company will
make generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations thereunder
(including, at the option of the Company, Rule 158).

(k) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.

(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of Goldman, Sachs & Co., for a
period of 90 days following the date of the Prospectus, offer, sell or contract
to sell, or otherwise dispose of or enter into any transaction which is designed
to, or could be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) grant options and issue and sell Common Shares
pursuant to any director or employee stock option plan, stock purchase plan,
stock ownership plan or dividend reinvestment plan of the Company in effect at
the date of the Prospectus and described in the Prospectus, (ii) the Company may
issue Common Shares issuable upon the conversion of securities or the exercise
of warrants outstanding at the date of the Prospectus and described in the
Prospectus, and (iii) the Company may issue the Common Shares and options and
warrants exercisable for Common Shares to be issued in connection with the
iShip.com acquisition and the America Online investment as described in the
Prospectus.

(m) Future Reports to the Representatives. During the period of five years
hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable

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<PAGE>

after the filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the National Association of Securities
Dealers, LLC or any securities exchange; and (iii) as soon as available, copies
of any report or communication of the Company mailed generally to holders of its
capital stock.

Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:

(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel; and the National Association
of Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.

(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.

(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.

-15-
<PAGE>

(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Brobeck Phleger & Harrison LLP, counsel for the Company substantially in the
form of Exhibit B attached hereto, dated the First Closing Date, or the Second
---------
Closing Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.

Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State of
California and Delaware upon opinions of local counsel, and as to questions of
fact upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. Copies of any
opinion, representation or certificate so relied upon shall be delivered to you,
as Representatives of the Underwriters, and to Underwriters' Counsel.

(e) Opinion of Patent Counsel for the Company. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Hecker & Harriman, patent counsel for the Company substantially in
the form of Exhibit C attached hereto.
---------

(f) Opinion of Counsel for the Underwriters. Sullivan & Cromwell, counsel
for the Underwriters, shall have furnished to you such opinion or opinions,
dated as of the First Closing Date or the Second Closing Date, as the case may
be, with respect to such matters as you may reasonably request, and such counsel
shall have received such papers and information as they may reasonably request
to enable them to pass upon such matters;

(g) Accountants' Comfort Letter. On the date of the Prospectus at a time
prior to the execution of this Agreement, at 9:30 a.m., New York City time, on
the effective date of any post-effective amendment to the Registration Statement
filed subsequent to the date of this Agreement and also on the First Closing
Date and the Second Closing Date, if any, Arthur Andersen LLP and Moss Adams LLP
each shall have furnished to you a letter or letters, dated the respective dates
of delivery thereof, in form and substance satisfactory to you, to the effect
set forth in Exhibit D hereto;

(h) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:

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<PAGE>

(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;

(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;

(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the
Securities Act and in all material respects conformed to the requirements
of the Securities Act, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, did not and does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth; and

(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a) any
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company, (b)
any transaction that is material to the Company, except transactions
entered into in the ordinary course of business, (c) any obligation, direct
or contingent, that is material to the Company, incurred by the Company,
except obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company, (e)
any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company, or (f) any loss or damage (whether or not
insured) to the property of the Company which has been sustained or will
have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company.

(i) Lock-up Agreement from Certain Stockholders of the Company. The Company
shall have obtained and delivered to you an agreement substantially in the form
of Exhibit A attached hereto from each officer and director of the
---------
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company, each of whom is listed on Schedule B
----------
hereto.

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<PAGE>

(j) Nasdaq Listing. The Shares shall have been included on the Nasdaq
National Market, subject only to official notice of issuance.

(k) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.

If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.

Section 5. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Shares, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares,

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<PAGE>

(viii) the fees and expenses associated with including the Common Shares on the
Nasdaq National Market, (ix) all costs and expenses incident to the preparation
and undertaking of "road show" preparations to be made to prospective investors,
and (x) all other fees, costs and expenses referred to in Item 13 of Part II of
the Registration Statement. Except as provided in this Section 5, Section 6, and
Section 7 hereof, the Underwriters shall pay their own expenses, including the
fees and disbursements of their counsel.

Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 9, or if the
sale to the Underwriters of the Shares on the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.

Section 7. Indemnification and Contribution.

(a) Indemnification of the Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein; or (iv) in whole or in part upon any failure of
the Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged

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<PAGE>

act or failure to act by any Underwriter in connection with, or relating in any
manner to, the Shares or the offering contemplated hereby, and which is included
as part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon any matter covered by clause (i), (ii), (iii) or
(iv) above, provided that the Company shall not be liable under this clause (v)
to the extent that a court of competent jurisdiction shall have determined by a
final judgment that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be taken
by such Underwriter through its bad faith or willful misconduct; and to
reimburse each Underwriter and each such controlling person for any and all
expenses (including the fees and disbursements of counsel chosen by Goldman,
Sachs & Co.) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent, but only
to the extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or expense
purchased Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Shares to such person, and if the
Prospectus would have cured the defect giving rise to such loss. The indemnity
agreement set forth in this Section 7(a) shall be in addition to any liabilities
that the Company may otherwise have.

(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not

-20-
<PAGE>

misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any preliminary prospectus, the Prospectus (or
any amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use therein; and to reimburse the Company, or any such director, officer or
controlling person for any legal and other expense reasonably incurred by the
Company, or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. The indemnity agreement set forth in this
Section 7(b) shall be in addition to any liabilities that each Underwriter may
otherwise have.

(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the fourth paragraph, the sixth paragraph,
the eighth paragraph and the ninth paragraph under the caption "Underwriting" in
the Prospectus; and the Underwriters confirm that such statements are correct.

(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by

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<PAGE>

the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (Goldman, Sachs & Co. in the case of Section 7(b) and Section
8), representing the indemnified parties who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.

(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.

(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall severally contribute to the aggregate amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the

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<PAGE>

immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriter on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bears to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

The Company and Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(f) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.

(g) Timing of Any Payments of Indemnification. Any losses, claims, damages,
liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.

(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made

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<PAGE>

by or on behalf of any Underwriter or any person controlling any Underwriter,
the Company, its directors or officers or any persons controlling the Company,
(ii) acceptance of any Shares and payment therefore hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter, or to the
Company, its directors or officers, or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 7.

(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.

Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.

As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under

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<PAGE>

this Section 8 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.

Section 9. Termination of this Agreement. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of securities; (iv) in
the judgment of the Representatives there shall have occurred any Material
Adverse Change; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.

Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.

Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:

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<PAGE>

If to the Representatives:

Goldman, Sachs & Co.
32 Old Slip, 21st Floor
New York, New York 10005
Facsimile: ( )
Attention: Registration Department

If to the Company:

Stamps.com Inc.
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, CA 90405-3035
Facsimile: (310) 581-7500
Attention: John M. Payne

Any party hereto may change the address for receipt of communications by giving
written notice to the others.

Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.

Section 13. Partial Unenforceability. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.

Section 14. Governing Law Provisions.

(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.

(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located

-26-
<PAGE>

in the City and County of New York or the courts of the State of New York in
each case located in the City and County of New York (collectively, the
"Specified Courts"), and each party irrevocably submits to the exclusive
jurisdiction (except for proceedings instituted in regard to the enforcement of
a judgment of any such court (a "Related Judgment"), as to which such
jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum.

(c) Waiver of Immunity. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.

Section 15. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.

[The remainder of this page has been intentionally left blank.]

-27-
<PAGE>

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.

Very truly yours,

STAMPS.COM INC.

By:____________________________________
John M. Payne
Chairman and Chief Executive Officer

The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.

Goldman, Sachs & Co.
Salomon Smith Barney, Inc.
BancBoston Robertson Stephens, Inc.
Thomas Weisel Partners, LLC
Volpe Brown Whelan & Company, LLC

By:______________________________
(Goldman, Sachs & Co.)

On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
- ----------

-28-
<PAGE>

SCHEDULE A

<TABLE>
<CAPTION>
Number of
Firm Shares
To be Purchased
---------------
<S> <C>
Goldman, Sachs & Co....................................
Salomon Smith Barney Inc...............................
BancBoston Robertson Stephens Inc......................
Thomas Weisel Partners LLC.............................
Volpe Brown Whelan & Company, LLC......................
Total............................................... 5,000,000
=========
</TABLE>

S-A
<PAGE>

SCHEDULE B

For Stamps.com Inc.
-------------------

Mohan Ananda
Jeffrey J. Brown
Thomas Bruggere
Thomas N. Clancy
Christopher S. Hylen
G. Bradford Jones
John W. LaValle
John M. Payne
Marvin Runyon
Loren E. Smith
Carolyn Ticknor
Timothy A. Von Kaenel
Douglas J. Walner
Michael D. Walther
David C. Bohnett Living Trust
Brentwood Affiliates Fund, L.P.
Brentwood Associates VIII, L.P.
Chase Venture Capital Associates L.P.
Enterprise Partners IV and Associates, L.P.
Enterprise Partners IV, L.P.
SBIC Partners, L.P.
Vulcan Ventures, Inc.

For iShip.com, Inc.
-------------------

John Dietz
John Jamerson
Stephen Teglovic
William Smith
Draper Fisher Jurvetson Associates Fund IV, LP
Draper Fisher Jurvetson Partners Fund IV, LLC
eBay Inc.
Brian Finn & Grosvenor Street
Intel Corporation
Mail Boxes Etc. USA, Inc.
United Parcel Service

S-B
<PAGE>

Exhibit A

Stamps.com Inc.

Lock-Up Agreement

___________, 1999

Goldman, Sachs & Co.
Salomon Smith Barney Inc.
BancBoston Roberton Stephens Inc.
Thomas Weisel & Partners LLC
Volpe Brown Whelan & Company, LLC
c/o Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004

Re: Stamps.com Inc. - Lock-Up Agreement
-----------------------------------

Ladies and Gentlemen:

The undersigned understands that you, as representatives (the
"Representatives"), propose to enter into an Underwriting Agreement on behalf of
the several Underwriters named in Schedule I to such agreement (collectively,
the "Underwriters"), with Stamps.com Inc., a Delaware corporation (the
"Company"), providing for a public offering of the Common Stock of the Company
(the "Shares") pursuant to a Registration Statement on Form S-1 to be filed with
the Securities and Exchange Commission (the "SEC").

In consideration of the agreement by the Underwriters to offer and sell the
Shares, and of other good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged, the undersigned agrees that:

(i) during the period beginning from the date of the final Prospectus covering
the public offering of the Shares and continuing to and including the date
60 days after the date of such final Prospectus, the undersigned will not
offer, sell, contract to sell, pledge, grant any option to purchase, make
any short sale or otherwise dispose of any of the shares of Common Stock of
the Company, or any options or warrants to purchase any shares of Common
Stock of the Company, or any securities convertible into, exchangeable for
or that represent the right to receive shares of Common Stock of the
Company, whether now owned or hereinafter acquired, owned directly by the
undersigned (including holding as a custodian) or with respect to which the

A-1
<PAGE>

undersigned has beneficial ownership within the rules and regulations of
the SEC (collectively the "Undersigned's Shares"); and

(ii) during the period beginning from the date 61 days after the date of the
final Prospectus covering the public offering of the Shares and continuing
to and including the date 90 days after the date of such final Prospectus,
the undersigned will not offer, sell, contract to sell, pledge, grant any
option to purchase, make any short sale or otherwise dispose of greater
than twenty percent (20%) of the Undersigned's Shares.

The foregoing restriction is expressly agreed to preclude the undersigned
from engaging in any hedging or other transaction which is designed to or which
reasonably could be expected to lead to or result in a sale or disposition of
the Undersigned's Shares even if such Shares would be disposed of by someone
other than the undersigned. Such prohibited hedging or other transactions would
include without limitation any short sale or any purchase, sale or grant of any
right (including without limitation any put or call option) with respect to any
of the Undersigned's Shares or with respect to any security that includes,
relates to, or derives any significant part of its value from such Shares.

Notwithstanding the foregoing, the undersigned may transfer the
Undersigned's Shares (i) as a bona fide gift or gifts, provided that the donee
or donees thereof agree to be bound in writing by the restrictions set forth
herein, (ii) to any trust for the direct or indirect benefit of the undersigned
or the immediate family of the undersigned, provided that the trustee of the
trust agrees to be bound in writing by the restrictions set forth herein, and
provided further that any such transfer shall not involve a disposition for
value, or (iii) with the prior written consent of Goldman, Sachs & Co. on behalf
of the Underwriters. For purposes of this Lock-Up Agreement, "immediate family"
shall mean any relationship by blood, marriage or adoption, not more remote than
first cousin. In addition, notwithstanding the foregoing, if the undersigned is
a corporation, the corporation may transfer the capital stock of the Company to
any wholly-owned subsidiary of such corporation; provided, however, that in any
-------- -------
such case, it shall be a condition to the transfer that the transferee execute
an agreement stating that the transferee is receiving and holding such capital
stock subject to the provisions of this Lock-Up Agreement and there shall be no
further transfer of such capital stock except in accordance with this Lock-Up
Agreement, and provided further that any such transfer shall not involve a
disposition for value. The undersigned now has, and, except as contemplated by
clause (ii) of the second paragraph of this Lock-Up Agreement and by clause (i),
(ii), or (iii) of this paragraph, for the duration of this Lock-Up Agreement
will have, good and marketable title to the Undersigned's Shares, free and clear
of all liens, encumbrances, and claims whatsoever. The undersigned also agrees
and consents to the entry of stop transfer instructions with the Company's
transfer agent and registrar against the transfer of the Undersigned's Shares
except in compliance with the foregoing restrictions.

A-2
<PAGE>

The undersigned understands that the Company and the Underwriters are
relying upon this Lock-Up Agreement in proceeding toward consummation of the
offering. The undersigned further understands that this Lock-Up Agreement is
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors, and assigns.

Very truly yours,

------------------------------------------
Exact Name of Shareholder

------------------------------------------
Authorized Signature

------------------------------------------
Title

A-3
<PAGE>

Exhibit B

Matters to be Covered in the Opinion of Company Counsel

(1) The Company is duly incorporated and is validly existing and in
good standing under the laws of the State of Delaware; the Company has the
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto); the Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect;

(2) To such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity, other than
the subsidiaries listed in Exhibit 21.1 of the Registration Statement;

(3) The authorized, issued and outstanding capital stock of the
Company as of September 30, 1999 is as set forth under the heading "Actual"
under the caption "Capitalization" in the Prospectus; to such counsel's
knowledge, except as described in the Prospectus, there are no outstanding
securities of the Company convertible or exchangeable into, or evidencing the
right to purchase or subscribe for, any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of a
similar character obligating the Company to issue any shares of its capital
stock or any securities convertible or exchangeable into, or evidencing the
right to purchase or subscribe for, any shares of such stock;

(4) All the shares of capital stock of the Company outstanding prior
to the issuance of the Shares (A) have been duly authorized and validly issued;
(B) are fully paid and nonassessable; and (C) were not issued in violation of
or subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;

(5) The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully paid and
nonassessable and (A) free of any preemptive rights arising under the Restated
Certificate or the Delaware General Corporation Law; (B) free of similar rights
that entitle or will entitle any person to acquire any shares of capital stock
of the Company upon the issuance and sale of the Shares by the Company; or (C)
will not have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right;

B-1
<PAGE>

(6) The form of certificate for the Shares incorporated by reference
as an exhibit to the Registration Statement conforms to the requirements of the
Delaware General Corporation Law;

(7) The Registration Statement and the Prospectus and any supplements
or amendments thereto (except for the financial statements and the notes thereto
and the schedules and other financial and statistical data included therein, as
to which such counsel does not express any opinion), as of the effective date of
the Registration Statement, comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations of the
Commission thereunder;

(8) The Registration Statement and all post-effective amendments, if
any, have become effective under the Securities Act and, to such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose are pending before
or contemplated by the Commission; and any required filing of the Prospectus
pursuant to Rule 424(b) has been made in accordance with Rule 424(b);

(9) The Shares have been approved for quotation on the Nasdaq
National Market, upon issuance as contemplated by the Underwriting Agreement;

(10) The Company has the corporate power and authority to enter into
the Underwriting Agreement and to issue, sell and deliver the Shares to the
Underwriters as provided in the Underwriting Agreement; the Underwriting
Agreement has been duly authorized, executed and delivered by the Company, and
(assuming the due authorization, execution and delivery thereof by you) is a
valid and binding agreement of the Company, enforceable against it in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general equitable
principles (whether relief is sought in a proceeding at law or in equity) and
except as rights to indemnification and contribution thereunder may be limited
by applicable law or public policy relating thereto;

(11) Neither the offer, sale or delivery of the Shares, the execution,
delivery or performance by the Company of the Underwriting Agreement, compliance
by the Company with the provisions of the Underwriting Agreement nor
consummation by the Company of the transactions contemplated by the Underwriting
Agreement (A) violates the Restated Certificate of Incorporation or Bylaws, or
other organizational documents, of the Company, or (B) constitutes a breach of,
or a default under, any provision of any agreement, indenture, lease or other
instrument to which the Company is a party or by which the Company or any of its
properties is bound that is an exhibit to the Registration Statement, which
breach or default would reasonably be expected to have a material adverse effect
on

B-2
<PAGE>

the offer, sale or delivery of the Shares, the execution, delivery or
performance by the Company of the Underwriting Agreement, compliance by the
Company with the provisions of the Underwriting Agreement or consummation by the
Company of the transactions contemplated by the Underwriting Agreement , or (C)
will result in any violation of any existing law or regulation (other than
applicable state securities and Blue Sky laws, as to which such counsel
expresses no opinion), or any ruling, judgment, injunction, order or decree
known to us and applicable to the Company or any of its properties or
operations;

(12) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company (except (A) as have been obtained under the Securities Act and the
Exchange Act or (B) such as may be required under state securities or Blue Sky
laws governing the purchase and distribution of the Shares, as to which such
counsel expresses no opinion) for the valid issuance and sale of the Shares to
the Underwriters as contemplated by the Underwriting Agreement;

(13) To such counsel's knowledge, (A) there are no legal or
governmental proceedings pending or threatened against the Company, or to which
the Company or any of its properties is subject, which are required to be
described in the Registration Statement or Prospectus (or any amendment or
supplement thereto) that are not so described and (B) there are no agreements,
contracts, indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus (or any amendment or
supplement thereto) or to be filed as an exhibit to the Registration Statement
that are not so described or filed, as the case may be;

(14) The statements set forth under the caption "Description of
Capital Stock" in the Prospectus, insofar as such statements purport to
summarize matters of law or legal conclusions, provide a fair summary of such
matters and conclusions in all material respects; and

(15) The Company is not and, after giving effect to the offering and
the sale of the Shares and the receipt of the proceeds therefrom, would not be,
an "investment company" as such term is defined in the Investment Company Act of
1940, as amended.

In addition, such counsel shall state that it has participated in
conferences with certain officers and other representatives of the Company, its
intellectual property counsel, its independent public accountants, the
Underwriters and the Underwriters' counsel at which the contents of the
Registration Statement, the Prospectus and related matters were discussed. Such
counsel may state that it is not, however, passing upon, and does not assume any
responsibility for, and that it has not independently checked or verified, the
accuracy, completeness or fairness of the information contained in the
Registration Statement and the Prospectus. In particular, such counsel may
state that it is not an expert on patent or US

B-3
<PAGE>

Postal Service regulatory issues and is not passing upon, and does not assume
any responsibility for, and has not independently checked or verified, the
accuracy, completeness or fairness of the information contained in the
Registration Statement and the Prospectus with respect to such issues.

Such counsel may state, however, that based upon its participation as
described in the preceding paragraph, (i) it is of the opinion that the
Registration Statement and the Prospectus (other than the combined financial
statements, including the notes and schedules thereto, and the other financial
data included in the Registration Statement and the Prospectus, as to which it
expresses no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the Act
and the applicable rules and regulations thereunder; (ii) such counsel confirms
that it has no reason to believe that the Registration Statement or the
Prospectus (other than the combined financial statements, including the notes
and schedules thereto, and the other financial data included in the Registration
Statement and the Prospectus, as to which it expresses no belief), at the time
the Registration Statement became effective, contained 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 therein not misleading; and (iii) such
counsel confirms that it has no reason to believe that the Prospectus (other
than the combined financial statements, including the notes and schedules
thereto, and the other financial data included in the Prospectus, as to which
such counsel expresses no belief), on the date hereof, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.

B-4
<PAGE>

Exhibit C

Matters to be Covered in the Opinion of
Patent Counsel for the Company

Such counsel are familiar with the technology relevant to the
intellectual property matters for which such counsel has been engaged, and have
read the Registration Statement and the Prospectus, including particularly the
portions of the Registration Statement and the Prospectus referring to patents,
trade secrets, trademarks, service marks or other proprietary information or
material and have examined such corporate records, certificates and other
documents, and such questions of law, as such counsel has considered necessary
or appropriate for the purposes of this opinion and:

The Company is listed in the records of the United States Patent and
Trademark Office under the name Stamps.com Inc. as the holder of record of the
patents listed on the attached Schedule 1 (the "Patents") and each of the patent
applications listed on that schedule (the "Applications"). Such counsel are not
presently aware of any claims of third parties to any ownership interest or lien
with respect to any of the Patents or Applications, and not disclosed in the
Registration Statement and Prospectus. Such counsel are not presently aware of
any material defect in form in the preparation or filing of the Applications on
behalf of the Company. To such counsel's knowledge, the Applications are
pending and in prosecution before the United States Patent and Trademark Office.
To such counsel's knowledge, the Company owns as its sole property the Patents
and pending Applications.

The Company is identified in the records of the appropriate foreign
offices as the sole owner of record of any foreign patents listed on Schedule 1
(the "Foreign Patents") and each of the applications listed on the attached
schedule (the "Foreign Applications"). Such counsel are not aware of any claims
of third parties to any ownership interest or lien with respect to the Foreign
Patents or Foreign Applications. Such counsel are not presently aware of any
material defect of form in the preparation or filing of the Foreign Applications
on behalf of the Company. To such counsel's knowledge, any Foreign Applications
are pending and in prosecution. To such counsel's knowledge, the Company owns
as its sole property the Foreign Patents and pending Foreign Applications.

Such counsel is not presently aware of any reason why the Patents or
Foreign Patents are unenforceable as issued due to inequitable conduct.

Such counsel has reviewed the statements in the Registration Statement
and the Prospectus under the captions "Risk Factors -- Success by Pitney Bowes
in its suit against us alleging patent infringement could prevent us from
offering our Internet Postage service and severely harm our business or cause it
to fail," "-- Third party violations of their

C-1
<PAGE>

intellectual property rights could adversely affect our business," and "-- A
failure to protect our own intellectual property could harm our competitive
position." Based on such counsel's review, such counsel believes that those
statements, as of the effective date of the Registration Statement, do not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein which is necessary to make the statements
therein not misleading. Also, nothing has come to such counsel's attention that
has caused it to believe that such statements in the Prospectus, as of the date
and time of delivery of this letter, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

Such counsel are not presently aware of any material action, suit or
proceeding relating to patents, patent rights or licenses, trademarks or
trademark rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary techniques,
including processes and substances, owned by or affecting the business or
operations of the Company which are pending or threatened against the Company or
any of its officers or directors and not disclosed in the Registration Statement
and Prospectus.

C-2
<PAGE>

Exhibit D

Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:

(i) They are independent certified public accountants with respect to
the Company within the meaning of the Act and the applicable published
rules and regulations thereunder;

(ii) In their opinion, the financial statements and any supplementary
financial information and schedules included in the Prospectus or the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American Institute
of Certified Public Accountants of the unaudited interim financial
statements, selected financial data and pro forma financial information of
the Company for the periods specified in such letter;

(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
pro forma condensed combined statements of operations, balance sheet
included in the Prospectus as indicated, and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited pro forma condensed combined financial statements referred to in
paragraph (v)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that cause them to
believe that the unaudited pro forma condensed combined financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;

(iv) The unaudited selected financial information with respect to the
results of operations and financial position of the Company for the most
recent fiscal period included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
financial statements for such fiscal period;

D-1
<PAGE>

(v) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company, inspection of the minute books of the Company
since the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:

(A) (i) the unaudited statements of operations, balance sheet and
statements of cash flows included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations, or (ii) any material modifications should be made to
the unaudited statements of operations, balance sheet and statements
of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;

(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited pro forma condensed combined financial
statements from which such data and items were derived, and any such
unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited financial statements included in the
Prospectus;

(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited financial
statements referred to in clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus
and referred to in clause (B) were not determined on a basis
substantially consistent with the basis for the audited consolidated
financial statements included in the Prospectus;

(D) any unaudited pro forma condensed combined financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements of
the Act and the published rules and regulations thereunder or the
pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;

D-2
<PAGE>

(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the capital
stock (other than issuances of capital stock upon exercise of
options) or any increase in the long-term debt of the Company, or
any decreases in net current assets or stockholders' equity, in
each case as compared with amounts shown in the latest balance
sheet included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and

(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in net revenues
or operating profit or increases in the total or per share amounts
of net loss, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and

(vi) In addition to the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(v) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company, which appear in the Prospectus,
or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain of
such amounts, percentages and financial information with the accounting
records of the Company and have found them to be in agreement.

D-3

<PAGE>

EXHIBIT 5.1

November 30, 1999

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

Re: Stamps.com Inc. Registration Statement on Form S-1
for 5,750,000 Shares of Common Stock

Ladies and Gentlemen:

We have acted as counsel to Stamps.com Inc., a Delaware corporation
(the "Company"), in connection with the proposed issuance and sale by the
Company of up to 5,750,000 shares of the Company's Common Stock (the "Shares")
pursuant to the Company's Registration Statement on Form S-1 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act").

This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1.

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 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 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 Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE>

Stamps.com Inc.
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 21.1

Subsidiaries of the Registrant

<TABLE>
<CAPTION>
Subsidiary State of Incorporation or Jurisdiction
- ---------- --------------------------------------

<S> <C>
Rocket Acquisition Corp. ................ Washington

Stamps.com U.K. Limited.................. United Kingdom

EncrypTix, Inc. ......................... Delaware
</TABLE>

<PAGE>

EXHIBIT 23.2

[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 29, 1999

<PAGE>

EXHIBIT 23.3

[Letterhead of Moss Adams LLP]

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement (Registration No. 333-90115), on Amendment No. 2 to
Form S-1 registering 5,750,000 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 30, 1999