E STAMP CORP, S-1, 2000-02-02

E STAMP CORP
S-1, 2000-02-02
BUSINESS SERVICES, NEC

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<PAGE>

As filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-

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

FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933

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

E-STAMP CORPORATION
(Exact name of Registrant as specified in its charter)

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

<TABLE>
<CAPTION>
Delaware 5961 76-0518568
<S> <C> <C>
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>

850 Saginaw Drive, 2nd Floor
Redwood City, California, 95061
(650) 474-5800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

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

ROBERT H. EWALD
President and Chief Executive Officer
850 Saginaw Drive, 2nd Floor
Redwood City, California 94061
(650) 474-5800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

Copies to:
DAVID J. SEGRE
MICHELLE L. WHIPKEY
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300

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

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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, 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,
check the following box. [_]

CALCULATION OF REGISTRATION FEE

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of to Be Price Per Offering Registration
Securities to Be Registered Registered Share(1) Price(2) Fee(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $0.001 par
value..................... 5,687,279 shares $8.00 $5,732,000 $1,514
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Highest price, excluding interest, to be payable per share in connection
with the rescission offer covered by this registration statement. The price
per share will range from $0.20 to $8.00, depending on the price originally
paid by the offeree.
(2) Aggregate purchase price, excluding interest, estimated to be payable if
the rescission offer covered by this registration statement is accepted in
full.
(3) Calculated pursuant to Rule 457(i) on the basis of the amount at which such
securities were sold.

----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall hereafter 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 such Section 8(a),
may determine.

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

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the Securities and Exchange Commission relating +
+to these securities has been declared effective by the Securities and +
+Exchange Commission. This prospectus is not an offer to sell these securities +
+or our solicitation of your offer to buy these securities in any jurisdiction +
+where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - FEBRUARY 2, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000

[LOGO OF E-STAMP]

RESCISSION OFFER
5,687,279 Shares of Common Stock

- --------------------------------------------------------------------------------
The Company:

. We provide an Internet postage service that enables users to purchase,
download and print postage directly from their personal computers.

. E-Stamp Corporation 2855 Campus Drive, Suite 100 San Mateo, California
94403(650) 554-8454

Symbol & Market:

. ESTM/Nasdaq National Market

. On February 1, 2000, the last reported sale price for our common stock on
The Nasdaq National Market was $17.6875 per share.

The Rescission Offer:

. We are offering to repurchase 5,687,279 shares of our common stock from
persons who purchased those shares upon exercise of options granted under
our 1996 Stock Option and Restricted Stock Plan and our 1999 Stock Plan.

. The repurchase price for the shares subject to our rescission offer ranges
from $0.20 to $8.00 per share, depending on the price paid by the offeree.
The aggregate purchase price, excluding interest, estimated to be payable
if the rescission offer is accepted in full is $5,732,000.

. Expiration Date: , 2000.

Our stock involves risk. See "Risk Factors" beginning on Page 12.

- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined
whether this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
- --------------------------------------------------------------------------------
<PAGE>

You should rely only on the information contained in this document. We have
not authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate as of the date of this
document.

"E-Stamp" and the E-Stamp logo are registered trademarks, and "e-stamp.com"
and "The Internet Postage Company" are trademarks of E-Stamp Corporation. All
other trademarks or service marks appearing in this prospectus are trademarks
or service marks of others.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
Questions and Answers About Our Rescission Offer......................... 1
Prospectus Summary....................................................... 2
The Rescission Offer..................................................... 5
Risk Factors............................................................. 12
Price Range of Our Common Stock.......................................... 21
Dividend Policy.......................................................... 21
Corporate Information.................................................... 21
Forward-Looking Statements............................................... 21
Capitalization........................................................... 22
Selected Financial Data.................................................. 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
</TABLE>

<TABLE>
<CAPTION>
Page
<S> <C>
Business................................................................... 31
Management................................................................. 47
Related Party Transactions................................................. 58
Principal Stockholders..................................................... 61
Description of Capital Stock............................................... 64
Option Rescission Offer.................................................... 67
Shares Eligible for Future Sale............................................ 68
Legal Matters.............................................................. 70
Experts.................................................................... 70
Additional Information..................................................... 70
Index to Financial Statements.............................................. F-1
</TABLE>
<PAGE>

QUESTIONS AND ANSWERS ABOUT OUR RESCISSION OFFER

Q: Why are you making the rescission offer?

A: The issuance of shares covered by this rescission offer in connection with
the exercise of options granted under our 1996 Stock Option and Restricted
Stock Plan and our 1999 Stock Plan did not comply with the Securities Act of
1933, as amended, because those stock issuances were not registered under
federal securities law and did not qualify for an exemption from
registration. Under federal and state securities laws, the purchasers of
those shares are entitled to rescind their purchases.

Q: What will I receive if I accept the rescission offer?

A: If you accept our rescission offer, we will repurchase the shares you hold
that are subject to the rescission offer at the price per share you paid to
us plus interest from the date of purchase.

Q: When does the rescission offer expire?

A: Our rescission offer expires on , 2000, 30 days after the effective
date of this prospectus.

Q: What do I need to do now to accept the rescission offer?

A. You should complete, sign and date the accompanying election form and return
it to us, together with your stock certificates for the shares you want us
to repurchase, in the enclosed return envelope prior to the expiration date.

Q. What happens if I don't return my election form?

A. If you do not return your election form before the expiration date of our
rescission offer, you will be deemed to have rejected our offer.

Q. Can I change my mind after I have mailed my signed election form?

A. Yes. You can change your decision about accepting or rejecting our
rescission offer at any time before the expiration date. You can do this by
completing and submitting a new election form.

Q: Who can help answer my questions?

A: You can call Elizabeth Moore of E-Stamp at (650) 474-5800 with any questions
about the rescission offer.

1
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before accepting or rejecting our rescission offer. You should
read the entire prospectus carefully.

E-Stamp Corporation
Our Business

We provide an Internet postage service that enables users to purchase,
download and print postage directly from their personal computers. The postage
can be printed directly onto envelopes, labels or documents using standard
laser or inkjet printers, 24 hours a day, seven days a week, without the need
to remain connected to the Internet. Customers can buy the software and
hardware components needed to use our Internet postage service through our
online store at www.e-stamp.com, over the telephone, through catalogs or at
office supply stores and computer superstores. Our Internet postage service is
based upon our E-Stamp software, our secure postage hardware device that
enables the storage on the user's desktop of up to a maximum of $500 of postage
as currently allowed under U.S. Postal Service regulations, and a U.S. Postal
Service address verification CD-ROM. Our Internet postage software and hardware
currently sells for a suggested retail price of $49.99. We may from time to
time offer our software and hardware at a discounted price or free of charge in
connection with promotional arrangements with third parties. We charge a 10%
convenience fee when Internet postage is purchased, with a minimum fee of $4.99
and a maximum fee of $24.99 per purchase. We may from time to time modify the
pricing of our services in connection with promotional arrangements with third
parties, including the use of a maximum monthly charge for convenience fees. We
also offer for sale through our online store postage related consumables and
peripherals including an Internet postage scale, labels, window envelopes and a
label printer manufactured by third parties with whom we have established
relationships.

We received approval from the U.S. Postal Service on August 9, 1999 for our
Internet postage service, and since that date have been providing our service
nationally. Our commercial roll-out is currently limited to 100,000 customers.
The U.S. Postal Service will evaluate our service when we obtain approximately
100,000 customers. Although the U.S. Postal Service has not informed us whether
it will continue to impose limitations on the number of our customers following
this evaluation, we will continue to be subject to U.S. Postal Service
regulations. As a result, the U.S. Postal Service could continue to require
periodic reviews before authorizing greater numbers of customers. Our Internet
postage service is targeted at small business, small office and home office
users, most of whom usually connect to the Internet on modems at speeds of 28.8
or 33.6 kilobytes per second and share lines with telephones or fax machines.
Our Internet postage software is tightly integrated with popular business
computer programs including Microsoft Word and Outlook and Intuit QuickBooks
2000. Our integration with Microsoft Word and Outlook allows users to print our
Internet postage without leaving Microsoft Word and to access addresses in
Outlook without leaving the E-Stamp application. Our integration with Intuit
QuickBooks 2000 allows users to sign up for our service and access our Internet
postage application without leaving the Intuit QuickBooks application. We
believe our Internet postage service will enhance customer satisfaction during
the mail and postage process by improving overall access, convenience and
flexibility for small business, small office and home office users, and will
increase operating efficiencies and decrease postal fraud for the U.S. Postal
Service by including a unique digital signature on each digital stamp.

We have focused on forming marketing and distribution relationships with
industry leaders in order to quickly build our brand awareness with small
business, small office and home office users and to accelerate the adoption of
our Internet postage service. Our marketing and distribution relationships
include the following:

. Microsoft, which is also one of our equity investors, has selected us as
a nonexclusive online postage provider for its Microsoft Office Update
Web site and has agreed to promote our Internet postage service on the
Microsoft Network;

2
<PAGE>

. Yahoo! has chosen us to be its exclusive Internet postage merchant within
the Yahoo! Postal Center;

. Excite@Home, which is also one of our equity investors, has entered into
a binding letter of intent to establish us as a nonexclusive Internet
postage provider on its @Work Web site;

. America Online has agreed to include us as a nonexclusive tenant in its
new Postage Services Center; and

. eBay has agreed to exclusively promote our service on its Web site.

In addition, we have developed marketing or distribution relationships with
Compaq, Francotyp-Postalia, Avery Dennison, Sunbeam Corp.'s Pelouze Scale Co.
division, Tension Envelope, EarthLink, Intuit and Dymo-Costar. A number of
these third parties are still in the process of establishing the marketing,
promotional and distribution activities for our service called for under our
agreements with them. Failure to achieve these efforts in a timely and
successful manner would limit their usefulness in promoting adoption of our
service. We expect to enter into additional marketing and distribution
relationships as our business grows and we expand our portfolio of products and
services.

We Are At An Early Stage of Commercialization, Have A Large Accumulated Deficit
And Expect To Incur Continuing Losses

We have a very limited operating history and only began offering our
Internet postage service on a commercial basis on August 9, 1999. Through
September 30, 1999, we had generated revenues of $358,000 and had an
accumulated deficit of $54.2 million. We have incurred increasing losses and
had an operating loss for the nine month period ended September 30, 1999 of
$27.9 million. We expect to continue to incur net losses for the foreseeable
future and may never achieve profitable operations. The market for Internet
postage has not yet developed and we cannot assure you that it will develop or
that, if it develops, customers will use our service.

Our Market Opportunity

In an effort to enhance customer satisfaction, provide convenient postal
services, leverage users' existing investments in computer hardware and
software and improve access to the small business, small office and home office
market, the U.S. Postal Service developed the Information Based Indicia
Program. This program is designed to authorize third party vendors to sell
products or services that enable users to print postage, also referred to as
digital stamps, from a personal computer using ordinary laser or inkjet
printers. This new form of postage provides an opportunity to access the U.S.
postage market, which represented $60 billion in 1998. Of this amount,
$38 billion was represented by postage stamps and postage meters, which are
primarily used for first class, priority and express mail, which is the target
market for Internet postage. Keenan Vision, an independent research firm,
estimates that the market for first class, priority and express mail will grow
to $46 billion by the year 2002.

The emergence of Internet postage has created an attractive channel for the
sale of postage to small business, small office and home office users currently
underserved by existing products and services. According to International Data
Corporation, there were 44.6 million small business, small office and home
office users in the U.S. in 1998, which is expected to grow to 57.6 million by
2002. In terms of postage usage, small business, small office and home office
users generally conduct an essential part of their communications with
suppliers and customers through the postal system. Nevertheless, few small
business, small office and home office users use postage meters to automate the
mailing process. In addition, small business, small office and home office
users are increasingly adopting the Internet to improve their business
processes.

3
<PAGE>

Our Growth Strategy

Our objective is to be the leading provider of Internet postage services.
Key elements of our growth strategy include:

. Entering into marketing and distribution relationships with industry
leaders to quickly acquire customers, build brand recognition and
accelerate adoption of our Internet postage service.

. Initially focusing on the large and growing small business, small office
and home office market.

. Building and promoting our brand through a variety of marketing and
promotional techniques and including our logo and Web site address on
each digital stamp.

. Leveraging our technology platform and expertise to develop a family of
Internet postage services including a server-based service and an
intranet based service to address other market segments.

. Pursuing multiple and recurring revenue streams by capitalizing on our
expertise in secure payment processing and the printing of authenticated
documents to offer other products and services that could be purchased
online and printed from the desktop, such as tickets and gift
certificates.

. Pursuing international Internet postage opportunities.

4
<PAGE>

The Rescission Offer

<TABLE>
<C> <S>
Common stock subject to
rescission offer................ 5,687,279 shares
Common stock outstanding ........ 39,103,475 shares

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

Unless otherwise indicated, this prospectus reflects the conversion of our
outstanding preferred stock into common stock which occurred upon our initial
public offering and reflects our October 1999 stock dividend of one share of
common stock on each four shares of our outstanding common stock. In addition,
all share numbers in this prospectus assume that no stockholder receiving the
rescission offer exercises its right to rescind.

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

The number of shares of common stock outstanding is based on shares
outstanding as of December 31, 1999. This number excludes:

. 1,801,994 shares of common stock reserved for future issuance under our
stock option, director stock option and employee stock purchase plans;

. 2,261,182 shares of common stock subject to outstanding options; and

. 48,497 shares of common stock issuable upon the exercise of outstanding
warrants.

5
<PAGE>

Summary Financial Information
(In thousands, except per share data)

The following table summarizes our financial data. The weighted average
shares used in calculating our pro forma net loss per share data includes the
automatic conversion of all outstanding shares of our convertible preferred
stock into shares of our common stock which occurred upon the closing of our
initial public offering.

<TABLE>
<CAPTION>
Nine Months
Ended September
Year Ended December 31, 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................. $ -- $ -- $ -- $ -- $ 358
Operating loss ............... (6,575) (7,821) (11,080) (7,422) (27,920)
Net loss...................... (6,339) (7,678) (10,710) (7,201) (27,573)
Accretion on redeemable
convertible
preferred stock ............. -- (196) (1,383) (747) (1,899)
Net loss attributable to
common stockholders.......... $(6,339) $(7,874) $(12,093) $(7,948) $(29,472)
Net loss per common share:
Basic and diluted........... $ (0.51) $ (0.61) $ (0.92) $ (0.58) $ (2.21)
Weighted average shares..... 12,543 12,966 13,075 13,647 13,336
Pro forma net loss per
share:.......................
Basic and diluted
(unaudited)................ $ (0.57) $ (0.39) $ (1.23)
Weighted average shares
(unaudited)................ 18,753 18,384 22,373
</TABLE>

The following table summarizes our balance sheet data. The pro forma data
reflects the automatic conversion of all outstanding shares of our redeemable
convertible preferred stock into shares of our common stock which occurred upon
the closing of our initial public offering and the sale of 8,050,000 shares of
common stock in our initial public offering at an initial public offering price
of $17.00 per share, after deducting the underwriting discount and estimated
offering expenses payable by us.

<TABLE>
<CAPTION>
As of
September 30,
1999
------------------
Pro
Actual Forma
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 22,546 $148,846
Working capital........................................... 21,892 148,192
Total assets.............................................. 29,433 155,733
Capital lease obligations, net of current portion......... -- --
Common stock subject to rescission........................ 2,801 2,801
Redeemable convertible preferred stock.................... 54,299 --
Total stockholders' equity (deficit)...................... (33,533) 147,066
</TABLE>

6
<PAGE>

OUR RESCISSION OFFER

Background

From August 26, 1996 through October 14, 1999:

. we issued 5,392,359 shares of our common stock upon the exercise of
options under our 1996 Stock Option and Restricted Stock Plan at
exercise prices ranging from $0.20 to $8.00 per share;

. we issued 107,420 shares of our common stock upon the exercise of
options under our 1999 Stock Plan at exercise prices of $6.88 per
share; and

. we granted 187,500 shares of our common stock as stock bonuses under
our 1999 Stock Plan.

These stock issuances were not exempt from registration or qualification
under federal and California state securities laws as discussed below. As a
result, we failed to comply with the registration requirements of federal and
California state securities laws because we did not register or qualify these
stock issuances under either federal or California state securities laws. We
used the proceeds from these sales for general corporate purposes.

Because of the frequency and number of sales, including the number of
persons who received offers and purchased shares, the federal private placement
exemption under the Securities Act of 1933 was not available for these stock
issuances. We were also unable to rely upon the federal exemption provided by
Rule 701 of the Securities Act of 1933 for these stock issuances because the
amount of securities sold exceeds the limits set forth in Rule 701. Generally,
the statute of limitations for noncompliance with the requirement to register
securities under the Securities Act of 1933 is one year. Accordingly, the
shares that were purchased pursuant to option exercises during the prior 12
months and before the effectiveness of our registration statement on Form S-8
filed on October 14, 1999 are subject to rescission under federal securities
laws.

Stock issuances under our 1996 Stock Option and Restricted Stock Plan and
our 1999 Stock Plan also failed to meet the qualification requirements of
California state securities laws. We were unable to rely on the exemption
provided by Section 25102(f) of the California Corporation Code because these
shares were issued to more than 35 persons in a 12 month period. We were unable
to rely on the exemption provided by Section 25102(o) of the California
Corporation Code because the required filing under that section was not made.
Generally, the statute of limitations for noncompliance with California blue
sky laws is three years. Accordingly, the shares that were purchased pursuant
to exercises during the prior 3 years of options granted before the
effectiveness of our registration statement on Form S-8 filed on October 14,
1999 are subject to rescission under California state securities laws.

Rescission Offer and Price

Because the stock issuances discussed above failed to comply with federal
and California state securities laws, we may have incurred a contingent
liability of approximately $5.7 million plus interest with respect to these
shares because persons who purchased such shares may have a claim against us
for the purchase price of those shares plus interest from the date of purchase.
Accordingly, we are offering to rescind the sales of the 5,687,279 shares
purchased under our 1996 Stock Option and Restricted Stock Plan and our 1999
Stock Plan prior to the effectiveness of our registration statement on Form S-8
filed on October 14, 1999. Our rescission offer is not a waiver by us of any
applicable statutes of limitations.

If you accept our rescission offer, we will repurchase the stock you hold
that is subject to the rescission offer at the price per share you paid to us
plus an amount equal to the interest thereon at the appropriate statutory rate
per annum from the date of purchase by you to , 2000, the expiration
date of the rescission offer. The legal rate of interest for the repurchase of
the shares subject to our rescission offer is 7 percent in California.

7
<PAGE>

While no assurance can be given as to the level at which the common stock
will trade in the future, on February 1, 2000, the last reported sale price of
our common stock on The Nasdaq National Market was $17.6875 per share. The
range of closing prices, as quoted on The Nasdaq National Market, from October
8, 1999 to February1, 2000 has been $17.00 to $39.25.

Acceptance

You may accept our rescission offer, either in whole or in part by:

. completing and signing the election form accompanying this prospectus, a
form of which is attached hereto as Exhibit A; and

. delivering the certificates representing the shares being repurchased to
us on or before the close of business on , 2000.

All acceptances of the rescission offer will be deemed to be effective on
the expiration date of the rescission offer. Unless you accept the rescission
offer before the expiration date, your right to accept the rescission offer
will terminate. You can revoke your acceptance or rejection of our rescission
offer prior to the expiration date. You can do this by completing and
submitting a new election form that is received by us prior to the expiration
date.

Payment for securities as to which the rescission offer has been accepted
will be made within five business days after the expiration date.

Other Terms and Conditions

We have not retained nor do we intend to retain any person to make
solicitations or recommendations to you in connection with our rescission
offer.

Unless extended by us, our rescission offer will expire at 5:00 p.m.,
Pacific standard time, , 2000, 30 days after the effective date of
this prospectus.

If an election fully completed and executed in pertinent part is not
received by the expiration date from those persons actually receiving notice of
the rescission offer through this prospectus, the rescission offer will be
deemed to have been rejected by such offerees.

Neither we nor our officers or directors may make any recommendations to you
with respect to our rescission offer. We urge you to read this prospectus
carefully and to make an independent evaluation with respect to the rescission
offer.

If you decide to accept our rescission offer and intend to use the mail to
return your stock certificates to us, we recommend that you use insured
registered mail, return receipt requested.

Effect of Rescission Offer

Our securities counsel, Wilson Sonsini Goodrich & Rosati, Professional
Corporation, has advised us that the rescission offer will have the following
effects. It is unclear whether the rescission offer will terminate our
liability, if any, for failure to register the issuance of the shares that are
subject to the rescission offer with the Securities and Exchange Commission
under the Securities Act of 1933. The staff of the Securities and Exchange
Commission takes the position that a person's federal right of rescission may
survive the rescission offer. Generally, the statute of limitation for non-
compliance with the requirement to register securities under the Securities Act
of 1933 is one year. The above discussion does not relate to the antifraud
provisions of applicable securities laws or rights under common law or equity.

8
<PAGE>

The shares subject to the rescission offer held by persons who choose not to
accept the rescission offer will, for purposes of applicable federal and state
securities law, be registered securities as of the expiration date of the
rescission offer and, unless held by persons who may be deemed to be
"affiliates" of us, will be freely tradable in the public market at such time
subject to the vesting rights under any stock restriction agreement with us and
any resale restrictions under lock-up agreements with the underwriters for our
initial public offering. Those shares held by our affiliates will be subject to
certain restrictions on resale provided in Rule 144 under the Securities Act of
1933.

Funding of the Rescission Offer

We will fund any payments required under our rescission offer from a portion
of the net proceeds of our recent initial public offering.

Material Federal Income Tax Considerations

The following discussion summarizes the material federal income tax
considerations relevant to E-Stamp stockholders who hold shares that are
subject to the rescission offer. We do not discuss all income tax
considerations that may be relevant to particular E-Stamp stockholders in light
of their individual circumstances, such as stockholders who are foreign
persons, stockholders who are not individuals, or stockholders subject to the
alternative minimum tax provisions of the Internal Revenue Code of 1986, as
amended. In addition, we do not address the tax consequences of the rescission
offer to persons holding shares that are subject to hedging, conversion, or
constructive sale transactions, or whose tax year is other than a calendar
year. Finally, we do not address any foreign, state or local tax
considerations. ACCORDINGLY, E-STAMP STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE RESCISSION OFFER,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO
THEM OF THE RESCISSION OFFER.

For United States federal income taxation purposes, the rescission offer is
intended to constitute a taxable redemption of shares for an amount of cash
equal to the amount paid for such shares, plus interest on the original
purchase price of such shares. However, the law applicable to the rescission
offer is unclear and we have not received an opinion of counsel or a ruling
from the Internal Revenue Service to that effect. Thus, the IRS is not
precluded from successfully asserting a contrary position or otherwise
recharacterizing the transaction in whole or in part. For example, the IRS may
characterize our rescission offer as the return of the original purchase price,
which would be nontaxable, plus the payment of interest which would be taxable
as ordinary income.

Assuming that our treatment of the rescission offer as a taxable redemption
is correct, the amount and character of gain or loss recognized by an E-Stamp
stockholder who accepts the rescission offer will depend upon whether the
shares held by such stockholder were acquired pursuant to the exercise of an
incentive stock option, the exercise of a nonstatutory stock option, or a
restricted stock plan.

Incentive Stock Option. There are no tax consequences to an E-Stamp employee
when an incentive stock option is either granted or exercised. The taxable
event for the compensatory benefit received from an incentive stock option will
arise upon the sale of the stock which was received upon the exercise of the
incentive stock option. The gain from such sale is treated as capital gain
unless the sale occurs within either two years after the grant of the incentive
stock option or within one year after the exercise of the incentive stock
option, referred to as the holding period. An E-Stamp stockholder who accepts
the rescission offer prior to the expiration of the holding period must include
any income attributable to the sale in the tax year which includes the
expiration date of the rescission offer. No amount is treated as income for any
other tax year other than the tax year in which the sale occurs. Of the gain
realized on the rescission offer, the E-Stamp stockholder must include as
ordinary income the lesser of (1) the fair market value of the option stock on
the date of exercise, minus the option price, or (2) the amount realized on the
disposition of the stock, minus the option price. Presumably, any

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gain in excess of this amount can be treated as capital gain. If a sale
pursuant to the rescission offer would trigger an allowable loss, then the
amount includible in income cannot exceed the excess, if any, of the amount
realized on the sale, minus the E-Stamp stockholder's adjusted basis in the
stock.

If an E-Stamp stockholder sells shares acquired upon the exercise of an
incentive stock option after the expiration of the holding period, the
redemption rules of Section 302 of the Internal Revenue Code should apply to
determine whether such stockholder recognizes capital gain, capital loss, or
dividend income. Under Section 302 of the Internal Revenue Code, a redemption
of shares will be treated as a sale or exchange, and the character of any gain
or loss will be treated as a capital gain or loss, if:

. It results in a "complete redemption" of the stockholder's interest in E-
Stamp under Section 302(b)(3) of the Internal Revenue Code, which would
occur if either (1) all of the shares actually and constructively owned
by such stockholder are sold pursuant to the rescission offer or (2) all
of the shares actually owned by a stockholder are sold pursuant to the
rescission offer and the stockholder is eligible to waive and effectively
waives constructive ownership of shares under procedures described in
Section 302(c) of the Internal Revenue Code; or

. It is "substantially disproportionate" with respect to the stockholder
under Section 302(b)(2) of the Internal Revenue Code, which would occur
if (1) the percentage of our voting stock owned by the stockholder
immediately after the repurchase, taking into account all shares
purchased by us pursuant to the rescission offer, equals less than 80
percent of the percentage of our voting stock owned by such stockholder
immediately before the repurchase and (2) such stockholder after the
repurchase owns less than 50 percent of the total combined voting power
of all classes of our stock entitled to vote; or

. It is not "essentially equivalent to a dividend" with respect to the
stockholder under Section 302(b)(1) of the Internal Revenue Code which
would occur if, in light of the stockholder's individual circumstances,
including his relative interest in E-Stamp, his sale of shares pursuant
to the rescission offer results in a "meaningful reduction" of his
interest in E-Stamp, after giving effect to, and thus treating as not
outstanding, shares sold by all stockholders pursuant to the rescission
offer. This test may be satisfied irrespective of the stockholder's
failure to satisfy the complete redemption and substantially
disproportionate tests.

In determining whether any of the redemption tests are satisfied, a
shareholder must take into account not only shares that are actually owned but
also shares that are constructively owned within the meaning of Section 318 of
the Internal Revenue Code. Under Section 318 of the Internal Revenue Code, a
stockholder may constructively own shares actually owned, and in some cases
constructively owned, by certain related individuals and shares that he has the
right to acquire by the exercise of an option, warrant, or a conversion right.
Contemporaneous or related transactions in stock or stock rights of E-Stamp
also may affect the redemption tests.

The redemption tests are applied on a stockholder-by-stockholder basis. If a
repurchase does not satisfy any of the redemption tests, we will treat the
payment of the proceeds from the sale as a dividend distribution. Because the
redemption tests are applied independently to each stockholder, it is possible
that some persons accepting the rescission offer will be subject to dividend
treatment and others will receive capital gain treatment. Because the
application of the redemption tests is applied on a stockholder-by-stockholder
basis, we urge you to consult your own advisors in connection with the possible
U.S. federal income tax treatment that may apply to your particular case.

If the acceptance of the rescission offer fails to qualify as a redemption,
then the gross proceeds of such transaction will be characterized as a dividend
distribution taxable at ordinary income tax rates to the extent of our
accumulated and current earnings and profits, on a pro rata basis with other
stockholders whose sales fail to so qualify; any excess will be treated as a
return of capital and then as a gain from a sale or exchange.

A stockholder who receives proceeds that are taxed as a dividend generally
should be able to transfer the unrecovered tax basis in the shares sold to any
retained, and possible constructive, stock interest in E-Stamp.

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Any gain, other than dividend income, or loss recognized in a sale generally
should be capital gain or loss to a holder who holds his shares as capital
assets.

Nonstatutory Stock Option and Restricted Stock. If an E-Stamp stockholder
acquires E-stamp shares pursuant to the exercise of a nonstatutory stock
option, or if such shares are granted to such stockholder outright, and where
in either situation (i) Section 83 of the Internal Revenue Code, relating to
restricted property applies to the acquisition of such shares, and (ii) such
shares are not, or are no longer, subject to any restrictions, other than
restrictions which will never lapse, or the stockholder has made a valid
election under Section 83(b) of the Code to include the value of such shares in
gross income for the year of transfer, then the redemption rules of Section 302
of the Internal Revenue Code discussed above should apply to determine whether
such stockholder recognizes capital gain, capital loss, or dividend income if
he accepts the rescission offer. Under Section 83 of the Internal Revenue Code,
if stock is transferred to an E-Stamp stockholder without forfeiture or
transferability restrictions or a Section 83(b) election is made, the
compensation element of the transaction is closed and the E-Stamp stockholder
is viewed as an investor in the stock for tax purposes from that point in time.
Accordingly, Section 302 of the Internal Revenue Code should apply if such E-
Stamp stockholder accepts the rescission offer.

Alternatively, stock subject to the rescission offer may still be subject to
restrictions recognized by Section 83 of the Internal Revenue Code.
Notwithstanding these restrictions, an E-Stamp stockholder may be able to
accept the rescission offer. Although the issue is not free from doubt, in this
situation the amount received pursuant to the rescission offer should be
treated as compensation, i.e., ordinary, income.

THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES INCOME TAX CONSEQUENCES OF THE RESCISSION OFFER AND DOES NOT PURPORT TO
BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT
THERETO. THUS, E-STAMP STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE RESCISSION OFFER, INCLUDING
TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FOREIGN,
FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY
PROPOSED CHANGES IN THE TAX LAWS.

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RISK FACTORS

You should carefully consider the risks described below before deciding to
accept or reject our rescission offer.

We have a limited operating history with a history of losses, only began
offering our Internet postage service on a commercial basis in August 1999,
expect to incur losses in the future, and may never achieve profitability.

We have a very limited operating history. You should consider our prospects
in light of the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. We cannot be certain that we
will achieve profitability or, if achieved, that we will be able to sustain or
increase profitability on a quarterly or annual basis. As of September 30,
1999, we had generated only nominal revenues of $358,000 and had an accumulated
deficit of $54.2 million. We have incurred increasing losses and had an
operating loss for the nine month period ended September 30, 1999 of $27.9
million. We have not achieved profitability and expect to continue to incur net
losses for the foreseeable future. We expect to incur increasing sales and
marketing, research and development and administrative expenses. As a result,
we will need to generate significant revenues to achieve and maintain
profitability.

The success of our business will depend upon acceptance by customers of our
Internet postage service.

We expect that our Internet postage service will generate a substantial
portion, if not all, of our near-term future revenues. As a result, we depend
on the commercial acceptance of our Internet postage service. If we fail to
successfully gain commercial acceptance of our Internet postage service, we
will be unable to generate significant revenues. The market for Internet
postage has not developed, and we cannot assure you that it will develop. We
cannot predict the extent to which users will be willing to use the Internet to
purchase postage rather than using traditional methods. To the extent users
choose to purchase postage over the Internet, we cannot be certain that these
customers will use our service.

Intellectual property infringement claims, including claims asserted by Pitney
Bowes against us, could prevent or hinder our ability to sell Internet postage.

We face the risk that other parties' intellectual property positions will
impair successful development of the Internet postage market or our ability to
effectively participate in it. Pitney Bowes filed a patent infringement lawsuit
against us in U.S. District Court in June 1999. The suit alleges infringement
of seven patents owned by Pitney Bowes related to postage application systems
and seeks treble damages, a preliminary and permanent injunction, attorneys'
fees and other unspecified damages. On July 30, 1999, we filed our answer to
Pitney Bowes' complaint. Pendency of the litigation can be expected to result
in significant expenses to us and the diversion of management time and other
resources, the extent of which cannot be quantified with any reasonable
accuracy given the early stage of this litigation. If Pitney Bowes is
successful in its claims against us, then we may be hindered or even prevented
from competing in the Internet postage market and our operations would be
severely harmed. The Pitney Bowes suit could result in limitations on how we
implement our services, delays and costs associated with redesigning our
services and payments of license fees and other monies. An injunction obtained
by Pitney Bowes could eliminate our ability to market critical products or
services.

Pitney Bowes may be unwilling to discuss licensing or cross-licensing
arrangements with us, which could adversely impact our ability to compete in
the market for Internet postage products and services.

Although we and Pitney Bowes, prior to filing of the current litigation, had
been in discussions regarding cross-licensing a number of our patents and
Pitney Bowes' patents, some of which are identified in Pitney Bowes' complaint,
we cannot predict whether these discussions will recommence in the future or
the impact of Pitney Bowes' intellectual property claims on our business or the
Internet postage market. Since commencement of the litigation, we have not had
discussions with Pitney Bowes regarding licensing or cross-licensing
arrangements nor do we have information concerning Pitney Bowes' present
willingness to engage in discussions.

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If the U.S. Postal Service discontinues Internet postage as an approved postage
method because of counterfeiting or other issues or revokes approval of our
Internet postage service, our business will fail.

We continue to be subject to U.S. Postal Service scrutiny and other
government regulations. The U.S. Postal Service could discontinue Internet
postage as an approved postage method because of counterfeiting of Internet
postage, security or other issues, in which case our business would fail.
Further, if we are unable to successfully complete subsequent evaluations by
the U.S. Postal Service, to adapt our Internet postage service to any new
requirements or specifications or to provide adequate security, the U.S. Postal
Service could revoke its approval of our Internet postage service, in which
case our business would fail.

The commercial roll-out of our Internet postage service is currently limited to
100,000 customers and the U.S. Postal Service could continue to require
periodic reviews before authorizing greater numbers of customers.

Under the Information Based Indicia Program, the commercial roll-out of our
Internet postage service is currently limited to 100,000 customers. The U.S.
Postal Service will evaluate our service when we obtain approximately 100,000
customers. If we do not successfully complete this evaluation, the U.S. Postal
Service could delay or even prevent use of our Internet postage service by more
than 100,000 customers. The U.S. Postal Service could continue to require
additional periodic reviews before authorizing greater numbers of customers.
Any such delay in our ability to expand our customer base would result in loss
of revenue and could harm our ability to build our brand and obtain market
acceptance of our Internet postage service.

We cannot be certain that we will be able to continue to satisfy existing, new
or changed U.S. Postal Service regulations in the future, and if we are not
able to do so our ability to distribute our Internet postage service would be
adversely affected.

If we encounter difficulties with continuing compliance with U.S. Postal
Service regulations, our ability to distribute or extend the distribution of
our Internet postage service could be adversely affected. U.S. Postal Service
regulations may require that our personnel with access to postal information or
resources obtain security clearances. These regulations may cause delays or
disruptions in our business if our personnel cannot receive necessary security
clearances in a timely manner, or at all, and may limit our ability to hire
necessary personnel. Any other change in the current or future regulatory
environment could have an adverse impact on our business and could harm our
operating results and profitability.

Our Internet postage hardware device may interfere with the operation of some
printers, which may decrease adoption of our Internet postage service and which
has in the past resulted in, and may in the future result in, product returns.

Our secure Internet postage device in some cases interferes with the
operation of multifunction printers, which combine printing, faxing, copying
and scanning functions and bi-directional printers and is generally unable to
print postage on these types of printers. We believe a significant number of
our product returns to date may have been prompted by this incompatibility. If
we are unable to successfully modify our secure Internet postage device or
software to solve these issues, it will severely harm our ability to market our
Internet postage service to users of multifunctional and bi-directional
printers.

If we cannot successfully manage the commercial availability of our Internet
postage service, our ability to attract and retain customers will be harmed.

Our reputation and our ability to attract, retain and provide services to
our customers depend upon the reliable performance of our Web site, network
infrastructure and transaction-processing systems. If we are unable at any time
to provide our customers with our Internet postage service in a satisfactory
manner, our customers may become dissatisfied and could cease using our
Internet postage service. We have very limited experience conducting marketing
campaigns, and we may fail to generate significant interest in our Internet

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postage service. On the other hand, if we generate extensive interest in our
service, we cannot assure you that we will be able to effectively manage
commercial availability of our Internet postage service due to the strains this
demand will place on our Web site, network infrastructure and our transaction-
processing systems.

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

We have established marketing and distribution relationships with a limited
number of third parties. We rely heavily upon these relationships to build our
E-Stamp brand and to accelerate the adoption of our Internet postage service.
We have limited experience in establishing and maintaining these relationships.
If we are unable to successfully maintain our existing relationships or to
establish new relationships, our Internet postage service may not achieve
commercial acceptance. In addition, a number of these third parties are still
in the process of establishing the marketing, promotional and distribution
activities for our service called for under our agreements with them. We cannot
assure you that these efforts will be achieved in a timely and successful
manner and this would limit their usefulness in promoting adoption of our
service.

If we do not achieve broad brand recognition, our ability to attract customers
will suffer dramatically.

We must quickly build our E-Stamp brand to gain market acceptance for our
service. If we fail to gain market acceptance for our Internet postage service,
our ability to attract customers will suffer dramatically. We believe it is
imperative to our long term success that we obtain significant acceptance of
our service. We cannot be certain that we will have sufficient resources to
build our brand and achieve commercial acceptance of our service. To establish
our brand awareness, we must invest substantial resources to develop our
products, pursue marketing and distribution relationships, implement marketing
initiatives, and provide a high quality experience to our users.

Subsequent Internet postage services, if successfully developed by us, will
require additional U.S. Postal Service approvals that may delay their
commercial introduction.

We have not begun the U.S. Postal Service approval process for future
services we have under development, including our server-based service. Our
current Internet postage service took approximately 18 months to complete the
beta test portion of the U.S. Postal Service's approval process. We cannot
assure you of the duration of the approval process for our server-based or any
subsequent service, or that these services will ever be approved by the U.S.
Postal Service. Further, we cannot assure you that we will be able to
successfully develop our future services in a timely manner or at all. Failure
to timely receive U.S. Postal Service approval for our server-based service or
subsequent services could limit our ability to successfully grow our business.

We have experienced significant growth in our expenses and operations in recent
periods, and any failure to manage this growth could damage our ability to
obtain market acceptance for our Internet postage service.

Our ability to successfully offer our Internet postage service and implement
our business plan requires an effective planning and management process. We
have increased, and plan to continue to increase, the scope of our operations
and have experienced, and expect to continue to experience, significant growth
in our expenses and operations. If we are unable to manage growth effectively
or experience disruptions during our expansion, our ability to market and
extend distribution of our Internet postage service and our ability to develop
future services will be seriously harmed. To manage the expected growth of
operations and personnel, we will need to improve existing and implement new
transaction-processing, operational and financial systems, procedures and
controls. In addition, we will need to expand, train and manage an increasing
employee base and to expand our finance, administrative and operations staff.
Our current expansion has placed, and we expect our future expansion to
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.

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If the sole supplier of our Internet postage hardware device is unable to
timely meet our commercial supply needs, our ability to expand our customer
base will be severely limited and we will lose revenue.

Dallas Semiconductor Corporation is the single source of supply for our
secure Internet postage device. We do not have a guaranteed supply arrangement
with Dallas Semiconductor, and we order such devices on a purchase order basis.
Any difficulties encountered by our sole supplier that result in product
defects, production delays, cost overruns, or the inability to fulfill orders
on a timely basis would hurt our reputation and result in loss of revenue. If
we cannot obtain an adequate supply of our Internet postage device, we will be
unable to timely deliver our Internet postage device to customers and, without
the device, customers would be unable to purchase postage using our Internet
postage service. Neither we nor our supplier maintain an extensive inventory of
our Internet postage device. We cannot assure you that our supplier will timely
meet our commercial supply needs or that alternative suppliers will be
available in the future. We have not qualified any alternative sources for the
supply of our secure Internet postage device.

System failures could harm our reputation, result in loss of revenue and
substantially and adversely affect our ability to attract or retain customers.

Our business and reputation with customers depend upon the efficient and
uninterrupted operation of our Web site, processing systems and network
infrastructure, including critical portions of this infrastructure that are
hosted by third parties, for registration of new customers and processing of
Internet postage transactions. In addition, our service depends upon continuous
operation of the U.S. Postal Service's secure postage accounting vault for our
customers to purchase postage. We have experienced system failure for short
periods of up to four hours during initial commercial launch of our service and
we may suffer additional interruptions in our service. Problems or system
failures at either our location or third party locations could result in
interruptions in our service. Unscheduled downtime of our service may result in
loss of revenue and if these system failures persist, our business, reputation
and brand could be severely harmed. We cannot assure you that we will be able
to timely expand our systems infrastructure to support growth in traffic from
our customers.

Our systems and those hosted by third parties are vulnerable to damage or
interruption which could harm our reputation and result in a loss of revenue.

Our systems and those hosted by third parties are vulnerable to damage or
interruption as a result of fire, flood, power loss, telecommunications
failure, software errors or bugs, hardware failures or computer viruses,
computer hacking and other acts of misconduct, earthquakes and similar events.
Our postage processing systems are located in Northern California, a
seismically active region. We do not have fully redundant systems, a formal
disaster recovery plan or alternative providers of hosting services, and we do
not carry sufficient business interruption insurance to compensate us for
losses that may occur. Despite any precautions we may take, problems or system
failures at our third party hosted facilities could result in interruptions in
our service which could injure our reputation and cause us to lose revenue.

The inability to expand our system's capacity may limit our growth.

Our inability to add additional software and hardware or to upgrade our
technology, transaction processing systems or network infrastructure to timely
accommodate increased Web site traffic or transaction volume could have adverse
consequences. These consequences include unanticipated system disruptions,
slower response times, degradation in levels of customer support and impaired
quality of the user's experience on our service and delays in reporting
accurate financial information. We may be unable to effectively upgrade and
expand our systems in a timely manner or to integrate smoothly any newly
developed or purchased technologies with our existing systems. These
difficulties could harm or limit our ability to expand our business.

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If we are unable to provide new features or functionality to our technology,
transaction processing systems or network infrastructure, our growth may be
limited.

Our failure to provide new features or functionality to our technology,
transaction processing systems or network infrastructure could adversely affect
demand for our Internet postage service, which would harm or limit our ability
to expand our business.

We rely heavily upon third parties to market and distribute our Internet
postage service to customers.

We rely upon third parties to market and distribute our Internet postage
service. We cannot assure you that we will be able to develop and maintain
satisfactory relationships with such parties on acceptable commercial terms, if
at all, or that we will be able to obtain adequate distribution channels for
our service. Our marketing and distribution relationships with third parties,
which include providing links to our website and distributing our product
through bundling arrangements, may not generate significant traffic on our
website or otherwise generate significant interest in our service. We cannot
assure you that office supply, computer or other retailers will carry our
product or devote sufficient marketing, shelf space or other resources to it.
If we are unable to provide an adequate distribution channel for our Internet
postage service, customers will have difficulty purchasing our product through
retail channels which would severely harm our ability to grow our business. We
depend upon the U.S. Postal Service and other delivery services for the
delivery of our secure postage device. Strikes or other service interruptions
affecting delivery services used by us would have a material adverse effect on
our ability to deliver our Internet postage service to our customers.

The Internet postage market is highly competitive and we may be unable to
compete successfully against new entrants and established industry competitors
with significantly greater financial resources.

The market for Internet postage products and services is new, rapidly
evolving and intensely competitive. We expect that our primary competitors will
include traditional providers of postage products and services, including
Pitney Bowes and Neopost, that have longer operating histories, larger customer
bases, greater brand recognition, greater financial, marketing, service,
support, technical, intellectual property and other resources than us. We will
also compete with providers of traditional postage products and delivery
services, such as the U.S. Postal Service, Federal Express and United Parcel
Service. In addition to providers of traditional postage products and services,
we compete with three other Information Based Indicia Program vendors, Neopost,
Pitney Bowes and Stamps.com, who have all initiated the certification process
with the U.S. Postal Service. Only one of these, Stamps.com, has been approved
for commercial release by the U.S. Postal Service to date. Many of 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 recognition.

A breach of our online security would harm our reputation and could interrupt
service to our customers.

A fundamental requirement to conduct electronic commerce is the secure
transmission of information over public networks. We rely on encryption and
authentication technology to provide the security necessary for transmission of
postage and other confidential information. Any breach of these security
measures would severely impact our reputation and would likely result in the
loss of customers. Advances in computer capabilities, new discoveries in the
field of cryptography, or other events or developments may result in a
compromise or breach of the algorithms we use to protect customer transaction
data. Security breaches could also expose us to a risk of loss or litigation
and possible liability for failing to secure confidential customer information.
Accordingly, 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.

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If we are unable to successfully protect our intellectual property, our
competitive position will be harmed.

We rely on a combination of patent, trademark, service mark, copyright and
trade secret laws, contractual restrictions on disclosure and transferring
title and other methods in an effort to establish and protect proprietary
rights in our services, know-how and information. If our patents or other
intellectual property fail to protect our technology, our competitive position
could be harmed. In addition, third parties may develop alternative
technologies or products that do not infringe on any of our patents or other
intellectual property. Steps taken to protect our intellectual property may not
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.

Continued adoption of the Internet as a method of conducting business is
necessary for our future growth.

The failure of the Internet to continue to develop as a medium for the
purchase of goods and services would adversely affect the willingness or
ability of users to use the Internet to purchase postage. Concerns over the
security of transactions conducted on the Internet and the privacy of consumers
may also inhibit the growth of the Internet and other online services
generally, and online commerce in particular. A decline in the growth of the
Internet could decrease demand for our services and increase our cost of doing
business. We cannot assure you that the Internet will continue to be widely
accepted and adopted for purchasing goods and services.

Failure to expand Internet infrastructure could limit our future growth.

The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet's infrastructure may not be able to support these demands and its
performance and reliability may decline. If outages or delays on the Internet
occur frequently or increase in frequency, overall Web usage, including usage
of our Web site to purchase Internet postage, could grow more slowly or
decline. Our ability to increase the speed and scope of our services to users
is ultimately limited by and dependent upon the speed and reliability of the
Internet.

Our quarterly results are subject to significant fluctuations, and our stock
price may decline if we do not meet expectations.

Since August 1999, we have generated only nominal revenues from our
operations. Accordingly, we have little 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. Factors affecting our
quarterly results include:

. the costs of our marketing programs to establish the E-Stamp brand name
and generate market demand for our Internet postage service;

. timing of the commercial release of additional Internet postage services
developed by us, which depends in part on the timing of U.S. Postal
Service approval for any such services;

. the number, timing and significance of new products or services
introduced by our competitors, which are outside our control;

. the level of service and price competition;

. changes in our operating expenses as we expand operations; and

. general economic factors, which are outside our control.

Timing of commercial release of new products or services by us and our
competitors and general economic factors will also affect our long-term
financial results. Substantially all of our operating expenses are related to
personnel costs, marketing programs and overhead, which cannot be adjusted
quickly and are

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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 could be harmed because of increased costs and expenses in the short
term. 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 public
expectations. In this event, the market price of our common stock is likely to
fall.

We depend on key personnel and attracting qualified employees for our future
success.

Our success depends to a significant degree upon the continued contributions
of our executive management team and other senior level financial, technical,
marketing and sales personnel. Our key employees consist of Robert H. Ewald,
our President and Chief Executive Officer, Nicole Eagan, our Senior Vice
President, Marketing and Sales, and Anthony H. Lewis, Jr., our Vice President
and Chief Financial Officer. The loss of the services of any of these key
employees or other members of our senior management team could have a material
adverse effect on our business and results of operations. We anticipate that
the number of our employees may increase significantly during the current year
as we increase our research and development activities and sales and marketing
efforts. Our success depends upon our ability to attract and retain additional
highly qualified senior management and technical, sales and marketing personnel
to support planned growth of our operations. Competition for qualified
employees is intense, particularly in the Internet and high technology
industries. The process of locating and hiring personnel with the combination
of skills and attributes required to carry out our strategy is time-consuming
and costly. The loss of key personnel or our inability to attract additional
qualified personnel to supplement or, if necessary, to replace existing
personnel, could have a material adverse effect on our business and results of
operations.

Rapid technological change may make our Internet postage service obsolete or
cause us to incur substantial costs to adapt to these changes.

The use of the Internet for the purchase and sale of goods and services is
characterized by rapidly changing technology, evolving industry standards and
frequent new product announcements. To be successful, we must adapt to these
rapid changes by continually improving the performance, features and
reliability of our products and services, and to develop new products and
services, or else our products and services may become noncompetitive or
obsolete. We also could incur substantial costs to modify our service or
infrastructure and to develop new products and services, in order to adapt to
these changes. Our business, operating results and financial condition could be
harmed if we incur significant costs without adequate results, or find
ourselves unable to adapt rapidly to these changes.

We may be unable to effectively manage any future acquisitions of new or
complementary businesses, products or technology.

We may pursue the acquisition of new or complementary businesses, including
individual products or technologies, in an effort to enter into new markets,
diversify our sources of revenue and expand our services. At present, we have
no commitments or agreements and are not currently engaged in discussions for
any material acquisitions or investments. To the extent we pursue new or
complementary businesses, we may not be able to expand our services 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. 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. We
also cannot be certain that we will generate satisfactory revenues from any
expanded services 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 harm our business, financial
condition and operating results.

18
<PAGE>

Internet postage cannot currently be used internationally which may limit our
future growth.

At present, Internet postage approved by the U.S. Postal Service can only be
used to send mail from one United States address to another. Unless and until
foreign postal authorities create a certification process and recognize
information-based indicia postage, our Internet postage service will not be
able to address foreign markets which may limit our future growth. Efforts in
Europe and other foreign markets related to adoption of Internet postage are at
a very preliminary stage. We cannot assure you that foreign postal authorities
will adopt policies and processes for Internet postage that are compatible with
those approved by the U.S. Postal Service on a timely basis or at all.

If we market our services internationally, regulation by international agencies
could disrupt our operations.

If foreign postal authorities in the future accept postage generated by our
services and if we obtain the necessary foreign certification or approvals, we
would be subject to ongoing regulation by international governments and
agencies. If we achieve significant international acceptance of our services,
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 some 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 may need additional capital and failure to obtain such capital could harm
our ability to market our Internet postage service and to develop future
services.

We require substantial working capital to fund our business. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all. Since our inception, we have experienced negative
cash flow from operations and expect to experience significant negative cash
flow from operations in the future. We currently anticipate that our available
funds, which include the net proceeds of our recent public offering, will be
sufficient to meet our anticipated needs for working capital and capital
expenditures through at least the next 12 months. The estimate of the time
period during which these proceeds will be sufficient is a forward-looking
statement that is subject to risks and uncertainties. Our actual funding
requirements may differ materially from this as a result of the number of
factors, including our plans to fully support the commercial release and
support of our Internet postage service, our development and introduction of
new services and our investments in expanding our systems infrastructure and
staffing. We may need to raise additional funds prior to the end of the next 12
months or at a later date.

Our payment obligations under our marketing and distribution agreements could
increase.

Our aggregate payment obligations under our existing agreements with America
Online, Yahoo!, Microsoft, Earthlink, Excite@Home, Intuit and eBay total
approximately $20.5 million during the year 2000, $12.4 million during the year
2001 and $5 million during the year 2002. We have also agreed to pay Compaq
royalties. We could be required to make additional payments under our
agreements with these parties if advertising exceeds established levels of page
views or generates and exceeds established levels of new customers.

Regulatory and legal uncertainties could inhibit development of the Internet as
a marketplace for electronic commerce services.

A number of laws and regulations may be adopted with respect to the Internet
relating to user privacy, pricing, content, copyrights, distribution, and
characteristics and quality of products and services that could adversely
affect adoption of the Internet for electronic commerce services, which would
harm our ability to attract and retain customers. Moreover, the applicability
of existing laws to the Internet is uncertain with regard

19
<PAGE>

to many issues such as property ownership, export of encryption technology,
sales tax, libel and personal privacy. 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 adversely affect demand for our Internet postage service and
could increase our cost of doing business.

U.S. Postal Service regulations require a user of our Internet postage service
to print both the destination address and the digital stamp, which will
discourage use of our Internet postage service to print digital stamps for use
with pre-printed return envelopes.

U.S. Postal Service regulations require a user of our Internet postage
service to print both the destination address and the digital stamp. We have
found that many users will not take the time to type in destination addresses
to print a digital stamp for use with pre-printed payment envelopes. In
addition, the digital stamp is too large to fit on many return envelopes. As a
result, users will generally not use our service to print digital stamps for
return envelopes. In addition, our Internet postage service cannot be used to
print digital stamps for handwritten envelopes.

Our Internet postage will not print unless the U.S. Postal Service address
verification CD-ROM is loaded in the drive of the user's personal computer and
verifies the destination address.

The U.S. Postal Service requires that each digital stamp be encoded with the
destination address, which must be verified by the U.S. Postal Service's
address verification CD-ROM before the digital stamp is printed. Destination
addresses in the U.S. Postal Service database are subject to change as persons
or businesses establish a new address or for other reasons. As a result, we
will be required to periodically mail to users of our service updated address
verification CD-ROMs. Until an updated CD-ROM is received, a user will be
unable to print a digital stamp for a new address that was not included in the
U.S. Postal Service database at the time the existing CD-ROM was manufactured.

Internet related stock prices are especially volatile and this volatility could
cause our stock price to fluctuate dramatically which could result in
substantial losses to investors.

The stock market and specifically the stock of Internet related companies
have been very volatile. This broad market volatility and industry volatility
may reduce the price of our common stock, because our business is Internet-
based without regard to our operating performance. Due to this volatility, the
market price of our common stock could eventually experience a significant
decline.

20
<PAGE>

PRICE RANGE OF OUR COMMON STOCK

Our common stock has been traded on the Nasdaq National Market under the
symbol "ESTM" since our initial public offering on October 8, 1999. The
following table sets forth, for the periods indicated, the high and low sale
prices for our common stock as reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Fiscal Year Ended December 31, 1999:
Fourth Quarter............................................ $ 39.25 $18.00
Fiscal Year Ending December 31, 2000:
First Quarter through February 1, 2000.................... $23.063 $17.00
</TABLE>

On February 1, 2000, the last reported sales price for our common stock on
the Nasdaq National Market was $17.6875 per share.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.

CORPORATE INFORMATION

We were incorporated in Delaware in August 1996. Prior to that time, we
conducted operations as Post N Mail, L.L.C., a Texas limited liability company
formed in April 1994. Post N Mail was merged into E-Stamp in September 1996.
Our principal executive offices are located at 850 Saginaw Drive, 2nd Floor,
Redwood City, California 94061and our telephone number is (650) 474-5800. Our
Web site is located at http://www.e-stamp.com. Information contained on our Web
site does not constitute part of this prospectus.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding
the growth of Internet usage, business-to-business, business-to-consumer
electronic commerce, postage usage, small office-home offices and related
service markets and spending. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described in "Risk Factors" and elsewhere in
this prospectus.

21
<PAGE>

CAPITALIZATION

The following table sets forth the following information:

. our actual capitalization as of September 30, 1999, which reflects our
October 1999 stock dividend of one share of common stock on each four
shares of our outstanding common stock;

. our pro forma capitalization after giving effect to the automatic
conversion of all outstanding shares of redeemable convertible preferred
stock into shares of common stock on a 1.25-for-1 basis which occurred
upon the closing of our initial public offering, and the sale of
8,050,000 shares of common stock at an initial public offering price of
$17.00 per share in our initial public offering, after deducting the
underwriting discount and estimated offering expenses payable by us.

<TABLE>
<CAPTION>
As of September
30, 1999
-------------------
Actual Pro Forma
(In thousands,
except par value data)
<S> <C> <C>
Capital lease, net of current portion................ $ $
Common stock subject to rescission, $0.001 par value
per share, 2,844 issued and outstanding, actual and
pro forma .......................................... 2,801 2,801
Preferred stock; $0.001 par value, issuable in
series, 12,000 authorized shares actual and pro
forma; 10,000 authorized pro forma as adjusted:
Series A redeemable convertible preferred stock;
2,500 authorized shares, issued and outstanding,
actual; no shares issued or outstanding, pro
forma............................................. 7,084 --
Series B redeemable convertible preferred stock;
4,188 shares authorized, issued and outstanding,
actual; no shares authorized, issued or
outstanding,
pro forma......................................... 17,561 --
Series C redeemable convertible preferred stock
authorized, 2,929 issued and outstanding, pro
forma............................................. 29,654 --
Stockholders' equity (deficit):
Common stock, par value $0.001; 100,000 shares
authorized, 26,019 shares issued and outstanding,
actual; 200,000 shares authorized, 32,519 shares
issued and outstanding, pro forma ................ 14 24
Additional paid-in capital......................... 42,129 221,582
Notes receivable from employees and officers....... (3,570) (3,570)
Deferred stock compensation........................ (19,175) (19,175)
Deferred offering cost............................. (1,136) --
Deferred marketing cost............................ (3,800) (3,800)
Deficit accumulated during development stage....... (47,995) (47,995)
-------- --------
Total stockholders' equity (deficit)............. (33,533) 147,066
-------- --------
Total capitalization................................. $ $
======== ========
</TABLE>

This table excludes the following shares:

. 2,025,215 shares of common stock reserved for future issuance under our
stock option plans as of September 30, 1999; and

. 1,697,884 shares of common stock subject to outstanding options as of
September 30, 1999 with an average exercise price of $2.9177 per share
of which options as to 166,329 shares had been exercised subsequent to
September 30, 1999.

22
<PAGE>

SELECTED FINANCIAL DATA
(In thousands, except per share data)

The statement of operations data for the years ended December 31, 1996, 1997
and 1998, and the balance sheet data as of December 31, 1997 and 1998 are
derived from our financial statements, which have been audited by Ernst & Young
LLP, independent auditors and are included elsewhere in this prospectus. The
statement of operations data for the period since inception (April 26, 1994)
through December 31, 1994 and for the year ended December 31, 1995 and the
balance sheet data as of December 31, 1994, 1995 and 1996 are derived from
audited financial statements not included in this prospectus. The financial
data as of and for the nine months ended September 30, 1998 and 1999 are
derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared this unaudited information on the same basis as
the audited financial statements and have included all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results for such periods.
When you read this selected financial data, it is important that you also read
the historical financial statements and related notes included in this
prospectus, as well as the section of this prospectus related to "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Historical results are not necessarily indicative of future results.

<TABLE>
<CAPTION>
Period from Nine Months
Inception Ended September
(April 26, 1994) Year Ended December 31, 30,
through Dec. 31, ----------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ -- $ -- $ -- $ -- $ -- $ -- $ 358
Operating expenses:
Research and
development.......... 378 701 2,387 3,916 5,603 3,910 8,295
Sales and marketing... 34 96 1,761 1,743 2,722 1,808 7,240
General and
administrative....... 160 532 1,739 1,748 1,897 1,380 5,093
Amortization of
deferred stock
compensation......... -- -- 688 414 858 324 6,918
------ ------- ------- ------- -------- ------- --------
Operating loss.......... (572) (1,329) (6,575) (7,821) (11,080) (7,422) (27,920)
Interest income
(expense), net......... -- (17) 236 143 370 221 347
------ ------- ------- ------- -------- ------- --------
Net loss................ (572) (1,346) (6,339) (7,678) (10,710) (7,201) (27,573)
Accretion on redeemable
convertible preferred
stock.................. -- -- -- (196) (1,383) (747) (1,899)
------ ------- ------- ------- -------- ------- --------
Net loss attributable to
common stockholders.... $(572) $(1,346) $(6,339) $(7,874) $(12,093) $(7,948) $(29,472)
====== ======= ======= ======= ======== ======= ========
Net loss per common
share (basic and
diluted)............... $(0.05) $ (0.11) $ (0.51) $ (0.61) $ (0.92) $ (0.58) $ (2.21)
====== ======= ======= ======= ======== ======= ========
Pro forma net loss per
share basic and
diluted(1)............. $ (0.57) $ (0.39) $ (1.23)
======== ======= ========
Weighted average shares
outstanding (basic and
diluted)............... 11,175 11,933 12,543 12,966 13,075 13,763 16,119
Shares used in
calculation of pro
forma net loss per
share basic and
diluted(1)............. 18,753 18,384 22,373
</TABLE>

<TABLE>
<CAPTION>
As of December 31,
----------------------------------- As of
1994 1995 1996 1997 1998 September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 19 $ 190 $3,910 $4,111 $10,217 $ 22,546
Working capital
(deficit).............. (426) 386 3,394 2,398 8,805 21,892
Total assets............ 93 1,428 4,873 4,763 10,811 29,433
Capital lease, net of
current portion........ -- -- 88 38 11 --
Common stock subject to
rescission............. -- -- 31 252 971 2,801
Redeemable convertible
preferred stock........ -- -- -- 6,126 23,469 54,299
Total stockholders'
equity (deficit)....... (352) 646 4,070 (3,390) (15,196) (33,533)
</TABLE>
- --------------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing pro forma
net loss per share.

23
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in forward-looking statements for many reasons, including the risks
described in "Risk Factors" and elsewhere in this prospectus. You should read
the following discussion with the "Selected Financial Data" and our financial
statements and related notes included elsewhere in this prospectus.

Overview

We provide an Internet postage service that enables users to conveniently
purchase, download and print Internet postage directly from their personal
computers without the need to maintain a persistent Internet connection. We
pioneered the development of Internet postage, including being one of the first
companies to approach the U.S. Postal Service with the idea of printing postage
from a personal computer. We have incurred net losses in each quarterly and
annual period since our inception, and as of September 30, 1999, we had
accumulated aggregate losses of $54.2 million. The quarter ended September 30,
1999 was the first quarter in which we generated revenue. From November 1994 to
March 1998, we incurred operating costs primarily related to the development of
our Internet postage service in accordance with U.S. Postal Service guidelines
and specified criteria. In March 1998, after extensive development and
interaction with the U.S. Postal Service, we began the three-phase beta test
certification process required by the U.S. Postal Service to qualify Internet
postage vendors for commercial distribution of Internet postage under the U.S.
Postal Service's Information Based Indicia Program. On August 9, 1999, we
received final approval from the U.S. Postal Service for our Internet postage.
On that date, we were the first company to commercially launch a national
Internet postage service. As of September 30, 1999, we had delivered our
Internet postage service to over 13,000 customers to enable them to purchase
our Internet postage. In addition to working with the U.S. Postal Service to
obtain approval of our Internet postage service, our primary activities since
inception have included:

. developing our business model;

. developing and testing our Internet postage service;

. hiring management and other key personnel;

. building our infrastructure; and

. entering into marketing and distribution relationships.

The revenue and income potential of our business and market is unproven, and
our limited operating history makes it difficult to evaluate our prospects. We
expect to continue to incur net losses for the foreseeable future and may never
achieve profitable operations. We recognize revenue from an initial software
license fee for our Internet postage service, ongoing convenience fees for the
purchase of postage over the Internet, and the sale of ancillary postage
supplies. Our costs of revenues include the costs of manuals, packaging, the
postage device, credit card and electronic funds transfer fees, the address
management system, support costs, as well as fulfillment costs, and direct
costs from the sale of postage supplies.

During the nine months ended September 30, 1999, in connection with the
grant of stock options to employees, we recorded deferred stock compensation
totaling $23.0 million, representing the difference between the deemed fair
value of our common stock on the date such options were granted and the
exercise price. Such amount is included as a reduction of stockholders' equity
and is being amortized over the vesting period of the individual options,
generally four years, using the graded vesting method. The graded vesting
method provides for vesting of portions of the overall award at different dates
and results in higher vesting in earlier years than straight- line vesting. We
recorded amortization of deferred stock compensation in the amount of $6.9
million for the nine months ended September 30, 1999. At September 30, 1999, we
had a total of $19.2 million remaining to be amortized over the corresponding
vesting periods of the stock options. We

24
<PAGE>

have recorded deferred compensation totaling $7.9 million for options and
shares granted during the three months ended September 30, 1999. Such amounts
related to option grants will be amortized in accordance with the Company's
accounting policy over the remaining vesting period of the grants through mid-
2003. Approximately $1.8 million related to stock grants was recorded as an
expense in the three months ended September 30, 1999.

In connection with the issuance of common stock and warrants, the Company
and the investors signed non-binding letters of intent to negotiate for a
period of up to one year to enter into definitive joint venture, joint
marketing, cooperation, or technology development agreements. The Company
recorded the $3.8 million excess of the fair value of the common stock and
warrants over the consideration received as a deferred marketing costs contra
equity account. The balance is being amortized to expense over the one year
period covered by the letter of intent. If it becomes probable that efforts to
reach definitive agreements will cease prior to the end of the one year
negotiation period, the unamortized balance will be fully expensed at that
time.

Results of Operations

Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998

Revenue. The Company generates revenue from software license fees and
postage convenience fees. In addition, the Company anticipates that it will
generate revenue from the sale of postage supplies. Software license fees are
amounts paid by end-users and resellers for a perpetual license to the
Company's software. Postage convenience fees are amounts paid by end-users for
the delivery of postage by the Company to the end-user. The Company anticipates
that it will operate an Internet-based postal store where end-users may
purchase various postal supplies.

The three months ended September 30, 1999 was the first quarter in which the
Company generated revenue. Revenue for the quarter ended September 30, 1999
totaled $358,000. There was no revenue for the three months ended September 30,
1998. Revenue was generated from software license fees and postage convenience
fees.

Cost of Sales. Cost of sales includes costs related to product shipments,
including materials, labor and other direct or allocated costs involved in
their manufacture or delivery. It also includes cost of customer support
services. Cost of sales for the three months ended September 30, 1999 totaled
$732,000. There were no costs of sales for the three months ended September 30,
1998. Gross profit margin for the three months ended September 30, 1999 was
(104.5)%. The gross profit margin was negative as a result of the initial ramp
up volume. The gross profit margin should improve in the future quarters as our
volume increases.

Research and Development. Research and development expenses include expenses
for research, design and development of our Internet postage service, expenses
related to obtaining patents from the U.S. Patent Office, and server and
network operations. Research and development expenses increased 111% to $3.1
million for the three months ended September 30, 1999 from $1.5 million for the
three months ended September 30, 1998. Of the $1.6 million increase in research
and development expenses in 1999, $1.0 million of this amount reflected
increases in research and development employee headcount, and consulting and
contractor expenses. We expect the dollar amount of research and development
expenses to increase in future periods to support further development of our
Internet postage service and our server-based service and expenses related to
the development of other products and services.

25
<PAGE>

and promotional expenses, and tradeshow expenses. Sales and marketing expenses
increased 630% to $4.8 million for the three months ended September 30, 1999
from $0.7 million for the three months ended September 30, 1998. Of the $4.1
million increase in sales and marketing expenses in 1999, $3.4 million of this
amount reflected costs associated with continued development of our marketing
campaigns related to the August 9, 1999 launch of our Internet postage service.
The increase also reflected increases in our sales and marketing personnel. We
expect the dollar amount of our sales and marketing expenses to increase in
dollar amount as we further promote and support the launch our Internet postage
service and as we hire additional personnel, continue to promote our brand and
add new marketing and distribution relationships.

General and Administrative. General and administrative expenses consist
primarily of compensation for administrative and executive staff, fees for
professional services, depreciation expense and general office expenses.
General and administrative expenses increased 648% to $3.7 million for the
three months ended September 30, 1999 from $0.5 million for the three months
ended September 30, 1998. $1.9 million of the $3.2 million increase in general
and administrative expenses in 1999 related to a one-time non-cash stock grant.
An additional $790,000 of the increase related to legal expenses. The balance
reflected increases in administrative staff and other professional services. We
expect general and administrative expenses to increase in dollar amount due to
further additions in staffing and as we incur additional costs necessary to
prepare and manage the infrastructure for business expansion, for legal
services and costs associated with being a public reporting company.

Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $3.5 million for the three months ended September 30, 1999,
compared to $0.3 million for the three months ended September 30, 1998. We
recorded aggregate deferred stock compensation of $26.6 million in the period
from July 1, 1998 through September 30, 1999 for options awarded to employees
with exercise prices below the deemed fair value for financial reporting
purposes of our common stock on their respective grant dates.

Interest Income, Net. Interest income, net, consists primarily of earnings
on our cash and cash equivalents, net of interest expenses attributable to
equipment leases and any taxes. Interest income, net, decreased 3% to $173,000
for the three months ended September 30, 1999 from $179,000 for the three
months ended September 30, 1998. The decrease in interest income, net, was due
to increasing interest expenses for a bridge loan that we obtained in July 1999
and which we repaid in August 1999. We expect interest income, net, to increase
as a result of increased cash balances resulting from our recent public
offering.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998

Revenue. Revenue for the nine months ended September 30, 1999 totaled
$358,000. No revenue was recognized for the nine months ended September 30,
1998. Revenue was generated from software license fees and postage convenience
fees.

Cost of Sales. Cost of sales for the nine months ended September 30, 1999
totaled $732,000. There were no costs of sales for the nine months ended
September 30, 1998. Gross profit margin for the nine months ended September 30,
1999 was (104.5)%. The gross profit margin was negative as a result of the
initial ramp up volume. The gross profit margin should improve in the future
quarters as our volume increases.

Research and Development. Research and development expenses include expenses
for research, design and development of our Internet postage service, expenses
related to obtaining patents from the U.S. Patent Office, and server and
network operations. Research and development expenses increased 112% to $8.3
million for the nine months ended September 30, 1999 from $3.9 million for the
nine months ended September 30, 1998. Of the $4.4 million increase in research
and development expenses in 1999, $3.6 million of this amount reflected
increases in research and development employee headcount, and consulting and
contractor expenses. The balance of the increase reflected costs of project
materials for further development of our Internet postage

26
<PAGE>

service, server-based service, operations network investments and costs of
product shipped to customers during the beta test portion of the U.S. Postal
Service approval process. We expect the dollar amount of research and
development expenses to increase in future periods to support further
development of our Internet postage service and our server-based service and
expenses related to the development of other products and services.

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and related benefits for sales and marketing personnel, strategic
partner marketing, Web site development, package design, advertising and
promotional expenses, and tradeshow expenses. Sales and marketing expenses
increased 300% to $7.2 million for the nine months ended September 30, 1999
from $1.8 million for the nine months ended September 30, 1998. Of the $5.4
million increase in sales and marketing expenses in 1999, $4.2 million of this
amount reflected costs associated with continued development of our marketing
campaigns related to the August 9, 1999 launch of our Internet postage service.
The increase also reflected increases in our sales and marketing personnel. We
expect sales and marketing expenses to increase in dollar amount as we further
promote and support the launch our Internet postage service and as we hire
additional personnel, continue to promote our brand and add new marketing and
distribution relationships.

General and Administrative. General and administrative expenses consist
primarily of compensation for administrative and executive staff, fees for
professional services, depreciation expense and general office expenses.
General and administrative expenses increased 269% to $5.1 million for the nine
months ended September 30, 1999 from $1.4 million for the nine months ended
September 30, 1998. $1.9 million of the $3.7 million increase in general and
administrative expenses in 1999 related to a one-time non-cash stock grant. An
additional $813,000 of the increase related to legal expenses. The balance
reflected increases in administrative staff and other professional services. We
expect general and administrative expenses to increase in dollar amount due to
further additions in staffing and as we incur additional costs necessary to
prepare and manage the infrastructure for business expansion, for legal
services and costs associated with being a public reporting company.

Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $6.9 million for the nine months ended September 30, 1999,
compared to $324,000 for the nine months ended September 30, 1998. We recorded
aggregate deferred stock compensation of $26.6 million in the period from July
1, 1998 through September 30, 1999 for options awarded to employees with
exercise prices below the deemed fair value for financial reporting purposes of
our common stock on their respective grant dates.

Interest Income, Net. Interest income, net, consists primarily of earnings
on our cash and cash equivalents, net of interest expenses attributable to
equipment leases and any taxes. Interest income, net, increased 57% to $347,000
for the nine months ended September 30, 1999 from $221,000 for the nine months
ended September 30, 1998. The increase in interest income, net, was due to
increasing average cash and cash equivalent balances as we received funds from
our financing activities. We expect interest income, net, to increase following
our recent public offering as a result of increased cash balances resulting
from such offering.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private
sales of equity securities. We have received approximately $73.9 million in
private funding, including $35.2 million through our most recent financings in
August and September 1999. In addition, we have a $1.25 million line of credit
with a bank, all of which is available for use by us except for a $143,000
letter of credit to secure our office lease as of September 30, 1999. This line
of credit bears interest at a rate of prime plus 0.25%. On October 8, 1999 we
completed a public offering which generated $126 million in net proceeds.

Net cash used in operating activities totaled $19.2 million for the nine
months ended September 30, 1999 and $6.7 million for the nine months ended
September 30, 1998. Cash used in operating activities for each period resulted
primarily from net operating losses in those periods.

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<PAGE>

Net cash provided by (used in) investing activities totaled $(1.5) for the
nine months ended September 30, 1999 and $(0.2) million for the nine months
ended September 30, 1998. Cash provided by (used in) investing activities for
each period resulted primarily from the acquisition of capital assets,
primarily computer and office equipment.

Net cash provided by financing activities totaled $33.1 million for the nine
months ended September 30, 1999 and $16.0 million for the nine months ended
September 30, 1998. Cash provided by financing activities for each period
resulted primarily from issuances of common stock and redeemable convertible
preferred stock.

We believe that our current cash balances and cash flows from operations, if
any, together with the net proceeds from our recent public offering will be
sufficient to meet our present growth strategies and related working capital
and capital expenditure requirements for at least the next 12 months. Our
current plan contemplates significant increases in spending when compared to
our historical expenditures. We currently intend to use a portion of the
proceeds from our recent public offering to satisfy our payment obligations
under our rescission offer, if any are required. We do not expect our payment
obligations under our rescission offer to have a material effect on the period
of time through which our financial resources will be adequate to support
operations. Our forecast of the period of time through which our financial
resources will be adequate to support operations is a forward-looking statement
that involves risks and uncertainties. Our actual funding requirements may
differ materially from this as a result of a number of factors including our
plans to fully support the commercial release of our desktop Internet postage
service, our introduction of new services and our investments in systems
infrastructure and staffing. We may require substantial working capital to fund
our business and we may need to raise additional capital prior to this time or
thereafter. We cannot be certain that additional funds will be available on
satisfactory terms when needed, if at all. If we are unable to raise additional
necessary capital in the future, we may be required to curtail our operations
significantly. Raising additional equity capital would have a dilutive effect
on existing stockholders.

We believe that our exposure to market risk related to changes in interest
rates, equity prices and foreign currency exchange rates is not material. At
September 30, 1999, we did not hold any short or long-term investments.

Year 2000 Compliance

Background. Many currently installed computer systems, software products and
other control devices are unable to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many companies'
computer systems, software products and control devices may need to be upgraded
or replaced in order to operate properly in the year 2000 and beyond.

Assessment and Implementation. The U.S. Postal Service requires participants
in the Information Based Indicia Program to maintain Year 2000 compliant
systems and software. As a result, we developed a comprehensive plan to make
our internal computer software and hardware systems Year 2000 compliant. Our
Year 2000 compliance plan was comprised of 3 phases: an assessment phase; an
implementation phase; and a testing phase. This plan, initiated in the first
quarter of fiscal 1999, was successfully implemented in December 1999. To date,
we have incurred expenses associated with making the required systems changes
in an aggregate amount equal to approximately $250,000. We do not expect any
additional expenses that we may incur as a result of our Year 2000 compliance
efforts to be material to our business, financial condition, or results of
operation.

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 services, as well as monitoring and back-up
capabilities. Based upon our assessment, we believe that our systems are Year
2000 compliant. During January 2000, we did not experience any systems failures
or material system or software problems as a result of Year 2000 compliance
matters.

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<PAGE>

We use and depend on third-party equipment and software that may not be Year
2000 compliant. Consequently, our ability to address Year 2000 issues was, to a
large extent, dependent upon the Year 2000 readiness of these third parties'
hardware and software products. We assessed the Year 2000 readiness of other
third-party supplied software, computer technology and other services. We
obtained information from our vendors and suppliers of third-party equipment
and software to validate that their products and systems were Year 2000
compliant. All of our significant vendors and suppliers of third party
equipment and software provided us with written compliance statements or
published information regarding their Year 2000 readiness except for one vendor
who responded orally. Approximately 90% of our significant vendors and third
party suppliers indicated that they were Year 2000 compliant, and the remaining
10% indicated that they were in the process of remediating Year 2000 issues and
expected to be Year 2000 compliant before the end of 1999.

The Year 2000 readiness of the Internet infrastructure necessary to support
our operations was difficult to assess. For instance, we depend upon 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 services used
by our customers. 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 was limited and relied solely on
generally available news reports, surveys and comparable industry data. Based
on these sources, we believe most individuals that rely significantly on the
Internet carefully reviewed and attempted to remediate issues relating to Year
2000 compliance.

Contingency Planning. We developed contingency plans to be implemented as
part of our efforts to identify and correct Year 2000 problems affecting our
internal systems. We completed these contingency plans in December 1999.
Depending on the systems affected, these plans included:

. accelerated replacement of effected equipment or software;

. increased work hours for our personnel or use of contract personnel to
correct on an accelerated schedule any Year 2000 problems which might have
arisen;

. the provision of manual workarounds for information systems; and

. other similar approaches.

To date, we have not been required to implement any of these contingency plans.

Recent Accounting Pronouncements

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting for Comprehensive Income." Statement
of Financial Accounting Standards No. 130 requires disclosures of components of
non-stockholder changes in equity in interim periods and additional disclosures
of components of non-stockholder changes in equity on an annual basis. Adoption
of Statement of Financial Accounting Standards No. 130 had no impact on the
Company's results of operations or financial position.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted Statement of Financial Accounting No.
131 effective January 1, 1998. The adoption of this standard did not have a
material effect on the Company's financial statement disclosures as the Company
operates in a single segment.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Company is required to adopt Statement of
Financial Accounting Standards No. 133 for the year ending December 31, 2000.
Statement of Financial Accounting Standards No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities.

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<PAGE>

Because the Company currently holds no derivative financial instruments and
does not currently engage in hedging activities, adoption of Statement of
Financial Accounting Standards No. 133 is expected to have no material impact
on the Company's financial condition or results of operations.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." Statement of Position 98-1 is
effective for financial statements for years beginning after December 15, 1998.
Statement of Position 98-1 provides guidance over accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. We adopted the
provisions of Statement of Position 98-1 on January 1, 1999. The adoption of
Statement of Position 98-1 has not had a material impact on our financial
position or results of operations.

Quantitative and Qualitative Disclosures About Market Risk

Our interest income and expense are sensitive to changes in the general
level of interest rates. In this regard, changes in interest rates affect the
interest on our cash equivalents earned as well as the interest incurred on our
indebtedness. Based on our cash equivalents balance and level of indebtedness
at September 30, 1999, our exposure to interest rate risk is not material.

30
<PAGE>

BUSINESS

Overview

We provide an Internet postage service that enables users to purchase,
download and print postage directly from their personal computers. The postage
can be printed directly onto envelopes, labels or documents using standard
laser or inkjet printers, 24 hours a day, seven days a week, without the need
to remain connected to the Internet. Customers can buy the software and
hardware components needed to use our Internet postage service through our
online store at www.e-stamp.com, over the telephone, through catalogs or at
office supply stores and computer superstores. Our Internet postage service is
based upon our E-Stamp software, our secure postage hardware device that
enables the storage on the user's desktop of up to a maximum of $500 of postage
as currently allowed under U.S. Postal Service regulations, and a U.S. Postal
Service address verification CD-ROM. Our Internet postage software and hardware
currently sells for a suggested retail price of $49.99. We may from time to
time offer our software and hardware at a discounted price or free of charge in
connection with promotional arrangements with third parties. We charge a 10%
convenience fee when Internet postage is purchased, with a minimum fee of $4.99
and a maximum fee of $24.99 per purchase. We may from time to time modify the
pricing of our services in connection with promotional arrangements with third
parties, including the use of a maximum monthly charge for convenience fees. We
also plan to offer for sale later this year postage related consumables and
peripherals including an Internet postage scale, labels, windows envelopes and
a label printer manufactured by third parties with whom we have established
relationships.

. increased sales of our Internet postage product as a result of increased
traffic on our website;

. acquisition of customers through bundling arrangements and promotional
offers to promote the use and adoption of our service; and

. markups on our sales of postage related consumables and peripherals
manufactured by third parties.

We believe our Internet postage service will enhance customer satisfaction
during the mail and postage process by improving overall access, convenience
and flexibility for small business, small office and home office users, and
will increase operating efficiencies and decrease postal fraud for the U.S.
Postal Service by including a unique digital signature on each digital stamp.

Industry Background

The Internet and Electronic Commerce

The Internet has emerged as a global medium for communications, information
and commerce. With over 125 million users at the end of 1998, which is expected
to grow to approximately 500 million users by 2003, as estimated by
International Data Corporation, the Internet is dramatically changing how
businesses and other users communicate and share information. The Internet has
also created new opportunities to conduct commerce, including business-to-
business electronic commerce, which enables organizations to streamline
business processes, lower operating costs and improve productivity. According
to Forrester Research, business-

31
<PAGE>

to-business electronic commerce is expected to grow from an estimated $43
billion in 1998 to approximately $1.3 trillion in 2003, accounting for more
than 90% of the dollar value of electronic commerce in the United States. Due
to the Internet's convenience and accessability, businesses are increasingly
using the Internet for a wide variety of operations, such as buying office
supplies online, and may benefit from emerging trends, such as buying postage
over the Internet.

The Postage Industry

According to the U.S. Postal Service's latest annual report, the total
postage market in the U.S. was approximately $60 billion in 1998. Further, the
U.S. Postal Service processed over 197 billion pieces of mail, or an estimated
41% of the total worldwide mail shipments. Of the $60 billion U.S. postage
market, approximately $38 billion was represented by postage stamps and postage
meters, which are primarily used for first class, priority and express mail,
with the remaining $22 billion consisting of permit and other mail services.
Keenan Vision, an independent research firm, estimates that first class,
priority and express mail usage will grow to approximately $46 billion by the
year 2002. In addition, the worldwide private market for mail and parcel
delivery which does not require postage from governmental entities includes
services such as Federal Express and United Parcel Service.

The U.S. Postal Service's longstanding mission is to meet the needs of its
customers with convenient options and improved postage security. To enhance
customer satisfaction, we believe the U.S. Postal Service searches for
innovations that:

. provide postal services that are convenient, cost-effective and easy-to-
use;

. leverage existing customer infrastructures, such as personal computers,
printers and software, to provide better and more efficient products and
services;

. integrate mailing information on the computer desktop, including postage
accounting;

. improve access to the large and growing small business, small office and
home office markets;

. reduce the occurrence of postal fraud, which costs in excess of $150
million per year in lost revenues according to the U.S. General
Accounting Office; and

. increase efficiencies in the handling and processing of mail, thereby
expediting the mailing process and enabling the U.S. Postal Service to
lower its operating costs.

The Emergence of Internet Postage

To address these objectives, the U.S. Postal Service announced in 1995 a
program for its first new postage method since the approval of the postage
meter in 1920. The Information Based Indicia Program is a certification program
that authorizes third party vendors to sell digital postage that users purchase
over the Internet and print from a personal computer using ordinary laser or
inkjet printers. Internet postage consists of a two dimensional bar code
containing an encrypted digital signature that makes each digital stamp unique
and is intended to lower the prevalence of postal fraud. Through its
Information Based Indicia Program, the U.S. Postal Service is seeking to
enhance user convenience with a new access channel for postage that enables
users to print postage from a personal computer, 24 hours a day, seven days a
week.

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<PAGE>

The following illustration is an example of our Internet postage that
conforms to the Information Based Indicia Program requirements, along with an
explanation of what each part represents.

[Illustration of digital stamp including the several elements described in the
bullet references below]

<TABLE>
<S> <C>
. FIM Mark. Facing identification mark . Two Dimensional Barcode. Encodes the
that is used to properly orient the readable information, including
document in the U.S. Postal Service's address of mailer and addressee, as
automated sorting system. well as other information including a
unique digital signature and a
delivery print code.

. Town Circle or Postmark. Identifies . Device ID. Unique identification code
the town and zip code in which the that links the postage back to the
postal customer resides and from device that stored the postage before
which the postal item must be sent. printing.

. Postage Amount. Ascribes a value to . Rate Category. Describes the type of
the postage that has been printed and postal service being used, which can
removed from the user's account. be first-class, priority mail,
express mail or parcel post.
</TABLE>

The Growth of Small Businesses, Small Offices and Home Offices and Their
Postage and Internet Usage

The United States has a large and growing number of small businesses, small
offices and home offices. According to International Data Corporation, there
were 44.6 million small businesses, small offices and home offices in the U.S.
in 1998, which is expected to grow to 57.6 million by 2002. Of the 44.6
million small businesses, small offices and home offices in 1998,
International Data Corporation estimates that 37.3 million were home offices,
5.7 million were small businesses with less than ten employees and 1.6 million
were small businesses with more than ten employees. Further, International
Data Corporation estimates that small businesses, small offices and home
offices accounted for $3.7 billion of electronic commerce in 1998 and will
account for $69.7 billion of electronic commerce in 2002. In addition, small
businesses, small offices and home offices are typically identified with the
following characteristics:

. limited amount of time and resources, resulting in the desire for
services that simplify business processes; and

. self sufficient and "do-it-yourself" entrepreneurs who are willing to
adopt new technologies that save time and increase flexibility.

Postage Usage. Small businesses, small offices and home offices generally
conduct an essential part of their communications with suppliers and customers
through the postal system, including letters and packages that require
expedited delivery. Despite the relative importance of postage usage, small
business, small office and home office use of postage meters is low, and it
appears that using a postage meter is not cost-effective for their needs.
Based on a 1999 survey from International Data Corporation, 80% of small
businesses/small offices

33
<PAGE>

with 10 employees or less did not use a postage meter. When the total cost is
computed, including lease fees for both the postage meter and scale, which
approximate $25 per month, postage meter resetting fees and proprietary
consumables such as ink cartridges, which approximate another $25 per month,
small businesses, small offices and home offices pay a significant premium to
traditional postage stamps. In addition, leasing a postage meter typically has
required a multi-year lease lock-in period.

Internet Usage. As the Internet helps simplify business processes, small
businesses, small offices and home offices have become more willing to rely on
its functionality to improve their businesses. Accordingly, there has been
increased adoption of the Internet by small businesses, small offices and home
offices, as the following statistics indicate:

. International Data Corporation estimates that 56% of U.S. home offices
in 1998 had Internet access, and that this percentage will reach 72% by
2002; and

. for U.S. small businesses, International Data Corporation estimates that
approximately 50% had Internet access in 1998. This amount is expected
to increase to 67% by 2002.

Despite the increasing prevalence of Internet access, most small businesses,
small offices and home offices are constrained by limited bandwidth Internet
connections. International Data Corporation estimates that:

. approximately 80% of small businesses, small offices and home offices
with Internet access use dial-up modems, usually at 28.8 or 33.6
kilobytes per second, to connect to the Internet;

. only 2.2% of small businesses, small offices and home offices with
Internet access use a broadband connection, which provides faster access
but the availability of which is limited; and

. approximately 71% of small businesses, small offices and home offices in
1998 shared their modem lines with another device such as a telephone or
fax machine, which necessitates being connected to the Internet only
when performing required business functions.

Given the rapid adoption of the Internet and the high postage usage by small
businesses, small offices and home offices, a substantial opportunity exists to
provide an automated method for purchasing, downloading and printing postage.
We believe the attractiveness of Internet postage services for the small
business, small office and home office user will depend upon the service's
ability to:

. enhance accessibility to postage, at any time of day;

. eliminate the costly time spent travelling to and waiting at the post
office;

. automate business processes through integration with existing business
software programs;

. be easy to use and flexible to meet the small business, small office and
home office user's preferences;

. enable the tracking and reporting of postage usage;

. provide cost savings and faster mail delivery versus traditional postage
solutions; and

. leverage a user's existing investment in personal computers, printers
and software.

The E-Stamp Service

We provide an Internet postage service that enables our customers to
purchase and download postage over the Internet directly into a secure, silver-
dollar size postage device, and then to print the purchased postage from their
personal computers at any time without the need to remain connected to the
Internet. We have leveraged our customer-centric focus and 26 issued patents to
create a service that offers convenience and flexibility to small business,
small office and home office users. To help build our brand awareness and
accelerate the adoption of our Internet postage service, we have formed
marketing and distribution relationships with industry leaders. In addition,
our Internet postage service is tightly integrated with popular business
computer programs, such as Microsoft Word and Outlook.

34
<PAGE>

We believe our desktop Internet postage service provides the following
benefits to small business, small office and home office users and the U.S.
Postal Service:

Benefits to Small Business, Small Office and Home Office Users

Enhanced Flexibility. With our Internet postage service, small business,
small office and home office users receive the benefits of buying and
downloading postage online, with the flexibility of printing postage while
connected or disconnected from the Internet. Our service is tailored to most
small business, small office and home office users, who are unable to, or
desire not to, stay continuously connected to the Internet due to shared
connections and access via slow dial-up modems;

Convenient Access. Our Internet postage service provides unlimited,
convenient access to postage from the computer desktop, 24 hours a day, seven
days a week. Small business, small office and home office users can purchase,
download and print postage with their personal computer, thereby avoiding
common inconveniences such as running out of postage and waiting in long lines
at the post office;

Tight Integration. Our Internet postage service is tightly integrated with
popular software applications, such as Microsoft Word and Outlook and Intuit
QuickBooks 2000, to enable small business, small office and home office users
to conveniently print postage while using their most commonly used software
programs;

Variety of Postage Options. Our Internet postage service enables small
business, small office and home office users to print professional looking
addresses and postage on envelopes, labels or directly on correspondence, with
the postage printed in any denomination. Further, our service enables small
business, small office and home office users to print a variety of postage
types, including first class, priority mail, express mail and parcel post; and

Simple and Secure. The components needed to use our Internet postage service
can be installed in minutes and include instructions and an intuitive user
interface. Further, our service is designed to provide small business, small
office and home office users the highest level of security and data integrity
as their databases of addresses are stored locally, rather than uploaded to a
remote server. In addition, we enable the accurate tracking and reporting of
postage purchases and usage, thereby limiting employee misuse.

Benefits to the U.S. Postal Service

A New Low-Cost Distribution Channel. Our Internet postage service enables
the U.S. Postal Service to distribute postage to users through the Internet,
thereby enabling significant manufacturing and distribution cost savings;

Automation and Operating Efficiencies. Our Internet postage service enables
the U.S. Postal Service to further automate the handling and processing of
mail, through address verification and correction and extended zip code
printing capabilities;

Extended Level of Security. Our Internet postage service provides the
highest level of security and auditing capabilities, which may help the U.S.
Postal Service to reduce the over $150 million dollars annually of postal
fraud; and

Increased Postal Competitiveness. Our Internet postage service offers
additional capabilities for sending and tracking packages, such as priority
express or parcel post, enabling the U.S. Postal Service to more effectively
compete against the private parcel shipping industry, such as Federal Express
and United Parcel Service.

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<PAGE>

Growth Strategy

Our objective is to be the leading provider of Internet postage services.
Key elements of our growth strategy include the following:

Enter into Marketing and Distribution Relationships with Industry Leaders to
Quickly Acquire Customers

Our strategy includes entering into marketing and distribution
relationships with industry leaders to rapidly acquire customers, build brand
recognition and accelerate the adoption of our Internet postage service. We
have entered into marketing or distribution relationships with Microsoft,
eBay, Yahoo!, Excite@Home, America Online, Compaq, EarthLink, Intuit,
Francotyp-Postalia, Dymo-CoStar, Tension Envelope, Avery Dennison and
Sunbeam's Pelouze division. We have also entered into distribution agreements
with Ingram Micro, Digital River and Linkshare. Entering into these
relationships with well-known and trusted names in the Internet, computer
hardware and software, and business supply industries enable us to leverage
these third parties' installed customer bases, distribution channels and
marketing expertise, and facilitate the adoption, usage and accessibility of
our Internet postage service. We expect to enter into additional marketing and
distribution relationships as our business grows and we expand our portfolio
of products and services.

Initially Focus on the Large and Growing Small Business, Small Office and
Home Office Market

We are initially focusing on the small business, small office and home
office market due to its attractive characteristics, which include:

. a large and growing number of small business, small office and home
office users;

. high personal computer penetration;

. predominant Internet usage via dial up modems over shared data lines; and

. heavy reliance on postage, yet underserved by traditional services.

We have conducted extensive qualitative and quantitative research on small
business, small office and home office users, and have tailored our Internet
postage service to meet their needs.

Build and Promote Our Brand

We intend to aggressively build our customer base by increasing awareness
of the E-Stamp brand. We believe that associating our brand with businesses
with whom we have marketing and distribution relationships and high quality
services is important to the expansion of our customer base. As we grow in
size, we intend to invest in building brand awareness through a variety of
marketing and promotional techniques, both independently and in conjunction
with third parties. We intend to promote our brand through television, print
and radio advertising, and online banner advertising through marketing
relationships with high traffic Web sites. We also plan to generate brand
recognition through viral marketing, which involves the prominent display of
our logo and Web site address on our Internet postage.

Leverage Our Technology Platform and Expertise to Develop A Family of
Internet Postage Services

We intend to leverage our customer-centric focus, scalable electronic
commerce platform and our patent portfolio to develop a family of Internet
postage services for the high volume mailer and corporate enterprise and for
the low volume individual consumer. We intend to offer an intranet-based
service to the corporate market, through the integration of our technology
into enterprise applications and high speed mail processes, thus enabling
corporate users to print conveniently and efficiently large amounts of
Internet postage for bulk mailings and other corporate purposes. We also
intend to target the consumer market with a server-based service, that will
enable a user to purchase and store Internet postage directly on our secure
electronic commerce server and print from their local printer. We plan to
continue to develop other services that enable users to take advantage of
their existing investments in computing infrastructure and the Internet, and
will continue to invest in and focus our technology development efforts on
increasing online transaction efficiency, reliability and security.

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<PAGE>

Pursue Multiple and Recurring Revenue Streams

We intend to leverage our brand, electronic commerce capabilities and
infrastructure to develop incremental revenue opportunities from a broader
customer base, including the corporate enterprise and the individual consumer.
These opportunities include the following:

Sale of Postage Related Consumables and Peripherals. Through our Web site,
we offer mailing-related consumables, such as labels and envelopes, and
peripherals, such as mechanical scales, personal computer-enabled digital
scales and label printers. We have created a patented window envelope, and have
entered into marketing and distribution relationships with third party vendors
of integrated scales and other postage supplies.

Authenticated Document Market. We intend to capitalize on our expertise in
secure payment processing and the printing of authenticated documents to offer
other products and services that can be purchased online and printed from the
desktop, such as tickets and gift certificates.

Pursue International Internet Postage Opportunities

We believe that there are significant opportunities in international markets
for our Internet postage service. In particular, we believe our Internet
postage service is suited for many international markets because users pay for
connecting to the Internet based on usage time and thus are seeking services
that can reduce expensive connection time. Unless and until foreign postage
authorities create a certification process and recognize information-based
indicia postage, our Internet postage service will not be able to address
international markets.

Our Internet Postage Service

Our Internet postage service enables users to purchase postage over the
Internet, download the postage quickly and efficiently into a secure, silver-
dollar size postage device, and to print the postage at any time from the
desktop directly onto envelopes, labels or documents using standard laser or
inkjet printers. We target today's small business, small office and home office
users, most of whom usually connect to the Internet on modems at speeds of 28.8
or 33.6 kilobytes per second. Our service enables users to store postage on
their desktop, thereby allowing them to print postage at their convenience
rather than requiring a reconnection to the Internet each and every time they
want to print postage.

We received U.S. Postal Service approval to begin to sell our Internet
postage service nationally in August 1999. The software and hardware components
needed to use our Internet postage service are currently available through our
Web site and through a toll-free telephone number.

Installation

The installation process can be completed in a matter of minutes through the
use of a CD-ROM. The E-Stamp Internet postage package includes all the
components needed to use our Internet postage service and to connect to www.e-
stamp.com for the purchase of more postage, receipt of software updates, or to
access postal information. In addition to our software, our Internet postage
package also includes our silver-dollar size, secure postage device that
connects onto the back of a personal computer as shown on the right. The secure
postage device stores the postage and connects between the parallel port and any
other printer device attached there.

[Illustration of installation of postage device between printer cable and
parallel port of personal computer]

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<PAGE>

Printing Postage

The following three steps are involved in using our Internet postage
service.

Step 1: Buy It. The user can purchase Internet postage without ever leaving
the home or office, 24 hours a day, seven days a week. The user connects to our
electronic commerce server using a standard Internet connection and then
chooses the amount of Internet postage, up to the $500 maximum storage value
allowed by the U.S. Postal Service, depending on their particular needs and
usage patterns. The Internet postage is then downloaded and stored onto the
Internet postage device.

Step 2: Print It. After choosing the medium on which to print the Internet
postage, whether directly onto a letter or using an envelope or label, the user
selects the destination address. The addresses are either read directly from
the user's current address database or can be entered with our software. In
either case, the addresses are verified with the Address Matching System from
the U.S. Postal Service contained on CD-ROM at the user's desktop, and the
amount of postage related to the item being sent is calculated. The user then
selects the printer device and prints the Internet postage.

Step 3: Mail It. The user then drops the professionally posted letters and
packages in the mail or schedules a priority mail pickup from the U.S. Postal
Service.

Additional Features

In addition to providing the means to purchase, download and print Internet
postage, we have created other features that enhance the usability of our
Internet postage service.

Business Application Integration. We have tightly integrated our Internet
postage software with the following leading software applications:

. Microsoft Word -- Upon installation, our Internet postage software
integrates tightly with Microsoft Word, with our E-Stamp icon appearing
in the Microsoft Word tool bar, so users can print postage without
leaving the application;

. Microsoft Outlook -- Our software allows users to access addresses in
Outlook without leaving the E-Stamp application; and

. Intuit QuickBooks 2000 -- This integration allows users to sign up for
the E-Stamp Internet postage service and access our Internet postage
application without leaving the Intuit QuickBooks application.

Address Software Functionality. Our Internet postage service enables users
to print Internet postage using their existing mailing databases, and is
compatible with eight types of contact managers and word processing, accounting
and e-mail software applications. Further, addresses are stored on the user's
personal computer with our Internet postage service, negating any need to
upload confidential information to a shared server.

Variety of Printing and Mailing Options. Users can choose from 16 different
types of envelopes, labels, air bills and postcards, as well as simply printing
postage directly onto letters and using our patented windowed envelopes.
Customers can use our Internet postage for a number of U.S. Postal Service
mailing options, including first class, priority mail and express mail for
guaranteed overnight delivery.

Tracking and Reporting. Our Internet postage software includes a function
that allows users to track postage usage, including recipient address, time and
amount.

Integrated Scale. We have teamed with Sunbeam's Pelouze division to offer an
integrated scale that automatically weighs the letter or package being sent to
correctly calculate the postage required, thus reducing over-posting.

Internet Postage Supplies. We also provide postage supplies, such as labels
and envelopes, which we have designed to be compatible with our Internet
postage service. The sale of these postage supplies requires U.S. Postal
Service approval and we have obtained the necessary approvals for our labels
and envelopes.

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Marketing and Distribution Relationships

We believe that market penetration, brand awareness and adoption of our
Internet postage service in the early stages is critical to our success. Thus,
we continually focus on enhancing the breadth and depth of market penetration
and offering our customers the most convenient access to our Internet postage
service. To achieve these goals, we have established a strategy of entering
into marketing and distribution arrangements with the industry leaders in
business segments related to the Internet, computer hardware and software,
postage and business supplies. These relationships allow us to leverage those
third parties' installed customer bases, distribution channels and marketing
expertise to facilitate the adoption, usage and accessibility of our Internet
postage service.

Microsoft. In July 1999, we entered into an agreement with Microsoft for
promotion of our service on the Microsoft Office Update Web site. Our agreement
with Microsoft contains exclusive elements, although Microsoft is not
prohibited from entering into an agreement with other Internet postage
providers. Exclusive elements of our agreement with Microsoft during the term
of the agreement include permanent placement on the home page of the web site,
co-marketing and/or co-funding of marketing activities, Internet postage launch
support and inclusion in editorial content on the web site. The initial term of
our agreement with Microsoft is one year, although the agreement is terminable
on 60 days prior notice. In October 1999, we entered into an agreement with
Microsoft for promotion of our service on the Microsoft Network. This agreement
contains exclusive elements including placements on bCentral, MSN's small
business site and banner advertising in MSNBC's small business site. The
initial term of this agreement is one year, although the agreement is
terminable on 60 days prior notice. We have also integrated our Internet
postage software with Microsoft Word and Microsoft Outlook. Microsoft is also
one of our equity investors.

eBay. In December 1999, we entered into an agreement with eBay for promotion
of our service on the eBay website. eBay is the leading Internet online listing
and trading service, with over 7.7 million registered users and, according to
Media Metrix, approximately 10 million unique visitors each month to its
website, representing approximately 6% of all daily Internet traffic. Under the
agreement, E-Stamp will be prominently featured on the eBay home page and
integrated into other areas of the eBay website, and eBay users will be allowed
to access E-Stamp services and purchase supplies through a co-branded website.
Additionally, eBay and E-Stamp will jointly develop promotions targeting eBay's
PowerSellers. During the term of the agreement, eBay has agreed to not promote
the services or directly link to the websites of other Internet postage
competitors. The initial term of the agreement expires on December 9, 2002.

Yahoo!. In May 1999, we entered into an advertising and promotion agreement
with Yahoo!. Yahoo! is the leading Internet guide in terms of traffic,
household and business user reach, and is one of the most recognized brands
associated with the Internet. Under this agreement, Yahoo! users will have
direct access to the E-Stamp services from within the Yahoo! Postal Center.
Yahoo! has agreed to display E-Stamp banners when any of 20 key words are
entered into the Yahoo! search engine including the key words "postage" and
"stamps." During the term of the agreement, Yahoo! has agreed to not display
banners, sponsorships or other forms of advertising of Internet postage
competitors on the Yahoo! Postal Center or within Yahoo Small Business property
and to not display or co-brand content from competitors in the Yahoo! Postal
Center. The initial term of the Yahoo! agreement expires December 31, 2000.

Excite@Home. In August 1999, we entered into a binding letter of intent with
Excite@Home to provide direct access to our service across Excite@Home's @Work
division. This nonexclusive relationship is designed to provide early broadband
adopters with access to our service through the @Work site. As part of this
relationship, our service offering will be integrated into @Work's portfolio of
products and services. During the term of the agreement, other Internet postage
companies are not to be included in sponsorship areas or in the @Work small
business post office area. This service launched in the fall of 1999.
Excite@Home also is one of our equity investors.

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America Online. In November 1998, we agreed to become a tenant in America
Online's new Postage Services Center, which features direct links to our Web
site where America Online members can purchase our Internet postage service. As
part of the nonexclusive agreement, America Online has agreed to promote our
service until May 2000 with banner advertisements across several of America
Online's branded properties, including CompuServe, AOL.com and Digital City.
Additionally, in October 1999 we entered into an agreement with America Online
to become an anchor tenant in the Shop@AOL channel. Through this agreement E-
Stamp will be featured in the Home Office & Business and Computing areas. The
agreement expires in August 2000.

Intuit. In September 1999, we entered into an agreement with Intuit Inc., a
leading provider of financial software. Under this agreement, users of Intuit's
QuickBooks software will have access to our service directly from within the
QuickBooks software program. In addition, Intuit has agreed to market and
promote our service through Intuit's existing small business channels,
including the QuickBooks.com newsletter and the QuickBooks.com website. During
the term of this agreement so long as we meet its performance criteria, Intuit
has agreed not to market, promote or distribute Internet postage products of
our competitors in connection with the marketing, promoting and selling of the
QuickBooks software products. The initial term of the Intuit agreement expires
December 31, 2001.

Compaq. In June 1998, we entered into a nonexclusive agreement with Compaq
to help accelerate the adoption of Internet postage. Under this agreement,
Compaq will market our Internet postage service as part of the online services
available to owners of their Prosignia line of personal computers, targeted at
the small business market and sold through their broad sales channels, and will
offer our Internet postage service through Compaq's Web site in exchange for
which we have agreed to pay Compaq royalties. The Compaq agreement has an
initial term that expires in June 2001. Compaq also is one of our equity
investors.

Francotyp-Postalia. In August 1999, we entered into a non-exclusive
marketing and distribution agreement with Francotyp-Postalia, Inc., the U.S.
division of Francotyp-Postalia AG & Co., an international market leader in
modern office equipment and services for mail processing. Under this agreement,
Francotyp-Postalia has agreed to offer our Internet postage service through its
Web site. Additionally, we intend to leverage Francotyp-Postalia's established
distribution channels and existing customer base to distribute our service.
Francotyp-Postalia also is one of our equity investors.

Avery Dennison. In July 1999, we entered into a non-exclusive relationship
with Avery Dennison that includes sales, marketing and distribution agreements.
Under this agreement, our Internet postage service is being promoted
exclusively in packages of Avery labels and other printable supplies.
Additionally, we offer a free sample pack of Avery PC Postage Labels to our new
customers. We sell these labels in our online supplies store.

Sunbeam Corp.'s Pelouze Scale Co. Division. In February 1999, we entered
into a marketing and sales agreement with Signature Brands, Inc., a subsidiary
of Sunbeam Corporation, the leading manufacturer and distributor of postal
scales. We are leveraging Sunbeam's already established distribution channels
and promote our service with a special Pelouze Internet Postage Scale for sale
in retail, mail order and contract stationery channels. Additionally, the
scale, which is designed to work exclusively with our Internet postage service,
is available to our customers through our online store. During the term of the
agreement, Sunbeam has agreed not to bundle a scale with a competitor's
Internet postage product in the U.S. and we have agreed not to bundle our
service with another manufacturer's integrated scale.

Tension Envelope Corporation. In March 1999, Tension Envelope agreed to
become our exclusive supplier for our patented window envelopes. These patented
window envelopes, which we plan to sell through our online supplies store,
feature a special "window" for Internet postage and will save our customers
time by eliminating several steps from the mail preparation process. This
envelope has been approved for distribution by the U.S. Postal Service.

EarthLink. In June 1999, we entered into a non-exclusive agreement with
EarthLink, a leading Internet service provider. Under this agreement, we and
EarthLink have developed a co-branded postal center accessible

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to EarthLink's more than 1.3 million users from their personal start pages and
elsewhere in the EarthLink network. Beginning in early 2000, our software demo
will be included on EarthLink's Total Access start-up CD, which is distributed
to over 4 million individuals and small businesses. Additionally, EarthLink has
agreed to make our Internet postage service available for purchase through
EarthLink's mall and to place banner advertisements for our Internet postage
service in their service. In addition, EarthLink has agreed to place an
advertisement for our service in each issue of its user magazine. The initial
term of our agreement with EarthLink expires in August 2000.

Dymo-CoStar. In July 1999, we entered into a marketing and distribution
agreement with Dymo-CoStar, a leading manufacturer of specialty label printers,
related software and supplies. Our agreement with Dymo-CoStar provides for
bundling of a promotional demonstration of our software with many Dymo-CoStar
printers. Additionally, Dymo-CoStar jointly promotes our service in retail
channels, promote us to its existing customer base, and plans to integrate
support for our service directly into its printer software. Although Dymo-
CoStar is not prohibited from entering an agreement with other Internet postage
providers, under the agreement, Dymo-CoStar has agreed not to bundle
promotional materials of our competitors with Dymo-CoStar label products. Dymo-
CoStar's specialty label printer and related labels has been approved for sale
by the U.S. Postal Service.

LinkShare. In August 1999, we entered into an agreement with LinkShare where
LinkShare will be E-Stamp's affiliate service. Under the agreement, LinkShare
markets E-Stamp's affiliates program to its network of more than 70,000
affiliate sites. The initial term of our agreement is 18 months.

Under our agreements with Yahoo!, Microsoft, Earthlink Excite@Home, Intuit
and eBay, we are required to make aggregate payments to those parties totalling
approximately $20.5 million during the year 2000, $12.4 million during the year
2001 and $5 million during the year 2002. Our agreement with Yahoo! requires
that we make payments to Yahoo! totalling approximately $2.0 million during the
year 2000. Our agreement with Microsoft requires that we make payments to
Microsoft totalling approximately $1.5 million during the year 2000. Our
agreement with Earthlink requires that we make payments to Earthlink totalling
approximately $0.2 million during the year 2000. Our agreement with Excite@Home
requires that we make payments to Excite@Home totalling approximately $2.4
million during the year 2000 and $2.4 million during the year 2001. Our
agreement with Intuit requires that we make payments to Intuit totalling
approximately $4.5 million during the year 2000. Our agreement with eBay
requires that we make payments to eBay totaling $10.0 million during the year
2000, $10.0 million during the year 2001 and $5.0 million during the year 2002.
We have also paid approximately $1.3 million to America Online. We have also
agreed to pay Compaq royalties. We could be required to make additional
payments under these agreements if advertising exceeds established levels of
page views or generates and exceeds established levels of new customers.

In addition to the sales and marketing agreements described above, in
September 1999, we signed a nonbinding letter of intent with Deutsche Post AG,
Europe's largest letter services and logistics company, and a nonbinding letter
of intent with an affiliate of Deutsche Telekom AG, Europe's largest
telecommunications company. In each of these letters of intent, we agreed to
negotiate proposed business relationships involving joint marketing,
distribution and technology development. Any party can terminate negotiations
under these letters of intent at any time, and there is no assurance that any
binding agreement or business relationship with Deutsche Post AG or Deutsche
Telekom AG or any affiliate will ever develop.

Acquisition of Customers

The initial focus of our Internet postage service is on the large and
growing small business, small office and home office market, which consists of
small businesses, small offices and home offices. We have established
relationships with leading Internet, computer and business supply companies to
distribute our Internet postage service through channels most frequented by
small business, small office and home office users. In addition, we are
leveraging those third parties' established customer bases, marketing efforts
and distribution channels to build brand recognition, accelerate adoption and
increase product accessibility. Our plan is to also promote and extend our
brand by conducting ongoing public relations campaigns and developing
affiliation and affinity programs.

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Product Distribution. Our Internet postage product is available through all
standard distribution channels in order to increase product availability and
accelerate the adoption of Internet postage. Specifically, our Internet postage
product is available through the following:

. Retail -- We have identified and secured distribution agreements with
top retail accounts to expand the market for our Internet postage
product since small business, small office and home office users
typically purchase a substantial portion of their office supply needs
from these sources. These retailers, such as Best Buy, CompUSA, CDW and
Staples, have been selected based on the demographics of their customer
base, their experience selling computer products to small business
customers, and their experience selling office supplies and mailing-
related products. We access traditional and online retailers through
Ingram Micro, one of the nation's largest computer and computer-related
product distributors. We plan to access additional online retailers
through our relationship with Digital River, an online distributor, and
our relationship with LinkShare, a provider of affiliate marketing
services.

\1\Direct Marketing and Mail Order -- We also offer our products directly
from our online store at www.e-stamp.com and through our toll-free
telephone number, as well as through major Internet and mail order
software resellers, both online and catalog-based. We are also
developing a direct sales force to sell our Internet postage product to
purchasing organizations and corporate purchasers.

Promotional Bundling Arrangements. We have entered into distribution
agreements with industry leading PC hardware, printer, scale and consumables
companies to bundle promotions for our Internet postage service in selected
products, which enables us to leverage these third parties' installed customer
base, distribution channels and marketing experience.

Affiliate and Affinity Programs. We have established an extensive affiliate
program with sites who target small offices and home offices and we will offer
other revenue-sharing opportunities for affiliates who promote or provide links
to our products from their Web site. The first of our affiliate program
relationships is with LinkShare which has a network of Web sites that access
the online merchants marketed by LinkShare. In addition, we plan to extend
promotional offers to trade associations with substantial small business, small
office and home office membership.

Online and Offline Advertising. We currently have marketing relationships in
place with some of the top Internet sites, and we intend to enter into
marketing relationships with additional high traffic sites in the future. We
will also target specific customer segments through the use of varied online
banner advertisements. Further, we utilize various offline forms of
advertising, such as television, print, radio and other targeted publications
that focus on specific attractive markets for our service.

Viral Marketing Programs. The U.S. Postal Service has granted us permission
to include our Web site address and our logo on each Internet postage that is
printed. We have developed our Internet postage digital stamp to prominently
display our logo and Web site address to further develop our brand recognition
and accelerate the acquisition of new customers through referrals.

U.S. Postal Service Information Based Indicia Program Certification Process

The U.S. Postal Service recently approved our Internet postage service under
its Information Based Indicia Program. The Information Based Indicia Program is
a U.S. Postal Service initiative committed to creating new, convenient,
electronic access to postage for mailing customers. Through the Information
Based Indicia Program, the U.S. Postal Service delivers a higher level of
convenience and security to customers with established performance and
evaluation criteria for personal computer postage products.

For vendors of Internet postage, approval under the Information Based
Indicia Program includes a standardized, ten-stage certification process prior
to commercial release. Information Based Indicia Program participants must
receive U.S. Postal Service authorization at each stage of the certification
process to proceed to the next stage. The second to last stage is a three phase
beta test, which includes customers sending mail through the mail system. The
final stage before commercial release is vendor product approval, which

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represents formal approval to begin selling Internet postage nationally. The
significant steps in the certification process and the time commitment required
of a potential Information Based Indicia Program vendor creates a significant
barrier to entry for competitors in the U.S. Internet postage market.

The Information Based Indicia Program certification process includes the
following stages:

<TABLE>
<S> <C>
6. U.S. Postal Service address matching
1. Letter of intent system
2. Non-disclosure agreement 7. Product submission/testing
3. Operational concept 8. Product infrastructure tests
4. Software documentation 9. Beta test approval (three phases)
5. Provider infrastructure plan 10. Vendor product approval (national
distribution)
</TABLE>

Upon receipt of U.S. Postal Service certification, Information Based Indicia
Program vendors begin national distribution in accordance with approved
quantities and distribution channels. Each approved vendor's commercial roll-
out is initially limited to 10,000 customers, with expanding numbers of
customers based upon successful evaluations by the U.S. Postal Service. We
recently received authorization from the U.S. Postal Service to expand our
commercial roll-out to 100,000 customers.

Competition

We received U.S. Postal Service approval to commercially release our
Internet postage service on August 9, 1999 and began providing our service on
that date. We believe that our Internet postage service is well positioned to
compete in the small business, small office and home office market, which
consists of small businesses, small offices and home offices, because of our
tight integration with software applications and our advantages in bandwidth-
constrained environments. We will also compete with providers of traditional
postage products such as stamps sold by the U.S. Postal Service, and services
such as Federal Express and United Parcel Service. In addition to providers of
traditional postage products and services, we compete with three other
Information Based Indicia Program vendors, Neopost, Pitney Bowes and
Stamps.com, who have all initiated the certification process with the U.S.
Postal Service. Only one of these, Stamps.com, was approved for commercial
release by the U.S. Postal Service on August 9, 1999. While the market for
Internet postage is new, we expect that competition will further increase once
Internet postage products become widely available and generally accepted.

While we believe our Internet postage service provides significant benefits
over traditional postage methods, especially for the small business, small
office and home office market, we expect to continue to also compete with
traditional postage methods such as stamps and metered mail. Postage meters are
typically paid for on a monthly lease, require significant investments in
additional supplies such as ink cartridges, charge a premium for postage and
are subject to tampering and theft. There can be no assurance that customers
will change their current postage purchasing habits and switch to Internet
postage products. The failure of a commercially viable number of users to
switch to Internet postage would significantly harm our business, financial
condition and results of operations.

We may not be able to maintain a competitive position against current or
future competitors as they enter the Internet postage market 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
our market could seriously harm our business, financial condition and results
of operations. We believe that the principal competitive factors in the
Internet postage market include:

. U.S. Postal Service product certification;

. brand recognition;

. integration with other software applications;

. convenience;

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. service availability and reliability;

. price;

. security; and

. marketing and distribution relationships.

Technology

We have leveraged our technologies, including our desktop software, postage
application programming interface, Internet postage device, patented window
envelope, and systems infrastructure, in order to create a comprehensive
service that meets our customers' needs and fulfills the U.S. Postal Service's
certification requirements.

Desktop Software. Our desktop software enables users to print Internet
postage offline without maintaining a persistent Internet connection. The
software is designed to interface with our proprietary postage device to print
the recipient's address and Internet postage in one step onto envelopes,
labels, and documents. The recipient's address can be selected using the built-
in support for many popular applications, including Microsoft Word and Outlook,
without the user having to upload data over the Internet or separately type the
address. This is a significant advantage over other Internet postage products
which require the user to type in or import addresses from other software
packages and force them to keep multiple copies of the same address
synchronized across multiple address books. In addition, the software has a
built-in electronic software update feature which automatically updates postage
rates and the software itself ensuring that each customer always has the most
current version of our software. The software includes a postage application
programming interface which enables other software vendors to integrate their
software with our software.

Postage Application Programming Interface. We built our software from the
ground up so that it can be integrated as a component of other software
applications. This means virtually any software application can be "postage-
enabled" to print Internet postage onto envelopes, labels, or documents.
Through this technology, our software can be tightly integrated with popular
business applications.

Internet Postage Device. We have developed a proprietary Internet postage
device that securely stores the postage value our customers buy. The postage
device connects to a personal computer's parallel port between the personal
computer and the printer. The postage device enables our users to print postage
without the need to remain connected to the Internet because account balances
are stored on the device, not on a remote server. The postage device is also
secure and tamper-resistant, disabling itself if anyone attempts to open or
tamper with it. Our Internet postage device has been tested by the National
Institute of Standards and Technology and certified as Federal Information
Processing Standard 140-1 compliant at security levels 3 and partially 4.
Overall security was reviewed by a Cryptographic Equipment Assessment
Laboratory and Internet Security was reviewed by ISS Group, a leading Internet
security company.

Patented Window Envelope. We have developed and patented a special window
envelope that has an additional window in the upper right corner for postage.
This enables postage to be printed directly on documents, folded in thirds and
inserted into one of our envelopes. They are a significant time-saver because
they eliminate the need to separately prepare an envelope or label. Tension
Envelope will be manufacturing this envelope for us and we plan to offer it to
our customers on our Web site.

Systems Infrastructure. Our systems have been designed to be scalable as our
business grows and to allow for rapid deployment of our Internet postage
service. As the quantity of purchases or number of users accessing our systems
increases, we have developed our systems to incrementally grow through the
necessary additions. Our systems are based on the Microsoft Windows NT,
Transaction Server and SQL Server environment. For our Web site, we utilize
Javascript and Active Server Pages.

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Future Product Development

We are currently developing a server-based service that is targeted at
broadband-enabled users. As estimated by Forrester Research, broadband access
was only utilized by 2% of online users in 1998, but will increase to 26% in
2002. Once broadband connections become more prevalent and customers have
dedicated Internet access, our server-based service will be positioned to meet
the needs of this base of users. The server-based service will enable a user to
purchase and store Internet postage directly on our secure electronic commerce
server and print from their local printer. We are also developing browser-based
products for electronic commerce transactions, such as online ticketing and
gift certificates.

Company History

Prior to September 1996, we conducted operations as Post N Mail, L.L.C., a
Texas limited liability company formed in April 1994. From April 1994 until the
September 1996 merger with E-Stamp, Post N Mail engaged in discussions with the
U.S. Postal Service regarding non-traditional postal services and, as use of
the Internet became more prevalent, focused upon the development of our
Internet postage service. In September 1996, Post N Mail was merged into E-
Stamp, a Delaware corporation. Following the merger, we continued to develop
our Internet postage service which entered the U.S. Postal Service's three-
phase beta test certification process in March 1998 and received final U.S.
Postal Service approval on August 9, 1999.

Employees

As of September 30, 1999, we employed 104 full-time people, including 33 in
engineering, 19 in operations, eight in customer service and support, 26 in
sales, marketing and business development, and 17 in general and administrative
functions. Based on our growth plans, we anticipate hiring a significant number
of employees over the next 12 months. From time to time, we employ independent
contractors to support our research and development, marketing, sales and
support and administrative organizations. Our employees are not represented by
any collective bargaining unit, and we have never experienced a work stoppage.
We believe our relations with our employees are good.

Intellectual Property

We regard our technology as proprietary and attempt to protect it by relying
on patent, trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We have
been issued 26 U.S. patents and have 14 patent applications pending. Our issued
patents expire between 2010 and 2016. We consider patents to be a significant
part of our intellectual property, and will remain so for the foreseeable
future. We also generally enter into confidentiality or license agreements with
our employees and consultants, and generally control access to and distribution
of our documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use our proprietary information without authorization or to develop similar
technology independently. We are in the process of pursuing the registration in
the U.S. for a number of our trademarks and service marks, and we cannot assure
you that any of these trademark registrations will be issued or that if they
are issued that we will be able to successfully enforce them. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our services are distributed or made
available over the Internet, and policing unauthorized use of our proprietary
information is difficult. 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 U.S. Postal
Service asserting that intellectual property of Pitney Bowes would be infringed
by products meeting the requirements of the Information Based Indicia Program's
specifications. Furthermore, in June 1999, Pitney Bowes filed a lawsuit in the
U.S. District Court against us alleging infringement of Pitney Bowes patents.
For a discussion of claims by Pitney Bowes and risks associated with
intellectual property, please refer to "Risk Factors--Intellectual property
infringement claims, including claims asserted by Pitney Bowes against us,
could prevent or hinder our ability to sell Internet postage" and "--Legal
Proceedings."

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Facilities

Our headquarters are currently located in a leased facility in San Mateo,
California, consisting of approximately 25,000 square feet of office space. The
office space is under a 15-month sublease which will expire in June 2000. We
have also entered into a sublease for an additional 20,700 square feet of
office space in Redwood City, California. This sublease has a three year term
expiring in December 2002. We will need to obtain additional office space prior
to the end of 2000 and are currently in discussions with a prospective
landlord.

Legal Proceedings

On June 10, 1999, Pitney Bowes filed suit against us in the U.S. District
Court for the District of Delaware alleging infringement of Pitney Bowes
patents. The suit alleges that we are infringing seven patents held by Pitney
Bowes related to postage application systems and seeks treble damages, a
preliminary and permanent injunction from further alleged infringement,
attorneys' fees and other unspecified damages. One week later, Pitney Bowes
filed a similar complaint against one of our competitors, Stamps.com, alleging
infringement of two of the seven Pitney Bowes patents alleged in the E-Stamp
complaint. On July 30, 1999, we filed our answer to Pitney Bowes' complaint in
which we deny all allegations of patent infringement and assert affirmative and
other defenses based on statutory and common law grounds, including inequitable
conduct on the part of Pitney Bowes in its procurement of patents in
proceedings before the U.S. Patent and Trademark Office. As part of the answer,
we also brought various counterclaims against Pitney Bowes claiming Pitney
Bowes' violation of Section 2 of the Sherman Act and intentional and tortious
interference with E-Stamp's business relations based, in part, upon our
allegations that Pitney Bowes has unlawfully maintained its monopoly power in
the postage metering market through a scheme to defraud the U.S. Patent and
Trademark Office and its efforts to discourage potential investors and
businesses from investing and entering into agreements with E-Stamp. Our suit
seeks compensatory and treble damages, injunctive relief and recovery of
attorney's fees. On September 21, 1999, Pitney Bowes filed a motion to strike
or dismiss certain of E-Stamp's affirmative defenses and counterclaims or, in
the alternative, to bifurcate discovery and trial of those counterclaims; E-
Stamp's response to the motion was filed on October 20, 1999. The U.S. District
Court for the District of Delaware held a hearing on November 18, 1999,
regarding Pitney Bowes' motion, but as of the date hereof, a decision has not
been rendered. We are continuing to investigate the claims against us as well
as infringement by Pitney Bowes of our patents, and may assert additional
defenses or pursue additional counterclaims or independent claims against
Pitney Bowes in the future.

Pendency of the litigation can be expected to result in significant expenses
to us and the diversion of management time and other resources. If Pitney Bowes
is successful in its claims against us, then we may be hindered or even
prevented from competing in the Internet postage market and our operations
would be severely harmed. For example, the Pitney Bowes suit could result in
limitations on how we implement our services, delays and costs associated with
redesigning our services and payments of license fees and other payments. An
injunction obtained by Pitney Bowes could eliminate our ability to market
critical products or services.

On May 10, 1999, in U.S. District Court, E-Stamp obtained a temporary
restraining order against Dave Lahoti ordering Mr. Lahoti to refrain from using
his Web site, which he had registered as "estamps.com." On June 14, 1999, the
U.S. District Court granted a preliminary injunction requiring Mr. Lahoti to
refrain from using his Web site in connection with Internet postage and to
place a disclaimer identifying that his Web site is not associated with E-Stamp
Corporation. We are seeking damages and a permanent injunction in connection
with this matter. Mr. Lahoti has denied the material allegations and has set
forth his affirmative defenses.

46
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth our executive officers' and directors' ages
and positions as of December 31, 1999.

<TABLE>
<CAPTION>
Name Age Position
<C> <C> <S>
Robert H. Ewald........... 52 President, Chief Executive Officer and
Director

Anthony H. Lewis, Jr. ... 46 Vice President and Chief Financial Officer

Nicole Eagan.............. 35 Senior Vice President, Marketing and Sales

Martin Pagel.............. 37 Chief Technology Officer

Thomas J. Reinemer........ 39 Vice President, International

Edward F. Malysz.......... 39 Vice President, General Counsel and
Secretary

Marcelo A. Gumucio........ 62 Chairman of the Board

John V. Balen(1).......... 39 Director

Thomas L. Rosch(2)........ 37 Director

Michael Leitner........... 34 Director

Adam Wagner(1)............ 41 Director

Rebecca Saeger(2)......... 44 Director

Robert J. Cresci(1)....... 56 Director

Jerry Gramaglia(2)........ 44 Director
</TABLE>
- ---------------------
(1) Member of Audit Committee

(2) Member of Compensation Committee

Robert H. Ewald has been our President and Chief Executive Officer since
February 1999 and has been a Director since January 1999. From July 1996 to
July 1998, Mr. Ewald held various executive positions at Silicon Graphics,
Inc., a manufacturer of computer workstations, servers and supercomputers, most
recently as Executive Vice President and Chief Operating Officer. From August
1984 to June 1996, Mr. Ewald held various management and executive positions
with Cray Research, Inc., a manufacturer of high performance computers,
including President and Chief Operating Officer. Before joining Cray Research,
Inc., Mr. Ewald led the Computing and Communications Division of the Los Alamos
National Laboratory and was responsible for providing computing and
communications services to government customers nationwide between 1980 and
1984. Mr. Ewald is currently a director of Ceridian, Inc., an information
technology services company, and a member of the President's Information
Technology Advisory Committee chartered by the White House. Mr. Ewald received
his B.S. in civil engineering from the University of Nevada and his M.S. in
civil engineering from the University of Colorado.

Anthony H. Lewis, Jr. has been our Vice President and Chief Financial
Officer since July 1999. From October 1995 to July 1999, Mr. Lewis held various
management positions at Quantum Corporation, a manufacturer of computer storage
devices, most recently as Vice President of Finance, Treasurer. From 1986 to
October 1995, Mr. Lewis held various management positions at Tandem Computers,
Inc., a manufacturer of computers, including Vice President, Corporate
Financial Controller. Mr. Lewis received his A.B. in economics from Harvard
College and his M.B.A. from Harvard Business School.

Nicole Eagan has been our Senior Vice President, Marketing and Sales since
July 1999 and previously served as our Vice President, Marketing and Business
Development from May 1996. From 1993 to May 1996, Ms. Eagan held various
positions with Oracle Corporation, a manufacturer of systems software and
business

47
<PAGE>

applications software, including Director, Strategic Marketing, Director,
Channel Marketing for Global Business Alliances Group and Director, Server
Product Marketing for Oracle 7. Ms. Eagan received her B.S. in marketing from
Montclair University in New Jersey.

Martin Pagel has been our Chief Technology Officer since October 1998 and
previously served as our Vice President, Engineering and Chief Architect from
July 1996. From January 1988 to June 1996, Mr. Pagel held various management
and engineering positions at Microsoft Corporation, a manufacturer of software
products, including Technical Manager, Operations for its Internet and
electronic commerce strategies and Program Manager for the design of the
Windows 2000 Active Directory. Mr. Pagel was also involved in the formation of
Microsoft Consulting Services in Europe. Mr. Pagel received his degrees in
business and computer science from the Technical University in Braunschweig,
Germany.

Thomas J. Reinemer has been our Vice President, International since March
1999 and previously served as our Vice President, Operations from August 1996.
From May 1995 to July 1996, Mr. Reinemer was Senior Director of Strategic
Marketing and Development at Oracle Corporation, a manufacturer of systems
software and business applications software, where he was responsible for
developing and implementing Oracle's partner strategies. From January 1994 to
May 1995, Mr. Reinemer was International Business Development Manager at
Microsoft, a manufacturer of software products, where he played a leading role
in the launch and expansion of Microsoft's International BackOffice business.
Mr. Reinemer also held various management positions at Novell Germany, a
provider of network software between 1989 and 1995. Mr. Reinemer received his
degrees in electronic processing and in industrial electronic processing
equipment from the Friedrich Ebert Technical College in Wiesbaden, Germany.

Edward F. Malysz has been our Vice President, General Counsel and Secretary
since June 1999. From July 1993 to June 1999, Mr. Malysz held various legal
positions with Silicon Graphics, Inc., a manufacturer of computer workstations,
servers and supercomputers, most recently serving as Senior Corporate Counsel.
From August 1988 to July 1993, Mr. Malysz was a transactional lawyer with the
law firm of Berliner Cohen. From August 1982 to December 1984, Mr. Malysz was a
certified public accountant with Arthur Young & Company, an accounting firm.
Mr. Malysz received his B.A. in economics from the University of California,
Santa Barbara and J.D. from Santa Clara University.

Marcelo A. Gumucio has served as Chairman of the Board since November 1998.
Mr. Gumucio is Managing Partner of Gumucio, Burke and Associates, a private
investment firm which he co-founded in 1992. From April 1996 to July 1997, Mr.
Gumucio was Chief Executive Officer of Micro Focus PLC, an enterprise software
provider. He also served as a member of the Micro Focus' board of directors
from January 1996. Before joining Micro Focus, Mr. Gumucio was President and
Chief Executive Officer of Memorex Telex NV between 1992 and 1996. Mr. Gumucio
currently serves on the board of directors of BidCom, Inc., Digital Island and
Burr Brown Corporation and serves as Chairman of the boards of WebSentric and
NetFreight. Mr. Gumucio received his B.S. in mathematics from the University of
San Francisco and M.S. in applied mathematics and operations research from the
University of Idaho. Mr. Gumucio is also a graduate of the Harvard Business
School Advanced Management Program.

John V. Balen has served on the Board of Directors since July 1998. Mr.
Balen joined Canaan Partners, a national venture capital investment firm, in
September 1995 where he is currently a general partner. From June 1985 to June
1995, Mr. Balen served as Managing Director of Horsley Bridge Partners, a
private equity investment management firm. Mr. Balen currently serves on the
board of directors of Intraware and Commerce One. Mr. Balen received his B.S.
in electrical engineering and M.B.A. from Cornell University.

Thomas L. Rosch has served on the Board of Directors since September 1997.
Mr. Rosch joined InterWest Partners in January 2000 where he is currently
general partner and managing director. InterWest Partners is a Silicon Valley-
based venture capital firm that invests in information technology and health
care companies. Previously, Mr. Rosch served as a partner of AT&T from December
1996 to January 2000. AT&T Ventures is an independent venture capital fund that
invests in information technology companies. Previously, Mr. Rosch

48
<PAGE>

served as a senior member of The Boston Consulting Group from November 1989 to
November 1996. Mr. Rosch currently serves on the board of directors of
Veridicom, Inc. and Signio. Mr. Rosch received his A.B. in government and
philosophy from Harvard University and J.D./M.B.A. from Stanford University.

Michael Leitner has served on the Board of Directors since January 2000. Mr.
Leitner is a Director of Corporate Development for Microsoft Corporation, a
manufacturer of software products, and has held this position since July 1998.
From August 1994 to March 1998, Mr. Leitner served as a Vice President in the
Technology Mergers and Acquisitions Group of Merrill Lynch, an investment bank.
Mr. Leitner currently serves on the board of directors of divine interVentures,
Inc. Mr. Leitner received his B.A. in economics from the University of
California, Los Angeles and M.B.A. from the University of Michigan.

Adam Wagner has served on the Board of Directors since November 1996. Mr.
Wagner is the founder in principal of Neo Ventures, LLC, a privately held
investment firm, since its formation in September 1999. From June 1992 until
September 1999, Mr. Wagner served as Vice President, Investments at Wagner &
Brown, Ltd., a closely-held oil and gas investment company. Mr. Wagner
currently serves on the board of directors of PFS Thermoplastics, Inc.,
SeaSound, LLC and iSong.com, inc. Mr. Wagner received his B.S. in geology from
the University of Oklahoma and M.B.A. from the University of Southern
California.

Rebecca Saeger has served on the Board of Directors, since September 1999.
Since June 1997, Ms. Saeger has served as Executive Vice President of Brand
Marketing for VISA U.S.A., a provider of payment products and services. From
June 1991 to May 1997, Ms. Saeger served in various positions at Foote, Cone &
Belding San Francisco, an advertising agency, including Senior Vice President,
Group Management Supervisor and Director of Account Management. From June 1980
to April 1991, Ms. Saeger worked at Ogilvy and Mather New York, an advertising
agency, where she held a variety of positions, including most recently, Senior
Vice President, Group Director. Ms. Saeger received her B.A. from Muhlenberg
College and M.B.A. from the Wharton School of Business, University of
Pennsylvania.

Robert J. Cresci has served on the Board of Directors since October 1999.
Since 1990, Mr. Cresci has served as a Managing Director of Pecks Management
Partners Ltd., which specializes in managing portfolios of public and private
convertible securities for institutional clients. Mr. Cresci is a graduate of
the United States Military Academy at West Point and received an MBA from
Columbia University.

Jerry Gramaglia has served on the Board of Directors since October 1999. Mr.
Gramaglia is the Chief Marketing Officer of E*Trade Group, Inc., a financial
services company, and has held such position since June 1998. From March 1997
to June 1998, Mr. Gramaglia served as Vice President, Marketing of the Consumer
division of Sprint Corporation, a telecommunications company. From November
1994 to January 1997, Mr. Gramaglia was a Marketing Supervisor at PepsiCo, a
manufacturer of beverage products. Mr. Gramaglia received his B.A. from Denison
University.

Classified Board

Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. Robert H. Ewald, Thomas L. Rosch and Robert J. Cresci have
been designated Class I directors whose terms expire at the 2000 annual meeting
of stockholders. Marcelo A. Gumucio, Adam Wagner and Jerry Gramaglia have been
designated Class II directors whose terms expire at the 2001 annual meeting of
stockholders. Michael Leitner, John V. Balen and Rebecca Saeger have been
designated as Class III directors whose terms expire at the 2002 annual meeting
of stockholders. This classification of the board of directors may delay or
prevent a change in control of our company or in our management.

Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.

49
<PAGE>

Board Committees

We established an audit committee and a compensation committee in July 1998.

Our audit committee currently consists of Messrs. Balen, Wagner and Cresci.
The audit committee reviews our internal accounting procedures and consults
with and reviews the services provided by our independent accountants.

Our compensation committee currently consists of Messrs. Rosch and Gramaglia
and Ms. Saeger. The compensation committee reviews and recommends to the board
of directors the compensation and benefits of our employees.

Compensation Committee Interlocks and Insider Participation

Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee 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

Except for our Chairman of the Board, we do not currently compensate our
directors in cash for their service as members of the board of directors,
although we reimburse our directors for expenses in connection with attendance
at board of director and compensation committee meetings. We currently pay
Marcelo Gumucio $10,000 per month for his service as Chairman of the Board.
Under our stock option plan, directors are eligible to receive stock option
grants at the discretion of the board of directors or other administrator of
the plan. During 1999, the board granted options to purchase an aggregate of
50,000 shares to Rebecca Saeger at an exercise price per share of $8.60,
granted options to purchase an aggregate of 40,000 shares to Jerry Gramaglia at
an exercise price per share of $18.9375 and granted Marcelo Gumucio a stock
bonus of 62,500 shares.

50
<PAGE>

Executive Compensation

Summary Compensation Table

The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal years ended December 31, 1999 and December
31, 1998 by our former chief executive officer, our current chief executive
officer and our next four most highly compensated executive officers who earned
more than $100,000 during the fiscal year ended December 31, 1999. These
executives are referred to as the Named Executive Officers elsewhere in this
prospectus.

Long-Term
Compensation
Annual Awards All Other
Year Compensation ------------ Compensation(1)
---- ------------------ Securities ---------------
Name and Principal Underlying
Position Salary($) Bonus($) Options(#)
<S> <C> <C> <C> <C> <C>
Robert H. Ewald........... 1999 227,169 -- 1,656,250 2,084
President and Chief
Executive Officer(2) 1998 -- -- --

Sunir Kapoor.............. 1999 43,160 63,500 -- --
Former Chief Executive
Officer and President(3) 1998 153,042 63,500 370,263

Martin Pagel.............. 1999 160,305 65,954 -- --
Chief Technical Officer 1998 128,750 25,000 18,994

Nicole Eagan.............. 1999 172,819 82,268 62,500 1,448
Senior Vice President,
Marketing and Sales 1998 128,750 28,000 35,000

Thomas J. Reinemer........ 1999 160,342 79,072 -- 2,860
Vice President,
International(4) 1998 128,750 28,000 35,000

Rick D. Prime............. 1999 167,500 -- -- 2,025
Former Vice President,
Finance(5) 1998 128,750 -- 12,500

</TABLE>

- ---------------------
(1) Represents E-Stamp's contributions to our 401(k) plan in 1999 on behalf of
the Named Executive Officers.

(2)Mr. Ewald joined E-Stamp as our Chief Executive Officer and President in
February 1999.

(3) Mr. Kapoor served as Chief Executive Officer and President of E-Stamp from
February 1996 until February 1999.

(4) Mr. Reinemer served as Vice President, Operations from August 1996 until
March 1999.

(5) Mr. Prime served as Vice President, Finance from October 1997 until July
1999.

51
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth information with respect to stock options
granted to each of the Named Executive Officers in the fiscal year ended
December 31, 1999, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and
10%, compounded annually, and based upon the fair market value at the date of
grant as determined by the board of directors which was equal to the exercise
price. These assumed rates of appreciation comply with the rules of the
Securities and Exchange Commission and do not represent our estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock.

In the fiscal year ended December 31, 1999, we granted options to purchase
up to an aggregate of 4,886,149 shares to employees, directors and consultants.
All options were granted under our 1996 Stock Option and Restricted Stock Plan
or our 1999 Stock Plan at exercise prices at or above the fair market value of
our common stock on the date of grant, as determined in good faith by the board
of directors. All options have a term of ten years. Optionees may pay the
exercise price by cash, certified check, or delivery of already-owned shares of
our common stock. All options to the Named Executive Officers are immediately
exercisable upon grant; however, any unvested shares may be repurchased by us
at their cost in the event of the optionee's termination of employment. All
option shares vest over four years, with 25% of the option shares vesting one
year after the option grant date, and the remaining option shares vesting
ratably each quarter thereafter.

<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Price Appreciation for
Options Employees Exercise Option Term
Name Granted In Last Price Expiration -----------------------
(#) Fiscal Year ($/share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Robert H. Ewald......... 1,531,250 31.34 0.72 2/18/09 693,400 1,757,100
125,000 2.56 0.00 2/18/09 540,800 1,370,600

Sunir Kapoor............ -- -- -- -- -- --

Martin Pagel............ -- -- -- -- -- --

Nicole Eagan............ 62,500 1.28 1.20 7/27/09 47,200 119,500

Thomas J. Reinemer...... -- -- -- -- -- --

Rick D. Prime........... -- -- -- -- -- --
</TABLE>

52
<PAGE>

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

The following table describes for the Named Executive Officers their option
exercises for the fiscal year ended December 31, 1999, and exercisable and
unexercisable options held by them as of December 31, 1999.

The "Value of Unexercised In-the-Money Options at December 31, 1999" is
based on a value of $22.25 per share, the fair market value of our common stock
as of December 31, 1999,which was the closing price of our common stock on
December 31, 1999, as reported on the NASDAQ stock market, less the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option. All options were granted under our 1996 Stock Option and Restricted
Stock Plan and our 1999 Stock Plan. The shares vest over four years, with 25%
of the shares vesting one year after the grant date and the remaining shares
vesting ratably each quarter thereafter.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options At December 31, the-Money Options at
Value 1999 (#) December 31, 1999 ($)
Shares Acquired Realized ------------------------- -------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Robert H. Ewald......... 1,656,250 35,749,063 -- -- $ -- $ --

Sunir Kapoor(1)......... -- -- -- -- -- --

Martin Pagel............ -- -- 18,993 -- 410,439 --

Nicole Eagan............ -- -- 95,000 -- 2,017,950 --

Thomas J. Reinemer...... -- -- 35,000 -- 756,350 --

Rick D. Prime........... -- -- -- -- -- --
</TABLE>
- --------
(1) E-Stamp repurchased 409,878 unvested shares held by Mr. Kapoor in June
1999.

1999 Stock Plan

The board of directors adopted our 1999 Stock Plan, referred to as the 1999
Plan, in August 1999, and our stockholders subsequently approved the 1999 Stock
Plan. This stock plan became effective upon stockholder approval, which
occurred prior to the effective date of our initial public offering. This stock
plan provides for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
for the grant to employees, directors and consultants of nonstatutory stock
options and stock purchase rights.

As adjusted for our October 1999 stock dividend, a total of 2,500,000 shares
of common stock were reserved for issuance, plus annual increases, beginning in
fiscal year 2000, equal to the lesser of:

. 1,250,000 shares;

. 3% of the outstanding shares on such date; or

. a lesser amount determined by the board.

As of December 31, 1999, options to purchase 2,204,136 shares of our common
stock were outstanding under the 1999 Plan, and a total of 1,172,798 shares
that have been issued pursuant to the 1999 Plan were outstanding.

The stock plan administrator, which is the board of directors or a committee
of the board, administers the 1999 Plan. In the case of options intended to
qualify as "performance based compensation" within the meaning of the Internal
Revenue Code of 1986, as amended, the committee will consist of two or more
"outside directors" within the meaning of the Internal Revenue Code of 1986, as
amended.

The administrator determines the exercise price of nonstatutory stock
options granted under the 1999 Plan, but with respect to nonstatutory stock
options intended to qualify as "performance based compensation" within the
meaning of the Internal Revenue Code of 1986, as amended, the exercise price
must be at least equal to the fair market value of the common stock on the date
of grant. The exercise price of incentive stock options granted under the 1999
Plan must be at least equal to the fair market value of the common stock on the
date of grant. For any participant who owns stock possessing more than 10% of
the voting power of all classes of our capital stock, the exercise price of any
incentive stock option must equal at least 110% of the fair value on the date
of grant and

53
<PAGE>

the term of such incentive stock option must not exceed five years. The term of
all other options granted under the stock option plan may not exceed 10 years.

An optionee must exercise an option granted under the 1999 Plan generally
within three months after the end of the optionee's status as an employee,
director or consultant of E-Stamp, or within 12 months after the optionee's
termination by death or disability, but in no event later than the expiration
of the option's term. Unless determined otherwise by the administrator, an
optionee generally may not transfer options and stock purchase rights granted
under the 1999 Plan.

The administrator determines the exercise price of stock purchase rights
granted under the 1999 Plan. In the case of stock purchase rights, unless the
administrator determines otherwise, the restricted stock purchase agreement
entered into in connection with the exercise of the stock purchase rights
contains a repurchase option that we may exercise upon the voluntary or
involuntary termination of the purchaser's service with us for any reason,
including death or disability. The purchase price for shares we repurchase
under the restricted stock purchase agreements will be the original price paid
by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to us. The repurchase option lapses at a rate that the administrator
determines.

The 1999 Plan provides that in the event of our merger with or into another
corporation or the sale of substantially all of our assets, the successor
corporation will assume or substitute each option or stock purchase right. If
the outstanding options or stock purchase rights are not assumed or
substituted, the administrator will provide notice to the optionee that he or
she has the right to exercise each outstanding option or stock purchase right
as to all of the shares subject to the option or stock purchase right,
including shares that would not otherwise be exercisable, for a period of 30
days from the date of the notice. The options and stock purchase rights will
terminate upon the expiration of the 30-day period.

Unless terminated sooner, the 1999 Plan will terminate automatically in
2009. In addition, the administrator has the authority to amend, suspend or
terminate the 1999 Plan, provided that no such action may affect any share of
common stock previously issued and sold or any option previously granted.

1996 Stock Option and Restricted Stock Plan

Our 1996 Stock Option and Restricted Stock Plan, referred to as the 1996
Plan, was adopted by the board of directors and subsequently approved by our
stockholders. The 1996 Plan provides for the grant to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and for the grant to employees and consultants of
nonstatutory stock options and restricted stock rights.

The board of directors has determined that no future options or restricted
stock rights will be granted under our 1996 Plan after the effective date of
this offering. However, the board or a committee of our board of directors will
administer the options and stock purchase rights granted under the 1996 Plan
that are outstanding on the effective date of this offering. A total of
6,018,750 shares of common stock were authorized for issuance under the 1996
Plan. As of December 31, 1999, options to purchase an aggregate of 979,322
shares of our common stock were outstanding under this stock option plan, and a
total of 4,978,466 shares that have been issued pursuant to the exercise of
options granted under the 1996 Plan were outstanding.

The options outstanding at the time of this offering will remain subject to
the terms of the agreements evidencing such options and the terms of the 1996
Plan. The 1996 Plan provides that in the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the Company's
assets, each outstanding option will terminate immediately prior to such
transaction, unless determined otherwise by the plan administrator.

1999 Employee Stock Purchase Plan

Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
in August 1999, and was subsequently approved by our stockholders. The purchase
plan became effective on the effective date of our

54
<PAGE>

initial public offering. A total of 500,000 shares of common stock has been
reserved for issuance under the purchase plan, plus annual increases equal to
the lesser of:

. 350,000 shares;

. 1% of the outstanding shares on such date; or

. a lesser amount determined by the board.

The board of directors or a committee appointed by the board administers the
stock purchase plan. The board or its committee has full and exclusive
authority to interpret the terms of the stock purchase plan and determine
eligibility.

Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be
granted options to purchase stock under the purchase plan:

. any employee who immediately after grant owns stock possessing 5% or more
of the total combined voting power or value of all classes of our capital
stock; or

. any employee whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.

The stock purchase plan, which is intended to qualify under Section 423 of
the United States tax code, contains consecutive, overlapping 24 month offering
periods. Each offering period includes four six-month purchase periods. The
offering periods generally start on the first trading day on or after May 15
and November 15 of each year, except for the first such offering period which
will commence on the first trading day on or after the effective date of this
offering and will end on the last trading day on or before November 14, 2001.

Participants may purchase common stock through payroll deductions of up to
15% of the participant's eligible compensation. The maximum number of shares a
participant may purchase during a single offering period is 5,000 shares.

Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and the end of each
offering period. In the event the fair market value at the end of a purchase
period is less than the fair market value at the beginning of the offering
period, participants will withdraw from the current offering period following
the exercise and will automatically re-enroll in a new offering period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with E-Stamp.

The purchase plan provides that, if we merge with or into another
corporation or sell substantially all of our assets, each outstanding option
may be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened and a new
exercise date will be set, which will occur before the proposed sale or merger.

The purchase plan became effective in October 1999 and will terminate in
October 2009. The board of directors has the authority to amend or terminate
the purchase plan, except that no such action may adversely affect any
outstanding rights to purchase stock.

1999 Director Option Plan

Non-employee directors are entitled to participate in our 1999 Director
Option Plan. The board of directors adopted the director plan in August 1999,
and our stockholders subsequently approved the director plan. The director plan
became effective on the effective date of our initial public offering. The
director plan has a term

55
<PAGE>

of ten years, unless terminated sooner by the board. A total of 300,000 shares
of common stock have been reserved for issuance under the director plan.

The director plan provides for the automatic grant of 40,000 shares of
common stock to each non-employee director who first becomes a non-employee
director after adoption of this plan, and who does not beneficially hold more
than one percent (1%) of the total voting power of our voting securities on the
date of grant. The shares purchasable under this option shall vest over four
years at the rate of 1/48th per month. In addition, after this offering, each
non-employee director who has served on the board for at least the six previous
months, and who does not beneficially hold more than one percent (1%) of the
total voting power of our voting securities on the date of grant, will be
granted an option to purchase 2,500 shares of common stock on the date of each
annual meeting of our stockholders. The shares purchasable under this option
shall vest over one year at the rate of 1/12th per month. Each option granted
to a non-employee director under this director plan will have a term of ten
years. The exercise price of all options shall be 100% of the fair market value
per share of the common stock, generally determined with reference to the
closing price of the common stock as reported on the Nasdaq National Market on
the date of grant.

Options granted under the director plan must be exercised within three
months of the end of the optionee's tenure as a director, or within twelve
months after such director's termination by death or disability to the extent
the option was exercisable on the date of termination, but not later than the
expiration of the option's ten year term.

1996 Non-Employee Director Stock Option Plan

Our 1996 Non-Employee Director Stock Option Plan, referred to as the 1996
Director Plan, was adopted by the Board and approved by the stockholders. Our
board of directors terminated this 1996 Director Plan with respect to future
grants. However, outstanding options granted under this plan will remain
outstanding and subject to the terms and conditions of the agreements
evidencing such options and the terms of the 1996 Director Plan.

A total of 125,000 shares of our common stock are authorized for issuance
under the 1996 Director Plan. As of December 31, 1999, a total of 19,063 shares
were subject to outstanding options granted under this plan. Although 105,937
shares remain available for further grant of options under the 1996 Director
Plan, no more options will be granted under this plan.

401(k) Plan

We sponsor a 401(k) plan which provides eligible employees located in the
United States an opportunity to save money for their retirement on a tax
deferred basis. The 401(k) plan is intended to qualify under Sections 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended. Eligible employees
may elect to reduce their current eligible compensation by up to 15%, subject
to the statutory annual limit in 1999 of $10,000, and to have the amount of
such reduction contributed on their behalf to the 401(k) plan. We currently
provide a matching contribution to those eligible employees who have elected to
participate in the 401(k) plan equal to 50% of the first 4% of their eligible
contributions to the 401(k) plan. In addition, the 401(k) plan permits, but
does not require, an additional discretionary profit sharing contribution to be
made by us on behalf of eligible employees. To date, we have not made any such
discretionary profit sharing contribution to the 401(k) plan. Contributions
that are made to the 401(k) plan, whether if made by the eligible employees, or
by us, and the investment earnings thereon, are not taxable to employees until
such amounts are withdrawn from the 401(k) plan. However, any contributions
made by us will be deductible in the taxable year they are made. The 401(k)
plan may be amended or terminated by us at anytime, and in our sole discretion.

Employment Agreements

We have issued offer letters to each of Robert H. Ewald, Anthony H. Lewis,
Jr., Roderick Witmond, Edward Malysz and Marcelo A. Gumucio pursuant to which
each is entitled to a base salary, bonuses and an option to purchase shares of
our common stock. In addition, we granted Mr. Ewald 125,000 shares of common

56
<PAGE>

stock for our commencing an initial public offering within twelve months of his
employment start date. We agreed to provide Mr. Lewis with a promissory note in
the amount of $38,100 which will be forgiven in the event he is terminated
without cause prior to one year of service or upon completion of one year of
service from his start date. We agreed that if Mr. Gumucio is involuntarily
terminated within one year of his start date, 25% of his option shall become
immediately exercisable. We have agreed that the stock options of Messrs.
Ewald, Lewis, Malysz and Gumucio will vest in full if we experience a change in
control.

We have entered into employment agreements with each of Nicole Eagan, Martin
Pagel and Thomas J. Reinemer pursuant to which each is entitled to a base
salary, bonuses, an option to purchase shares of common stock and an option to
purchase shares of restricted common stock. All of these options have been
exercised in full and the shares issued thereunder are included in the share
amounts throughout this prospectus. Under these agreements, if any of Nicole
Eagan, Martin Pagel or Thomas J. Reinemer are terminated without cause, he or
she will be entitled to the payment of six months of his or her base salary. In
addition, we have agreed that the stock options of Ms. Eagan and Messrs. Pagel
and Reinemer will vest in full if we experience a change in control.

Limitations on Directors' Liability and Indemnification

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:

. any breach of their duty of loyalty to the corporation or its
stockholders;

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

. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or

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

This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether our bylaws would permit indemnification.

We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers.

The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative litigation, if successful, might otherwise benefit us and
our stockholders. A stockholder's investment in us may be adversely affected to
the extent we pay the costs of settlement or damage awards against our
directors or officers under these indemnification provisions.

At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.

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<PAGE>

RELATED PARTY TRANSACTIONS

During the last two years, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our common stock had
or will have a director or indirect interest other than compensation
arrangements, which are described where required under "Management," and the
transactions described below.

Equity Investment Transactions for Cash

In September 1997, we sold 2,500,000 shares of Series A preferred stock for
$2.40 per share. In July 1998, we sold 4,188,000 shares of Series B preferred
stock for $3.82 per share. In August 1999, we sold 2,928,521 shares of Series C
preferred stock for $10.31 per share. Each share of preferred stock
automatically converted into shares of our common stock on a 1.25-for-1 basis
upon the closing of our initial public offering. Listed below are the
directors, executive officers and stockholders who beneficially own more than
5% of our securities who participated in these financings. We have also
indicated in the table below the value of shares held by these individuals
based on the last reported sales price for our common stock on the Nasdaq
National Market on February 1, 2000 of $17.6875 per share. This sales price of
$17.6875 per share does not represent our estimate of future stock prices.
Actual gains, if any, on sale of our shares will be dependent on the future
performance of our common stock.
<TABLE>
<CAPTION>
Value of
Aggregate Shares at Last
Series A Series B Series C Cash Reported Sales
Name Preferred Preferred Preferred Consideration Price
<S> <C> <C> <C> <C> <C>
Microsoft Corporation... 1,250,000 261,750 109,231 $5,126,174 $35,838,872
Entities affiliated with
AT&T Ventures(1)....... 1,250,000 261,750 218,462 6,252,343 38,253,906
Canaan Equity, L.P...... -- 1,047,000 113,476 5,169,478 25,657,399
Unified Holdings,
L.L.C.................. -- 1,047,000 -- 4,000,000 23,148,516
John V. Balen(2)........ -- 1,047,000 113,476 5,169,478 25,657,399
Robert Cresci(3)........ -- -- 581,959 5,999,997 12,866,737
Michael Leitner(4)...... 1,250,000 261,750 109,231 5,126,174 35,838,872
Adam Wagner(5).......... -- 1,047,000 5,416 4,055,379 23,268,260
Martin Pagel............ -- -- 2,166 22,323 47,898
</TABLE>
- ---------------------
(1) Includes 1,125,000 shares of Series A preferred stock, 235,575 shares of
Series B preferred stock and 196,616 shares of Series C preferred stock
held by AT&T Venture Fund II, L.P. and 125,000 shares of Series A preferred
stock, 26,175 shares of Series B preferred stock and 21,846 shares of
Series C preferred stock held by Venture Fund I, L.P.

(2) Includes 1,047,000 shares of Series B preferred stock and 151,302 shares of
Series C preferred stock held by Canaan Equity, L.P. Mr. Balen disclaims
beneficial ownership of these shares.

(3) Includes 77,575 shares of Series C preferred stock held by the Declaration
of Trust for Defined Benefit Plans of Zeneca Holdings Inc. (Nominee:
Fuelship & Co.), 116,392 shares of Series C preferred stock held by the
Declaration of Trust for Defined Benefit Plans of ICI American Holdings
Inc. (Nominee: Northam & Co.) and 387,992 shares of Series C preferred
stock held by the Delaware State Employees' Retirement Fund (Nominee: Nap &
Co.). Such funds are managed by Pecks Management Partners Ltd., of which
Mr. Cresci is a managing director. Mr. Cresci disclaims beneficial
ownership of these shares.

(4) Includes 1,250,000 shares of Series A preferred stock, 261,750 shares of
Series B preferred stock and 109,231 shares of Series C preferred stock
held by Microsoft Corporation. Mr. Leitner disclaims beneficial ownership
of these shares.

(5) Includes 1,047,000 shares of Series B preferred stock held by Unified
Holdings, L.L.C. Mr. Wagner is a managing member of Unified Holdings,
L.L.C. Wagner & Brown, Ltd., Mr. Wagner's employer, claims beneficial
ownership of 130,875 shares and Wagner Family Partnership VI of which Mr.
Wagner is a partner claims beneficial ownership of 45,021 shares. Includes
2,708 shares of Series C preferred stock held by Wagner & Brown, Ltd. and
2,708 shares of Series C preferred stock held by Wagner Family Partnership
VI.

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<PAGE>

Sales of Equity Securities to Executive Officers

On May 30, 1999, we sold 1,531,250 shares of common stock at a price of
$0.72 per share to Robert H. Ewald. We have the right to repurchase such shares
in the event Mr. Ewald's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Ewald paid for such
shares with a full-recourse, five-year $1,102,500 promissory note, secured by
the purchased shares. The note bears interest at a rate of 6% per annum.

On June 12, 1998, we sold an aggregate of 332,692 shares of common stock at
a price of $0.20 per share for 32,031 shares and $0.40 per share for 300,661
shares to Nicole Eagan. We have the right to repurchase such shares in the
event Ms. Eagan's services to us terminate, which right lapses progressively
over four years after the date of grant. Ms. Eagan paid for such shares with a
full-recourse, five-year $126,671 promissory note, secured by the purchased
shares. The note bears interest at a rate of 6% per annum.

On June 12, 1998, we sold an aggregate of 225,325 shares of common stock at
a price of $0.20 per share for 32,031 shares and $0.40 per share for 193,294
shares to Martin Pagel. We have the right to repurchase such shares in the
event Mr. Pagel's services to us terminate, which right lapses progressively
over four years after the date of grant. Mr. Pagel paid for such shares with a
full-recourse, five-year $83,724 promissory note, secured by the purchased
shares. The note bears interest at a rate of 6% per annum.

On June 12, 1998, we sold an aggregate of 306,920 shares of common stock at
a price of $0.20 per share for 32,031 shares and $0.40 per share for 274,889
shares to Thomas J. Reinemer. We have the right to repurchase such shares in
the event Mr. Reinemer's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Reinemer paid for
such shares with a full-recourse, five-year $116,362 promissory note, secured
by the purchased shares. The note bears interest at a rate of 6% per annum.

On June 28, 1999, we sold 187,500 shares of common stock at a price of $1.20
per share to Edward F. Malysz. We have the right to repurchase such shares in
the event Mr. Malysz's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Malysz paid for such
shares with a full-recourse, five-year $225,000 promissory note, secured by the
purchased shares. The note bears interest at a rate of 6% per annum.

On July 31, 1999, we sold 375,000 shares of common stock at a price of $1.20
per share to Anthony H. Lewis, Jr. We have the right to repurchase such shares
in the event Mr. Lewis' services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Lewis paid for such
shares with a full-recourse, five-year $450,000 promissory note, secured by the
purchased shares. The note bears interest at a rate of 6% per annum.

On August 18, 1999, we granted Mr. Ewald a stock bonus of 125,000 shares of
common stock. On January 14, 2000 we loaned Mr. Ewald approximately $410,000
for the purpose of satisfying his income tax liability associated with this
stock bonus. This loan bears interest at a rate of 5.88% per annum and is
forgivable over 2 years from the date of the stock bonus based on Mr. Ewald
remaining our employee throughout such period.

On August 18, 1999, we granted Marcelo Gumucio a stock bonus of 62,500
shares of common stock. On December 23, 1999, we loaned Mr. Gumucio
approximately $150,000 for the purpose of satisfying his income tax liability
associated with this stock bonus. This loan bears interest at a rate of 5.74%
per annum and is forgivable over 2 years from the date of the stock bonus based
on Mr. Gumucio's continuing service as a director throughout such period.

59
<PAGE>

Benefits to Executive Officers

The following table sets forth:

. the aggregate number of shares purchased by each of our executive
officers during the last three years on an as converted to common stock
basis after giving effect to our October 1999 stock dividend;

. the aggregate purchase price paid for those shares by each of our
executive offices; and

. the value of those shares based on the last reported sales price on
February 1, 2000 for our common stock on the Nasdaq National Market of
$17.6875 per share.

This sales price of $17.6875 per share does not represent our estimate of
future stock prices. Actual gains, if any, on sale of our shares will be
dependent on the future performance of our common stock.

<TABLE>
<CAPTION>
Value of
Shares Shares at Last
Purchased Aggregate Reported Sales
Name (#) Consideration Price
<S> <C> <C> <C>
Robert H. Ewald 1,656,250 $1,102,500 $29,294,922
Anthony H. Lewis, Jr. 375,000 450,000 6,632,813
Nicole Eagan 332,693 126,671 5,884,507
Martin Pagel 228,032 106,056 4,033,316
Thomas J. Reinemer 318,170 116,362 5,627,632
Edward F. Malysz 187,500 225,000 3,316,406
Marcelo A. Gumucio 373,087 238,776 6,598,976
</TABLE>

Other Transactions

We have entered into indemnification agreements with each of our executive
officers and directors.

We have granted options to our executive officers and some of our directors.

Holders of the common stock issued upon conversion of our preferred stock
are entitled to registration rights with respect to those shares.

We believe that all related party transactions described above were on terms
no less favorable than could have been obtained from unrelated third parties.

60
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, by the following
individuals or groups:

. each person or entity who we know beneficially owns more than 5% of our
outstanding stock;

. each of the Named Executive Officers;

. each of our directors; and

. all directors and executive officers as a group.

Unless otherwise indicated, the address for each stockholder listed in the
following table is c/o E-Stamp Corporation, 850 Saginaw Drive, 2nd Floor,
Redwood City, California 95061. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are currently exercisable or will become
exercisable within 60 days after December 31, 1999, are deemed outstanding,
while the shares are not deemed outstanding for purposes of computing
percentage ownership of any other person. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of common
stock held by them.

Applicable percentage ownership in the following table is based on
39,103,475 shares of common stock outstanding as of December 31, 1999.

Principal Stockholders Table

<TABLE>
<CAPTION>
Number of
Shares Percentage
Beneficially of Shares
Owned Outstanding
------------ -----------
Name
<S> <C> <C>
5% Stockholders:
SSS No. Two Limited(1)............................ 3,151,324 8.1%
Entities affiliated with AT&T Ventures(2)......... 2,162,764 5.5%
Microsoft Corporation(3).......................... 2,026,226 5.2
Directors and Executive Officers:
Robert H. Ewald(4)................................ 1,656,250 4.2
Anthony H. Lewis, Jr.(5).......................... 375,000 *
Martin Pagel(6)................................... 247,025 *
Nicole Eagan(7)................................... 427,692 *
Thomas J. Reinemer(8)............................. 341,920 *
Rick D. Prime..................................... 73,228 *
Sunir Kapoor...................................... 342,506 *
Marcelo A. Gumucio(9)............................. 498,087 1.3
John V. Balen(10)................................. 1,497,877 3.8
Thomas L. Rosch................................... 0 *
Michael Leitner(11)............................... 2,030,226 5.2
Adam Wagner(12)................................... 1,828,020 4.7
Rebecca Saeger(13)................................ 5,208 *
Robert Cresci(14)................................. 727,448 1.9
Jerry Gramaglia(15)............................... 3,333 *
All directors and executive officers as a group
(16 persons)(16)................................. 10,241,320 26.3
</TABLE>
- ---------------------
* Less than 1% of the outstanding shares of common stock.

61
<PAGE>

(1) The address for SSS No. Two Limited is Citybank Building, Thompson
Boulevard, Nassau, Bahamas.

(2) The aggregated shares listed for entities affiliated with AT&T Ventures are
owned as follows: 1,700,719 shares are beneficially owned by AT&T Venture
Fund II, L.P. and 188,969 shares are beneficially owned by Venture Fund I,
L.P. The address for AT&T Ventures is 3000 Sand Hill Road, Building 1,
Suite 285, Menlo Park, CA 94025.

(3) The address for Microsoft Corporation is One Microsoft Way, Redmond, WA
98502.

(4) At December 31, 1999, 1,531,250 shares held by Mr. Ewald were unvested and
subject to a right of repurchase in favor of us, which right lapses over
time.

(5) At December 31, 1999, 375,000 shares held by Mr. Lewis were unvested and
subject to a right of repurchase in favor of us, which right lapses over
time.

(6) At December 31, 1999, 175,077 shares held by Mr. Pagel were vested, and
50,247 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time. Includes 18,993 shares issuable upon
exercise of options held by Mr. Pagel within 60 days of December 31, 1999,
13,057 of which would be subject to a right of repurchase in favor of us,
which right lapses over time.

(7) At December 31, 1999, 231,664 shares held by Ms. Eagan were vested, and
101,028 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time. Includes 95,000 shares issuable upon
exercise of options held by Ms. Eagan within 60 days of December 31, 1999,
86,875 of which would be subject to a right of repurchase in favor of us,
which right lapses over time.

(8) At December 31, 1999, 213,602 shares held by Mr. Reinemer were vested, and
93,317 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time. Includes 35,000 shares issuable upon
exercise of options held by Mr. Reinemer within 60 days of December 31,
1999, 26,250 of which would be subject to a right of repurchase in favor of
us, which right lapses over time.

(9) At December 31, 1999, 179,091 shares held by Mr. Gumucio were vested and
256,496 shares were unvested and subject to a right of repurchase in favor
of us, which right lapses over time. Includes 62,500 shares issuable upon
exercise of options held by Mr. Gumucio within 60 days of December 31,
1999, all of which would be subject to a right of repurchase in favor of
us, which right lapses over time.

(10) The shares are beneficially owned by Canaan Equity, L.P. Mr. Balen is a
principal of Canaan Partners. Mr. Balen disclaims beneficial ownership of
these shares.

(11) Includes 2,026,226 shares beneficially owned by Microsoft Corporation. Mr.
Leitner is Director, Corporate Development at Microsoft Corporation. Mr.
Leitner disclaims beneficial ownership of these shares.

(12) Includes 250,000 shares of common stock held by Wagner & Brown, Ltd, Mr.
Wagner's former employer. Mr. Wagner has disclaimed beneficial ownership
of these shares. Includes 62,500 shares of common stock held by Wagner
Family Partnership VI, of which Mr. Wagner is a partner. Mr. Wagner has a
12.5% beneficial ownership of these shares. Includes 200,000 shares of
common stock held in escrow and for which Mr. Wagner is an escrow agent.
Wagner & Brown, Ltd. claims beneficial ownership of 38,280 shares and
Wagner Family Partnership VI claims beneficial ownership of 9,560 shares.
Includes 1,308,750 shares of common stock, held by Unified Holdings,
L.L.C. Mr. Wagner is a managing member of Unified Holdings, L.L.C. Wagner
& Brown, Ltd. claims beneficial ownership of 163,594 shares and Wagner
Family Partnership VI claims beneficial ownership of 56,276 shares.
Includes 3,385 shares of common stock, held by Wagner & Brown, Ltd. and
3,385 shares of common stock, held by Wagner Family Partnership VI.

(13) Includes 5,208 shares issuable upon exercise of options held by Ms. Saeger
within 60 days of December 31, 1999.

(14) Includes 96,968 shares of common stock held by the Declaration of Trust
for Defined Benefit Plans of Zeneca Holdings Inc., 145,490 shares of
common stock held by the Declaration of Trust for Defined Benefit Plans of
ICI American Holdings Inc. and 484,990 shares held by the Delaware State
Employees'

62
<PAGE>

Retirement Fund. Such funds are managed by Pecks Management Partners Ltd.,
of which Mr. Cresci is a Managing Director. Mr. Cresci disclaims beneficial
ownership of these shares.

(15) Includes 3,333 shares issuable upon exercise of options held by Mr.
Gramaglia within 60 days of December 31, 1999.

(16) Includes 924,434 shares issued under the 1999 Stock Plan and 1996 Stock
Option and Restricted Stock Plan which were vested and 2,594,838 shares
which were unvested at December 31, 1999 and subject to a right of
repurchase in favor of us, which right lapses over time. Includes 220,034
shares issuable upon exercise of options within 60 days of December 31,
1999, 188,682 of which would be subject to a right of repurchase in favor
of us, which right lapses over time.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

General

We are authorized to issue 200,000,000 shares of common stock, $0.001 par
value, and 10,000,000 shares of undesignated preferred stock, $0.001 par value.
The following description of our capital stock does not purport to be complete
and is subject to and qualified in its entirety by our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.

Common Stock

As of December 31, 1999, there were 39,103,475 shares of common stock
outstanding which were held of record by approximately 537 stockholders.

The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Our stockholders do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding preferred stock, the holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available for that purpose. In the
event of our liquidation, dissolution or winding up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The holders of common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable.

Preferred Stock

The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may
be greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:

. restricting dividends on the common stock;

. diluting the voting power of the common stock;

. impairing the liquidation rights of the common stock; or

. delaying or preventing a change in control of us without further action
by the stockholders.

Upon the closing no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.

Warrants

At December 31, 1999, there were warrants outstanding to purchase 48,497
shares of common stock.

Registration Rights

The holders of 12,020,651 shares of common stock, referred to as the
registrable securities, are entitled to rights with respect to registration of
such shares under the Securities Act. These rights are provided under the terms
of an agreement between the holders of registrable securities and us. Beginning
on April 6, 2000, holders of at least 25% of the then outstanding registrable
securities obtained from conversion of our Series A

64
<PAGE>

preferred stock, or such lesser percentage if the anticipated aggregate
offering price would exceed $15,000,000, may require on one occasion that we
register their shares for public resale. Beginning on April 6, 2000, holders of
at least 25% of the then outstanding registrable securities obtained from
conversion of our Series B preferred stock, or such lesser percentage if the
anticipated aggregate offering price would exceed $15,000,000 may require on
one occasion that we register their shares for public resale. Beginning on
April 6, 2000, holders of at least 25% of the then outstanding registrable
securities obtained from conversion of our Series C preferred stock, or such
lesser percentage of the anticipated aggregate offering price would exceed
$15,000,000, may require on one occasion that we register their shares for
public resale. However, we may defer such registration for 90 days in view of
market conditions. Also, holders of registrable securities may require on two
separate occasions within any twelve month period that we register their shares
for public resale on Form S-3 or similar short-form registration if the value
of the securities to be registered is at least $500,000, however we may defer
such registration for 90 days in view of market conditions. Furthermore, in the
event we elect to register any of our shares of common stock for purposes of
effecting any public offering, the holders of registrable securities are
entitled to include their shares of common stock in the registration, but we
may reduce the number of shares proposed to be registered in view of market
conditions to not less than 50% of the shares being registered. All expenses in
connection with any registration, other than underwriting discounts and
commissions, will be borne by us. All registration rights will terminate five
years following the consummation of this offering, or, with respect to each
holder of registrable securities, at such time as the holder is entitled to
sell all of its shares in any 90 day period under Rule 144 of the Securities
Act.

Delaware Anti-Takeover Law and Charter and Bylaw Provisions

Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:

. the acquisition of us by means of a tender offer;

. acquisition of us by means of a proxy contest or otherwise; or

. the removal of our incumbent officers and directors.

These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.

Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. This system of electing
and removing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us because it
generally makes it more difficult for stockholders to replace a majority of the
directors.

Stockholder Meetings. Under our certificate of incorporation, only the board
of directors, the chairman of the board and the chief executive officer may
call special meetings of stockholders.

Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.

Delaware AntiTakeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a

65
<PAGE>

"business combination" with an "interested stockholder" for a period of three
years following the date the person became an interested stockholder, unless
the "business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.

Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting at any time when we have 500 or more record stockholders.

Elimination of Cumulative Voting. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.

Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of us. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of us.

Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.

Transfer Agent and Registrar

The transfer agent and registrar for the common stock is Continental Stock
Transfer and Trust Company.

Nasdaq National Market Listing

Our shares are listed on The Nasdaq National Market under the symbol
"ESTM."

66
<PAGE>

OPTION RESCISSION OFFER

Option grants made to California residents under our 1996 Stock Option and
Restricted Stock Plan, our 1996 Non-Employee Director Stock Option Plan and our
1999 Stock Plan prior to the effectiveness of our registration statement on
Form S-8 filed on October 14, 1999 were not exempt from qualification under
California state securities laws, and these option grants were not in
compliance with the requirements of California state securities laws because
qualification was not obtained. Concurrent with the federal rescission offer
being made by this prospectus to persons who purchased shares upon exercise of
options granted under our 1996 Stock Option and Restricted Stock Plan and our
1999 Stock Plan, we are offering to rescind options granted prior to October
14, 1999 to California residents that are currently outstanding under those
plans by paying those option holders 20% of the option exercise price plus
statutory interest at the rate of 7% from the date of option grant. California
residents who exercised options that are subject to rescission under California
state securities laws have no rescission right under federal securities laws
for exercises that occurred subsequent to the effectiveness of our registration
statement on Form S-8 filed on October 14, 1999. Notwithstanding the lack of a
federal right of rescission with respect to such stock issuances, stock issued
pursuant to the exercise of options granted prior to October 14, 1999 continues
to be subject to rescission under California state securities laws.
Accordingly, although the issuance of such shares after October 14, 1999 was
registered under and complied with federal securities laws, we will offer to
repurchase those shares from California residents for the purchase price of
those shares plus interest at the statutory rate of 7% from the date of
purchase through the California state rescission offer we will make concurrent
with our federal rescission offer.

Offerees will be able to accept our rescission offer prior to its expiration
date by returning to us an election notice that we will deliver to the offerees
together with the prospectus for our rescission offer. If accepted, our option
rescission offer could require us to make aggregate payments to the holders of
these shares and options of up to approximately $1.97 million plus statutory
interest. We currently expect to use a portion of the proceeds from our recent
initial public offering to make such payments, if any are required.

We were unable to rely on the exemption provided by Section 25102(f) of the
California Corporation Code for our options to purchase shares of common stock
granted under our 1996 Stock Option and Restricted Stock Plan, our 1996 Non-
Employee Director Stock Option Plan and our 1999 Stock Plan because options
were granted to more than 35 persons during a 12 month period, or on the
exemption provided by Section 25102(o) of the California Corporation Code
because the required filing under that section was not made.

Of the option grants made to California residents prior to October 14, 1999:

. options to purchase 936,353 shares of common stock at a weighted
average exercise price of $0.88 per share are currently outstanding
under our 1996 Stock Option and Restricted Stock Plan;

. options to purchase 19,062 shares of common stock at a weighted
average exercise price of $0.40 per share are currently outstanding
under our 1996 Non-Employee Director Option Plan;

. options to purchase 969,327 shares of common stock at a weighed
average exercise price of $9.26 per share are currently outstanding
under our 1999 Stock Plan; and

. we issued 18,006 shares of our common stock for an aggregate purchase
price of approximately $10,000 upon option exercises that occurred
after the effectiveness of our registration statement on Form S-8
filed on October 14, 1999.

All of the options and stock issuances described above are potentially subject
to rescission under California state securities laws, and we plan to include
them in our rescission offer discussed above. Under such rescission offer, we
could be required to make an aggregate payment of up to approximately $1.97
million for such grants.

As of the date hereof, we are not aware of any claims for rescission against
us.

67
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of common stock, including shares issued
upon exercise of outstanding options and warrants, in the public market could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of its equity securities. Sales of
substantial amounts of our common stock in the public market could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.

We have outstanding 39,103,475 shares of common stock based upon shares
outstanding as of December 31, 1999. Of these shares, the 8,050,000 shares sold
in our initial public offering and the shares purchased under our stock
option plans that were registered on our registration statement on Form S-8 are
freely tradable without restriction under the Securities Act except for any
shares purchased by our "affiliates" as that term is defined in Rule 144 under
the Securities Act and for any shares purchased in our directed shares program
or by our employees which are subject to 180 day lock-up agreements. The
remaining shares of common stock are restricted shares as that term is
defined in Rule 144. These restricted shares may be sold in the public market
only if registered under the Securities Act or pursuant to an exemption from
registration under the Securities Act. As a result of the lock-up agreements
described below and the provisions of Rule 144 and 144(k), the restricted
shares will become eligible for sale in the public market as follows:

. shares are currently eligible for sale,

. shares will become eligible for sale on April 6, 2000, and

. the remaining shares will become eligible for sale from time to time
after April 6, 2000.

In addition, as of December 31, 1999, there were outstanding options to
purchase 2,261,182 shares of common stock, and warrants to purchase 48,497
shares of common stock, some of which may be exercised prior to this offering.
Officers, directors, and stockholders holding 27,996,461 shares have entered
into lock-up agreements providing that, with certain limited exceptions, the
stockholder will not offer, sell, contract to sell or otherwise dispose of any
common stock or any securities that are convertible into common stock for a
period of 180 days after October 8, 1999 without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. Donaldson, Lufkin &
Jenrette Securities Corporation may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements.

In addition, the shares subject to this rescission offer held by persons who
choose not to accept the rescission offer will, for purposes of applicable
federal and state securities laws, be registered securities as of the
expiration date of the rescission offer and, unless held by persons who may be
deemed to be "affiliates" of us, will be freely tradable in the public market
at such time subject to the vesting rights under any stock restriction
agreement with us and any resale restrictions under lock-up agreements with the
underwriters for our initial public offering. Those shares held by our
affiliates will be subject to certain restrictions on resale provided in Rule
144 under the Securities Act.

In general, under Rule 144 as currently in effect, beginning 90 days after
October 8, 1999, a person who has beneficially owned restricted shares for at
least one year including the holding period of any prior owner except an
affiliate would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:

. 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering; or

. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.

68
<PAGE>

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to
the availability of current public information about us. Under Rule 144(k), a
person who is not deemed to have been an affiliate of us at any time during the
three months preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years including the holding period of any
prior owner except an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.

We filed a Registration Statement on Form S-8 on October 14, 1999
registering 4,069,902 shares of common stock subject to outstanding options or
reserved for future issuance under our stock plans. As of December 31, 1999,
options to purchase a total 2,261,182 shares were outstanding and 1,801,994
shares were reserved for future issuance under our stock plans. Common stock
issued upon exercise of outstanding vested options or issued under our purchase
plan, other than common stock issued to our affiliates, is available for
immediate resale in the open market.

Also beginning on April 6, 2000, holders of 12,024,036 restricted shares
will be entitled to registration rights for sale in the public market.
Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness
of such registration.

69
<PAGE>

LEGAL MATTERS

The validity of the common stock subject to the rescission offer will be
passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. As of the date of this prospectus, an
investment partnership composed of members of and persons associated with
Wilson Sonsini Goodrich & Rosati, Professional Corporation, as well as some
individual attorneys of this firm, beneficially own an aggregate of 23,410
shares of our common stock.

EXPERTS

Ernst & Young, LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998, and for each of the three years in
the period ended December 31, 1998, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon
the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock subject to the
rescission offer set forth in this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules which is part of the registration statement. For further information
with respect to us and our common stock, see the registration statement and the
exhibits and schedules thereto. Any document we file may be read and copied at
the Commission's public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information about the public reference rooms. Our filings with the Commission
are also available to the public from the Commission's Web site at
http://www.sec.gov.

We are subject to the information and periodic reporting requirements of the
Securities Exchange Act and, accordingly, file periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information are available for inspection and copying
at the Commission's public reference rooms, and the Web site of the Commission
referred to above.

70
<PAGE>

E-STAMP CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Balance Sheets as of December 31, 1998 and 1997........................... F-3
Statements of Operations for the Years Ending December 31, 1998 and 1997.. F-4
Statements of Common Stock Subject to Rescission, Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit)....................... F-5
Statement of Cash Flows for the Years Ended December 31, 1998 and 1997.... F-7
Notes to Financial Statements............................................. F-8
Unaudited Condensed Balance Sheets as of September 30, 1999 and December
31, 1998................................................................. F-24
Unaudited Condensed Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998.............................................. F-25
Unaudited Condensed Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998.............................................. F-26
Notes to Unaudited Condensed Financial Statements......................... F-27
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
E-Stamp Corporation

We have audited the accompanying balance sheets of E-Stamp Corporation (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, common stock subject to rescission, redeemable
convertible preferred stock and stockholders' equity (deficit), and cash flows
for each of the three years in the period 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of E-Stamp Corporation at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Palo Alto, California
February 19, 1999,
except for the "Stock Subject to Rescission" paragraphs of Note 4 and for Note
10 as to which the date is October 6, 1999.

F-2
<PAGE>

E-STAMP CORPORATION

BALANCE SHEETS
(In thousands, except par value amounts)

<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
<S> <C> <C>
ASSETS
------

Current assets:
Cash and cash equivalents.................................... $ 4,111 $ 10,217
Other current assets......................................... 24 144
------- --------
Total current assets........................................... 4,135 10,361
Property and equipment:
Computers.................................................... 964 1,039
Furniture and fixtures....................................... 198 165
Leasehold improvements....................................... 30 --
------- --------
1,192 1,204
Accumulated depreciation and amortization.................... (596) (754)
------- --------
Net property and equipment..................................... 596 450
Other assets................................................... 32 --
------- --------
Total assets............................................... $ 4,763 $ 10,811
======= ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities..................... $ 1,701 $ 1,529
Current portion of obligations under capital lease........... 36 27
------- --------
Total current liabilities...................................... 1,737 1,556
Capital lease obligations...................................... 38 11

Commitments and contingencies..................................
Common stock subject to rescission, $0.001 par value per share:
68, and 1,974 shares issued and outstanding at December 31,
1997 and 1998, respectively .................................. 252 971
Redeemable convertible preferred stock, $0.001 par value per
share, 12,000 authorized, issuable in series (aggregate
liquidation preference of $21,998 at December 31, 1998):
Series A redeemable convertible preferred stock: 2,500 shares
authorized, 2,500 shares issued and outstanding at December
31, 1997 and 1998 respectively.............................. 6,126 6,746
Series B redeemable convertible preferred stock: 4,188 shares
authorized, 4,188 shares issued and outstanding at December
31, 1997 and 1998 respectively ............................. -- 16,723
Stockholders' equity (deficit):
Common stock, $0.001 par value per share: 100,000 shares
authorized, 12,940, and 12,950, shares issued and
outstanding at December 31, 1997 and 1998, respectively .... 13 13
Additional paid-in capital................................... 6,304 8,627
Notes receivable from employees and officers................. -- (653)
Deferred stock compensation.................................. -- (2,766)
Accumulated deficit ......................................... (9,707) (20,417)
------- --------
Total stockholders' equity (deficit)........................... (3,390) (15,196)
------- --------
Total liabilities and stockholders' equity (deficit)........... $ 4,763 $ 10,811
======= ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

E-STAMP CORPORATION

STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998

<S> <C> <C> <C>
Net revenues...................................... $ -- $ -- $ --
Operating expenses:
Research and development........................ 2,387 3,916 5,603
Sales and marketing............................. 1,761 1,743 2,722
General and administrative...................... 1,739 1,748 1,897
Amortization of deferred stock compensation..... 688 414 858
------- ------- --------
Operating loss.................................... (6,575) (7,821) (11,080)
Interest income................................... 239 157 380
Interest expense.................................. (3) (14) (10)
------- ------- --------
Net loss.......................................... (6,339) (7,678) (10,710)
Accretion on redeemable convertible preferred
stock............................................ -- (196) (1,383)
------- ------- --------
Net loss attributable to common stock............. $(6,339) $(7,874) $(12,093)
======= ======= ========
Net loss per common share (basic and diluted)..... $ (0.51) $ (0.61) $ (0.92)
======= ======= ========
Weighted-average shares outstanding (basic and
diluted)......................................... 12,543 12,966 13,075
Unaudited pro forma net loss per share (basic and
diluted)......................................... $ (0.57)
========
Unaudited pro forma weighted-average shares
outstanding (basic and diluted).................. 18,753
</TABLE>

See accompanying notes.

F-4
<PAGE>

E-STAMP CORPORATION

STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION, REDEEMABLE CONVERTIBLE
PREFERRED STOCKAND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except per share amounts)

Period from inception (April 26, 1994) through December 31, 1998

<TABLE>
<CAPTION>
Redeemable
Common Stock Convertible
Subject to Preferred Notes
Rescission Stock LLC Units Common Stock Additional Receivable
------------- ------------- ---------------- ------------- Paid-In From Accumulated Deferred
Shares Amount Shares Amount Units Amount Shares Amount Capital Employees Deficit Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capital
contribution.... -- $-- -- $ -- 11,063 $ 210 -- $-- $ -- $ -- $ -- $ --
Issuance of
units at $0.05
per share for
services........ -- -- -- -- 225 10 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- (572) --
--- --- --- ---- ------- ------- ------ --- ------ ---- ------- --------
Balance at
December 31,
1994............ -- -- -- -- 11,288 220 -- -- -- -- (572) --
Redemption of
units........... -- -- -- -- (1,131) (5,400) -- -- -- -- -- --
Issuance of
units to
investors at
$4.76 per unit
for cash, net of
issuance costs
of $56, and
conversion of
notes........... -- -- -- -- 1,613 7,624 -- -- -- -- -- --
Issuance of
units for
services at
$4.80 per unit.. -- -- -- -- 19 90 -- -- -- -- -- --
Deferred
compensation
related to
restricted unit
grants.......... -- -- -- -- -- 60 -- -- -- -- -- (60)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- -- -- 30
Net loss........ -- -- -- -- -- -- -- -- -- -- (1,346) --
--- --- --- ---- ------- ------- ------ --- ------ ---- ------- --------
Balance at
December 31,
1995............ -- -- -- -- 11,789 2,594 -- -- -- -- (1,918) (30)
Issuance of
units at $8.00
per unit for
cash to
investors in May
1996, net of
issuance costs
of $25.......... -- -- -- -- 1,125 8,975 -- -- -- -- -- --
Issuance of
units for
services to
consultants at
$8.00 per unit
during 1996..... -- -- -- -- 13 100 -- -- -- -- -- --
Conversion of
Post N Mail
units into E-
Stamp common
stock and merger
of Post N Mail
into E-Stamp.... -- -- -- -- (12,927) (11,669) 12,927 13 5,428 -- 6,228 --
Exercise of
stock options
for cash by
employees during
1996............ 19 31 -- -- -- -- -- -- -- -- -- --
Deferred
compensation
related to
restricted
common stock
grants and stock
options......... -- -- -- -- -- -- -- -- 1,072 -- -- (1,072)
Stock issuance
and amortization
of deferred
compensation.... -- -- -- -- -- -- 13 -- -- -- -- 688
Net loss........ -- -- -- -- -- -- -- -- -- -- (6,339) --
--- --- --- ---- ------- ------- ------ --- ------ ---- ------- --------
Balance at
December 31,
1996............ 19 $31 -- $ -- -- $ -- 12,940 $13 $6,500 $ -- $(2,029) $ (414)
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
<S> <C>
Initial capital
contribution.... $ 210
Issuance of
units at $0.05
per share for
services........ 10
Net loss........ (572)
-------------
Balance at
December 31,
1994............ (352)
Redemption of
units........... (5,400)
Issuance of
units to
investors at
$4.76 per unit
for cash, net of
issuance costs
of $56, and
conversion of
notes........... 7,624
Issuance of
units for
services at
$4.80 per unit.. 90
Deferred
compensation
related to
restricted unit
grants.......... --
Amortization of
deferred
compensation.... 30
Net loss........ (1,346)
-------------
Balance at
December 31,
1995............ 646
Issuance of
units at $8.00
per unit for
cash to
investors in May
1996, net of
issuance costs
of $25.......... 8,975
Issuance of
units for
services to
consultants at
$8.00 per unit
during 1996..... 100
Conversion of
Post N Mail
units into E-
Stamp common
stock and merger
of Post N Mail
into E-Stamp.... --
Exercise of
stock options
for cash by
employees during
1996............ --
Deferred
compensation
related to
restricted
common stock
grants and stock
options......... --
Stock issuance
and amortization
of deferred
compensation.... 688
Net loss........ (6,339)
-------------
Balance at
December 31,
1996............ $ 4,070
</TABLE>

See accompanying notes.

F-5
<PAGE>

E-STAMP CORPORATION

STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION, REDEEMABLE CONVERTIBLE
PREFERRED STOCKAND STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(In thousands, except per share amounts)

Period from inception (April 26, 1994) through December 31, 1998

<TABLE>
<CAPTION>
Reedemable
Common Stock Convertible
Subject to Preferred Notes
Rescission Stock LLC Units Common Stock Additional Receivable
-------------- -------------- ------------ ------------- Paid-In From Accumulated Deferred
Shares Amount Shares Amount Units Amount Shares Amount Capital Employees Deficit Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
Series A
redeemable
convertible
preferred stock
for cash to
investors at
$2.40 per share
in September
1997, net of
issuance costs
of $70.......... -- $ -- 2,500 $ 5,930 -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock for
services to
consultants at
$8.00 per share
between
September and
December 1997... 22 175 -- -- -- -- -- -- -- -- -- --
Exercise of
stock options
for cash by
employees during
1997............ 27 46 -- -- -- -- -- -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- -- -- 414
Accretion on
redeemable
convertible
preferred
stock........... -- -- -- 196 -- -- -- -- (196) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- (7,678) --
----- ---- ----- ------- --- ---- ------ ---- ------ ----- -------- -------
Balance at
December 31,
1997............ 68 252 2,500 6,126 -- -- 12,940 13 6,304 -- (9,707) --
Issuance of
Series B
redeemable
convertible
preferred stock
to investors at
$3.82 per share
for cash in July
1998, net of
issuance costs
of $40.......... -- -- 4,188 15,960 -- -- -- -- -- -- -- --
Issuance of
notes receivable
from employees
for exercise of
stock options... 1,738 653 -- -- -- -- -- -- -- (653) -- --
Issuance of
common stock for
services to
consultants at
$8.00 per share
between January
and June 1998... -- -- -- -- -- -- 10 -- 82 -- -- --
Exercise of
stock options
for cash by
employees during
1998............ 178 70 -- -- -- -- -- -- -- -- -- --
Shares
repurchased from
employees upon
termination at a
price of $0.40
per share in
September 1998.. (10) (4) -- -- -- -- -- -- -- -- -- --
Deferred stock
compensation.... -- -- -- -- -- -- -- -- 3,624 -- -- (3,624)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- -- -- 858
Accretion on
redeemable
convertible
preferred
stock........... -- -- -- 1,383 -- -- -- -- (1,383) -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- (10,710) --
----- ---- ----- ------- --- ---- ------ ---- ------ ----- -------- -------
Balance at
December 31,
1998 ........... 1,974 $971 6,688 $23,469 -- $ -- 12,950 $ 13 $8,627 $(653) $(20,417) $(2,766)
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
<S> <C>
Issuance of
Series A
redeemable
convertible
preferred stock
for cash to
investors at
$2.40 per share
in September
1997, net of
issuance costs
of $70.......... $ --
Issuance of
common stock for
services to
consultants at
$8.00 per share
between
September and
December 1997... --
Exercise of
stock options
for cash by
employees during
1997............ --
Amortization of
deferred
compensation.... 414
Accretion on
redeemable
convertible
preferred
stock........... (196)
Net loss........ (7,678)
-------------
Balance at
December 31,
1997............ (3,390)
Issuance of
Series B
redeemable
convertible
preferred stock
to investors at
$3.82 per share
for cash in July
1998, net of
issuance costs
of $40.......... --
Issuance of
notes receivable
from employees
for exercise of
stock options... (653)
Issuance of
common stock for
services to
consultants at
$8.00 per share
between January
and June 1998... 82
Exercise of
stock options
for cash by
employees during
1998............ --
Shares
repurchased from
employees upon
termination at a
price of $0.40
per share in
September 1998.. --
Deferred stock
compensation.... --
Amortization of
deferred
compensation.... 858
Accretion on
redeemable
convertible
preferred
stock........... (1,383)
Net loss........ (10,710)
-------------
Balance at
December 31,
1998 ........... $(15,196)
</TABLE>

See accompanying notes.

F-6
<PAGE>

E-STAMP CORPORATION

STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
<S> <C> <C> <C>
Operating activities
Net loss.......................................... $(6,339) $(7,678) $(10,710)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 163 366 405
Loss on disposal of assets....................... -- -- 65
Amortization of deferred compensation expense.... 688 414 858
Issuance of common stock for services............ 100 175 82
Changes in assets and liabilities:
Note receivable................................. (60) 60 --
Other assets.................................... 27 (14) (88)
Accounts payable and accrued liabilities........ 501 957 (172)
------- ------- --------
Net cash used in operating activities............. (4,920) (5,720) (9,560)
Investing activities
Purchase of property and equipment................ (669) (119) (324)
Sale of short-term investments.................... 871 98 --
------- ------- --------
Net cash provided by (used in) investing
activities....................................... 202 (21) (324)
Financing activities
Repayments of lease obligations................... (28) (34) (36)
Proceeds from issuance of notes payable........... -- -- 700
Repayments of notes payable....................... -- -- (700)
Repayments of notes payable to related parties.... (540) -- --
Net proceeds from exercise of stock options....... 31 46 66
Net proceeds from issuance of redeemable
convertible preferred stock...................... -- 5,930 15,960
Net proceeds from issuance of common stock........ 8,975 -- --
------- ------- --------
Net cash provided by financing activities......... 8,438 5,942 15,990
------- ------- --------
Net increase in cash and cash equivalents......... 3,720 201 6,106
Cash and cash equivalents at beginning of period.. 190 3,910 4,111
------- ------- --------
Cash and cash equivalents at end of period........ $ 3,910 $ 4,111 $ 10,217
======= ======= ========
Supplemental cash flow information
Cash paid for interest............................ $ 3 $ 14 $ 10
======= ======= ========
Schedule of non-cash financing and investing
transactions
Issuance of notes receivable from employees for
exercise of stock options........................ $ -- $ -- $ (653)
======= ======= ========
Assets acquired under capital lease obligations... $ -- $ 80 $ --
======= ======= ========
</TABLE>

See accompanying notes.

F-7
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. Background and Summary of Significant Policies

E-Stamp Corporation, a Delaware corporation, was formed on August 23, 1996.
Effective September 1, 1996, Post N Mail, L.L.C., formed on April 26, 1994, was
merged (the "Merger") into E-Stamp Corporation (collectively, the "Company" or
"E-Stamp"). Upon completion of the Merger, all of the assets of Post N Mail,
L.L.C. were acquired by E-Stamp Corporation. The Merger was accounted for as a
combination of entities under common control. Each unit of Post N Mail, L.L.C.
ownership received 5,000 shares of E-Stamp common stock. The financial
statements have been presented to reflect the Merger for all periods presented.
The Company has devoted substantially all of its efforts to recruiting
personnel to conduct research and product development and sales and marketing
and has not yet generated revenues from the sale of products.

The Company has incurred significant losses since inception. Its activities
to date have been financed primarily through private placements of equity
securities. The Company may seek to raise additional capital through the
issuance of debt or equity securities. However, there can be no assurance that
the Company will be able to obtain additional financing on acceptable terms, if
at all.

Nature of Operations

The Company has developed technology that allows users to apply digital
postage to envelopes, mailing labels, and documents from their personal
computers. This technology, termed the E-Stamp Internet postage solution,
allows authorized users to purchase postage via the Internet and subsequently
print postage from personal computers onto envelopes, mailing labels, and
documents using standard laser and inkjet printers. The Internet postage
solution is designed to print a postmark indicia that can be used as a
replacement for other current forms of postage, including stamps and today's
postmarks generated by postage metering devices. The information generated by
the Internet postage solution will be read by the U.S. Postal Service during
mail processing and allow for routing to intended recipients.

Revenue Recognition

Through December 31, 1998, the Company had not generated any revenues. The
Company anticipates that it will generate revenue from software license fees,
postage convenience fees and sale of postage supplies.

Software license fees are amounts paid by end-users and resellers for a
perpetual license to the Company's software. The Company's software package
allows the end-user to apply for a USPS license. When the Company is notified
that the USPS has approved the license, the Company ships a secure internet
postage device, necessary for the use of the Company's software, to the end-
user. Revenues from software license fees are recognized in accordance with
AICPA Statement of Position 97-2, "Software Revenue Recognition," and Statement
of Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition." Revenues from software license fees are
recognized when delivery of the secure internet postage device and the software
are complete, when persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed and determinable and no significant obligations
remain.

The Company anticipates that it will operate an Internet-based postal store
where end-users may purchase various postal supplies. The Company will
recognize revenues related to the postage supplies when the supplies are
delivered.

F-8
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

1. Background and Summary of Significant Policies (continued)
Revenue Recognition (continued)

The Company will provide an allowance for estimated returns upon the
recognition of the related revenue.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents. The
Company's cash equivalents were composed of government securities as of
December 31, 1998 and of money market mutual funds and government securities
as of December 31, 1997. The Company's cash and cash equivalents are carried
at cost which approximates market.

Property and Equipment

Property and equipment are recorded at cost. Additions, improvements, and
renewals that significantly add to the asset value or extend the life of the
asset are capitalized. Expenditures for maintenance and repairs are expensed
as costs are incurred.

Depreciation and amortization, for financial reporting purposes, are
provided on the straight-line method based upon the estimated useful lives as
follows:

<TABLE>
<S> <C>
Computer and other equipment............................. 3 years
Furniture and fixtures................................... 3 years
Leasehold improvements................................... Life of the lease
</TABLE>

In accordance with Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS
No. 121"), the Company records impairment losses on long-lived assets used in
operations when events or circumstances indicate that the carrying amount of
the asset exceeds its fair value. If there is impairment in the future, the
Company will measure the amount of the loss based on discounted expected
future cash flows from the impaired assets. The cash flow calculations would
be based on management's best estimates, using appropriate assumptions and
projections at the time. Through December 31, 1998, the Company has not
recorded any such impairment losses.

Research and Development

Research and development costs are expensed as they are incurred. Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software To Be Sold, Leased, or Otherwise Marketed" (FAS 86),
requires capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion
of all phases of the detailed product design necessary to establish that the
product can be manufactured to meet all design specifications. Through
December 31, 1999, technological feasibility for the Company's primary product
was not established and, therefore, all software research and development
costs were expensed as incurred.

Advertising Costs

The Company expenses the costs of advertising as incurred. Advertising
expense consists principally of advertising contracts in which the Company is
guaranteed a minimum number of impressions (a view of an advertisement by a
consumer) for a fixed fee. The fees are recorded as advertising expense
ratably over the

F-9
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

1. Background and Summary of Significant Policies (continued)
Advertising Costs (continued)

term of the agreements. To the extent that impression deliveries are falling
short of the guarantees, the Company defers recognition of the corresponding
advertising expense until the impressions are delivered. The Company also pays
royalties (see Note 4) for the promotion of its product. Such royalties are
recorded as advertising expense as the royalties are earned. Advertising
expense was $117,000 for the year ended December 31, 1998. No advertising
expense was recorded for the years ended December 31, 1996 and 1997.

Income Taxes

The Company computes and records income tax in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). Under FAS 109, the liability method is used to calculate deferred taxes.

Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which
the Company adopted in 1996, the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25"), and related interpretations in accounting for stock
options. Under APB Opinion No. 25, if the exercise price of the Company's
employee and director stock options equals or exceeds the fair value of the
underlying stock on the date of grant, no compensation expense is recognized.
Options granted to consultants are accounted for using the Black-Scholes method
prescribed by FAS 123 in accordance with Emerging Issues Task Force consensus
No. 96-18 and the assumptions used for stock-based awards to employees (see
Note 4) except that a volatility of 100% was used. (See Note 3 for pro forma
disclosures of stock-based compensation pursuant to FAS 123.) Any deferred
stock compensation is amortized over the vesting period of the individual
options, generally four years, using the graded vesting method. The graded
vesting method provides for vesting of portions of the overall award at
different dates and results in higher vesting in earlier years than straight-
line vesting.

Use of Estimates

The Company's management makes estimates and assumptions in the preparation
of its financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions may affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements, and the reported amounts of expenses
during the respective reporting periods. Actual results could differ from those
estimates.

Concentrations

The Company relies on one manufacturer for the supply and production of its
Internet postage device. The inability of this manufacturer to fulfill the
Company's supply requirements could negatively impact future results.

Effect of New Accounting Standards

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting for Comprehensive Income," ("SFAS
130"). SFAS 130 requires disclosures of components of non-stockholder changes
in equity in interim periods and additional disclosures of components of non-

F-10
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

1. Background and Summary of Significant Policies (continued)
Effect of New Accounting Standards (continued)

stockholder changes in equity on an annual basis. Adoption of SFAS 130 had no
impact on the Company's results of operations or financial position.

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS 131"). The Company adopted SFAS 131 effective January 1, 1998. The
adoption of this standard did not have a material effect on the Company's
financial statement disclosures as the Company operates in a single segment.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"). The Company is required to
adopt SFAS 133 for the year ending December 31, 2000. SFAS 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Because the Company currently holds no derivative financial instruments and
does not currently engage in hedging activities, adoption of SFAS 133 is
expected to have no material impact on the Company's financial condition or
results of operations.

In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires that entities capitalize certain costs related to
internal use software once certain criteria have been met. The Company adopted
the provisions of SOP 98-1 on January 1, 1999.

The Company will adopt AICPA Statement of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2"), and Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP
98-4") upon its first product revenue transactions. SOP 97-2 and SOP 98-4
provide guidance for recognizing revenue on software transactions and supersede
SOP 91-1, "Software Revenue Recognition." As no revenues have been recognized,
the adoption of SOP 97-2 and SOP 98-4 did not have any impact on the Company's
financial results through December 31, 1998. However, full implementation
guidelines for this standard have not yet been issued. Once available, the
planned revenue accounting practices may need to change and such changes could
affect the Company's future revenues and results of operations. In December
1998, the AICPA issued Statement of Position 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions" ("SOP 98-
9"). SOP 98-9 amends SOP 98-4 to extend the deferral of the application of
certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. E-Stamp has not yet determined the effect of the final adoption of
SOP 98-9 on its future revenues and results of operations.

Reclassifications

Certain prior-year amounts have been reclassified to conform with the
current year's presentation.

2. Line of Credit

On October 11, 1997, the Company entered into a Loan and Security Agreement
with a bank which allows for a $1,000,000 line of credit to be used for general
business purposes. An amendment dated September 21, 1998 increased the line of
credit to $1,250,000. The Loan and Security Agreement, which expires
September 30, 1999, grants the bank a security interest in all the assets of
the Company except the intellectual property. As of December 31, 1998, no
amounts were outstanding under this arrangement; however, a $35,000

F-11
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

2. Line of Credit (continued)
letter of credit required for the Company's California office lease was secured
by this credit facility, leaving the balance of the line of credit of
$1,215,000 available for other purposes.

3. Redeemable Convertible Preferred Stock

As of December 31, 1998, the Company is authorized to issue 12,000,000
shares of preferred stock in series. Rights and preferences of each series of
preferred stock are to be determined by the Board of Directors. As of December
31, 1998, 2,500,000 and 4,188,000 shares have been designated as Series A and B
redeemable convertible preferred stock, respectively.

The Series A and B redeemable convertible preferred stock carries an 8%,
noncumulative dividend, payable at the discretion of the Board of Directors.
Additionally, each outstanding share of Series A and B redeemable convertible
preferred stock is convertible into 1.25 shares of common stock (i) at the
option of the holder, (ii) upon the closing of a public offering, as defined,
or (iii) upon the consent of a majority of holders of the Series A and B
redeemable convertible preferred stock. The Company has reserved 3,125,000 and
5,235,000 shares of common stock for the conversion of the Series A and B
redeemable convertible preferred stock, respectively.

The holders of Series A and B redeemable convertible preferred stock are
entitled to receive noncumulative dividends at the rate of $0.192 and $0.3056
per share, respectively, if declared by the Board of Directors. These dividends
are in preference to any declaration or payment of and dividend on common stock
of the Company. No dividends have been declared from inception (April 26, 1994)
through December 31, 1998.

Upon liquidation of the Company, the Series A and B redeemable convertible
preferred stockholders are entitled to a liquidation preference equal to the
original issuance price, plus any declared unpaid dividends, which is superior
to the claim of common stockholders.

The holders of Series A and B redeemable convertible preferred stock are
entitled to one vote for each share of common stock into which such convertible
preferred stock could be converted.

At any time after September 3, 2001 but not later than September 3, 2003, a
majority of the holders of Series A redeemable convertible preferred stock can
require the Company to redeem the outstanding Series A redeemable convertible
preferred stock at the redemption price. The redemption price is equal to the
original issuance price of the Series A redeemable convertible preferred stock
plus a 10% compound annual rate of return. The carrying amount of Series A
redeemable convertible preferred stock is being increased by periodic
accretions so that its carrying amount will equal the redemption amount at the
redemption date.

At any time after July 7, 2002 but not later than July 7, 2004, a majority
of the holders of Series B redeemable convertible preferred stock can require
the Company to redeem the outstanding Series B convertible preferred stock at
the redemption price. The redemption price is equal to the original issuance
price of the Series B redeemable convertible preferred stock plus a 10%
compound annual rate of return. The carrying amount of Series B redeemable
convertible preferred stock is being increased by periodic accretions so that
its carrying amount will equal the redemption amount at the redemption date.

F-12
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Stockholders' Equity

Stock Option Plans

Stock Option and Restricted Stock Plan

Effective September 1996, the Company established the 1996 Stock Option and
Restricted Stock Plan (the "Employee Plan"). The Employee Plan expires in
August 2006 and provides for the grant of incentive stock options, nonstatutory
stock options, and restricted stock to employees and consultants of the
Company. An amendment increasing the number of shares thereunder from 2,500,000
to 3,437,500 was approved by the Board of Directors on June 26, 1998. The
Employee Plan is administered by a committee of the Board of Directors. This
committee has the authority to determine the employees and consultants to whom
awards will be made, the amount of the awards, and the other terms and
conditions of the awards. Stock options are limited to ten-year terms, and
options granted through December 31, 1998 generally vest at the rate of 25%
upon the first anniversary of the grant and 6.25% each quarter thereafter. The
exercise price for stock options may not be less than the fair value of the
shares on the date of grant for incentive stock options and is subject to the
discretion of the committee for nonstatutory stock options. Restricted stock
may be granted at no additional cost to recipients. Compensation expense, if
any, equal to the fair value of the restricted stock or stock options granted
in excess of the purchase or exercise price, is recognized over the related
vesting period. A total of 3,437,500 shares of common stock are currently
reserved for issuance pursuant to the Employee Plan. As of December 31, 1998,
options to purchase 1,259,241 shares of common stock at a weighted-average
exercise price of $0.60 per share were outstanding of which 1,037,163 were
vested, and 203,906 shares of common stock remained available for future grants
under the Employee Plan.

Nonemployee Directors' Plan

Also in September 1996, the Company established the 1996 Nonemployee
Director Stock Option Plan (the "Director Plan") which authorizes the issuance
of up to 125,000 shares of common stock. The Director Plan expires in August
2006. The Director Plan is a nondiscretionary stock option plan for nonemployee
directors of the Company, which generally provides for the grant of stock
options for 10,000 shares upon election as a nonemployee director and an
additional grant of stock options for 3,000 shares as of April 1 of each year.
The options are limited to a ten-year term, vest at the rate of 50% per year,
and have an exercise price equal to the fair value of the shares on the date of
grant. A total of 125,000 shares of common stock are currently reserved for
issuance pursuant to the Director Plan. As of December 31, 1998, options to
purchase 19,063 shares of common stock at a weighted-average exercise price of
$0.40 per share were outstanding of which 13,906 were vested, and 105,937
shares of common stock remained available for future grants under the Director
Plan.

F-13
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Stockholders' Equity (continued)

Stock Option Plans (continued)

The following is a summary of the combined option transactions under the
Employee Plan and Director Plan for the years ended December 31, 1997 and 1998.
<TABLE>
<CAPTION>
Weighted-
Number of Average
Options Exercise Price
(In thousands, except
per share amounts)
<S> <C> <C>
Options outstanding at December 31, 1996............ 824 $4.66
Granted........................................... 1,518 0.57
Exercised......................................... (29) 1.60
Canceled.......................................... (224) 5.79
------
Options outstanding at December 31, 1997............ 2,089 0.50
Granted........................................... 1,360 0.55
Exercised......................................... (1,916) 0.42
Canceled.......................................... (255) 0.41
------
Options outstanding at December 31, 1998............ 1,278 0.60
</TABLE>

<TABLE>
<CAPTION>
Options Outstanding and Exercisable
----------------------------------------------
Options
Outstanding at Weighted-Average Weighted-
December 31, Remaining Average
Range of Exercise Prices 1998 Contractual Life Exercise Price
(In thousands) (In years)
<S> <C> <C> <C>
$0.04-$0.20............... 31 5.23 $0.14
$0.40-$0.40............... 379 7.65 0.40
$0.64-$0.64............... 855 9.82 0.64
$4.80-$5.28............... 13 1.00 4.80
----- ----
1,278 8.98
===== ====
</TABLE>

Stock-Based Compensation

During 1995, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), which became effective for the Company's 1996 fiscal
year. FAS 123 requires the Company to disclose the pro forma effect of the
method of accounting prescribed in FAS 123, which would generally require the
Company to record compensation expense equal to the valuation of a stock option
on the grant date.

The fair value of the Company's stock-based awards to employees was
estimated using the minimum value method and assuming no expected dividends and
the following weighted average assumptions:

<TABLE>
<CAPTION>
Years ended
December 31,
----------------
1996 1997 1998
<S> <C> <C> <C>
Expected volatility........................................ N/A N/A N/A
Expected life of options in years.......................... 5.5 5.5 4.0
Risk-free interest rate.................................... 6.0% 6.0% 5.0%
Expected dividend yield.................................... 0.00% 0.00% 0.00%
</TABLE>

F-14
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Stockholders' Equity (continued)

Stock Option Plans (continued)

For pro forma purposes, the estimated minimum value of the Company's stock-
based awards to employees is amortized over the options' vesting period. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at grant date as prescribed by FAS 123, net loss and net
loss per share would have increased to the pro forma amounts indicated in the
table below (in thousands except per share amounts):

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1996 1997 1998
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported.................................. $(6,339) $(7,874) $(12,093)
======= ======= ========
Pro forma.................................... $(7,146) $(8,831) $(12,643)
======= ======= ========
Net loss per share (basic and diluted):
As reported.................................. $ (0.51) $ (0.61) $ (0.92)
======= ======= ========
Pro forma.................................... $ (0.57) $ (0.68) $ (0.97)
======= ======= ========
</TABLE>

The weighted-average fair value of options granted in fiscal 1997 and 1998
was $0.19 and $0.14, respectively.

In 1996, the Company granted equity awards of common stock to certain
employees. Restrictions, as determined by management, lapse from one year to
four years after the grant date. Upon grant, deferred compensation of
approximately $1.1 million was charged to stockholders' equity and is being
amortized to expense over the periods until the restrictions lapse. In
connection with these restricted shares, amortization charged to expense in
1996 and 1997 was $688,000 and $414,000, respectively, and $1,132,000 for the
period from inception to December 31, 1998.

The Company has recorded additional deferred stock compensation of
approximately $3,624,000 during the year ended December 31, 1998 representing
the difference between the exercise price and the deemed fair value, for
financial reporting purposes, of the Company's common stock on the grant date
for certain of the Company's stock options granted to officers and employees.
In the absence of a public market for the Company's common stock, the deemed
fair value was determined by the Company's Board of Directors and was based on
the price per share of sales of equity securities to third parties. These
amounts are being amortized by charges to operations over the vesting periods
of the individual stock options using a graded vesting method. Such
amortization expense amounted to approximately $858,000 for the year ended
December 31, 1998.

Stock Subject to Rescission

Shares issued and options grants made under the Company's 1996 Employee
Plan, 1996 Director Plan and 1999 Stock Plan may not have qualified for
exemption from registration or qualification under federal and state securities
laws and therefore may be subject to rescission. As discussed in Note 10, the
Company plans on commencing a rescission offer for these shares and options. If
a rescission offer is actually made and if all of the holders of these shares
and options acquired through October 1, 1999 accept the Company's offer, the
Company would be required to make aggregate payments of up to $6.9 million plus
statutory interest.

The Company has reclassified the amounts paid in for outstanding shares
subject to rescission outside of permanent equity in the accompanying balance
sheets.

F-15
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

4. Stockholders' Equity (continued)

Stock Option Plans (continued)

Stock Subject to Repurchase

As of December 31, 1997 and 1998 the Company had none and 1,751,063 shares
of common stock outstanding which were subject to repurchase, respectively.
These shares are the result of the exercise of unvested stock options by
employees in exchange for notes (see Note 8). These shares will vest over the
four-year vesting period of the underlying exercised stock options. The right
to repurchase these shares is at the sole discretion of the Company.

5. Marketing and Distribution Agreements

Compaq Software Alliance Agreement

In July 1998, the Company entered into a three year Software Alliance
Agreement ("Alliance Agreement") with Compaq Computer Corporation ("Compaq").
Under this agreement, Compaq will market our Internet postage solution as part
of their online services and, in exchange, the Company agreed to pay Compaq
royalties.

Strategic Marketing Agreement

In November, 1998, the Company entered into a strategic marketing agreement
with an Internet service provider (the "Provider") for the promotion of the
Company's internet postage service. The Provider has agreed to deliver a
minimum number of impressions over the approximate 15 month term of the
agreement, commencing on the date the Company receives approval for Phase III
beta testing from the USPS. In exchange for these promotional services, the
Company has agreed to pay the Provider approximately $1.3 million.

6. Income Taxes

As of December 31, 1998, the Company had federal and state net operating
loss carryforwards of approximately $7,100,000 and $5,700,000 respectively. The
net operating loss carryforwards will expire at various dates beginning in 2004
through 2018, if not utilized.

Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code and similar state provisions. The annual limitation may
result in the expiration of the net operating loss carryforwards before
utilization.

F-16
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

6. Income Taxes (continued)

Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes are as follows:

<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 900 $ 2,800
Capitalized research and development...................... 2,400 4,300
Capitalized start-up costs................................ 2,100 1,700
Deferred compensation..................................... 400 600
Other..................................................... 600 800
------- --------
Total deferred tax assets................................. 6,400 10,200
Valuation allowance....................................... (6,400) (10,200)
------- --------
Net deferred tax assets................................... $ -- $ --
======= ========
</TABLE>

FAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes the Company's historical operating performance and the
reported cumulative net losses in prior years, the Company has provided a full
valuation allowance against its net deferred tax assets.

The valuation allowance increased by $3,100,000 and $3,800,000 during the
years ended December 31, 1997 and 1998, respectively.

7. Commitments

401(k) Plan

Effective April 1, 1996, the Company established the E-Stamp Corporation
Benefit Plan (the "Plan"). The Plan provides for a Company match of employee
contributions equal to 50% of employee contributions up to 4% of their
compensation. Employees are eligible to participate in the Plan at the
beginning of the month following the first day of employment. The terms of the
Plan are subject to change as determined by management. The Company made
contributions in 1997 and 1998 of approximately $18,000 and $59,000,
respectively.

Leases

The Company has various operating leases, the terms of which range from 12
to 60 months. The operating leases are primarily for facilities in Houston,
Texas and Palo Alto, California. Rental expenses related to these leases for
the periods ended December 31, 1996, 1997 and 1998 were $188,000, $411,000 and
$554,000, respectively. During 1997, the Company entered into computer lease
agreements classified as capital leases in the accompanying financial
statements.

In February 1999, the Company entered into a new sublease pertaining to a
new facility at a monthly rent payment of $71,683 effective April 1, 1999. The
sublease term will end on June 30, 2000. The table below includes the rental
payments from this sublease.

F-17
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

7. Commitments (continued)

Leases (continued)

Assets capitalized under capital leases totaled approximately $80,000 at
December 31, 1997 and 1998 and are included in computers and furniture and
fixtures. Accumulated amortization related to assets under capital leases
totaled $22,000 and $49,000 at December 31, 1997 and 1998, respectively.

The following represents future minimum rental payments under noncancelable
operating leases and capital leases:

<TABLE>
<CAPTION>
Operating Capital
(In thousands)
<S> <C> <C>
For the years ending December 31:
1999..................................................... $ 943 $31
2000..................................................... 459 8
2001..................................................... -- 4
2002..................................................... -- 1
------ ---
Total minimum lease payments............................... $1,402 44
======
Less amount representing interest.......................... (6)
---
Present value of future minimum lease payments............. 38
Less current portion of capital leases..................... (27)
---
Long-term portion of capital leases........................ $11
===
</TABLE>

8. Notes Receivable

On June 12, 1998, the Company received $653,294 of full recourse notes
receivable from employees which bear interest at 6% per annum in consideration
for the exercise of stock options. The interest portion is payable annually or
on or before the 12th day of June, commencing June 12, 1999 and continuing
through June 12, 2003, at which time the entire amount of principal and all
accrued interest then outstanding and remaining unpaid shall become due and
payable in full. The principal is payable in full on the earlier to occur of
June 12, 2003 or 90 days following the termination of employment for any
reason.

Interest receivable recorded for these notes receivable totaled $21,800 at
December 31, 1998.

9. Net Loss Per Share

Net loss per share has been computed in accordance with the Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which
requires disclosure of basic and diluted earnings per share. Basic earnings per
share excludes any dilutive effects of options, shares subject to repurchase,
warrants, and convertible securities. Diluted earnings per share includes the
impact of potentially dilutive securities. The Company's potentially dilutive
securities were antidilutive and therefore were not included in the computation
of weighted-average shares used in computing diluted loss per share. Following
the guidance given by the Securities and Exchange Commission Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock that has been
issued or granted for nominal consideration prior to the anticipated effective
date of the initial public offering date must be included in the calculation of
basic and diluted net loss per common share as if these shares had been
outstanding for all periods presented. To date, the Company has not issued or
granted shares for nominal consideration.

F-18
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

9. Net Loss Per Share (continued)

The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):

<TABLE>
<CAPTION>
Years ended
December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Basic and diluted:
Net loss...................................... $(6,339) $(7,678) $(10,710)
Accretion on redeemable convertible preferred
stock........................................ -- (196) (1,383)
------- ------- --------
Net loss attributable to common stock......... $(6,339) $(7,874) $(12,093)
======= ======= ========
Weighted-average shares of common stock
outstanding.................................. 12,543 12,966 14,044
Less: weighted-average shares subject to
repurchase................................... -- -- (969)
------- ------- --------
Weighted-average shares used in computing
basic and diluted net loss per share......... 12,543 12,966 13,075
======= ======= ========
Basic and diluted net loss per share.......... $ (0.51) $ (0.61) $ (0.92)
======= ======= ========
Pro forma basic and diluted:
Net loss...................................... $(10,710)
========
Shares used above............................. 13,075
Pro forma adjustment to reflect weighted
effect of assumed conversion of convertible
preferred stock (unaudited).................. 5,678
--------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)....... 18,753
========
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (0.57)
========
</TABLE>

The Company has excluded all convertible preferred stock and outstanding
stock options from the calculation of diluted net loss per share because all
such securities are antidilutive for all periods presented. The total number of
shares excluded from the calculations of diluted net loss per share was
659,000, 4,172,000, and 7,711,000 for the years ended December 31, 1996, 1997,
and 1998, respectively. Such securities, had they been dilutive, would have
been included in the computations of diluted net loss per share using the
treasury stock method.

10. Subsequent Events

Strategic Distribution Agreements (unaudited)

From January 1, 1999 through September 24, 1999, the Company entered into
agreements for online advertising with Yahoo!, Inc., Microsoft Corporation,
Earthlink Operations, Inc., Excite@Home and Intuit. Aggregate noncancelable
advertising commitments related to these agreements total approximately $5.5
million, $10.5 million and $2.4 million for the second half of 1999 and for the
years ending December 31, 2000 and 2001, respectively. The Company could be
subject to additional payments under these agreements if advertising exceeds
established levels of page views or generates and exceeds established levels of
new customers.

Pitney Bowes Litigation (unaudited)

On June 10, 1999, Pitney Bowes filed suit against the Company in U.S.
District Court alleging infringement of Pitney Bowes patents. The suit alleges
that the Company is infringing on seven patents held by Pitney Bowes related to
postage application systems and seeks treble damages, a preliminary and
permanent injunction from further alleged infringement, attorneys' fees and
other unspecified damages. On July 30, 1999, the Company filed an answer to
Pitney Bowes' complaint in which it denied all allegations of patent

F-19
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

10. Subsequent Events (continued)

Pitney Bowes Litigation (unaudited) (continued)

infringement and asserted certain affirmative and other defenses based on
statutory and common law grounds, including inequitable conduct on the part of
Pitney Bowes in its procurement of patents in proceedings before the U.S.
Patent and Trademark Office. As part of the answer, the Company also brought
various counterclaims against Pitney Bowes claiming Pitney Bowes' violation of
Section 2 of the Sherman Act and intentional and tortious interference with E-
Stamp's business relations based, in part, upon allegations that Pitney Bowes
has unlawfully maintained its monopoly power in the postage metering market
through a scheme to defraud the U.S. Patent and Trademark Office and its
efforts to discourage potential investors and strategic partners from investing
and entering into partnerships with E-Stamp. The Company's suit seeks
compensatory and treble damages, injunctive relief and recovery of attorney's
fees. On September 21, 1999, Pitney Bowes filed a motion to strike or dismiss
certain of the Company's affirmative defenses and counterclaims or, in the
alternative, to bifurcate discovery and trial of those counterclaims; the
Company's response to the Motion is due in October 1999. Management continues
to investigate the claims against the Company as well as infringement by Pitney
Bowes of its patents, and may assert additional defenses or pursue additional
counterclaims or independent claims against Pitney Bowes in the future.

Pendency of the litigation can be expected to result in significant expenses
to the Company and the diversion of management time and other resources. If
Pitney Bowes is successful in its claims the Company may be hindered or even
prevented from competing in the Internet postage market and operations would be
severely harmed. For example, the Pitney Bowes suit could result in;
limitations on the methods used to implement solutions; delays and cost
associated with redesigning solutions; payments of license fees; and other
payments. An injunction obtained by Pitney Bowes could eliminate the Company's
ability to market critical products or services.

Bridge Loan Financing (unaudited)

On July 12, 1999, the Company entered into bridge loan financing arrangement
with a financial institution under which the Company borrowed $5.0 million.
Amounts borrowed under the arrangement bear interest at a rate of 13% per
annum. In connection with this financing, the Company granted the lender
warrants to purchase 48,496 shares of common stock with an exercise price of
$8.25 per share. These warrants expire in July, 2004. The Company anticipates
recording the fair value of these warrants of approximately $85,000 as interest
expense over the period the loan is outstanding. The Company borrowed $5.0
million in July, 1999 under the facility and fully repaid the outstanding
balance in August, 1999.

Employee Option Grants (unaudited)

From July 1, 1999 to September 24, 1999, options to purchase 1,471,893
shares were granted to employees pursuant to the 1996 Stock Option Plan with
exercise prices of between $1.20 and 6.88 per share. The Company estimates that
additional deferred compensation of $7.9 million will be recorded as a result
of these option grants and amortized to compensation expense in accordance with
the Company's policy.

1996 Stock Plan (unaudited)

In February 1999, the board of directors approved an amendment increasing
the number of shares reserved for issuance under the 1996 Stock Plan from
3,437,500 to 5,937,500 subject to shareholder approval. The shareholders
approved the increase in April 1999. In August 1999, the board of directors
approved an amendment increasing the number of shares reserved by 81,250
subject to shareholder approval. The shareholders approved the increase in
September 1999.

F-20
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

10. Subsequent Events (continued)

1999 Stock Plan (unaudited)

In August 1999, the board of directors approved the 1999 Stock Plan subject
to shareholder approval. A total of 2,500,000 shares of common stock are
reserved for issuance under the plan. The shareholders approved the plan in
September 1999.

1999 Employee Stock Purchase Plan (unaudited)

In August 1999, the board of directors approved the 1999 Employee Stock
Purchase Plan subject to shareholder approval. A total of 500,000 shares of
common stock has been reserved for issuance under the 1999 Purchase Plan. The
1999 Purchase Plan permits eligible employees to acquire shares of the
Company's common stock through periodic payroll deductions of up to 15% of
total compensation. No more than 5,000 shares may be purchased on any purchase
date per employee. Each offering period will have a maximum duration of 24
months. The price at which the common stock may be purchased is 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable offering period or on the last day of the respective purchase
period. The initial offering period will commence on the effectiveness of the
initial public offering and will end on the last trading day on or before
November 14, 2001. The shareholders approved the plan in September 1999.

1999 Director Option Plan (unaudited)

In August 1999, the board of directors approved the 1999 Option Plan subject
to shareholder approval. A total of 300,000 shares of common stock are reserved
for issuance under the Plan. The shareholders approved the plan in September
1999.

Initial Public Offering

In August 1999, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public
Offering ("IPO"). If the offering is consummated under the terms presently
anticipated, all of the outstanding convertible preferred stock as of December
31, 1998 will convert to 8,360,000 shares of common stock upon the closing of
the IPO. Additionally, the shares of Series C preferred stock issued in August
1999 discussed below will convert into 3,660,651 shares of common stock upon
completion of this offering.

In July 1999, the board of directors authorized an increase in the
authorized number of shares of common stock to 200,000,000 shares subject to
stockholder approval.

Sales of Preferred Stock

In August 1999, the Company issued 2,928,521 shares of Series C redeemable
convertible preferred stock at $10.31 per share for cash. Series C redeemable
convertible preferred stock carries an 8%, noncumulative dividend, is
convertible into 1.25 shares of common stock and has other rights and
preferences similar to those described for Series A and B convertible stock in
Note 3. In connection with the sale of Series C redeemable convertible
preferred stock, the Company committed to issue warrants to purchase 21,235
shares of Series C redeemable convertible preferred stock at $10.31 per share
to Donaldson, Lufkin & Jenrette Securities Corporation as placement agent.

Stock Grant

In August 1999, the Company granted 187,500 shares of common stock to two
Company executives. On the date of grant, the Company recorded approximately
$1.8 million of compensation expense.

F-21
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

10. Subsequent Events (continued)

Sales of Common Stock (unaudited)

On September 10, 1999, the Company issued 726,745 shares of its common stock
and warrants to purchase an additional 83,855 shares of common stock at an
exercise price of $0.01 per share to investors for cash proceeds of $5.0
million. The fair value of the common stock and warrants was deemed by
management to be $7.8 million and $1.0 million, respectively. The fair value of
the warrants was computed using the Black Scholes method under the following
assumptions: expected volatility of 100%, expected life of 3 years, risk free
interest rate of 6.0% and expected dividend yield of 0.0%.

In connection with the issuance of common stock and warrants, the Company
and the investors signed non-binding letters of intent to negotiate for a
period of up to one year to enter into definitive joint venture, joint
marketing, cooperation, or technology development agreements.The Company will
record the $3.8 million excess of the fair value of the common stock and
warrants over the consideration received as a prepaid marketing cost (contra
equity account). The balance will be amortized to expense over the one year
period covered by the letter of intent. If it becomes probable that efforts to
reach definitive agreements will cease prior to the end of the one year
negotiation period, the unamortized balance will be fully expensed.

Stock Dividend

In September 1999, the Company declared a stock dividend of one share of
common stock on each four shares of outstanding common stock pending approval
by the Board of Directors. This dividend resulted in a change in the conversion
ratio of the Series A, B and C redeemable convertible preferred stock from one-
for-one to 1.25-for-one. All common stock, option and warrant information,
weighted average shares, the preferred to common stock conversion ratio and
loss per share information has been retroactively restated to reflect the
common stock dividend.

Planned Rescission Offer (unaudited)

Shares issued, and option grants made under the Company's 1996 Employee
Plan, 1996 Director Plan and 1999 Stock Plan (the "Plans") may not have
qualified for exemption from registration or qualification under federal and
state securities laws. Therefore, the Company intends to make a rescission
offer for these shares and options after the effective date of the proposed
initial public offering which, if accepted, could require the Company to make
aggregate payments to the holders of these shares and options of up to
$6,900,000 plus statutory interest.

The Company plans to commence, approximately 30 days after the effectiveness
of this offering, a rescission offer pursuant to a registration statement filed
under the Securities Act of 1933, as amended, and pursuant to the state
securities laws of California covering shares of common stock issued, and
options to purchase shares of common stock granted, under the Plans. The
Company will offer to rescind any prior sales at the price per share paid
therefor (average $1.22 per share) plus interest thereon at a statutory rate as
the case may be from the date of purchase by the purchaser to the expiration of
the rescission offer. The rescission offer will expire approximately 30 days
after the effectiveness of the registration statement relating to the
rescission stock. Under the rescission offer, the Company would be required to
make an aggregate payment of approximately $6,300,000 plus the aggregate amount
of interest thereon for shares acquired through October 1, 1999, if all
offerees accept the offer. Offerees who do not accept the rescission offer
will, for purposes of applicable federal and state securities laws, be deemed
to hold registered shares under the Act which will be freely tradeable in the
public market as of the effective date of the registration statement with
respect to the rescission stock. The Act does not expressly provide that a
rescission offer will terminate a purchaser's right to

F-22
<PAGE>

E-STAMP CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

10. Subsequent Events (continued)

Planned Rescission Offer (unaudited) (continued)

rescind a sale of stock which was not registered under the Act as required.
Accordingly, should the rescission offer be rejected by any or all offerees,
the Company may continue to be contingently liable under the Act for the
purchase price of the rescission stock up to an aggregate amount of
approximately $6,300,000 plus statutory interest.

In addition, the Company is unable to rely on the exemption provided by
Section 25102(f) of the California Corporation Code for its options to
purchase shares of common stock granted under its 1996 Stock Option and
Restricted Stock Plan and our 1996 Non-Employee Director Stock Option Plan. As
of October 1, 1999 options to purchase 273,265 shares of common stock at a
weighted average exercise price of $6.88 per share were outstanding under our
1999 Stock Plan, options to purchase 1,118,308 shares of common stock at a
weighted average exercise price of $0.90 per share were outstanding under the
Company's 1996 Stock Option and Restricted Stock Plan and options to purchase
19,062 shares of common stock at a weighted average exercise price of $0.40
per share were outstanding under the Company's 1996 Non-Employee Director
Option Plan, all of which options are potentially subject to the rescission,
and the Company plans to include them in its planned rescission offer
discussed above. Under such rescission offer, the Company could be required to
make an aggregate payment of up to approximately $600,000 for such grants.

As of the date hereof, the Management is not aware of any claims for
rescission against the Company.

F-23
<PAGE>

E-STAMP CORPORATION

BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited) (*)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 22,546 $ 10,217
Accounts receivable, net.......................... 161 --
Inventory......................................... 1,811 --
Prepaid and other current assets.................. 3,240 144
-------- --------
Total current assets................................ 27,758 10,361
Property and equipment, net......................... 1,675 450
-------- --------
Total assets.................................... $ 29,433 $ 10,811
======== ========

<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 1,024 $ 62
Accrued liabilities............................... 4,804 1,467
Current portion of obligations under capital
lease............................................ 38 27
-------- --------
Total current liabilities........................... 5,866 1,556
Capital lease obligations........................... -- 11
Commitments and contingencies.......................
Common stock subject to rescission.................. 2,801 971
Redeemable convertible preferred stock.............. 54,299 23,469
Stockholders' equity:
Common stock...................................... 14 13
Additional paid-in capital........................ 42,129 8,627
Notes receivable from employees and officers...... (3,570) (653)
Deferred stock compensation....................... (19,175) (2,766)
Deferred offering costs........................... (1,136) --
Deferred marketing costs.......................... (3,800) --
Accumulated deficit............................... (47,995) (20,417)
-------- --------
Total stockholders' deficit......................... (33,533) (15,196)
-------- --------
Total liabilities and stockholders' deficit......... $29,433 $ 10,811
======== ========
</TABLE>
- ----------------
* Derived from audited financial statements

F-24
<PAGE>

E-STAMP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998

<S> <C> <C> <C> <C>
Net revenues........................ $ 358 $ -- $ 358 $ --
Cost of sales....................... 732 -- 732 --
--------- -------- --------- --------
Gross margin........................ (374) -- (374) --
Operating expenses:
Research and development.......... 3,068 1,452 8,295 3,910
Sales and marketing............... 4,746 650 7,240 1,808
General and administrative........ 3,720 497 5,093 1,380
Amortization of deferred stock
compensation..................... 3,484 324 6,918 324
--------- -------- --------- --------
Total operating expenses.......... (15,018) 2,923 27,546 7,422
--------- -------- --------- --------
Operating loss...................... (15,392) (2,923) (27,920) (7,422)
Interest income..................... 206 183 383 229
Interest expense.................... (33) (4) (36) (8)
--------- -------- --------- --------
Net loss............................ (15,219) (2,744) (27,573) (7,201)
Accretion on redeemable convertible
preferred stock.................... (723) (440) (1,899) (747)
--------- -------- --------- --------
Net loss attributable to common
stock.............................. $ (15,942) $ (3,184) $ (29,472) $ (7,948)
--------- -------- --------- --------
Pro forma net loss per share (basic
and diluted)....................... $ (0.65) $ (0.12) $ (1.23) $ (0.39)
--------- -------- --------- --------
Pro forma weighted-average shares
outstanding (basic and diluted).... 22,425 22,849 22,373 18,384
--------- -------- --------- --------
</TABLE>

F-25
<PAGE>

E-STAMP CORPORATION

STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
Nine Months
Ended September
30,
-----------------
1999 1998
<S> <C> <C>
Operating activities
Net loss................................................... $(27,573) $(7,201)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 264 319
Loss on disposal of assets............................... -- --
Amortization of deferred compensation expense............ 6,918 324
Issuance of common stock for bonus....................... 1,800 --
Issuance of warrant...................................... 85 --
Issuance of common stock for services.................... 33 --
Changes in assets and liabilities:
Accounts Receivable...................................... (161) --
Inventory................................................ (1,811) --
Other assets............................................. (3,096) (8)
Accounts payable and accrued liabilities................. 4,299 (178)
-------- -------
Net cash used in operating activities...................... (19,242) (6,744)
Investing activities
Purchase of property and equipment......................... (1,489) (224)
Financing activities
Repayment of lease obligation.............................. (61) (26)
Net proceeds from sale of common stock..................... 5,000 --
Proceeds from issuance of notes payable.................... 5,000 700
Repayment of notes payable................................. (5,000) (700)
Net proceeds from exercise of stock options................ 326 47
Net proceeds from issuance of redeemable convertible
preferred stock........................................... 28,931 15,960
Deferred offering costs.................................... (1,136) --
-------- -------
Net cash provided by financing activities.................. 33,060 15,981
-------- -------
Net increase in cash and cash equivalents.................. 12,329 9,013
Cash and cash equivalents at beginning of period........... 10,217 4,111
-------- -------
Cash and cash equivalents at end of period................. $ 22,546 $13,124
======== =======
Supplemental cash flow information
Cash paid for interest..................................... $ (36) $ (8)
======== =======
Schedule of non-cash financing and investing transactions
Issuance of notes receivable from employees for exercise of
stock options............................................. (2,918) (653)
======== =======
Common stock repurchased from employees upon termination by
forgiveness of notes receivable........................... 164 --
======== =======
Assets acquired under capital lease obligations............ 78 --
======== =======
</TABLE>

See accompanying notes

F-26
<PAGE>

E-STAMP CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared
by E-Stamp's management and reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the interim periods
presented. The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for any subsequent quarter or for the entire year ending December 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted under the Securities and Exchange Commission's
rules and regulations. A consolidated statement of comprehensive loss has not
been presented because the components of comprehensive loss are not material.

Revenue Recognition

E-Stamp currently generates revenue from software license fees, postage
convenience fees and sale of postage supplies.

Postage convenience fees are amounts paid by end-users for the delivery of
postage by the Company to the end-user. The convenience fees are based on the
amount of postage ordered by the end-user. Revenues from postage convenience
fees are recognized when the postage is downloaded into the secure postage
hardware device. The Company anticipates that it will operate an Internet-based
postal store where end-users may purchase various postal supplies. The Company
will recognize revenues related to the postage supplies when the supplies are
delivered.

F-27
<PAGE>

E-STAMP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net Loss Per Share

The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):

<TABLE>
<CAPTION>
Three Months Nine Months
Ended September Ended September
30, 30,
----------------- -----------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Basic and diluted:
Net loss............................... $(15,219) $(2,744) $(27,573) $(7,201)
Accretion on redeemable convertible
preferred stock....................... (723) (440) (1,899) (747)
-------- ------- -------- -------
Net loss attributable to common stock.. $(15,942) $(3,184) $(29,472) $(7,948)
-------- ------- -------- -------
Weighted average shares of common stock
outstanding........................... 17,549 14,889 16,119 13,763
Less: weighted average shares subject
to repurchase......................... (4,514) (2) (2,783) (116)
-------- ------- -------- -------
Weighted average shares used in
computing basic and diluted net loss
per share............................. 13,035 14,887 13,336 13,647
-------- ------- -------- -------
Basic and diluted net loss per share..... $ (1.22) $ (0.21) $ (2.21) $ (0.58)
-------- ------- -------- -------
Pro forma basic and diluted:
Net loss............................... $(15,219) $(2,744) $(27,573) $(7,201)
-------- ------- -------- -------
Shares used above...................... 13,035 14,887 13,336 13,647
Pro forma adjustment to reflect
weighted effect of assumed conversion
of convertible preferred stock........ 10,390 7,962 9,037 4,737
-------- ------- -------- -------
Shares used in computing pro forma
basic and diluted net loss per share.. 23,425 22,849 22,373 18,384
-------- ------- -------- -------
Pro forma basic and diluted net loss per
share................................... $ (0.65) $ (0.12) $ (1.23) $ (0.39)
======== ======= ======== =======
</TABLE>

The Company has excluded all convertible preferred stock and outstanding
stock options from the calculation of diluted net loss per share because all
such securities are antidilutive for all periods presented. Such securities,
had they been dilutive, would have been included in the computations of diluted
net loss per share using the treasury stock method.

2. Stockholders' Equity

Sale of Preferred Stock

In August 1999, the Company issued 2,928,521 shares of Series C redeemable
convertible preferred stock at $10.31 per share for cash. Series C redeemable
convertible preferred stock carries an 8%, noncumulative dividend and has other
rights and preferences similar to those for Series A and B convertible stock.
Upon the Company's initial public offering, the Series C redeemable convertible
preferred stock converted into 3,660,651 shares of common stock (see Note 6).
In connection with the sale of Series C redeemable convertible preferred stock,
the Company committed to issue warrants to purchase 21,235 shares of Series C
redeemable convertible preferred stock at $10.31 per share to Donaldson, Lufkin
& Jenrette Securities Corporation as placement agent.

Stock Grant

In August 1999, the Company granted 187,500 shares of common stock to two
Company executives. On the date of grant, the Company recorded approximately
$1.8 million of compensation expense.

F-28
<PAGE>

E-STAMP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Sales of Common Stock

On September 10, 1999, the Company issued 726,745 shares of its common stock
and warrants (which warrants were immediately exercised) to purchase an
additional 83,855 shares of common stock at an exercise price of $0.01 per
share to investors for cash proceeds of $5.0 million. The fair value of the
common stock and warrants was deemed by management to be $7.8 million and $1.0
million, respectively. The fair value of the warrants was computed using the
Black Scholes method under the following assumptions: expected volatility of
100%, expected life of 3 years, risk free interest rate of 6.0% and expected
dividend yield of 0.0%. In connection with the issuance of common stock and
warrants, the Company and the investors signed non-binding letters of intent to
negotiate for a period of up to one year to enter into definitive joint
venture, joint marketing, cooperation, or technology development agreements.
The Company recorded the $3.8 million excess of the fair value of the common
stock and warrants over the consideration received as deferred marketing costs
(contra equity account). The balance is being amortized to expense over the one
year period covered by the letter of intent. If it becomes probable that
efforts to reach definitive agreements will cease prior to the end of the one
year negotiation period, the unamortized balance will be fully expensed.

Stock Dividend

In October 1999, the Board of Directors approved a stock dividend of one
share of common stock on each four shares of outstanding common stock. This
dividend resulted in a change in the conversion ratio of the Series A, B and C
redeemable convertible preferred stock from one-for-one to 1.25-for-one. All
common stock, option and warrant information, weighted average shares, the
preferred to common stock conversion ratio and loss per share information has
been retroactively restated to reflect the common stock dividend.

Deferred Compensation

The Company recorded deferred stock compensation of approximately
$23,327,000 and $2,203,000 during the nine months ended September 30, 1999 and
1998, respectively, representing the difference between the exercise price and
the deemed fair value, for financial reporting purposes, of the Company's
common stock on the grant date for certain of the Company's stock options
granted to officers and employees. In the absence of a public market for the
Company's common stock, the deemed fair value was determined by the Company's
Board of Directors and was based on the price per share of sales of equity
securities to third parties. This amount is being amortized by charges to
operations over the vesting periods of the individual stock options using a
graded vesting method. Such amortization expense amounted to approximately
$6,918,000 and $324,000 for the nine months ended September 30, 1999 and 1998,
respectively.

Stock Subject to Rescission

Shares issued and options grants made under the Company's 1996 Employee
Plan, 1996 Director Plan and 1999 Stock Plan may not have qualified for
exemption from registration or qualification under federal and state securities
laws and therefore may be subject to rescission. The Company plans on
commencing a rescission offer for these shares and options. If a rescission
offer is actually made and if all of the holders of these shares and options
acquired through September 30, 1999 accept the Company's offer, the Company
would be required to make aggregate payments of up to $6.9 million plus
statutory interest. The Company has reclassified the amounts paid in for
outstanding shares subject to rescission outside of permanent equity in the
accompanying balance sheets.

F-29
<PAGE>

E-STAMP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. Strategic Distribution Agreements

From November 1998 through September 1999, the Company entered into
agreements for online advertising with America Online, Yahoo!, Inc., Microsoft
Corporation, Earthlink Operations, Inc., Excite@Home and Intuit. Aggregate
noncancelable advertising commitments related to these agreements total
approximately $3.2 million, $10.5 million and $2.4 million for the fourth
quarter of 1999 and for the years ending December 31, 2000 and 2001,
respectively. The Company has paid $1.9 million under these agreements in the
nine months ended September 30, 1999. The Company could be subject to
additional payments under these agreements if advertising exceeds established
levels of page views or generates and exceeds established levels of new
customers.

4. Bridge Loan Financing

On July 12, 1999, the Company entered into bridge loan financing arrangement
with a financial institution under which the Company borrowed $5.0 million.
Amounts borrowed under the arrangement bear interest at a rate of 13% per
annum. In connection with this financing, the Company granted the lender
warrants to purchase 48,496 shares of common stock with an exercise price of
$8.25 per share. These warrants expire in July, 2004. The Company recorded the
fair value of these warrants of approximately $85,000 as interest expense over
the period the loan was outstanding. The Company borrowed $5.0 million in July,
1999 under the facility and fully repaid the outstanding balance in August,
1999.

5. Pitney Bowes Litigation

On June 10, 1999, Pitney Bowes filed suit against the Company in U.S.
District Court for the District of Delaware alleging infringement of Pitney
Bowes patents. The suit alleges that the Company is infringing seven patents
held by Pitney Bowes related to postage application systems and seeks treble
damages, a preliminary and permanent injunction from further alleged
infringement, attorneys' fees and other unspecified damages. On July 30, 1999,
the Company filed its answer to Pitney Bowes' complaint in which the Company
denied all allegations of patent infringement and asserted affirmative and
other defenses based on statutory and common law grounds, including inequitable
conduct on the part of Pitney Bowes in its procurement of patents in
proceedings before the U.S. Patent and Trademark Office. As part of the answer,
the Company also brought various counterclaims against Pitney Bowes claiming
Pitney Bowes' violation of Section 2 of the Sherman Act and intentional and
tortious interference with E-Stamp's business relations based, in part, upon
the Company's allegations that Pitney Bowes has unlawfully maintained its
monopoly power in the postage metering market through a scheme to defraud the
U.S. Patent and Trademark Office and its efforts to discourage potential
investors and strategic partners from investing and entering into partnerships
with E-Stamp. The Company's suit seeks compensatory and treble damages,
injunctive relief and recovery of attorney's fees. On September 21, 1999,
Pitney Bowes filed a motion to strike or dismiss certain of the Company's
affirmative defenses and counterclaims or, in the alternative, to bifurcate
discovery and trial of those counterclaims; the Company's response to the
Motion was filed in October 1999. The Company is continuing to investigate the
claims against it as well as infringement by Pitney Bowes of its patents, and
may assert additional defenses or pursue additional counterclaims or
independent claims against Pitney Bowes in the future.

Pendency of the litigation can be expected to result in significant expenses
to the Company and the diversion of management time and other resources. If
Pitney Bowes is successful in its claims against the Company, then the Company
may be hindered or even prevented from competing in the Internet postage market
and the Company's operations would be severely harmed. For example, the Pitney
Bowes suit could result in limitations on how the Company implements its
solutions, delays and costs associated with redesigning the Company's solutions
and payments of license fees and other payments. An injunction obtained by
Pitney Bowes could eliminate the Company's ability to market critical products
or services.

F-30
<PAGE>

E-STAMP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Subsequent Event

Initial Public Offering

On October 8, 1999, the Company completed an initial public offering of its
common stock. All 8,050,000 shares covered by the Company's Registration
Statement on Form S-1, including shares covered by an overallotment option that
was exercised, were sold by the Company at a price of $17.00 per share, less an
underwriting discount of $1.19 per share. Net proceeds to the Company from all
shares sold were approximately $126 million. Upon the consummation of the
Company's initial public offering, all of the then outstanding shares of
convertible preferred stock automatically converted into common stock.

Marketing and Distribution Agreement

In December 1999, the Company entered into a three year exclusive strategic
marketing and distribution agreement. The Company is obligated to pay $5
million upon signing the agreement and $25 million over the remaining term.

F-31
<PAGE>

(EXHIBIT A TO PROSPECTUS)

FORM OF ELECTION

TO BE SUBMITTED PURSUANT TO ELECTION TO RESCIND OR CONTINUE
INVESTMENT IN E-STAMP CORPORATION

E-Stamp Corporation
850 Saginaw Drive, 2nd Floor
Redwood City, California 94061

Attention: Edward Malysz
Vice President and General Counsel

Dear Mr. Malysz:

The undersigned acknowledges receipt of a final prospectus (the
"Prospectus") from E-Stamp Corporation, in which E-Stamp has offered certain
holders of common stock the right to rescind or continue their investment (the
"Offer"). This Offer must be accepted or rejected prior to , 2000, 30
days after the date of the Prospectus.

Subject to the terms and conditions of the Offer and the instructions set
forth below, I hereby elect:

(check appropriate blank(s))

[_]To accept the Offer and rescind the sale to the undersigned of [_] all
or [_] some (fill in number) shares of common stock of E-
Stamp Corporation and to receive a full refund of all sums paid therefor
together with interest at the rate of 7% per annum from the date of such
sale to the date hereof;

[_]To reject the Offer and continue to hold such shares.

If I have elected to rescind, I hereby submit the enclosed shares to which
this election relates.

Name and Address of Registered Holder (Please
fill in) Certificate(s) Enclosed
- --------------------------------------------------------------------------------
Certificate Number of
No. Shares
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Total Shares

The certificates submitted herewith are duly endorsed in blank or otherwise
in form acceptable for transfer on the books of E-Stamp.

Dated: , 2000 -------------------------------------
Signature
-------------------------------------
Signature
-------------------------------------
Print or type name

Address:
-------------------------------------
-------------------------------------
-------------------------------------

A-1
<PAGE>

INSTRUCTIONS

1. General. This form of Election should be properly filled in, dated and
signed, and should be delivered to E-Stamp at the address set forth on the
first page of this Form of Election. The method of delivery to E-Stamp is at
your option and risk, but if sent by mail, registered mail, return receipt
requested, is suggested. An addressed envelope is enclosed for your
convenience.

2. Time in Which to Elect. To be effective, a Form of Election must be
received by E-Stamp no later than thirty days after receipt of the Offer (the
"Expiration Date"). A Form of Election returned to E-Stamp after ,
2000 must be accompanied by evidence that the person submitting such Form of
Election submitted the Form of Election within 30 days after receipt of the
Offer.

3. Signatures. The signature (or signatures), on the Form of Election should
correspond exactly with the name as written on the face of the share
certificate(s), unless the shares have been assigned by the registered holder,
in which event the Form of Election should be signed in exactly the same form
as the name of the last transferee indicated on the transfers attached to or
endorsed on the certificates.

If the Form of Election is signed by a trustee, executor, administrator,
guardian, officer of a corporation, attorney-in-fact or any other
representative or fiduciary, the person signing must give such person's full
title in such capacity and appropriate evidence of authority to act in such
capacity must be forwarded herewith.

All signatures should be accompanied by a guarantee executed by appropriate
officers of a federally or state chartered bank or member firm of the New York
Stock Exchange.

4. Miscellaneous. In the case of acceptances of the Offer, E-Stamp will
begin mailing and delivering checks in reimbursement for consideration paid for
the shares within five business days after the Expiration Date.

All questions with respect to this Form of Election and the Offer (including
questions relating to the timeliness or effectiveness of any election) will be
determined by E-Stamp, which determination shall be final and binding. All
questions should be directed to Edward Malysz, Vice President and General
Counsel, E-Stamp Corporation, 850 Saginaw Drive, 2nd Floor, Redwood City,
California 94061; telephone (650) 474-5800.

A-2
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, 2000

[LOGO OF E-STAMP]

RESCISSION OFFER

5,687,279 Shares of Common Stock

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

PROSPECTUS

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

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

We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of E-Stamp
Corporation have not changed since the date hereof.

- -------------------------------------------------------------------------------
<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 payable by E-Stamp
Corporation in connection with the sale of common stock being registered. All
amounts are estimates except the SEC registration fee.

<TABLE>
<S> <C>
SEC registration fee................................................ $ 1,514
Blue sky qualification fees and expenses............................ $10,000
Printing and engraving costs........................................ $10,000
Legal fees and expenses............................................. $20,000
Accounting fees and expenses........................................ $10,000
Miscellaneous expenses.............................................. $ 3,486

Total............................................................... $55,000
</TABLE>

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.

Article IX of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.

Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the Registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.

The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.

Item 15. Recent Sales of Unregistered Securities

(a) During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:

(1) On September 3, 1997, we issued an aggregate of 2,500,000 shares of our
Series A Preferred Stock to accredited investors for an aggregate offering
price of $6,000,000.

(2) On July 7, 1998, we issued an aggregate of 4,188,000 shares of our
Series B Preferred Stock to accredited investors for an aggregate offering
price of $16,000,000.

(3) On July 26, 1999, we granted a warrant to a lender to purchase up to
48,496 shares of Common Stock at $8.25 per share, as adjusted for our stock
dividend.

(4) On August 3, 1999 and August 10, 1999, we issued an aggregate of
2,928,521 shares of our Series C Preferred Stock to accredited investors,
including a number of our existing preferred and common stockholders, for an
aggregate offering price of $30,193,051.

(5) On August 10, 1999, we granted a warrant to our placement agent for our
Series C Preferred Stock financing to purchase up to 21,235 shares of Series C
Preferred Stock at $10.31 per share.

II-1
<PAGE>

(6) From September 1996 to October 14, 1999, we have granted options to
purchase an aggregate of 8,768,822 shares of common stock to our directors,
executive officers, employees and consultants at a weighted exercise price of
$5.17, as adjusted for our stock dividend, under the Registrant's 1996 Stock
Option and Restricted Stock Plan the Registrant's 1999 Stock Plan and the
Registrant's 1996 Non-Employee Director Stock Option Plan, of which options to
purchase 1,041,451 shares, as adjusted for our September 1999 stock dividend,
were cancelled without exercise.

(7) In August 1999, we granted stock bonuses of an aggregate of 187,500
shares of common stock to one of our executive officers and one of our
directors, and we granted an option to purchase 62,500 shares of common stock
at an exercise price of $6.88 per share to one of our directors, in each case
as adjusted for our stock dividend.

(8) As of October 14, 1999, an aggregate of 5,392,359 shares of common stock
had been issued upon exercise of options under the Registrant's 1996 Stock
Option and Restricted Stock Plan at a weighted purchase price of $0.9917 per
share, and an aggregate of 294,920 shares had been issued upon exercise of
options under the Registrant's 1999 Stock Plan.

(9) On September 10, 1999, we issued an aggregate of 726,745 shares of our
common stock to two accredited investors at a purchase price of $6.88 per
share, as adjusted for our stock dividend. On September 10, 1999, these two
accredited investors also paid an aggregate of $168 for warrants to purchase
83,855 shares of common stock at an exercise price of $0.01 per share, as
adjusted for our stock dividend. These warrants were exercised on September 10,
1999.

(b) Except as indicated above, none of the foregoing transactions involved
any underwriters, underwriting discounts or commissions, or any public
offering, and the Registrant believes that each transaction described in
paragraphs (1) through (5) and in paragraph (7) above, was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof or Regulation D promulgated thereunder and that the transactions
described in paragraph (9) were exempt from the registration requirements of
the Securities Act by virtue of Regulation S promulgated thereunder. The
recipients in such transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the
share certificates and instruments issued in such transactions. All recipients
had adequate access, through their relationships with the Registrant, to
information about the Registrant.

The stock issuances described in paragraph (8) above were not made pursuant
to a registration statement under the Securities Act, nor were the offer and
sale registered or qualified under any state securities laws. Although the
Registrant believed at the time that such offers and sales were exempt from
such registration or qualification, they may not have been exempt. As a result,
purchasers of such shares may have the right under the Securities Act or state
securities laws to rescind their purchases and thereby be entitled to return
such shares to the Registrant and receive back from the Registrant the full
consideration paid by such purchasers which aggregates approximately $5,732,000
plus interest. These shares are the subject of the rescission offer to which
this Registration Statement relates.

In addition, the Registrant may not have had an exemption from qualification
under state securities laws for the options issued under the Registrant's 1996
Stock Option and Restricted Stock Plan, the Registrant's 1999 Stock Plan and
the Registrant's 1996 Non-Employee Director Stock Option Plan. These options
are subject to rescission, and the Registrant intends to make a concurrent
rescission offer to the holder of those options. Under such rescission offer,
the Registrant could be required to make an aggregate payment of up to
approximately $260,000 relating to these options. There are no assurances that
the Registrant will not otherwise be subject to possible penalties or fines
relating to these issuances. The Registrant believes the rescission offers
could provide it with additional meritorious defenses to any such future
claims.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of
Registrant.
3.4* Form of Amended and Restated Bylaws of Registrant.
3.5* Certificates of Designation of Registrant relating to Series A
Preferred Stock.
3.6* Certificates of Designation of Registrant relating to Series B
Preferred Stock.
3.7* Certificate of Designation of Registrant relating to Series C
Preferred Stock.
3.8* Amendment to Certificate of Incorporation of the Registrant.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2* 1999 Stock Plan and form of agreements thereunder.
10.3* 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4* 1999 Director Option Plan and form of agreements thereunder.
10.5* 1996 Stock Option and Restricted Stock Plan.
10.6* 1996 Non-Employee Director Stock Option Plan.
10.7* Second Amended and Restated Investors Rights Agreement.
10.8* Employment Agreement, dated March 29, 1996, between Registrant and
Nicole Ward (Eagan).
10.9* Employment Agreement, dated May 13, 1996, between Registrant and
Martin Pagel.
10.10* Employment Agreement, dated July 27, 1996, between Registrant and
Thomas Reinemer.
10.11* Promissory Note, dated May 30, 1999, between Registrant and Robert H.
Ewald.
10.12* Crypto iButton Service Provider Agreement dated August 21, 1998,
between Registrant and Dallas Semiconductor Corporation.
10.13+* Premium Partner Website Marketing Agreement dated July 1, 1999,
between Registrant and Microsoft Corporation.
10.14+* America Online Strategic Marketing Agreement dated November 13, 1998,
between Registrant and America Online.
10.15+* Turnkey/Inventory Agreement dated June 1, 1999, between Registrant and
Modus Media International.
10.16+* Agreement for Services dated June 27, 1997 between Registrant and
Pilot Network Services, Inc.
10.17* Sublease Agreement dated February 2, 1999 between the Registrant and
Electronics for Imaging, Inc.
10.18+* Advertising and Promotion Agreement dated May 14, 1999 between
Registrant and Yahoo!, Inc.
10.19+* Letter Agreement dated August 2, 1999 between Registrant and At Home
Corporation.
10.20+* Platinum Premier Partner Package Agreement dated June 25, 1999 between
Registrant, EarthLink Network, Inc. and EarthLink Operations, Inc.
10.21+* Services Agreement dated September 24, 1999 between Registrant and
Intuit Inc.
10.22** Cobranding and Promotion Agreement dated December 10, 1999 between
Registrant and eBay Inc.
10.23 Promissory Note dated December 23, 1999, between Registrant and
Marcelo Gumucio.
10.24 Promissory Note dated January 14, 2000, between Registrant and Robert
H. Ewald.
10.25 Stock Pledge Agreement dated December 22, 1999 between Registrant and
Marcelo Gumucio.
10.26 Stock Pledge dated Janaury 14, 2000 between Registrant and Robert H.
Ewald.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
(see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (Included on Page II-5).
</TABLE>
- ---------------------
*Incorporated by reference from Registration Statement No. 333-85359, as
amended, originally filed with the Securities and Exchange Commission on
August 17, 1999.
**To be filed by amendment.
+The registrant obtained confidential treatment of certain portions of this
exhibit from the Commission. The omitted portions have been filed separately
with the Commission.

II-3
<PAGE>

(b) Financial Statement Schedules

Schedules not listed above 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.

Item 17. Undertakings

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant 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 Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant 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 Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant 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, 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-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Mateo,
State of California, on the 2nd day of February 2000.

E-STAMP CORPORATION

/s/ Robert H. Ewald
By: _________________________________
Robert H. Ewald
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert H. Ewald and Edward Malysz and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and
any or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or his substitute, may lawfully do or cause
to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Robert H. Ewald President, Chief Executive February 2,
____________________________________ Officer and Director 2000
Robert H. Ewald (Principal Executive
Officer)

/s/ Anthony H. Lewis, Jr. Vice President and Chief February 2,
____________________________________ Financial Officer 2000
Anthony H. Lewis, Jr. (Principal Financial and
Accounting Officer)

/s/ Marcelo A. Gumucio Chairman of the Board February 2,
____________________________________ 2000
Marcelo A. Gumucio

/s/ John V. Balen Director February 2,
____________________________________ 2000
John V. Balen

/s/ Thomas L. Rosch Director February 2,
____________________________________ 2000
Thomas L. Rosch

/s/ Gregory S. Stanger Director February 2,
____________________________________ 2000
Gregory S. Stanger

/s/ Adam Wagner Director February 2,
____________________________________ 2000
Adam Wagner

/s/ Rebecca Saeger Director February 2,
____________________________________ 2000
Rebecca Saeger
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Cresci Director February 2,
____________________________________ 2000
Robert J. Cresci
/s/ Je rry Gramaglia Director February 2,
____________________________________ 2000
Jerry Gramaglia

</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
3.1* Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of
Registrant.
3.4* Form of Amended and Restated Bylaws of Registrant.
3.5* Certificates of Designation of Registrant relating to Series A
Preferred Stock.
3.6* Certificates of Designation of Registrant relating to Series B
Preferred Stock.
3.7* Certificate of Designation of Registrant relating to Series C
Preferred Stock.
3.8* Amendment to Certificate of Incorporation of the Registrant.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2* 1999 Stock Plan and form of agreements thereunder.
10.3* 1999 Employee Stock Purchase Plan and form of agreements thereunder.
10.4* 1999 Director Option Plan and form of agreements thereunder.
10.5* 1996 Stock Option and Restricted Stock Plan.
10.6* 1996 Non-Employee Director Stock Option Plan.
10.7* Second Amended and Restated Investors Rights Agreement.
10.8* Employment Agreement, dated March 29, 1996, between Registrant and
Nicole Ward (Eagan).
10.9* Employment Agreement, dated May 13, 1996, between Registrant and
Martin Pagel.
10.10* Employment Agreement, dated July 27, 1996, between Registrant and
Thomas Reinemer.
10.11* Promissory Note, dated May 30, 1999, between Registrant and Robert H.
Ewald.
10.12* Crypto iButton Service Provider Agreement dated August 21, 1998,
between Registrant and Dallas Semiconductor Corporation.
10.13+* Premium Partner Website Marketing Agreement dated July 1, 1999,
between Registrant and Microsoft Corporation.
10.14+* America Online Strategic Marketing Agreement dated November 13, 1998,
between Registrant and America Online.
10.15+* Turnkey/Inventory Agreement dated June 1, 1999, between Registrant and
Modus Media International.
10.16+* Agreement for Services dated June 27, 1997 between Registrant and
Pilot Network Services, Inc.
10.17* Sublease Agreement dated February 2, 1999 between the Registrant and
Electronics for Imaging, Inc.
10.18+* Advertising and Promotion Agreement dated May 14, 1999 between
Registrant and Yahoo!, Inc.
10.19+* Letter Agreement dated August 2, 1999 between Registrant and At Home
Corporation.
10.20+* Platinum Premier Partner Package Agreement dated June 25, 1999 between
Registrant, EarthLink Network, Inc. and EarthLink Operations, Inc.
10.21+* Services Agreement dated September 24, 1999 between Registrant and
Intuit Inc.
10.22** Cobranding and Promotion Agreement dated December 10, 1999 between
Registrant and eBay Inc.
10.23 Promissory Note dated December 23, 1999 between Registrant and Marcelo
Gumucio.
10.24 Promissory Note dated January 14, 2000, between Registrant and Robert
H. Ewald.
10.25 Stock Pledge Agreement dated December 22, 1999 between Registrant and
Macelo Gumucio.
10.26 Stock Pledge Agreement dated January 14, 2000 between Registrant and
Robert H. Ewald.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
(see Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (Included on Page II-5).
</TABLE>
- ---------------------
*Incorporated by reference from Registration Statement No. 333-85359, as
amended, originally filed with the Securities and Exchange Commission on
August 17, 1999.
**To be filed by Amendment.
+ The registrant obtained confidential treatment of certain portions of this
exhibit from the Commission. The omitted portions have been filed separately
with the Commission.

<PAGE>

Exhibit 5.1

WILSON SONSINI GOODRICH & ROSATI
[Letterhead]

February 2, 2000

E-Stamp Corporation
850 Saginaw Drive, 2nd Floor
Redwood City, California 94061

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by E-Stamp Corporation (the "Company") of a registration
statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission"), covering up to 5,687,279 shares of
common stock (the "Rescission Stock") which the Company is offering to rescind.
In connection with this opinion, we have examined and relied upon the
Registration Statement, the Company's Amended and Restated Certificate of
Incorporation, as amended, and Bylaws, and the originals or copies certified to
our satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below.

On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Rescission Stock was, at the time of issuance by the Company,
duly and validly issued, fully paid and nonassessable. In rendering our opinion
herein, we express no opinion as to the compliance or noncompliance of the
issuance of the Rescission Stock with federal or state securities laws.

We consent to the reference to our firm under the caption "Legal Matters" in
the Registration Statement and any amendment thereto and to the filing of this
opinion as an exhibit to the Registration Statement and any amendment thereto.

Very truly yours,

WILSON SONSINI GOODRICH & ROSATI
Professional Corporation

/s/ Wilson Sonsini Goodrich & Rosati

<PAGE>

Exhibit 10.23

PROMISSORY NOTE
SECURED BY STOCK PLEDGE AGREEMENT

NOTICE: THIS PROMISSORY NOTE PROVIDES FOR A BALLOON PAYMENT.

$150,885 San Mateo, California
December 23, 1999

For value received, the undersigned, Marcelo Gumucio ("Director") and
Carole Gumucio (collectively, "Borrower") jointly and severally promise to pay
to E-STAMP CORPORATION, a Delaware corporation ("E-Stamp"), or order, at 2855
Campus Drive, San Mateo CA 94403, or such other place as E-Stamp may designate
in writing from time to time, in lawful money of the United States of America,
without abatement, demand, deduction, setoff or counterclaim, the principal sum
of One Hundred Fifty Thousand Eight Hundred Eighty-Five Dollars ($150,885),
together with interest thereon at the rate of five and seventy-four hundreths
percent (5.74%) per annum, compounded annually, from the date first set forth
above until all outstanding principal, accrued interest and other charges under
this Promissory Note are paid in full.

1. Payments. All outstanding principal and accrued interest under this
--------
Promissory Note shall be due and payable on the Due Date (as defined below);
provided, however, that so long as Director is a director on the Board of
Directors of E-Stamp, Borrower's obligation to pay principal and interest under
this Promissory Note shall be forgiven as follows: (a) principal in the amount
of Eighteen Thousand Eight Hundred Sixty Dollars ($18,860) shall be forgiven as
of the date first set forth above, and (b) principal in the amount of Eighteen
Thousand Eight Hundred Sixty Dollars ($18,860), plus accrued but unpaid interest
on the outstanding balance of principal hereunder, shall be forgiven on February
18, 2000, May 18, 2000, August 18, 2000, November 18, 2000, February 18, 2001,
and May 18, 2001, and (c) principal in the amount of Eighteen Thousand Eight
Hundred Sixty-five Dollars ($18,865), plus accrued but unpaid interest on the
outstanding balance of principal hereunder, shall be forgiven on August 18,
2001. Notwithstanding the preceding to the contrary, if Borrower sells any of
the Pledged Collateral (as defined below), the outstanding principal and accrued
interest under this Promissory Note shall be due and payable to the extent of
the gross sales price, less commissions, derived from the sale of the Pledged
Collateral. Every payment received by E-Stamp with respect to this Promissory
Note shall be applied as follows: first, to the payment of any late charges;
second, to the payment of accrued but unpaid interest; and, third, to the
payment of the outstanding principal balance of this Promissory Note.

2. Due Date. The "Due Date" shall be the earlier of (i) the date that
--------
Borrower ceases to be a director on the Board of Directors of E-Stamp, whether
voluntarily or involuntarily, and whether with or without cause, or (ii) August
18, 2001.

3. Purpose of Loan. Borrower acknowledges and agrees that E-Stamp is
---------------
making this loan to Borrower for the purpose of financing Borrower's income tax
liability associated with the issuance to Borrower of 50,000 shares of E-Stamp
common stock on August 18, 1999.

1
<PAGE>

exercises this option or the principal balance of this Promissory Note otherwise
becomes due and payable, all principal then outstanding under this Promissory
Note shall thereafter bear simple interest at the lesser of ten percent (10%)
per annum or the maximum rate permitted by law. Failure to exercise this option
shall not constitute a waiver of E-Stamp's right to exercise the same with
respect to any prior or subsequent defaults.

5. Security. Borrower's obligations under this Promissory Note are
--------
secured by that certain Stock Pledge Agreement of even date herewith ("Pledge
Agreement") encumbering 17,500 shares of common stock of E-Stamp owned by
Borrower and pledged as collateral thereunder ("Pledged Collateral").

6. Full Recourse Loan. This Promissory Note evidences a full recourse
------------------
loan. Borrower acknowledges that Borrower is personally liable for the
performance of the obligations of Borrower under this Promissory Note, and
Borrower's liability shall not be limited to the value of the Pledged Collateral
or other security provided to E-Stamp to secure Borrower's performance of its
obligations under this Promissory Note.

7. Tax Liability. Borrower understands and agrees that any and all
-------------
income tax liability to Borrower resulting from this Promissory Note, including,
without limitation, the forgiveness of principal and interest hereunder, shall
be the sole responsibility of Borrower.

8. Attorneys' Fees. In the event any legal action or proceeding is
---------------
required to enforce or interpret any provision of this Promissory Note, Borrower
shall pay to E-Stamp upon demand all costs of collection and reasonable
attorneys' fees incurred by E-Stamp.

9. Miscellaneous. If any provision of this Promissory Note shall be
-------------
invalid or unenforceable for any reason, the same shall be ineffective, but the
remainder of this Promissory Note shall not be affected thereby and shall remain
in full force and effect. Time is of the essence of each and every obligation
of Borrower hereunder. Presentment and demand for payment, notice of dishonor,
protest and notice of protest are hereby waived by Borrower. If the due date
for any payment under this Promissory Note falls on a Saturday, Sunday or legal
holiday, then such due date shall be extended to the next business day. None of
the terms or provisions of this Promissory Note may be waived, altered, modified
or amended except by a writing signed by E-Stamp and Borrower. The provisions
of this Promissory Note shall be governed by California law. The covenants,
terms and conditions hereof shall bind the heirs, successors and

2
<PAGE>

assigns of Borrower and shall inure to the benefit of the successors and assigns
of E-Stamp.

IN WITNESS WHEREOF, Borrower has executed this Promissory Note as of the
date first set forth above.

BORROWER:

/s/ Marcelo Gumucio
----------------------------------------
Marcelo Gumucio

/s/ Carole Gumucio
----------------------------------------
Carole Gumucio

<PAGE>

Exhibit 10.24

PROMISSORY NOTE
SECURED BY STOCK PLEDGE AGREEMENT

NOTICE: THIS PROMISSORY NOTE PROVIDES FOR A BALLOON PAYMENT.

$409,962.00 San Mateo, California
January 14, 2000

For value received, the undersigned, Robert H. Ewald ("Borrower"), promises
to pay to E-STAMP CORPORATION, a Delaware corporation ("E-Stamp"), or order, at
2855 Campus Drive, San Mateo CA 94403, or such other place as E-Stamp may
designate in writing from time to time, in lawful money of the United States of
America, without abatement, demand, deduction, setoff or counterclaim, the
principal sum of Four Hundred Nine Thousand Nine Hundred Sixty-two and 00/100
Dollars ($409,962.00), together with interest thereon at the rate of five and
eighty-eight hundredths percent (5.88%) per annum, compounded annually, from the
date first set forth above until all outstanding principal, accrued interest and
other charges under this Promissory Note are paid in full.

1. Payments. All outstanding principal and accrued interest under this
--------
Promissory Note shall be due and payable on the Due Date (as defined below);
provided, however, that so long as Borrower is an officer of E-Stamp, Borrower's
obligation to pay principal and interest under this Promissory Note shall be
forgiven as follows: (a) principal in the amount of Fifty-one Thousand Two
Hundred Forty-five and 25/100 Dollars ($51,245.25) shall be forgiven as of the
date first set forth above, and (b) principal in the amount of Fifty-one
Thousand Two Hundred Forty-five and 25/100 Dollars ($51,245.25), plus accrued
but unpaid interest on the outstanding balance of principal hereunder, shall be
forgiven on February 18, 2000, May 18, 2000, August 18, 2000, November 18, 2000,
February 18, 2001, May 18, 2001 and August 18, 2001. Notwithstanding the
preceding to the contrary, if Borrower sells any of the Pledged Collateral (as
defined below), the outstanding principal and accrued interest under this
Promissory Note shall be due and payable to the extent of the gross sales price,
less commissions, derived from the sale of the Pledged Collateral. Every
payment received by E-Stamp with respect to this Promissory Note shall be
applied as follows: first, to the payment of any late charges; second, to the
payment of accrued but unpaid interest; and, third, to the payment of the
outstanding principal balance of this Promissory Note.

2. Due Date. The "Due Date" shall be the earlier of (i) the date that
--------
Borrower ceases to be an officer of E-Stamp, whether voluntarily or
involuntarily, and whether with or without cause, or (ii) August 18, 2001.

3. Purpose of Loan. Borrower acknowledges and agrees that E-Stamp is
---------------
making this loan to Borrower for the purpose of financing Borrower's income and
payroll tax liability associated with the issuance to Borrower of 100,000 shares
of E-Stamp common stock on August 18, 1999.

4. Default. In the event that Borrower fails to pay any amount due under
-------
this Promissory Note as and when due or to timely perform any other obligation
of Borrower under this Promissory Note and/or the Pledge Agreement (as defined
below), E-Stamp may, at its option, declare the entire principal sum and all
accrued but unpaid interest under this Promissory Note immediately due and
payable. In the event that E-Stamp exercises this option or the principal
balance of this Promissory Note otherwise becomes due and payable, all principal
then outstanding under this Promissory Note shall thereafter bear simple
interest at the lesser of ten percent (10%) per annum or the maximum rate
permitted by law. Failure to exercise this option shall not constitute a waiver
of E-Stamp's right to exercise the same with respect to any prior or subsequent
defaults.

1
<PAGE>

5. Security. Borrower's obligations under this Promissory Note are
--------
secured by that certain Stock Pledge Agreement of even date herewith ("Pledge
Agreement") encumbering 60,000 shares of common stock of E-Stamp owned by
Borrower and pledged as collateral thereunder ("Pledged Collateral").

7. Tax Liability. Borrower understands and agrees that any and all
-------------
income and payroll tax liability to Borrower resulting from this Promissory
Note, including, without limitation, the forgiveness of principal and interest
hereunder, shall be the sole responsibility of Borrower.

2
<PAGE>

governed by California law. The covenants, terms and conditions hereof shall
bind the heirs, successors and assigns of Borrower and shall inure to the
benefit of the successors and assigns of E-Stamp.

IN WITNESS WHEREOF, Borrower has executed this Promissory Note as of the
date first set forth above.

BORROWER:

/s/ Robert H. Ewald
----------------------------------------
Robert H. Ewald

<PAGE>

Exhibit 10.25

Stock Pledge Agreement

This Stock Pledge Agreement ("Agreement") is made and entered into as of
this 22nd day of December, 1999 ("Effective Date") by and between Marcelo
Gumucio ("Director") and Carole Gumucio (collectively, "Pledgor") and E-STAMP
CORPORATION, a Delaware corporation ("E-Stamp").

RECITALS
--------

A. E-Stamp agreed to make a loan ("Loan") to Pledgor in the amount of
Borrower's personal income tax liability arising in 1999 from a stock award of
fifty thousand (50,000) shares of common stock of E-Stamp ("Shares") granted by
E-Stamp to Director on August 18, 1999.

B. Pledgor now desires to borrow the sum of One Hundred Fifty Thousand
Eight Hundred Eighty-five Dollars ($150,885) from E-Stamp to pay Pledgor's
income tax liability resulting from the issuance of the Shares, and to pledge
all right, title and interest in and seventeen thousand five hundred (17,500)
shares of common stock of E-Stamp ("Pledged Shares") upon the terms and
conditions set forth hereinbelow.

NOW, THEREFORE, Pledgor hereby covenants and agrees as follows:

1. Pledge of Collateral. Pledgor hereby pledges, assigns, grants and
--------------------
delivers to E-Stamp a security interest in all of Pledgor's right, title and
interest in and to the Pledged Shares and all cash and noncash proceeds and
substitutions thereof (collectively, the "Pledged Collateral") as security for
the prompt performance of Pledgor's obligations under the Loan. The Pledged
Shares are evidenced by the stock certificates listed on Exhibit A attached
hereto.

2. Pledgor's Covenants. Pledgor hereby represents, warrants and
-------------------
covenants to E-Stamp as follows:

(a) Pledgor is the owner of the Pledged Collateral.

(b) The Pledged Collateral is free and clear of any security
interests, liens, encumbrances or other interests other than this Agreement.

(c) Pledgor has full power and authority to create a first lien on the
Pledged Collateral in favor of E-Stamp and no disability or contractual
obligation exists which would prohibit Pledgor from pledging the Pledged
Collateral pursuant to this Agreement.

(d) Pledgor shall not transfer, assign, create or permit to exist any
other claim to, lien or encumbrance upon, or security interest in any of the
Pledged Collateral, and shall not permit Pledgor's rights in the Pledged
Collateral to be reached by attachment, levy or other judicial process.

1
<PAGE>

(e) At E-Stamp's request, Pledgor shall execute and acknowledge such
other documents and instruments which E-Stamp deems necessary or desirable to
evidence, continue or preserve E-Stamp's security interest in the Pledged
Collateral and/or to otherwise effect any of the terms of this Agreement.

The foregoing representations, warranties and covenants shall survive the
termination of this Agreement.

3. Partial Release; Payment of Proceeds.
---------------- -------------------

(a) Provided that Pledgor has not been in default hereunder or under
the Loan and the Loan is not otherwise due and payable, the security interest
created hereunder in the Pledged Collateral shall, from time to time, be
partially released on the applicable release dates pursuant to the schedule
attached as Exhibit A hereto, and E-Stamp shall promptly deliver to Pledgor the
applicable certificate for the Pledged Shares to which the security interest
hereunder is so released.

(b) All monies or other proceeds payable to Pledgor in connection
with the sale or transfer of any Pledged Shares shall be applied first to the
payment of principal, accrued interest and other charges then outstanding under
the Loan. Upon Pledgor's payment to E-Stamp of all principal, accrued interest
and other charges under the Loan and this Agreement, the security interest
created under this Agreement shall automatically terminate, and E-Stamp shall
promptly deliver to Pledgor any remaining Pledged Collateral then held by E-
Stamp.

(c) With respect to the disposition of any Pledged Shares, Pledgor
shall instruct Pledgor's stock broker ("Broker") to pay directly to E-Stamp from
Broker's account an amount equal to the lesser of (i) the sales price of the
Pledged Shares, less commissions, or (ii) the amount of principal, accrued
interest and other charges then outstanding under the Loan. E-Stamp shall have
no obligation to deliver the Pledged Shares to Broker unless and until E-Stamp
receives written confirmation from Broker that the foregoing payment shall be
promptly made by Broker to E-Stamp.

(d) E-Stamp shall retain possession of such shares until either (i)
all principal, accrued interest and other charges under the Loan have been paid
in full or (ii) Pledgor effects the sale of the Pledged Shares and applies the
applicable proceeds to any principal, accrued interest and other charges then
outstanding under the Loan as provided herein. If Pledgor desires to sell any
such Pledged Shares, Pledgor shall instruct Broker to pay directly to E-Stamp
from Broker's account an amount equal to the lesser of (i) the sales price of
the Pledged Shares, less commissions, or (ii) the amount of principal, accrued
interest and other charges then outstanding under the Loan. E-Stamp shall have
no obligation to deliver the Pledged Shares to Pledgor or Broker unless and
until E-Stamp receives written confirmation from Broker that the foregoing
payment shall be promptly made by Broker to E-Stamp.

(e) All instructions required to be submitted by Pledgor to Broker
shall be irrevocable and in writing, with a copy thereof delivered concurrently
to E-Stamp. All proceeds paid for the Pledged Shares (less commissions) and
otherwise payable to E-Stamp hereunder shall be deposited directly into the
account of Broker for payment to E-Stamp. E-Stamp's delivery of any Pledged
Shares to Broker shall be for the sole purpose of facilitating the sale of such
Pledged Shares, and E-Stamp's security interest therein shall continue until
Broker shall have paid to E-Stamp all applicable sums as required hereinabove.

4. Events of Default. Each of the following shall constitute an event of
-----------------
default ("Event of Default") hereunder:

2
<PAGE>

(a) The failure by Pledgor to observe or perform any of the provisions
of this Agreement or to pay any amount due under the Loan and/or this Agreement.

(b) The inaccuracy or breach of any warranty, representation or
statement made or furnished to E-Stamp by or on behalf of Pledgor.

(c) The assignment for the benefit of creditors or the commencement of
any proceeding under any bankruptcy or insolvency law by or against Pledgor.

(d) The seizure or attachment of, or a levy on all or any portion of
the Pledged Collateral.

5. E-Stamp's Remedies Upon Default.
-------------------------------

(a) Upon the occurrence of an Event of Default, E-Stamp shall have the
right to:

(i) Declare all of the obligations and liabilities of Pledgor
under the Loan immediately due and payable;

(ii) Repurchase all or part of the Pledged Shares from Pledgor
for a purchase price equal to the lesser of (i) the fair market value of such
Pledged Shares as of the date of the Event of Default, or (ii) the fair market
value of such shares as of the date of repurchase. The fair market value shall
be the closing sales price of the common stock of E-Stamp as reported in the
Wall Street Journal as of the applicable date set forth herein; and/or

(iii) Exercise any and all rights of a secured party under the
Uniform Commercial Code of the State of California which E-Stamp, in its sole
judgment, deems necessary or appropriate, including, without limitation, the
right to sell or otherwise dispose of all or any part of the Pledged Collateral;

(b) After the repurchase, sale or transfer of any of the Pledged
Collateral, E-Stamp may deduct all reasonable attorneys' fees, brokerage
commissions and other expenses incurred by E-Stamp in preserving, collecting,
selling, repurchasing and/or delivering the Pledged Collateral and for enforcing
its rights with respect to the Loan and this Agreement, and shall apply the
residue of the proceeds to, or hold as a reserve against, the Loan in such
manner as E-Stamp in its reasonable discretion shall determine, and shall
thereafter pay the balance, if any, to Pledgor.

6 E-Stamp's Duties. E-Stamp shall have no duty or liability for the
----------------
Pledged Collateral except for the exercise of reasonable care of the Pledged
Collateral while in the possession of E-Stamp.

7. General Provisions.
------------------

(a) Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective heirs, successors and permitted assigns of each of
the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Pledgor without E-Stamp's prior written consent,
which consent may be granted or withheld in E-Stamp's sole discretion.

3
<PAGE>

(b) Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision. In case one
or more of the provisions contained in this Agreement shall for any reason be
held invalid, illegal or unenforceable in any respect, the invalidity,
illegality or unenforceability of that provision shall not affect any other
provision of this Agreement.

(c) Joint and Several Obligations. If Pledgor consists of more than
-----------------------------
one person, the obligations of Pledgor shall be the joint and several
obligations of all such persons. When the context and construction so require,
all words used in the singular herein shall be deemed to have been used in the
plural and the masculine shall include the feminine and neuter and vice versa.

(d) No Waiver. No delay or omission by E-Stamp in exercising any
---------
right or remedy arising from any default of Pledgor shall be construed as a
waiver of such default or as an acquiescence therein, nor shall any single or
partial exercise thereof preclude any further exercise thereof. E-Stamp may, at
its option, waive any of the conditions herein and any such waiver shall not be
deemed the waiver of E-Stamp's rights hereunder. The waiver of any Event of
Default shall not be construed as any waiver of or acquiescence in or consent to
any preceding or subsequent Event of Default by Pledgor hereunder.

(e) Collection Costs. Pledgor shall promptly pay E-Stamp all
----------------
reasonable attorneys' fees and all costs and other expenses paid or incurred by
E-Stamp in enforcing or exercising its rights or remedies created by, connected
with or provided in this Agreement, and payment thereof shall be secured by the
Pledged Collateral.

IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
Effective Date.

PLEDGOR:

/s/ Marcelo Gumucio
------------------------------
Marcelo Gumucio

/s/ Carole Gumucio
------------------------------
Carole Gumucio

E-STAMP CORPORATION,
a Delaware corporation

By /s/ Ed Malysz
-------------------------------------
Its Vice President and General Counsel
------------------------------------

4
<PAGE>

EXHIBIT A

LIST OF STOCK CERTIFICATES
AND
RELEASE DATES

Certificate Number Shares Release Date
- --------------------------------------------------------------------------------
2,188 Effective Date
- --------------------------------------------------------------------------------
2,188 2/18/00
- --------------------------------------------------------------------------------
2,188 5/18/00
- --------------------------------------------------------------------------------
2,188 8/18/00
- --------------------------------------------------------------------------------
2,187 11/18/00
- --------------------------------------------------------------------------------
2,187 2/18/01
- --------------------------------------------------------------------------------
2,187 5/18/01
- --------------------------------------------------------------------------------
2,187 8/18/01
- --------------------------------------------------------------------------------

<PAGE>

Exhibit 10.26

Stock Pledge Agreement

This Stock Pledge Agreement ("Agreement") is made and entered into as of
this 14th day of January, 2000 ("Effective Date") by and between Robert H. Ewald
("Pledgor") and E-STAMP CORPORATION, a Delaware corporation ("E-Stamp").

RECITALS
--------

A. E-Stamp agreed to make a loan ("Loan") to Pledgor in the amount of
Borrower's personal income and payroll tax liability arising in calendar year
1999 from a stock award of one hundred thousand (100,000) shares of common stock
of E-Stamp ("Shares") granted by E-Stamp to Borrower on August 18, 1999.

B. Pledgor now desires to borrow the sum of Four Hundred Nine Thousand
Nine Hundred Sixty-two and 00/100 Dollars ($409,962.00) from E-Stamp to pay
Pledgor's personal income and payroll tax liability resulting from the issuance
of the Shares, and to pledge all right, title and interest in and to sixty
thousand (60,000) shares of common stock of E-Stamp ("Pledged Shares") upon the
terms and conditions set forth hereinbelow.

NOW, THEREFORE, Pledgor hereby covenants and agrees as follows:

1. Pledge of Collateral. Pledgor hereby pledges, assigns, grants and
--------------------
delivers to E-Stamp a security interest in all of Pledgor's right, title and
interest in and to the Pledged Shares and all cash and noncash proceeds and
substitutions thereof (collectively, the "Pledged Collateral") as security for
the prompt performance of Pledgor's obligations under the Loan. The Pledged
Shares are more particularly described on Exhibit A attached hereto.

2. Pledgor's Covenants. Pledgor hereby represents, warrants and
-------------------
covenants to E-Stamp as follows:

(a) Pledgor is the owner of the Pledged Collateral.

(b) The Pledged Collateral is free and clear of any security
interests, liens, encumbrances or other interests other than the security
interest created by this Agreement.

(d) Pledgor shall not sell, transfer, assign, create or permit to
exist any other claim to, lien or encumbrance upon, or security interest in any
of the Pledged Collateral, and shall not permit Pledgor's rights in the Pledged
Collateral to be reached by attachment, levy or other judicial process.

1
<PAGE>

The foregoing representations, warranties and covenants shall survive the
termination of this Agreement.

3. Partial Release; Payment of Proceeds.
---------------- -------------------

(d) E-Stamp shall retain possession of the Pledged Collateral until
(i) all principal, accrued interest and other charges under the Loan have been
paid in full, (ii) Pledgor effects the sale of the Pledged Shares and applies
the applicable proceeds to any principal, accrued interest and other charges
then outstanding under the Loan as provided herein, or (iii) with regard to the
partial release of the security interest Pledged Collateral pursuant to Section
3(a) above, the applicable release date set forth on Exhibit A. If Pledgor
desires to sell any such Pledged Shares, Pledgor shall instruct Broker to pay
directly to E-Stamp from Broker's account an amount equal to the lesser of (y)
the sales price of the Pledged Shares, less commissions, or (z) the amount of
principal, accrued interest and other charges then outstanding under the Loan.
E-Stamp shall have no obligation to deliver the Pledged Shares to Pledgor or
Broker unless and until E-Stamp receives written confirmation from Broker that
the foregoing payment shall be promptly made by Broker to E-Stamp.

4. Events of Default. Each of the following shall constitute an event of
-----------------
default ("Event of Default") hereunder:

2
<PAGE>

(a) The failure by Pledgor to observe or perform any of the provisions
of this Agreement or to pay any amount due under the Loan and/or this Agreement.

(b) The inaccuracy or breach of any warranty, representation or
statement made or furnished to E-Stamp by or on behalf of Pledgor.

(c) The assignment for the benefit of creditors or the commencement of
any proceeding under any bankruptcy or insolvency law by or against Pledgor.

(d) The seizure or attachment of, or a levy on all or any portion of
the Pledged Collateral.

5. E-Stamp's Remedies Upon Default.
-------------------------------

(a) Upon the occurrence of an Event of Default, E-Stamp shall have the
right to:

(i) Declare all of the obligations and liabilities of Pledgor
under the Loan immediately due and payable;

3
<PAGE>

7. General Provisions.
------------------

(e) Collection Costs. Pledgor shall promptly pay E-Stamp all
----------------
reasonable attorneys' fees and all costs and other expenses paid or incurred by
E-Stamp in enforcing or

4
<PAGE>

exercising its rights or remedies created by, connected with or provided in this
Agreement, and payment thereof shall be secured by the Pledged Collateral.

IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
Effective Date.

PLEDGOR:

/s/ Robert H. Ewald
------------------------------
Robert H. Ewald

E-STAMP CORPORATION,
a Delaware corporation

By /s/ Ed Malysz
------------------------------------
Its Vice President and General Counsel
-----------------------------------
5
<PAGE>

EXHIBIT A

LIST OF STOCK CERTIFICATES
AND
RELEASE DATES

Shares Release Date
------------------------------------------------
7,500 Effective Date
------------------------------------------------
7,500 2/18/00
------------------------------------------------
7,500 5/18/00
------------------------------------------------
7,500 8/18/00
------------------------------------------------
7,500 11/18/00
------------------------------------------------
7,500 2/18/01
------------------------------------------------
7,500 5/18/01
------------------------------------------------
7,500 8/18/01
------------------------------------------------

<PAGE>

Exhibit 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Experts" and
"Selected Financial Data" and to use of our report dated February 19, 1999,
except for the "Stock Subject to Rescission" paragraphs of Note 4 and for Note
10, as to which the date is October 6, 1999, in the Registration Statement
(Form S-1) and the related Prospectus of E-Stamp Corporation.

/s/ Ernst & Young LLP

Palo Alto, California
January 28, 2000