<PAGE>

    As filed with the Securities and Exchange Commission on August 17, 1999
                                                       Registration No. 333-

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

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

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

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

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

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

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

                          2855 Campus Drive, Suite 100
                          San Mateo, California 94403
                                 (650) 554-8454
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)

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

                                ROBERT H. EWALD
                     President and Chief Executive Officer
                          2855 Campus Drive, Suite 100
                          San Mateo, California 94403
                                 (650) 554-8454
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

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

                                   Copies to:
<TABLE>
<S>                               <C>
         DAVID J. SEGRE                        MICHAEL J. HALLORAN
      MICHELLE L. WHIPKEY                        JAMES P. CLOUGH
       MARK D. BEARIAULT                        PATRICK J. DEVINE
Wilson Sonsini Goodrich & Rosati                 JAMES J. MASETTI
    Professional Corporation              Pillsbury Madison & Sutro LLP
       650 Page Mill Road                      2550 Hanover Street
  Palo Alto, California 94104              Palo Alto, California 94304
         (650) 493-9300                           (650) 233-4500
</TABLE>

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

   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 Maximum
           Title of Each Class of            Aggregate Offering    Amount of
        Securities to be Registered               Price(1)      Registration Fee
--------------------------------------------------------------------------------
<S>                                          <C>                <C>
Common Stock $0.001 par value..............     $85,000,000         $23,630
--------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act.

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

   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--AUGUST 17, 1999

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Prospectus

      , 1999
                                     [LOGO]

                              E-Stamp Corporation
                               Shares of Common Stock

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

  . We provide an easy-to-use Internet postage solution 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

  Proposed Symbol & Market:

  . ESTM/Nasdaq National Market

  The Offering:

  . We are offering         shares of our common stock.

  . The underwriters have an option to purchase an additional     shares from
    the Company to cover over-allotments.

  . This is our initial public offering, and no public market currently exists
    for our shares. We anticipate that the initial public offering price will
    be between $      and $      per share.

  . We plan to use the proceeds from this offering for sales and marketing
    expenses and general corporate purposes.

  . Closing:        , 1999.
<TABLE>
  -------------------------------------------------
   <S>                      <C>           <C>
                              Per Share       Total
  -------------------------------------------------
   Public offering price:      $             $
   Underwriting fees:
   Proceeds to Company:
  -------------------------------------------------
</TABLE>

     This investment involves risk. See "Risk Factors" beginning on Page 7.

--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Nor
have they made, nor will they make, any determination as to whether anyone
should buy these securities. Any representation to the contrary is a criminal
offense.
--------------------------------------------------------------------------------

Donaldson, Lufkin & Jenrette

                         Banc of America Securities LLC

                                                       Deutsche Banc Alex. Brown

                                                                  DLJdirect Inc.
<PAGE>

                       [INSIDE FRONT COVER OF PROSPECTUS]


                               [Graphics to come]
<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" is a registered trademark, and "E-Stamp.com," "The Internet
Postage Company," and the E-Stamp logo are trademarks of E-Stamp. 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>
Prospectus Summary.......................................................   3
Risk Factors.............................................................   7
Use of Proceeds..........................................................  15
Dividend Policy..........................................................  16
Corporate Information....................................................  16
Capitalization...........................................................  17
Dilution.................................................................  18
Selected Financial Data..................................................  19
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  20
</TABLE>

<TABLE>
<CAPTION>
                                                                            Page
<S>                                                                         <C>
Business...................................................................  26
Management.................................................................  40
Certain Transactions.......................................................  50
Principal Stockholders.....................................................  52
Description of Capital Stock...............................................  55
Shares Eligible for Future Sale............................................  58
Underwriting...............................................................  60
Legal Matters..............................................................  62
Experts....................................................................  62
Additional Information.....................................................  62
Index to Financial Statements.............................................. F-1
</TABLE>
<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 buying shares in the offering. You should read the
entire prospectus carefully.

                              E-Stamp Corporation

Our Business

   We provide an easy-to-use Internet postage solution 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. We received approval from the
U.S. Postal Service in August 1999 for our Internet postage solution, and since
then have been selling our solution nationally. Our Internet postage solution
is targeted at small business, small office and home office users, collectively
known as SOHO 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. In addition, our Internet postage solution is tightly integrated
with popular business computer programs including Microsoft Word and Outlook,
and Intuit's Quickbooks. We believe our cost-effective Internet postage
solution will enhance customer satisfaction during the mail and postage process
by improving overall access, convenience and flexibility for SOHO users, and
will increase operating efficiencies and decrease postal fraud for the U.S.
Postal Service.

   We have focused on forming strategic relationships with industry leaders in
order to quickly build our brand awareness with SOHOs and to accelerate the
adoption of our Internet postage solution. Our strategic relationships include
the following:

  . Microsoft, which is also one of our equity investors, has selected us as
    its premium online postage partner for its Microsoft Office Update Web
    site;

  . Yahoo! has chosen us to be the premier 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 the preferred Internet
    postage provider on its @Work Web site;

  . America Online has agreed to include us as a tenant in its new Postage
    Services Center, currently scheduled for launch in August 1999;

  . Compaq, which is also one of our equity investors, has agreed to market
    our Internet postage solution as part of the online services available to
    owners of its Prosignia line of personal computers for small businesses;

  . Francotyp-Postalia, which is also one of our equity investors, has agreed
    to distribute our Internet postage solution; and

  . Avery Dennison has agreed to promote exclusively our Internet postage
    solution in packages of Avery labels and other printable supplies.

   In addition, we have developed strategic relationships with Sunbeam Corp.'s
Pelouze Scale Co. division, Tension Envelope, EarthLink and Dymo-Costar.

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 SOHO market, the U.S. Postal Service
developed the Information Based Indicia Program. This program is designed to
authorize third party

                                       3
<PAGE>

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 SOHO users currently underserved by existing solutions.
According to International Data Corporation, there were 44.7 million SOHOs in
the U.S. in 1998, which is expected to grow to 57.6 million by 2002. In terms
of postage usage, SOHOs generally conduct an essential part of their
communications with suppliers and customers through the postal system.
Nevertheless, few SOHOs use postage meters to automate the mailing process. In
addition, SOHOs are increasingly adopting the Internet to improve their
business processes.

Our Strategy

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

  . Partner with industry leaders to quickly acquire customers. We have
    formed strategic relationships with industry leaders to rapidly acquire
    customers, build brand recognition and accelerate adoption of our
    Internet postage solution. We anticipate continuing to add additional
    strategic partners as our business grows and we expand our portfolio of
    products and services.

  . Initially focus on the large and growing SOHO market. We are initially
    focusing on the SOHO market due to its attractive characteristics, such
    as a large and growing number of SOHOs, high personal computer
    penetration, and heavy reliance on the postal system for business
    communications.

  . Build and promote our brand. We intend to invest in building brand
    awareness through a variety of marketing and promotional techniques, both
    independently and in conjunction with our strategic partners. Our brand
    will be promoted through television, print and radio advertising, online
    banner advertising, and through viral marketing, such as including our
    logo and Web site address on each digital stamp.

  . Leverage our technology platform and expertise to extend our family of
    Internet postage solutions. We intend to leverage our customer-centric
    focus, scalable platform, and patent portfolio, currently consisting of
    over 20 issued patents, to develop a family of Internet postage
    solutions, including a server-based solution for the low-volume consumer
    and early adopters of broadband access and an intranet-based solution
    that will simplify routine processes for the high volume mailer and
    corporate enterprise.

  . Pursue multiple and recurring revenue streams. In addition to developing
    and marketing Internet postage solutions domestically, we are
    concentrating on the sale of postage related consumables and peripherals,
    and we intend to pursue international Internet postage opportunities and
    the purchase and printing of authenticated documents, such as tickets and
    gift certificates.

                                       4
<PAGE>

                                  The Offering

<TABLE>
 <C>                                <S>
 Common stock offered by E-Stamp..             shares
 Common stock to be outstanding
  after this offering.............             shares
 Use of proceeds..................  We plan to use the net proceeds from this
                                    offering principally for sales and
                                    marketing expenses, with the balance for
                                    general corporate purposes, including
                                    working capital and expansion of our
                                    corporate infrastructure.
 Proposed Nasdaq National Market
  symbol..........................  ESTM
</TABLE>

   Unless otherwise indicated, this prospectus assumes the conversion of our
outstanding preferred stock into common stock upon the closing of this
offering, and that the underwriters do not exercise the option granted by us to
purchase additional shares in the offering to cover over-allotments.

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

   The number of shares of common stock to be outstanding after this offering
is based on shares outstanding as of August 10, 1999. This number excludes:

  . 2,821,498 shares of common stock reserved for future issuance under our
    stock option, director stock option and employee stock purchase plans;

  . 1,172,790 shares of common stock subject to outstanding options; and

  . 60,032 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 excludes our
sale in August 1999 of shares of our convertible preferred stock for aggregate
proceeds of $30.2 million and includes the automatic conversion of all other
outstanding shares of our convertible preferred stock into shares of our common
stock, which will occur upon the closing of this offering.

<TABLE>
<CAPTION>
                                                             Six Months Ended
                                 Year Ended December 31,         June 30,
                                 --------------------------  -----------------
                                  1996     1997      1998     1998      1999
                                                               (unaudited)
<S>                              <C>      <C>      <C>       <C>      <C>
Statement of Operations Data:
  Net revenues.................. $   --   $   --   $    --   $   --   $    --
  Operating loss ...............  (6,575)  (7,821)  (10,627)  (4,498)  (11,019)
  Net loss......................  (6,339)  (7,678)  (10,257)  (4,455)  (10,843)
  Accretion on redeemable
   convertible
   preferred stock .............     --      (196)   (1,383)    (307)   (1,176)
  Net loss attributable to
   common stockholders.......... $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
  Net loss per common share:
    Basic and diluted........... $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
    Weighted average shares.....  10,034   10,373    10,460   10,421    10,789
  Pro forma net loss per
   share:.......................
    Basic and diluted
     (unaudited)................                   $  (0.68)          $  (0.62)
    Weighted average shares
     (unaudited)................                     15,002             17,477
</TABLE>

   The following table summarizes our balance sheet data. The pro forma data
reflects our sale in August 1999 of shares of our convertible preferred stock
for aggregate proceeds of $30.2 million, the use of a portion of those proceeds
to pay off an existing bank loan entered into and drawn upon in July 1999 and
the automatic conversion of all outstanding shares of our convertible preferred
stock into shares of our common stock, which will occur upon the closing of
this offering. The pro forma as adjusted data reflects the sale of
shares of common stock in this offering at an assumed initial public offering
price of $       per share after deducting the underwriting discount and
estimated offering expenses payable by us.

<TABLE>
<CAPTION>
                                                        As of June 30, 1999
                                                     ---------------------------
                                                                Pro   Pro Forma
                                                      Actual   Forma As Adjusted
                                                            (unaudited)
<S>                                                  <C>       <C>   <C>
Balance Sheet Data:
  Cash and cash equivalents......................... $  1,916
  Working capital (deficit).........................     (324)
  Total assets......................................    3,096
  Long-term obligations, net of current portion.....        6
  Total stockholders' equity (deficit)..............  (24,293)
</TABLE>

                                       6
<PAGE>

                                  RISK FACTORS

   You should carefully consider the risks described below before buying shares
in this offering.

We have a limited operating history with a history of losses, 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 June 30, 1999, we
had not generated any revenues and had an accumulated deficit of $37.0 million.
Since U.S. Postal Service approval of our Internet postage solution in August
1999, we have generated only nominal revenues. 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 solution.

   The U.S. Postal Service approved our Internet postage solution for
commercial sale in August 1999. We expect that our Internet postage solution
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 solution. Any failure to successfully gain commercial acceptance of our
Internet postage solution would seriously harm our business and results of
operations. 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 solution.

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 in which we deny all allegations of patent
infringement, assert certain affirmative defenses based on statutory and common
law grounds, and bring antitrust counterclaims against Pitney Bowes. 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. The Pitney Bowes suit could result in limitations on how we
implement our solutions, delays and costs associated with redesigning our
solution and payments of license fees and other monies. An injunction obtained
by Pitney Bowes could eliminate our ability to market critical products or
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 the 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.

                                       7
<PAGE>

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 business would suffer dramatically.

   Although the U.S. Postal Service has approved us to market and sell our
Internet postage solution nationally in accordance with approved quantities and
distribution channels, we will continue to be subject to U.S. Postal Service
scrutiny and other government regulations. 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 solution could be
adversely affected. Further, the U.S. Postal Service could change certification
requirements or specifications for Internet postage or revoke the approval of
our Internet postage solution. If we are unable to adapt our Internet postage
solution to any new requirements or specifications or if the U.S. Postal
Service discontinues Internet postage as an approved postage method, our
business will suffer dramatically. U.S. Postal Service regulations may require
that our personnel with access to postal information or resources obtain
security clearances, which 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.

If we cannot successfully manage the commercial availability of our Internet
postage solution, our business and reputation will be harmed.

   Our reputation and our ability to attract, retain and provide solutions 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 solution in a satisfactory
manner, our business and reputation may be damaged. We will face numerous risks
concurrent with the introduction of our Internet postage solution. Under the
Information Based Indicia Program, the commercial roll-out of our Internet
postage solution is initially limited to 10,000 customers, with expanding
numbers of customers based upon successful evaluations by the U.S. Postal
Service. We have very limited experience conducting marketing campaigns, and we
may fail to generate significant interest in our Internet postage solution. On
the other hand, if we generate extensive interest in our solution, we cannot
assure you that we will be able to effectively manage commercial availability
of our Internet postage solution 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 strategic relationships, our
Internet postage solution may not achieve commercial acceptance.

   We have established strategic relationships with a limited number of third
parties. These strategic relationships include sales, marketing and
distribution agreements. We rely heavily upon these relationships to build our
E-Stamp brand and to accelerate the adoption of our Internet postage solution.
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 business will suffer and our financial
condition and results of operation will be seriously harmed. In addition, given
the recent commercial launch of our Internet postage solution, a number of our
strategic partners are still in the process of establishing the marketing,
promotional and distribution activities for our solution 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 solution.

If we do not achieve broad brand recognition, our business will suffer.

   We must quickly build our E-Stamp brand to gain market acceptance for our
solution. If we fail to gain market acceptance for our Internet postage
solution, our business will suffer dramatically. We believe it is imperative to
our long term success that we obtain significant acceptance of our solution. We
cannot be certain that we will have sufficient resources to build our brand and
achieve commercial acceptance of our solution. To

                                       8
<PAGE>

establish our brand awareness, we must invest substantial resources to develop
our products, pursue strategic relationships, implement marketing initiatives,
and provide a high quality experience to our users.

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

   Although we recently received approval from the U.S. Postal Service for our
Internet postage solution, we have not begun the approval process for future
solutions under development, including our server-based solution. Our Internet
postage solution took approximately 18 months to complete the beta test portion
of the U.S. Postal Service's approval process. While we believe subsequent
approvals should take less time because we may be able to leverage portions of
our prior approval experience, we cannot assure you of the duration of the
approval process for our server-based or any subsequent solution, or that these
solutions 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 solutions in
a timely manner or at all. Failure to timely receive U.S. Postal Service
approval for our server-based solution or subsequent solutions could limit our
ability to successfully grow our business.

We have experienced significant growth in our business in recent periods, and
any failure to manage this growth could damage our business.

   Our ability to successfully offer our Internet postage solution 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. If we are unable to manage growth effectively or experience
disruptions during our expansion, our business will suffer and our financial
condition and results of operations 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.

If the sole supplier of our Internet postage device is unable to timely meet
our commercial supply needs, our revenues and operating results would be
materially harmed.

   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 harm our business. If we cannot
obtain an adequate supply of our Internet postage device, our operating results
and business would be materially and adversely harmed. 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 business and reputation and substantially and
adversely affect our operating results.

   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 during initial commercial launch of our service and we may suffer
additional interruptions in our service. Our customer acquisition and
processing systems and those of our third party hosted facilities contain
redundancy features but

                                       9
<PAGE>

are not fully redundant, and 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 plan to expand our systems infrastructure on an ongoing basis but we
cannot assure you that we will be able to timely expand these capabilities to
support growth in traffic from our customers. In addition, 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.

The inability to expand our systems 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. Our failure to provide new features or
functionality also could result in these consequences. 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.

We rely heavily upon third parties to deliver our Internet postage solution to
customers.

   We rely upon third parties to distribute and sell our Internet postage
solution. 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 solution. We are in discussions with a number of office supply and computer
retailers to carry our Internet postage solution and we cannot assure you that
these retailers will carry our solution or devote sufficient marketing, shelf
space or other resources to them. If we are unable to provide an adequate
distribution channel for our Internet postage solution, our business will be
seriously harmed. 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 solution
to our customers.

The 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.


                                       10
<PAGE>

A breach of our online security would harm our business and 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 business and reputation and would likely
result in the loss of customers. Furthermore, if we are unable to provide
adequate security, the U.S. Postal Service could prohibit us from selling
postage over the Internet. 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.

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 solutions, 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. We generally enter into confidentiality agreements with
our employees, consultants and other third parties to control and limit access
and disclosure of our proprietary information. These contractual arrangements
or other 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 solutions 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 our business. 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. 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 of investors and analysts.

   Since the U.S. Postal Service's approval of our Internet postage solution in
August 1999, we have generated only nominal revenues from our operations.
Accordingly, we have little basis upon which to predict

                                       11
<PAGE>

future operating results. We expect that our revenues, margins and operating
results will fluctuate significantly due to a variety of factors, a number of
which are outside of our control. These factors include:

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

  .  our ability to develop and maintain strategic and distribution
     relationships;

  .  timing of the commercial release of additional Internet postage
     solutions developed by us;

  .  the number, timing and significance of new solutions introduced by our
     competitors;

  .  the level of service and price competition;

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

  .  general economic factors.

   A substantial portion of our operating expenses is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and
are therefore relatively fixed in the short term. Our operating expense levels
are based, in significant part, on our expectations of future revenues. If our
expenses precede increased revenues, both gross margins and results of
operations 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 the expectations of
public market analysts and investors. 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. The loss of the services of these 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 next 12 months 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 solution 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 solutions, or else
our products and services may become noncompetitive or obsolete. We also could
incur substantial costs to modify our solutions or infrastructure and to
develop new solutions, 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.


                                       12
<PAGE>

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 solutions. 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 solutions 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 solution 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 solutions 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.

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. While we believe
that Internet postage solutions such as ours could be of benefit to customers
in foreign countries or to send mail from the United States to foreign
countries, unless and until foreign postal authorities create a certification
process and recognize information-based indicia postage, our Internet postage
solution will not be able to address these 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 solutions internationally, regulation by international
agencies could disrupt our operations.

   If foreign postal authorities in the future accept postage generated by our
solutions 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 solutions,
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 certain 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.

If we do not adequately address "Year 2000" issues, we may incur significant
costs and our business could suffer.

   Failure of our internal computer systems or third-party equipment or
software, or systems maintained by our users and strategic sales and marketing
partners, to operate properly with regard to the Year 2000 issues could require
us to incur significant unanticipated expenses to remedy any problems and could
cause system interruptions and loss of data. Any of these events could harm our
reputation and materially and adversely affect our business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."

                                       13
<PAGE>

We may need additional capital and failure to obtain such capital could harm
our business.

   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 the net
proceeds of this offering, together with our available funds, 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 solution, our development and introduction of
new solutions 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.

Regulatory and legal uncertainties could harm our business.

   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 solutions. A decline in
the growth of the Internet could decrease demand for our solutions and increase
our cost of doing business. Moreover, the applicability of existing laws to the
Internet is uncertain with regard 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 also harm our
business.

Shares eligible for future sale by our existing stockholders may adversely
affect our stock price.

   If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. In
addition, such sales could create the perception to the public of difficulties
or problems with our products and services. As a result, these sales also might
make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem appropriate.

   Upon completion of this offering, we will have outstanding          shares
of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options after June 30, 1999. Of these
shares, the shares sold in this offering are freely tradable. The remaining
         shares will become eligible for sale in the public market as follows:

<TABLE>
<CAPTION>
   Number
     of
   Shares Date of Availability for Sale
   <C>    <S>
          At the date of this prospectus

          90 days after the date of this prospectus

          180 days after the date of this prospectus subject to certain
          restrictions under the federal securities laws

          More than 180 days after the date of this prospectus, subject to
          certain restrictions under the federal securities laws
</TABLE>

   The above table gives effect to lock-up arrangements with the underwriters
under which our directors, officers and certain stockholders have agreed not to
sell or otherwise dispose of their shares of common stock for a period of 180
days after the date of this prospectus. The underwriters may remove these lock-
up restrictions prior to 180 days after the offering without prior notice.

                                       14
<PAGE>

We have broad discretion to use the proceeds from this offering and may not use
the proceeds effectively.

   The majority of the net proceeds of this offering are not allocated for
specific uses other than working capital and general corporate purposes. Thus,
our management has broad discretion over how these proceeds are used and could
spend most of these proceeds in ways with which our stockholders may not agree.
We cannot assure you that the proceeds will be invested in a way that yields a
favorable return.

Our securities have no prior market and our stock price may decline after the
offering.

   Before this offering, there has not been a public market for our common
stock and an active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price has been
determined by negotiations between E-Stamp and the representatives of the
underwriters, and we cannot assure you that the trading market price of our
common stock will not decline below the initial public offering price.

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, without regard to our operating
performance. In particular, following initial public offerings, the market
prices for stock of Internet related companies often reach levels that bear no
relation to the operating performance of these companies. The market prices are
generally not sustainable and could vary widely. If our common stock trades to
high levels following this offering, it could eventually experience a
significant decline.

You should not rely on forward-looking statements because they are inherently
uncertain.

   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 certain 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 above and elsewhere in this
prospectus.

                                USE OF PROCEEDS

   Our net proceeds from the sale of the          shares of common stock
offered hereby are estimated to be $        , based on an assumed initial
public offering price of $           per share and after deducting the
underwriting discount and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, our net proceeds will be
approximately $          .

   We expect to use the net proceeds for sales and marketing expenditures
related to promoting our Internet postage solution, building E-Stamp brand
recognition, and developing additional strategic relationships, with the
balance for general corporate purposes, including working capital and expansion
of our corporate infrastructure. In addition, we may use a portion of the net
proceeds to acquire complementary products, technologies or businesses;
however, we currently have no commitments or agreements and are not involved in
any negotiations to do so. Pending use of the net proceeds of this offering, we
intend to invest the funds in short-term, interest-bearing, investment-grade
securities.

                                       15
<PAGE>

                                DIVIDEND POLICY

   We have never declared or paid any 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 2855 Campus Drive, Suite 100,
San Mateo, California 94403 and our telephone number is (650) 554-8454. Our Web
site is located at http://www.e-stamp.com. Information contained on our Web
site does not constitute part of this prospectus.

                                       16
<PAGE>

                                 CAPITALIZATION

   The following table sets forth the following information:

  .  our actual capitalization as of June 30, 1999;

  .  our pro forma capitalization after giving effect to our sale of
     2,931,229 shares of convertible preferred stock in August 1999, for an
     aggregate purchase price of $30.2 million, and the use of $5.0 million
     of those proceeds to pay off an existing bank loan entered into and
     drawn upon in July 1999, the automatic conversion of all outstanding
     shares of redeemable convertible preferred stock into shares of common
     stock, including shares sold in August 1999, which will occur upon the
     closing of this offering; and

  .  our pro forma as adjusted capitalization to give effect to the sale of
            shares of common stock at an assumed initial public offering
     price of $      per share in this offering, after deducting the
     underwriting discount and estimated offering expenses payable by us.

<TABLE>
<CAPTION>
                                                        As of June 30, 1999
                                                     --------------------------
                                                                         Pro
                                                                 Pro   Forma As
                                                      Actual    Forma  Adjusted
                                                     (In thousands, except par
                                                            value data)
<S>                                                  <C>       <C>     <C>
Long-term obligations, net of current portion....... $      6  $       $
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 and pro forma as adjusted..................    7,084
  Series B redeemable convertible preferred stock;
   4,188 shares authorized, issued and outstanding,
   actual; no shares authorized, issued or
   outstanding, pro forma and pro forma as
   adjusted.........................................   17,561
Stockholders' equity (deficit):
  Common stock, par value $0.001; 100,000 shares
   authorized, 13,435 shares issued and outstanding,
   actual; 200,000 shares authorized, 20,123 shares
   issued and outstanding, pro forma; 200,000 shares
   authorized,          shares issued and
   outstanding, pro forma as adjusted...............       14
  Additional paid-in capital........................   24,194
  Notes receivable from employees and officers......   (2,157)
  Deferred stock compensation.......................   (9,309)
  Deficit accumulated during development stage......  (37,035)
                                                     --------  ------- -------
    Total stockholders' equity (deficit)............  (24,293)
                                                     --------  ------- -------
Total capitalization................................ $    358  $       $
                                                     ========  ======= =======
</TABLE>

   This table excludes the following shares:

  .  2,821,498 shares of common stock reserved for future issuance under our
     stock option, director stock option and employee stock purchase plans;

  .  1,029,000 shares of common stock subject to outstanding options as of
     June 30, 1999 with an average exercise price of $0.90 per share; and

  .  60,032 shares of common stock issuable upon exercise of outstanding
     warrants.

                                       17
<PAGE>

                                    DILUTION

   The pro forma net tangible book value of our common stock on June 30, 1999
(after giving effect to the conversion of all outstanding shares of our
convertible preferred stock, our sale of 2,931,229 shares of convertible
preferred stock in August 1999 for an aggregate purchase price of approximately
$30.2 million) was $        , or approximately $      per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to our sale of
         shares of common stock offered by this prospectus at an assumed
initial public offering price of $        per share and after deducting the
underwriting discount and estimated offering expenses payable by us, our net
tangible book value would have been approximately $        , or $       per
share. This represents an immediate increase in net tangible book value of
$       per share to existing stockholders and an immediate dilution in net
tangible book value of $       per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution.

<TABLE>
<S>                                                              <C>    <C>
Assumed initial public offering price per share.................        $
Pro forma net tangible book value per share as of June 30,
 1999........................................................... $
Increase per share attributable to new investors................
                                                                 ------
As adjusted pro forma net tangible book value per share after
 the offering...................................................
                                                                        ------
Dilution in pro forma net tangible book value per share to new
 investors......................................................        $
                                                                        ======
</TABLE>

   This table excludes all options and warrants that will remain outstanding
upon completion of this offering. As of June 30, 1999, there were options
outstanding to purchase a total of 1,029,000 shares of common stock with an
average exercise price of $0.90 per share. See Notes 3 and 9 of Notes to
Financial Statements. The exercise of outstanding options and warrants having
an exercise price less than the offering price would increase the dilutive
effect to new investors.

   The following table sets forth, as of June 30, 1999, on the pro forma basis
described above, the differences between the number of shares of common stock
purchased from us, the total price paid and average price per share paid by
existing stockholders and by the new investors in this offering at an assumed
initial public offering price of $      per share (before deducting the
underwriting discount and estimated offering expenses payable by us).

<TABLE>
<CAPTION>
                                       Shares           Total
                                      Purchased     Consideration
                                   --------------- --------------- Average Price
                                   Number  Percent Amount  Percent   Per Share
<S>                                <C>     <C>     <C>     <C>     <C>
Existing stockholders.............             .0% $           .0%    $
New investors.....................             .0%             .0%
                                   -------  -----  -------  -----
  Total...........................          100.0% $        100.0%
                                   =======  =====  =======  =====
</TABLE>

   If the underwriters over-allotment option is exercised in full, the
following will occur:

  . the number of shares of common stock held by existing stockholders will
    decrease to          or approximately      % of the total number of
    shares of our common stock outstanding after this offering, and

  . the number of shares held by new public investors will increase to
             or approximately      % of the total number of shares of our
    common stock outstanding after this offering.

                                       18
<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 six months ended June 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
                             Inception                                          Six Months Ended
                          (April 26, 1994)     Year Ended December 31,              June 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............       $   --      $    --  $    --  $    --  $     --  $    --  $     --
Operating expenses:
  Research and
   development..........          378          701    2,387    3,916     5,603    2,458     5,225
  Sales and marketing...           34           96    1,761    1,743     2,722    1,137     2,494
  General and
   administrative.......          160          534    1,739    1,748     1,897      903     1,373
  Amortization of
   deferred stock
   compensation.........           --           --      688      414       405       --     1,927
                               ------      -------  -------  -------  --------  -------  --------
Operating loss..........         (572)      (1,331)  (6,575)  (7,821)  (10,627)  (4,498)  (11,019)
Interest income
 (expense), net.........           --          (17)     236      143       370       43       176
                               ------      -------  -------  -------  --------  -------  --------
Net loss................         (572)      (1,348)  (6,339)  (7,678)  (10,257)  (4,455)  (10,843)
Accretion on redeemable
 convertible preferred
 stock..................          --           --       --      (196)   (1,383)    (307)   (1,176)
                               ------      -------  -------  -------  --------  -------  --------
Net loss attributable to
 common stockholders....        $(572)     $(1,348) $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
                               ======      =======  =======  =======  ========  =======  ========
Net loss per common
 share (basic and
 diluted)...............       $(0.06)     $ (0.14) $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
                               ======      =======  =======  =======  ========  =======  ========
Pro forma net loss per
 share basic and
 diluted(1).............                                              $  (0.68)          $  (0.62)
                                                                      ========           ========
Weighted average shares
 outstanding (basic and
 diluted)...............        8,940        9,546   10,034   10,373    10,460   10,421    10,789
Shares used in
 calculation of pro
 forma net loss per
 share basic and
 diluted(1).............                                                15,002             17,477
</TABLE>

<TABLE>
<CAPTION>
                                    As of December 31,
                             -----------------------------------      As of
                             1994   1995   1996   1997    1998    June 30, 1999
<S>                          <C>   <C>    <C>    <C>     <C>      <C>
Balance Sheet Data:
Cash and cash equivalents..  $ 19  $  190 $3,910 $4,111  $10,217    $  1,916
Working capital (deficit)..  (426)    386  3,394  2,398    8,805        (324)
Total assets...............    93   1,428  4,873  4,763   10,811       3,096
Long-term obligations, net
 of current portion........    --      --     88     38       11           6
Total stockholders' equity
 (deficit).................  (352)    644  4,101 (3,138) (14,225)    (24,293)
</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.

                                       19
<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 easy-to-use Internet postage solution that enables users to
purchase, download and print Internet postage directly from their personal
computers. 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. From November 1994 to March 1998, we
incurred operating costs primarily related to the development of our Internet
postage solution 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. In August 1999, we received final approval
from the U.S. Postal Service for our Internet postage solution and since then
have been selling our solution nationally in accordance with approved
quantities and distribution channels.

   In addition to working with the U.S. Postal Service to obtain approval of
our Internet postage solution, our primary activities since inception have
included:

  . developing our business model;

  . developing and testing our Internet postage solution;

  . hiring management and other key personnel;

  . building our infrastructure; and

  . entering into strategic alliances.

   Subsequent to June 30, 1999, we have recognized only nominal revenues from
our desktop Internet postage solution. We intend to recognize revenue from an
initial license fee for our Internet postage solution, ongoing convenience fees
for the purchase of postage on 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.

   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
have incurred net losses in each quarterly and annual period since our
inception, and as of June 30, 1999, our accumulated deficit was $37.0 million.

   During the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999, in connection with the grant of certain stock options to
employees, we recorded deferred stock compensation totaling $12.8 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. We recorded amortization of deferred stock compensation
in the amount of $688,000, $414,000 and $405,000 for the years ended December
31, 1996, 1997 and 1998 and $1.9 million for the six months ended June 30,
1999. At June 30, 1999, we had a total of $9.3 million remaining to be
amortized over the corresponding vesting periods of the stock options. We
anticipate that additional deferred compensation will be recorded for options
granted in July and August 1999. See Notes 3 and 9 of Notes to Financial
Statements.

                                       20
<PAGE>

Results of Operations

 Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

   Research and Development. Research and development expenses include expenses
for research, design and development of our Internet postage solution, expenses
related to obtaining patents from the U.S. Patent Office, and server and
network operations. Research and development expenses increased 113% to $5.2
million for the six months ended June 30, 1999 from $2.5 million for the
six months ended June 30, 1998. The increase in research and development
expenses was due primarily to increases in employee headcount, consulting
costs, contractor expenses and project materials due to further development of
our Internet postage solution, server-based solution, 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 solution and our server-
based solution 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, Web site
development, package design, advertising and promotional expenses, and trade
show expenses. Sales and marketing expenses increased 119% to $2.5 million for
the six months ended June 30, 1999 from $1.1 million for the six months ended
June 30, 1998. The increase in sales and marketing expenses was due primarily
to expenses related to growth in the number of strategic relationships,
expenses related to the anticipated launch of our Internet postage solution,
costs related to the continued development of our marketing campaigns, and an
increase in sales and marketing personnel. We expect sales and marketing
expenses to increase in dollar amount as we promote and launch our Internet
postage solution and as we hire additional personnel, continue to promote our
brand and add new strategic 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 52% to $1.4 million for the six
months ended June 30, 1999 from $903,000 for the six months ended June 30,
1998. The increase in general and administrative expenses was due primarily to
a one-time charge for severance accrual for a former executive officer and, to
a lesser extent, an increase in administrative staff and professional fees. 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 in connection with the Pitney Bowes litigation, and associated with
being a public reporting company.

   Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $1.9 million for the six months ended June 30, 1999. There was
no amortization of deferred stock compensation for the six months ended June
30, 1998. We recorded aggregate deferred stock compensation of $11.6 million in
the period from July 1, 1998 through June 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 309% to
$176,000 for the six months ended June 30, 1999 from $43,000 for the six months
ended June 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
this offering as a result of increased cash balances resulting from this
offering.

 Year Ended December 31, 1998 Compared to Years Ended December 31, 1997 and
 1996

   Research and Development. Research and development expenses increased 43% to
$5.6 million in 1998 from $3.9 million in 1997 and increased 64% in 1997 from
$2.4 million in 1996. The increases in research and development expenses in
1998 and 1997 were due primarily to increases in employee headcount, contractor
expenses, project materials and network operations investments.

                                       21
<PAGE>

   Sales and Marketing. Sales and marketing expenses increased 56% to $2.7
million in 1998 from $1.7 million in 1997 and decreased 1% in 1997 from $1.8
million in 1996. The increase in sales and marketing expenses in 1998 was due
primarily to an increase in sales and marketing personnel, costs related to the
continued development of our marketing and branding campaigns, expenses related
to the anticipated launch of our Internet postage solution, and expenses
related to growth in the number of strategic relationships. Sales and marketing
expenses in 1997 decreased modestly due to a reduction in trade show activity.

   General and Administrative. General and administrative expenses increased 9%
to $1.9 million in 1998 from $1.7 million in 1997 and increased 1% in 1997 from
$1.7 million in 1996. The increase in general and administrative expenses in
1998 was due primarily to increases in administrative staff, rent, professional
services and general office expenses. General and administrative expenses in
1997 increased modestly due to a small increase in administrative staff.

   Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased 2% to $405,000 in 1998 from $414,000 in 1997 and
decreased 40% in 1997 from $688,000 in 1996. In 1996, we recorded deferred
stock compensation of approximately $1.1 million related to equity awards to
employees. We also recorded aggregate deferred stock compensation of
approximately $2.7 million in 1998 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, increased 159% to $370,000 in
1998 from $143,000 in 1997 and decreased 39% in 1997 from $236,000 in 1996. The
increase in interest income, net, in 1998 was due to increasing average cash
and cash equivalent balances as we received funds from our financing activities
in 1998. The decrease in interest income, net, in 1997 was due to declining
average cash and cash equivalent balances as we spent funds that had been
received.

Liquidity and Capital Resources

   Since inception, we have financed our operations primarily through private
sales of equity securities. We have received approximately $68.9 million in
private funding, including $30.2 million through our most recent financing in
August 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 lease and capital lease obligations totaling $26,000 as of June
30, 1999.

   Net cash used in operating activities totaled $7.9 million for the six
months ended June 30, 1999, $9.6 million for the year ended December 31, 1998,
$5.7 million for the year ended December 31, 1997, and $4.9 million for the
year ended December 31, 1996. Cash used in operating activities for each period
resulted primarily from net operating losses in those periods.

   Net cash provided by (used in) investing activities totaled $(387,000) for
the six months ended June 30, 1999, $(324,000) for the year ended December 31,
1998, $(21,000) for the year ended December 31, 1997, and $202,000 for the year
ended December 31, 1996. 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 $12,000 for the six months
ended June 30, 1999, $16.0 million for the year ended December 31, 1998, $5.9
million for the year ended December 31, 1997, and $8.4 million for the year
ended December 31, 1996. Cash provided by financing activities for each period
resulted primarily from issuances of common stock and redeemable convertible
preferred stock, offset by the repayment of lease obligations and notes payable
to related parties.

   We believe that the net proceeds from this offering, together with our
current cash balances and cash flows from operations, if any, 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
forecast of the period of time through

                                       22
<PAGE>

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 solution, our introduction of new solutions 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. Also, 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
June 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 are in the process of developing a
comprehensive plan to make our internal computer software and hardware systems
Year 2000 compliant. Our Year 2000 compliance plan is comprised of 3 phases: an
assessment phase; an implementation phase; and a testing phase. This plan,
initiated in the first quarter of fiscal 1999, will be implemented by the end
of the fourth quarter of fiscal 1999. While we believe that this plan for
addressing the Year 2000 problem will be completed in a timely manner, we
cannot be certain that these Year 2000 compliance efforts will be successful.
The financial impact of making the required systems changes cannot be known
precisely at this time, but we currently expect these expenses to be less than
approximately $500,000. The financial impact, could, however, exceed this
estimate. Nonetheless, these costs are not expected to be material to our
business, financial condition, or results of operation. To date, we have
incurred expenses of less than approximately $100,000.

   Since inception, we have internally developed substantially all of the
systems for the operation of our Internet postage solution. These systems
include the software used to provide customer interaction and transactional and
distribution functions to our solutions, as well as monitoring and back-up
capabilities. Based upon our assessment to date, we believe that our systems
will be Year 2000 compliant and have submitted Year 2000 readiness statements
to the U.S. Postal Service to indicate our Year 2000 compliance. However, we
cannot be sure how our Internet postage solution will integrate with other
vendor-provided software.

   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 is, to a
large extent, dependent upon the Year 2000 readiness of these third parties'
hardware and software products. We are currently assessing the Year 2000
readiness of other third-party supplied software, computer technology and other
services. We have initiated communications or obtained information from our
vendors and suppliers of third-party equipment and software to validate that
their products and systems are Year 2000 compliant. Based on the
representations that we have received and obtained from our third party vendors
and suppliers, we believe that their systems are Year 2000 compliant. We will
develop and implement, if necessary, a remediation plan with respect to third-
party software, third-party vendors and computer technology and services that
may fail to be Year 2000 compliant.

   If Year 2000 issues prevent our users from accessing the Internet or our
Internet postage solution or from processing postage, our business and
operations will suffer. Any failure of our third-party equipment or software to
operate properly could require us to incur unanticipated expenses, which could
seriously harm our business, operating results and financial condition. For
example, pursuant to regulations of the Information

                                       23
<PAGE>

Based Indicia Program, we rely on the U.S. Postal Service's secure postage
accounting vault to purchase postage credit for our customers. If the
U.S. Postal Service systems are not Year 2000 compliant, our users may not be
able to purchase additional postage.

   The Year 2000 readiness of the Internet infrastructure necessary to support
our operations is 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 is limited and relies 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 are carefully reviewing and attempting to remediate issues relating to
Year 2000 compliance, but it is not possible to predict whether these efforts
will be successful in reducing or eliminating the potential negative impact of
Year 2000 issues. A significant disruption in the ability of customers to
reliably access the Internet would have an adverse effect on demand for our
solutions and would harm our results of operations.

   Contingency Planning. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 problems
affecting our internal systems. We expect to complete these contingency plans
by the end of the third quarter of 1999. Depending on the systems affected,
these plans could include (1) accelerated replacement of effected equipment or
software, (2) increase work hours for our personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 problems which
may arise, (3) the provision of manual workarounds for information systems and
(4) other similar approaches. If we are required to implement any of these
contingency plans, such plans may have a material adverse effect on our
business, financial condition or results of operations. Additionally, we may
not complete these contingency plans in a timely manner, and failure to do so
could have a material adverse effect on our business, financial condition or
results and operations.

   The discussion of our efforts and expectations relating to Year 2000
compliance are forward-looking statements that are subject to risks and
uncertainties and actual results may differ materially from those indicated in
these forward-looking statements. Our ability to achieve Year 2000 compliance
and the level of anticipated expenses related to Year 2000 compliance could be
adversely affected by, among other things, the availability and cost of testing
and programming resources, the ability of third parties to resolve Year 2000
issues associated with their systems and software and unanticipated problems
that may in the future be identified in our ongoing compliance review.

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

                                       24
<PAGE>

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 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 June 30, 1999, our exposure to interest rate risk is not material.

                                       25
<PAGE>

                                    BUSINESS

 Overview

   We provide an easy-to-use Internet postage solution 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. We received approval from the
U.S. Postal Service in August 1999 for our Internet postage solution, and since
then have been selling our solution nationally. We are targeting our Internet
postage solution at small business, small office and home office users,
collectively known as SOHO users. To help build our brand awareness and
accelerate the adoption of our Internet postage solution, we have formed
strategic relationships with industry leaders, such as Microsoft, Yahoo!,
Excite@Home, America Online, Compaq, Earthlink, Francotyp-Postalia and Avery
Dennison. We believe our cost-effective Internet postage solution will enhance
customer satisfaction during the mail and postage process by improving overall
access, convenience and flexibility for SOHO users, in addition to increasing
operating efficiencies and decreasing postal fraud for the U.S. Postal Service.

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-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;


                                       26
<PAGE>

  .  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, collectively known as the SOHO market;

  .  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.

   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>

                                       27
<PAGE>

 The Growth of SOHOs and Their Postage and Internet Usage

   The United States has a large and growing number of small businesses, small
offices and home offices, collectively known as SOHOs. According to
International Data Corporation, there were 44.7 million SOHOs in the U.S. in
1998, which is expected to grow to 57.6 million by 2002. Of the 44.7 million
SOHOs 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 1.7 million were small businesses with more than ten employees. Further,
International Data Corporation estimates that SOHOs accounted for $3.7 billion
of electronic commerce in 1998 and will account for $69.7 billion of electronic
commerce in 2002. In addition, SOHOs are typically identified with the
following characteristics:

  .  limited amount of time and resources, resulting in the desire for
     solutions 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. SOHOs 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, SOHO 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
business/small office 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, SOHOs 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, SOHOs
have become more willing to rely on its functionality to improve their
businesses. Accordingly, there has been increased adoption of the Internet by
SOHOs, 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 SOHOs are
constrained by limited bandwidth Internet connections. Currently, International
Data Corporation estimates that:

  .  approximately 80% of SOHOs 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 SOHOs with Internet access use a broadband connection,
     which provides faster access but the availability of which is limited;
     and

  .  approximately 71% of SOHOs share 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
SOHOs, a substantial opportunity exists to provide an automated method for
purchasing, downloading and printing postage. We believe the attractiveness of
Internet postage solutions for the SOHO user will depend upon the solution'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;

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<PAGE>

  .  be easy to use and flexible to meet the SOHO 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 Solution

   We provide an easy-to-use Internet postage solution that enables our
customers to quickly and efficiently 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 over 20 issued patents to create a solution that offers
convenience and flexibility to small business, small office and home office
users, collectively known as SOHO users. To help build our brand awareness and
accelerate the adoption of our Internet postage solution, we have formed
strategic relationships with industry leaders. In addition, our Internet
postage solution is tightly integrated with popular business computer programs,
including Microsoft Word and Outlook, and Intuit's Quickbooks.

   We believe our desktop Internet postage solution provides the following
benefits to SOHO users and the U.S. Postal Service:

 Benefits to SOHO Users

   Enhanced Flexibility. With our Internet postage solution, SOHO users receive
the benefits of buying and downloading postage online, with the flexibility of
printing postage while connected or disconnected from the Internet. Our
solution is tailored to most SOHO 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 solution provides unlimited,
convenient access to postage from the computer desktop, 24 hours a day, seven
days a week. SOHO 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 solution is tightly integrated with
popular software applications, including Microsoft Word and Outlook, to enable
SOHO users to conveniently print postage while using their most commonly used
software programs;

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

   Simple and Secure. Our Internet postage solution can be installed in minutes
and includes easy-to-use instructions and an intuitive user interface. Further,
our solution is designed to provide SOHOs 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; and

   Cost-Effective. Our Internet postage solution is cost-effective for SOHO
users relative to traditional postage stamps, by eliminating overposting and
foregone wages from time spent travelling to and from the post office, and
relative to postage meters, by eliminating lease fees. In addition, our
solution enables SOHOs to leverage their existing investments in personal
computers, printers and software.

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<PAGE>

 Benefits to the U.S. Postal Service

   A New Low-Cost Distribution Channel. Our Internet postage solution 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 solution 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 solution 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 solution 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.

Growth Strategy

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

 Partner with Industry Leaders to Quickly Acquire Customers

   Our strategy includes partnering with industry leaders to rapidly acquire
customers, build brand recognition and accelerate the adoption of our Internet
postage solution. We have entered into strategic relationships with Microsoft,
Yahoo!, Excite@Home, America Online, Compaq, EarthLink, Francotyp-Postalia,
Dymo-CoStar, Tension Envelope, Avery Dennison and Sunbeam's Pelouze division.
Partnering with well-known and trusted names in the Internet, computer hardware
and software, and business supply industries enables us to leverage our
partners' installed customer bases, distribution channels and marketing
expertise, and facilitate the adoption, usage and accessibility of our Internet
postage solution. We anticipate continuing to add additional strategic partners
as our business grows and we expand our portfolio of products and services.

 Initially Focus on the Large and Growing SOHO Market

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

  . a large and growing number of SOHOs;

  . high personal computer penetration;

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

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

   We have conducted extensive qualitative and quantitative research on SOHO
users, and have tailored our Internet postage solution 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 premier strategic
partners and high quality solutions 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 our strategic partners. We intend to
promote our brand through television, print and radio advertising, and online
banner advertising through partnerships 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.

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<PAGE>

 Leverage Our Technology Platform and Expertise to Extend Our Family of
 Internet Postage Solutions

   We intend to leverage our customer-centric focus, scalable electronic
commerce platform and our patent portfolio to develop a family of Internet
postage solutions for the high volume mailer and corporate enterprise and for
the low volume individual consumer. We intend to offer an intranet-based
solution 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 solution, 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 solutions 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.

 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 intend to 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
partnered with third party vendors of integrated scales and other postage
supplies.

   International Internet Postage Market. We believe that there are significant
opportunities in international markets for our Internet postage solution. In
particular, we believe our Internet postage solution is ideally suited for many
international markets because users pay for connecting to the Internet based on
usage time and thus are seeking solutions that can reduce expensive connection
time.

   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.

Our Internet Postage Solution

   Our Internet postage solution 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, collectively known as SOHOs, most of whom usually connect to the
Internet on modems at speeds of 28.8 or 33.6 kilobytes per second. Our solution
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 solution nationally in August 1999. Our Internet postage solution is
currently available through our Web site and through a toll-free telephone
number, with software and our secure postage device each being delivered via
overnight delivery services, and we expect our Internet postage solution to
also be available at many retail outlets beginning in fall 1999. The estimate
of when our Internet postage solution will be available in retail outlets is a
forward-looking statement that is subject to risks and uncertainties. The
actual timing may differ materially from this estimate as a result of a number
of factors, including the availability of shelf space and product fulfillment.

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<PAGE>

 Installation

   The installation process is simple and 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 solution 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 easy to install
software, our Internet postage solution also
includes our silver-dollar size, secure postage
device that easily 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]

 Printing Postage

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

   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 simply 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 solution.

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

  . Microsoft Word -- Our Internet postage solution 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 -- Our software's integration with QuickBooks enables
    users to send invoices faster and more easily to their customers.

   Address Software Functionality. Our Internet postage solution enables users
to print Internet postage using their existing mailing databases, and is
compatible with over 17 types of address storage software. Further, addresses
are stored on the user's personal computer with our Internet postage solution,
negating any need to upload confidential information to a shared server.

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<PAGE>

   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 solution. The sale of these postage supplies requires U.S. Postal
Service approval and we are in the process of obtaining necessary approvals.

Strategic Relationships

   We believe that market penetration, brand awareness and adoption of our
Internet postage solution 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 and easy-to-use access to our
Internet postage solution. To achieve these goals, we have established a
strategy of partnering with the industry leaders in business segments related
to the Internet, computer hardware and software, postage and business supplies.
Our strategic relationships allow us to leverage our partners' installed
customer bases, distribution channels and marketing expertise to facilitate the
adoption, usage and accessibility of our Internet postage solution.

   Microsoft. In July 1999, Microsoft, an investor in E-Stamp since 1997,
selected us as its premium online postage partner for its Microsoft Office
Update Web site. As a featured service on the Microsoft Office Update Web site,
we significantly increase our reach into the small business, small office and
home office market by making our Internet postage solution available to the
large base of Microsoft Office users who frequent the site. The initial term of
our agreement with Microsoft is one year, although the agreement is terminable
on 60 days prior notice. We have also worked with Microsoft's product
development teams to integrate our Internet postage solution with Microsoft
applications, including Microsoft Word and Microsoft Outlook.

   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, with over 80 million users worldwide, and is
one of the most recognized brands associated with the Internet. Under this
agreement, we are Yahoo!'s premier Internet postage provider, and Yahoo! users
will have direct access to the E-Stamp service from within the Yahoo! Postal
Center. Additionally, Yahoo! users will have access to our Internet postage
service from other small-business targeted properties throughout the Yahoo!
network through banner advertisements placed by us on these sites.

   Excite@Home. In August 1999, we entered into a binding letter of intent with
Excite@Home to be the preferred Internet postage provider across Excite@Home's
@Work division. This relationship is designed to provide early broadband
adapters with access to our solution through the @Work site. As part of this
relationship, our service offering will be integrated into @Work's portfolio of
products and services. This service is currently expected to be available later
in 1999. Excite@Home also is one of our equity investors.

   America Online. In November 1998, we agreed to become a tenant in America
Online's new Postage Services Center, currently scheduled to launch in August
1999. America Online's Postage Services Center will feature direct links to our
Web site where America Online members can purchase our Internet postage
solution. As part of the agreement, America Online has agreed to promote our
solution until May 2000 with banner advertisements across several of America
Online's branded properties, including CompuServe, AOL.com and Digital City.

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<PAGE>

   Compaq. In June 1998, we entered into an agreement with Compaq to help
accelerate the adoption of Internet postage. Under this agreement, Compaq will
market our Internet postage solution 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 solution 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 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 solution through its Web
site. Additionally, we intend to leverage Francotyp-Postalia's established
distribution channels and existing customer base to distribute our solution.
Francotyp-Postalia also is one of our equity investors.

   Avery Dennison. In July 1999, we entered into a strategic relationship with
Avery Dennison that includes sales, marketing and distribution agreements.
Under this agreement, our Internet postage solution is to be the only online
postage solution promoted in packages of Avery labels and other printable
supplies. Additionally, we have agreed to offer a free sample pack of Avery PC
Postage Labels to our new customers. We plan to sell these labels in our online
supplies store.

   Sunbeam Corp.'s Pelouze Scale Co. Division. In February 1999, we entered
into a strategic marketing and sales agreement with Signature Brands, Inc., a
subsidiary of Sunbeam Corporation, the leading manufacturer and distributor of
postal scales. We intend to leverage Sunbeam's already established distribution
channels and promote our solution 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
solution, is currently expected to be available to our customers through our
online store later in 1999.

   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 submitted for required approvals to the U.S. Postal Service.

   EarthLink. In June 1999, we entered into an agreement with EarthLink, a
leading Internet service provider. Under this agreement, we and EarthLink have
agreed to develop a co-branded postal center accessible to EarthLink's more
than 1.3 million users from their personal start pages and elsewhere in the
EarthLink network. Additionally, EarthLink has agreed to make our Internet
postage solution available for purchase through EarthLink's mall and to place
banner advertisements for our solution in their service. In addition, EarthLink
has agreed to place an advertisement for our solution 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 strategic 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 has agreed to jointly promote
our solution in retail channels, promote us to its existing customer base, and
to integrate support for our service directly into its printer software. Dymo-
CoStar's specialty label printer has been approved for sale by the U.S. Postal
Service and the related labels have been submitted for required approvals to
the U.S. Postal Service.

Acquisition of Customers

   The initial focus of our Internet postage solution is on the large and
growing SOHO market, which consists of small businesses, small offices and home
offices. We have established relationships with leading

                                       34
<PAGE>

Internet, computer and business supply companies to distribute our Internet
postage solution through channels most frequented by SOHOs. In addition, we are
leveraging our strategic partners' 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.

   Product Distribution. We intend to make our Internet postage solution
available through all standard distribution channels in order to increase
product availability and accelerate the adoption of Internet postage.
Specifically, we will target the following:

  .  Retail -- We have identified top retail accounts to target for our
     Internet postage solution since SOHOs typically purchase a substantial
     portion of their office supply needs from these sources. These targets,
     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; and

  .  Direct Marketing and Mail Order -- We will 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.

   Promotional Bundling Arrangements. We have partnered with Compaq, Avery
Dennison, Dymo-CoStar and Sunbeam's Pelouze division to bundle promotions for
our Internet postage solution in selected products, which enables us to
leverage our partners' installed customer base, distribution channels and
marketing experience.

   Affiliate and Affinity Programs. We intend to establish an extensive
affiliate program with premier sites and we will offer other revenue-sharing
opportunities for affiliates who promote or provide links to our products from
their Web site. In addition, we plan to extend promotional offers to trade
associations with substantial SOHO membership.

   Online and Offline Advertising. We currently have strategic relationships in
place with some of the top Internet sites, including Yahoo!, Microsoft, America
Online, Excite@Home and EarthLink, and we intend to partner 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
intend to utilize various offline forms of advertising, such as television,
print, radio and other targeted publications that focus on specific attractive
markets for our solution.

   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 to prominently display our logo
and Web site address, in order 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 solution
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

                                       35
<PAGE>

through the mail system. The final stage before commercial release is vendor
product approval, which 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.

Competition

   We believe that our Internet postage solution is well positioned to compete
in the SOHO 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, has been approved
for commercial release by the U.S. Postal Service to date. 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 solution provides significant benefits
over traditional postage methods, especially for the SOHO 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 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 our market
include: (1) U.S. Postal Service product certification; (2) brand recognition;
(3) integration with other software applications; (4) convenience; (5) service
availability and reliability; (6) price; (7) security; and (8) 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
solution that meets our customers' needs and fulfills the U.S. Postal Service's
certification requirements.

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<PAGE>

   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, Microsoft
Outlook and Intuit's QuickBooks, 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 ours.

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

   Internet Postage Device. We have developed a proprietary silver-dollar size
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 for being 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
solution. 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.

Future Product Development

   We are currently developing a server-based solution 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 solution will be positioned to meet
the needs of this base of users. The server-based solution will enable a user
to purchase and store Internet postage directly on our secure electronic
commerce server and print from their local printer.

Employees

   As of June 30, 1999, we employed 75 full-time people, including 29 in
engineering, 13 in operations, eight in customer service and support, 13 in
sales, marketing and business development, and 12 in general and

                                       37
<PAGE>

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 over 20 U.S. patents and have 12 patent applications pending. 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, including "E-Stamp." Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our solutions 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 by Pitney Bowes against us, could prevent or delay our
ability to provide our Internet postage solutions" and "--Legal Proceedings."

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 lease which will expire in June 2000. We will
need to obtain additional office space prior to the end of 1999 and are
currently in discussions with respect to additional space.

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 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, 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

                                       38
<PAGE>

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. Our suit seeks compensatory and treble damages, injunctive relief
and recovery of attorney's fees. 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 solutions, delays and costs associated with
redesigning our solutions and payments of license fees and other payments. An
injunction obtained by Pitney Bowes could eliminate our ability to market
critical products or services. See "Risk Factors--Intellectual property
infringement claims, including claims by Pitney Bowes against us, could prevent
or hinder our ability to sell Internet postage."

   On May 10, 1999, in U.S. District Court, E-Stamp obtained a temporary
restraining order against Dave Lahoti ordering Mr. Lahoti (a cybersquatter) 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.

                                       39
<PAGE>

                                   MANAGEMENT

Executive Officers and Directors

   The following table sets forth certain information with respect to our
executive officers and directors as of August 10, 1999.

<TABLE>
<CAPTION>
              Name            Age                  Position
   <C>                        <C> <S>
   Robert H. Ewald...........  51 President, Chief Executive Officer and
                                  Director

   Anthony H. Lewis, Jr.  ...  45 Vice President and Chief Financial Officer

   Nicole Eagan..............  34 Senior Vice President, Marketing and Sales

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

   Roderick Witmond..........  35 Vice President, Strategic Development and
                                  Operations

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

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

   Marcelo A. Gumucio........  61 Chairman of the Board

   John V. Balen(1)(2).......  38 Director

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

   Gregory S. Stanger(2).....  35 Director

   Adam Wagner(1)............  41 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, 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.

                                       40
<PAGE>

   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, including Technical
Manager, Operations for its Internet and electronic commerce strategies and
Program Manager for the design of distributed computing enhancements, also
known as the Cairo Project. 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.

   Roderick Witmond has been our Vice President, Strategic Development and
Operations (Acting), since August 1999. From July 1995 to August 1999, Mr.
Witmond was a Principal Consultant with the Government Consulting Practice of
PriceWaterhouseCoopers, focusing primarily on assignments with the U.S. Postal
Service and, most recently, E-Stamp. Mr. Witmond obtained his B.S. from London
University in London, England in 1986 and his M.B.A. from the Darden Graduate
School of Business Administration, University of Virginia in 1995.

   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, 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, 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 between 1989 and 1995. Mr. Reinemer
received his degrees in electronic processing and in industrial electronic
processing equipment from the Freidrich Ebert Technical College in Weisbaden,
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., 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. 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. 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 has been a Principal of Canaan Partners, a national venture capital
investment firm, since September 1995. 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 AT&T Ventures in December 1996 and where he is currently a
Principal. AT&T Ventures is an independent venture capital fund that invests in
information technology companies. Previously, Mr. Rosch served as a senior
member of The Boston Consulting Group from November 1989 to November 1996. Mr.
Rosch currently serves

                                       41
<PAGE>

on the board of directors of Veridicom, Inc. and PaymentNet, Inc. Mr. Rosch
received his A.B. in government and philosophy from Harvard University and
J.D./M.B.A. from Stanford University.

   Gregory S. Stanger has served on the Board of Directors since September
1997. Mr. Stanger is a Senior Director, Corporate Development at Microsoft
Corporation and has held various positions in Corporate Development at
Microsoft since July 1993 and within the Microsoft Finance Organization since
joining Microsoft Corporation in September 1991. Previously, Mr. Stanger worked
in investment banking at PaineWebber from March 1987 to June 1989. Mr. Stanger
received his B.A. in economics from Williams College and M.B.A. from the
University of California, Berkeley.

   Adam Wagner has served on the Board of Directors since November 1996. Mr.
Wagner has been Vice President, Investments at Wagner & Brown, Ltd., a closely-
held oil and gas investment company, since June 1992. Mr. Wagner currently
serves on the board of directors of PFS Thermoplastics, Inc., SeaSound, LLC,
nStream 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.

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 and Thomas L. Rosch have been designated
Class I directors whose terms expire at the 2000 annual meeting of
stockholders. Marcelo A. Gumucio and Adam Wagner have been designated Class II
directors whose terms expire at the 2001 annual meeting of stockholders.
Gregory S. Stanger and John V. Balen 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. See "Description of Capital
Stock--Antitakeover Effects of Provisions of Certain Charter Provisions, Bylaws
and Delaware Law."

   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.

Board Committees

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

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

   Our compensation committee currently consists of Messrs. Balen, Rosch and
Stanger. 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.


                                       42
<PAGE>

Director Compensation

   We do not currently compensate our directors in cash for their service as
members of the board of directors, although they are reimbursed for certain
expenses in connection with attendance at board of director and compensation
committee meetings. 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 1998, the board granted options to
purchase an aggregate of 298,470 shares to Marcelo A. Gumucio at an exercise
price per share of $0.80. Please see also "--Incentive Stock Plans--Director
Option Plan" for a description of options to be granted to our non-employee
directors after this offering.

Executive Compensation

                           Summary Compensation Table

   The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal year ended December 31, 1998 by our former
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, 1998. These executives are referred to as the Named Executive Officers
elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                             Long-Term
                                            Compensation
                                               Awards
                                            ------------
                               Annual
                            Compensation
                         ------------------  Securities
Name and Principal                           Underlying
Position                 Salary($) Bonus($)  Options(#)
<S>                      <C>       <C>      <C>
Sunir Kapoor............  153,042   70,000    296,210
 Former Chief Executive
  Officer and
  President(1)

Martin Pagel............  153,750      --      15,195
 Chief Technical Officer

Nicole Eagan............  128,750   35,000     26,000
 Senior Vice President,
  Marketing and Sales

Thomas J. Reinemer......  128,750   30,000     28,000
 Vice President,
  International(2)

Rick D. Prime...........  128,750      --      10,000
 Former Vice President,
  Finance(3)

</TABLE>

---------------------
(1) Mr. Kapoor served as Chief Executive Officer and President of E-Stamp from
    December 1996 until February 1999. Robert H. Ewald joined E-Stamp as our
    Chief Executive Officer and President in February 1999. Mr. Ewald currently
    is compensated with an annual salary of $250,000 and a guaranteed bonus of
    $25,000.

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

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


                                       43
<PAGE>

                       Option Grants in Last Fiscal Year

   The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers in the fiscal year
ended December 31, 1998, 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. 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, 1998, we granted options to purchase
up to an aggregate of 1,361,055 shares to employees, directors and consultants.
All options were granted under our 1996 Stock Option and Restricted 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 Value
                                                                     at Assumed Annual
                         Number of  % of Total                        Rates of Stock
                         Securities   Options                              Price
                         Underlying Granted to                       Appreciation for
                          Options    Employees  Exercise                Option Term
                          Granted     In Last     Price   Expiration -----------------
Name                        (#)     Fiscal Year ($/share)    Date       5%      10%
<S>                      <C>        <C>         <C>       <C>        <C>      <C>
Sunir Kapoor............   59,210       4.4%      $0.80    11/01/08  $ 29,789 $ 75,492
                          237,000      17.4        0.80    12/15/08   119,238  302,174

Martin Pagel............   15,195       1.1        0.80    11/01/08     7,645   19,374

Nicole Eagan............   26,000       1.9        0.80    11/01/08    13,081   33,150

Thomas J. Reinemer......   28,000       2.1        0.80    11/01/08    14,087   35,700

Rick D. Prime...........   10,000       0.7        0.80    11/01/08     5,031   12,750
</TABLE>

   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, 1998, and exercisable and
unexercisable options held by them as of December 31, 1998.

   The "Value of Unexercised In-the-Money Options at December 31, 1998" is
based on a value of $0.80 per share, the fair market value of our common stock
as of December 31, 1998, as determined by the board of directors, 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. 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           1998 (#)            December 31, 1998 ($)
                         Shares Acquired Realized ------------------------- -------------------------
Name                     on Exercise (#)   ($)    Exercisable Unexercisable Exercisable Unexercisable
<S>                      <C>             <C>      <C>         <C>           <C>         <C>
Sunir Kapoor............     599,200     $23,063    296,210        --          $ --         $ --

Martin Pagel............     180,260       6,406     15,195        --            --           --

Nicole Eagan............     266,154       6,406     26,000        --            --           --

Thomas J. Reinemer......     245,536       6,406     28,000        --            --           --

Rick D. Prime...........     100,000         --         --         --            --           --
</TABLE>

                                       44
<PAGE>

1999 Stock Plan

   The board of directors adopted our 1999 Stock Plan, referred to as the 1999
Plan, in August 1999, subject to approval of our stockholders. This stock
option 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.

   A total of 2,000,000 shares of common stock is reserved for issuance, plus
annual increases, beginning in fiscal year 2000, equal to the lesser of:

  . 1,000,000 shares;

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

  . a lesser amount determined by the board.

   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 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 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.

                                       45
<PAGE>

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
4,750,000 shares of common stock were authorized for issuance under the 1996
Plan. As of August 10, 1999, options to purchase an aggregate of 1,172,790
shares of our common stock were outstanding under this stock option plan, and a
total of 3,555,712 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, subject to approval of our stockholders. 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.

                                       46
<PAGE>

   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 will become effective on the effective date of this
offering and will terminate in 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,
subject to approval of our stockholders, but it will not become effective until
the day following the closing of this offering. The director plan has a term 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

                                       47
<PAGE>

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 100,000 shares of our common stock are authorized for issuance
under the 1996 Director Plan. As of August 10, 1999, a total of 15,250 shares
were subject to outstanding options granted under this plan. Although 84,750
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 certain 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 agreed to give Mr. Ewald a grant of 100,000
shares of common stock if we successfully complete an initial public offering
within twelve months of his commencement of employment. We agreed to provide
Mr. Lewis with a promissory note in the amount of $30,000 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, and if we
experience a change of control, Mr. Gumucio's option shall become immediately
exercisable.

   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. 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.

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.

                                       48
<PAGE>

   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.


                                       49
<PAGE>

                              CERTAIN 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 2,931,229 shares of Series C
preferred stock for $10.31 per share. Listed below are the directors, executive
officers and stockholders who beneficially own more than 5% of our securities
who participated in these financings.

<TABLE>
<CAPTION>
                                                                   Aggregate
                                   Series A  Series B  Series C      Cash
Name                               Preferred Preferred Preferred Consideration
<S>                                <C>       <C>       <C>       <C>
Microsoft Corporation............. 1,250,000   261,750  109,231   $5,126,174
Entities affiliated with AT&T
 Ventures(1)...................... 1,250,000   261,750  218,462    6,252,343
Canaan Equity, L.P................     --    1,047,000  113,476    5,169,478
Unified Holdings, L.L.C...........     --    1,047,000    --       4,000,000
John V. Balen(2)..................     --    1,047,000  113,476    5,169,478
Thomas L. Rosch(3)................ 1,250,000   261,750  218,462    6,252,343
Gregory S. Stanger(4)............. 1,250,000   261,750  109,231    5,126,174
Adam Wagner(5)....................     --    1,047,000    5,416    4,055,379
</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 113,476 shares of
    Series C preferred stock held by Canaan Equity, L.P. Mr. Balen disclaims
    beneficial ownership of these shares.

(3) 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. Mr. Rosch 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. Stanger 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.

                                       50
<PAGE>

Certain Sales to Executive Officers

   On May 30, 1999, we sold 1,225,000 shares of common stock at a price of
$0.90 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 266,154 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 240,529
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 180,260 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 154,635
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 245,536 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 219,911
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 150,000 shares of common stock at a price of $1.50
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 August 4, 1999, we sold 300,000 shares of common stock at a price of
$1.50 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 4, 1999, we sold 150,000 shares of common stock at a price of
$1.50 per share to Roderick Witmond. We have the right to repurchase such
shares in the event Mr. Witmond's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Witmond 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.

Other Transactions

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

   We have granted options to certain of our executive officers and directors.
See "Management--Option Grants in Last Fiscal Year."

   Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of the preferred stock.
See "Description of Capital Stock--Registration Rights."

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

                                       51
<PAGE>

                             PRINCIPAL STOCKHOLDERS

   The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of August 10, 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, 2855 Campus Drive, Suite 100, San
Mateo, California 94403. 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 August 10, 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
23,541,541 shares of common stock outstanding as of August 10, 1999, as
adjusted to reflect the conversion of all outstanding shares of preferred stock
upon the closing of this offering. The numbers shown in the table below assume
no exercise by the underwriters of their over-allotment option.

                                       52
<PAGE>

                          Principal Stockholders Table

<TABLE>
<CAPTION>
                                                               Percentage of
                                                                  Shares
                                                 Number of      Outstanding
                                                   Shares    -----------------
                                                Beneficially  Before   After
   Name                                            Owned     Offering Offering
   <S>                                          <C>          <C>      <C>
   5% Stockholders:
   Entities affiliated with AT&T Ventures(1)...  1,730,212      7.3%
   Microsoft Corporation(2)....................  1,620,981      6.9
   John Trotter(3).............................  1,586,250      7.6
   Directors and Executive Officers:
   Robert H. Ewald(4)..........................  1,225,000      5.2
   Anthony H. Lewis, Jr.(5)....................    300,000      1.3
   Martin Pagel(6).............................    197,621        *
   Nicole Eagan(7).............................    342,154      1.5
   Thomas J. Reinemer(8).......................    273,536      1.2
   Rick D. Prime(9)............................    101,083        *
   Sunir Kapoor................................    274,005      1.2
   Marcelo A. Gumucio(10)......................    298,470      1.3
   John V. Balen(11)...........................  1,160,476      4.9
   Thomas L. Rosch(12).........................  1,730,212      7.3
   Gregory S. Stanger(13)......................  1,620,981      6.9
   Adam Wagner(14).............................  1,462,416      6.2
   All directors and executive officers as a
    group (14 persons)(15).....................  9,285,954     39.4
</TABLE>
---------------------
 *  Less than 1% of the outstanding shares of common stock.

(1) The aggregated shares listed for entities affiliated with AT&T Ventures are
    owned as follows: 1,360,575 shares are beneficially owned by AT&T Venture
    Fund II, L.P. and 151,175 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.

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

(3) The address for Mr. Trotter is 1000 Louisiana #3600, Houston, Texas 77002.

(4) At August 10, 1999, 1,225,000 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 August 10, 1999, 300,000 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 August 10, 1999, 117,655 shares held by Mr. Pagel were vested, and
    77,800 shares were unvested and subject to a right of repurchase in favor
    of us, which right lapses over time.

(7) At August 10, 1999, 168,695 shares held by Ms. Eagan were vested, and
    173,459 shares were unvested and subject to a right of repurchase in favor
    of us, which right lapses over time.

(8) At August 10, 1999, 157,137 shares held by Mr. Reinemer were vested, and
    116,399 shares were unvested and subject to a right of repurchase in favor
    of us, which right lapses over time.

(9) At August 10, 1999, 40,625 shares held by Mr. Prime were vested, and 59,375
    shares were unvested and subject to a right of repurchase in favor of us,
    which right lapses over time.

(10) Includes 298,470 shares issuable upon exercise of options held by Mr.
     Gumucio within 60 days of August 10, 1999, all of which would be subject
     to a right of repurchase in favor of us, which right lapses over time.

(11) 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.

(12) 1,557,191 shares are beneficially owned by AT&T Venture Fund II, L.P. and
     173,021 shares are beneficially owned by Venture Fund I, L.P. Mr. Rosch is
     a partner at AT&T Ventures. Mr. Rosch disclaims beneficial ownership of
     these shares.

(13) The shares are beneficially owned by Microsoft Corporation. Mr. Stanger is
     Senior Director, Corporate Development at Microsoft Corporation. Mr.
     Stanger disclaims beneficial ownership of these shares.

                                       53
<PAGE>

(14) Includes 200,000 shares of common stock held by Wagner & Brown, Ltd, Mr.
     Wagner's employer. Mr. Wagner has disclaimed beneficial ownership of these
     shares. Includes 50,000 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 160,000 shares of common
     stock held in escrow and for which Mr. Wagner is an escrow agent. Wagner &
     Brown, Ltd. claims beneficial ownership of 30,624 shares and Wagner Family
     Partnership VI claims beneficial ownership of 7,648 shares. 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. claims beneficial ownership of 130,875 shares and Wagner
     Family Partnership VI 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.

(15) Includes 758,117 shares issued under the 1996 Stock Option and Restricted
     Stock Plan which were vested and 1,950,503 shares which were unvested at
     August 10, 1999 and subject to a right of repurchase in favor of us, which
     right lapses over time. Includes 298,470 shares issuable upon exercise of
     options within 60 days of August 10, 1999, all of which would be subject
     to a right of repurchase in favor of us, which right lapses over time.

                                       54
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

General

   Upon the completion of this offering, we will be 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 August 10, 1999, there were 23,541,541 shares of common stock
outstanding which were held of record by approximately 465 stockholders, as
adjusted for the conversion of all outstanding shares of convertible preferred
stock into common stock, which will occur upon the closing of this offering.

   The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. 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. See "Dividend Policy." 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.
The shares of common stock to be issued upon the closing of this offering will
be 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 August 10, 1999, there were warrants outstanding to purchase 21,235
shares of Series C preferred stock, which will be exercisable to purchase as
aggregate of 21,235 shares of common stock upon closing of this offering. At
August 10, 1999, there were warrants outstanding to purchase 38,797 shares of
common stock.

                                       55
<PAGE>

Registration Rights

   The holders of preferred stock convertible into 9,619,229 shares of common
stock (the "registrable securities") are entitled to certain 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 180 days following the date of this prospectus,
holders of at least 25% of the then outstanding registrable securities obtained
from conversion of our Series A 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 180
days following the date of this prospectus, 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 180 days following the date
of this prospectus, 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. These registration rights have been waived with respect to this
offering. 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 Certain Charter and Bylaw Provisions

   Certain 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 certain types
of 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. See "Management--Board
of directors and Executive Officers." 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.

                                       56
<PAGE>

   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 "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

   We have applied for the listing of our shares on The Nasdaq National Market
under the symbol "ESTM."

                                      57
<PAGE>

                        SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has been no market for our common stock, and
there can be no assurance that a significant public market for our common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of its equity securities. As
described below, no shares currently outstanding will be available for sale
immediately after this offering because of certain contractual restrictions on
resale. Sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.

   Upon completion of this offering, we will have outstanding            shares
of common stock based upon shares outstanding as of August 10, 1999, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants prior to completion of this offering. Of these
shares, the            shares sold in this offering will be 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.
The remaining       shares of common stock held by existing stockholders are
restricted shares as that term is defined in Rule 144. All such restricted
shares are subject to 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 the date of this prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of
these shares will be resellable until 181 days after the date of this
prospectus. Beginning 181 days after the date of this prospectus, approximately
           restricted shares will be eligible for sale in the public market,
all of which are subject to volume limitations under Rule 144, except
           shares eligible for sale under Rule 144(k) and            shares
eligible for sale under Rule 701. In addition, as of August 10, 1999, there
were outstanding options to purchase 1,172,790 shares of common stock, warrants
to purchase 38,797 shares of common stock and warrants to purchase preferred
stock convertible into 21,235 shares of common stock, some of which may be
exercised prior to this offering. All such options and warrants are subject to
lock-up agreements. 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, however any release shall
apply pro-rata to all stockholders subject to the lock-up agreements.

   In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, 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.

   Sales under Rule 144 are also subject to certain 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.

   Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee,

                                       58
<PAGE>

officer or director of or consultant to us who purchased shares under a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, all Rule 701 shares are subject
to lock-up agreements and will only become eligible for sale at the earlier of
the expiration of the 180-day lock-up agreements.

   Within 90 days following the effectiveness of this offering, we will file a
Registration Statement on Form S-8 registering 3,994,288 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of August 10, 1999, options to purchase a total 1,172,790 shares were
outstanding and 2,821,498 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 six months after the date of this offering, holders of
9,619,229 restricted shares will be entitled to certain registration rights for
sale in the public market. See "Description of Capital Stock--Registration
Rights." 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.

                                       59
<PAGE>

                                  UNDERWRITING

   Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Banc of America Securities LLC,
Deutsche Bank Securities Inc. and DLJdirect Inc., have severally agreed to
purchase from us the respective number of shares of common stock set forth
opposite their names below:

<TABLE>
<CAPTION>
                                                                          Number
                                                                            of
   Underwriters:                                                          Shares
   <S>                                                                    <C>
   Donaldson, Lufkin & Jenrette Securities Corporation...................
   Banc of America Securities LLC........................................
   Deutsche Bank Securities Inc..........................................
   DLJdirect Inc. .......................................................
                                                                           ---
     Total...............................................................
                                                                           ===
</TABLE>

   The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock in the offering
are subject to approval by their counsel of legal matters concerning the
offering and to condition precedents that must be satisfied by us. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock in the offering, other than those shares covered by the over-
allotment option described below, if any are purchased.

   The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $   per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $   per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the Representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority. An electronic prospectus will be available on the Web site
maintained by DLJdirect Inc., one of the underwriters and an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation.

   We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase, from time to time, in whole or in
part, up to an aggregate of additional shares of common stock at the initial
public offering price less underwriting discounts and commission. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.

   The following table sets forth the compensation payable to the underwriters
by us in connection with the offering:

<TABLE>
<CAPTION>
                                                                 Total
                          Discounts and              -----------------------------
                           Commissions   Additional     Without          With
                            per Share   Compensation Over-Allotment Over-Allotment
<S>                       <C>           <C>          <C>            <C>
Underwriting discounts
 and commissions
 paid by us.............      $             $             $              $
Expenses payable by us..
</TABLE>

   Donaldson, Lufkin & Jenrette Securities Corporation acted as the placement
agent for a private placement of E-Stamp's Series C Preferred Stock in August
1999. As compensation for its services as placement agent, Donaldson, Lufkin &
Jenrette Securities Corporation received a cash fee of approximately $1.1
million and warrants to purchase an aggregate of 21,235 shares of Series C
preferred stock at an exercise price $10.31 per share, the same price per share
paid by all investors who participated in the private placement. Certain
entities affiliated with Donaldson, Lufkin & Jenrette Securities Corporation
also invested in the private placement,

                                       60
<PAGE>

purchasing an aggregate of 87,294 shares of Series C preferred stock on the
same terms and conditions as the other investors in the private placement,
including price per share.

   We have agreed to indemnify the underwriters against liabilities which may
arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.

   Our executive officers, directors and certain other stockholders and option
holders have agreed not to:

  .  offer, pledge, sell, contract to sell, sell any option or contract to
     purchase, purchase any option or contract to sell, grant any option,
     right or warrant to purchase, lend, or otherwise transfer or dispose of,
     directly or indirectly, any shares of common stock, other than shares
     acquired in the initial public offering or on the Nasdaq National
     Market, or any securities convertible into or exercisable or
     exchangeable for common stock; or

  .  enter into any swap or other arrangement that transfers to another, in
     whole or in part, any of the economic consequences of ownership of the
     common stock, whether any such transaction described above is to be
     settled by delivery of common stock or other securities, in cash, or
     otherwise.

   Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the 180-
day period lock-up period with or without notice, although it has no current
intention of doing so.

   In addition, during such 180-day period, we have also agreed not to file any
registration statement with respect to, and each of our executive officers,
directors and stockholders have agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.

   Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered will be determined by negotiation among E-Stamp and the underwriters.
The factors to be considered in determining the initial public offering price
include:

  . the history of and the prospects for the industry in which we compete;

  . our past and present operations;

  . our historical results of operations;

  . our prospects for future operational results;

  . the recent market prices of securities of generally comparable companies;
    and

  . the general condition of the securities markets at the time of the
    offering.

   Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.

   In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and stabilize the price
of the common stock.

                                       61
<PAGE>

In addition, the underwriting syndicate may reclaim selling concessions from
syndicate members and selected dealers if they repurchase previously
distributed common stock in syndicate covering transactions, in stabilizing
transactions or otherwise. These activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.

   The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock to be sold in the offering for certain
individuals and entities designated by us who have expressed an interest in
purchasing shares in the offering. The number of shares available for sale to
the general public will be reduced to the extent these individuals and entities
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same basis as other
shares offered hereby.

                                 LEGAL MATTERS

   The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Selected legal matters in connection with this offering will be
passed upon for the underwriters by Pillsbury Madison & Sutro LLP, Palo Alto,
California. As of the date of this prospectus, an investment partnership
composed of certain members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, as well as certain individual
attorneys of this firm, beneficially own an aggregate of 18,728 shares of our
Series C preferred 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.

   Statements in this prospectus and registration statement in the first
paragraph under the caption "Risk Factors--Intellectual property infringement
claims, including a claim asserted by Pitney Bowes against us, could prevent or
hinder our ability to sell Internet postage" and in the first two paragraphs
under the caption "Business--Legal Proceedings" have been reviewed and approved
by Howrey & Simon, patent litigation counsel to E-Stamp, as experts in such
matters, and are included herein in reliance upon its review and approval.

                             ADDITIONAL INFORMATION

   We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by 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.

   Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the Web site of the Commission referred to above.

                                       62
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                        <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
 Equity (Deficit)......................................................... F-5
Statements of Cash Flows.................................................. F-8
Notes to Financial Statements............................................. F-9
</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, 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 Note 9 as to which the date is August 13, 1999.

                                      F-2
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

                                 BALANCE SHEETS
                    (In thousands, except par value amounts)

<TABLE>
<CAPTION>
                                                                         Pro forma
                                                                       Stockholders'
                                          December 31,                    Equity
                                         ----------------   June 30,   (Deficit) at
                                          1997     1998       1999     June 30, 1999
                                                           (Unaudited)  (Unaudited)
<S>                                      <C>      <C>      <C>         <C>
                ASSETS
                ------

Current assets:
  Cash and cash equivalents............  $ 4,111  $10,217    $ 1,916
  Other current assets.................       24      144        498
                                         -------  -------    -------
Total current assets...................    4,135   10,361      2,414
Property and equipment:
  Computers............................      964    1,039      1,350
  Furniture and fixtures...............      198      165        192
  Leasehold improvements...............       30       --         49
                                         -------  -------    -------
                                           1,192    1,204      1,591
  Accumulated depreciation and
   amortization........................     (596)    (754)      (909)
                                         -------  -------    -------
Net property and equipment.............      596      450        682
Other assets...........................       32       --         --
                                         -------  -------    -------
    Total assets.......................  $ 4,763  $10,811    $ 3,096
                                         =======  =======    =======

 LIABILITIES AND STOCKHOLDERS' EQUITY
               (DEFICIT)
 ------------------------------------
Current liabilities:
  Accounts payable and accrued
   liabilities.........................  $ 1,701  $ 1,529    $ 2,718
  Current portion of obligations under
   capital lease.......................       36       27         20
                                         -------  -------    -------
Total current liabilities..............    1,737    1,556      2,738
Capital lease obligations..............       38       11          6

Commitments and contingencies..........
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 and June 30, 1999 (none pro
   forma)..............................    6,126    6,746      7,084     $     --
  Series B redeemable convertible
   preferred stock: 4,188 shares
   authorized, 4,188 shares issued and
   outstanding at December 31, 1997 and
   1998 and June 30, 1999 (none pro
   forma)..............................       --   16,723     17,561           --
Stockholders' equity (deficit):
  Common stock, $0.001 par value per
   share: 100,000 shares authorized,
   10,406, 11,939, and 13,435 shares
   issued and outstanding at December
   31, 1997 and 1998 and June 30, 1999,
   respectively (200,000 shares
   authorized and 20,123 shares
   outstanding pro forma)..............       10       12         14           20
  Additional paid-in capital...........   12,787   14,897     24,194       48,833
  Notes receivable from employees and
   officers............................       --     (653)    (2,157)      (2,157)
  Deferred stock compensation..........       --   (2,289)    (9,309)      (9,309)
  Deficit accumulated during
   development stage...................  (15,935) (26,192)   (37,035)     (37,035)
                                         -------  -------    -------     --------
Total stockholders' equity (deficit)...   (3,138) (14,225)   (24,293)    $    352
                                         -------  -------    -------     ========
Total liabilities and stockholders'
 equity (deficit)......................  $ 4,763  $10,811    $ 3,096
                                         =======  =======    =======
</TABLE>

                            See accompanying notes.

                                      F-3
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

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

<TABLE>
<CAPTION>
                                                                           Period from
                                                      Six months ended      inception
                          Year ended December 31,         June 30,       (April 26, 1994)
                          --------------------------  -----------------  through June 30,
                           1996     1997      1998     1998      1999          1999
                                                        (Unaudited)        (Unaudited)

<S>                       <C>      <C>      <C>       <C>      <C>       <C>
Net revenues............  $    --  $    --  $     --  $    --  $     --      $     --
Operating expenses:
  Research and
   development..........    2,387    3,916     5,603    2,458     5,225        18,154
  Sales and marketing...    1,761    1,743     2,722    1,137     2,494         8,853
  General and
   administrative.......    1,739    1,748     1,897      903     1,373         7,472
  Amortization of
   deferred stock
   compensation.........      688      414       405       --     1,927         3,464
                          -------  -------  --------  -------  --------      --------
Operating loss..........   (6,575)  (7,821)  (10,627)  (4,498)  (11,019)      (37,943)
Interest income.........      239      157       380       46       177         1,017
Interest expense........       (3)     (14)      (10)      (3)       (1)         (109)
                          -------  -------  --------  -------  --------      --------
Net loss................   (6,339)  (7,678)  (10,257)  (4,455)  (10,843)      (37,035)
Accretion on redeemable
 convertible preferred
 stock..................       --     (196)   (1,383)    (307)   (1,176)       (2,755)
                          -------  -------  --------  -------  --------      --------
Net loss attributable to
 common stock...........  $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)     $(39,790)
                          =======  =======  ========  =======  ========      ========
Net loss per common
 share (basic and
 diluted)...............  $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
                          =======  =======  ========  =======  ========
Weighted-average shares
 outstanding (basic and
 diluted)...............   10,034   10,373    10,460   10,421    10,789
Unaudited pro forma net
 loss per share (basic
 and diluted)...........                    $  (0.68)          $  (0.62)
                                            ========           ========
Unaudited pro forma
 weighted-average shares
 outstanding (basic and
 diluted)...............                      15,002             17,477
</TABLE>



                            See accompanying notes.

                                      F-4
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

 STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCKAND STOCKHOLDERS' EQUITY
                                   (DEFICIT)
                   (In thousands, except per share amounts)

         Period from inception (April 26, 1994) through June 30, 1999

<TABLE>
<CAPTION>
                           Redeemable
                           Convertible                                         Deficit
                            Preferred                               Notes    Accumulated                  Total
                              Stock     Common Stock   Additional Receivable During the               Stockholders'
                          ------------- --------------  Paid-In      From    Development   Deferred      Equity
                          Shares Amount Shares  Amount  Capital   Employees     Stage    Compensation   (Deficit)
<S>                       <C>    <C>    <C>     <C>    <C>        <C>        <C>         <C>          <C>
Initial capital
contribution............    --    $ --   8,850   $ 9    $   201      $ --      $    --     $     --      $   210
Issuance of units at
$272.73 per unit for
services................    --      --     180    --         10        --           --           --           10
Net loss................    --      --      --    --         --        --         (572)          --         (572)
                           ---    ----  ------   ---    -------      ----      -------     --------      -------
Balance at December 31,
1994....................    --      --   9,030     9        211        --         (572)          --         (352)
Redemption of common
stock...................    --      --    (905)   (1)    (5,399)       --           --           --       (5,400)
Issuance of common stock
to investors at $5.95
per share for cash, net
of issuance costs of
$56, and conversion of
notes...................    --      --   1,290     1      7,623        --           --           --        7,624
Issuance of common stock
for services at $6.00
per share...............    --      --      15    --         90        --           --           --           90
Deferred compensation
related to restricted
common stock grants.....    --      --      --    --         60        --           --         (60)           --
Amortization of deferred
compensation............    --      --      --    --         --        --           --           30           30
Net loss................    --      --      --    --         --        --       (1,346)          --       (1,346)
                           ---    ----  ------   ---    -------      ----      -------     --------      -------
Balance at December 31,
1995....................    --      --   9,430     9      2,585        --       (1,918)         (30)         646
Issuance of common stock
at $10.00 per share for
cash to investors in May
1996, net of issuance
costs of $25............    --      --     900     1      8,974        --           --           --        8,975
Issuance of common stock
for services to
consultants at $10.00
per share during 1996...    --      --      10    --        100        --           --           --          100
Exercise of stock
options for cash by
employees during 1996...    --      --      15    --         31        --           --           --           31
Deferred compensation
related to restricted
common stock grants and
stock options...........    --      --      --    --      1,072        --           --      (1,072)           --
Stock issuance and
amortization of deferred
compensation............    --      --      10    --         --        --           --          688          688
Net loss................    --      --      --    --         --        --       (6,339)          --       (6,339)
                           ---    ----  ------   ---    -------      ----      -------     --------      -------
Balance at December 31,
1996....................    --    $ --  10,365   $10    $12,762      $ --      $(8,257)    $   (414)     $ 4,101
</TABLE>

                            See accompanying notes.

                                      F-5
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

 STATEMENTS OF 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
                           Convertible                                          Deficit
                            Preferred                                Notes    Accumulated                  Total
                              Stock      Common Stock   Additional Receivable During the               Stockholders'
                          -------------- --------------  Paid-In      From    Development   Deferred      Equity
                          Shares Amount  Shares  Amount  Capital   Employees     Stage    Compensation   (Deficit)
<S>                       <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 $10.00
per share between
September and December
1997....................     --       --     18    --        175        --           --          --           175
Exercise of stock
options for cash by
employees during 1997...     --       --     23    --         46        --           --          --            46
Amortization of deferred
compensation............     --       --     --    --         --        --           --         414           414
Accretion on redeemable
convertible preferred
stock...................     --      196     --    --       (196)       --           --          --          (196)
Net loss................     --       --     --    --         --        --       (7,678)         --        (7,678)
                          -----  ------- ------   ---    -------     -----     --------     -------      --------
Balance at December 31,
1997....................  2,500    6,126 10,406    10     12,787        --      (15,935)         --        (3,138)
Issuance of Series B
redeemable convertible
preferred stock to
investors at $3.82 per
share in July 1998, net
of issuance costs of
$40.....................  4,188   15,960     --    --         --        --           --          --            --
Issuance of notes
receivable from
employees for exercise
of stock options........     --       --  1,391     1        652     (653)           --          --            --
Issuance of common stock
for services to
consultants at $10.00
per share between
January and June 1998...     --       --      8    --         82        --           --          --            82
Exercise of stock
options for cash by
employees during 1998...     --       --    142     1         69        --           --          --            70
Shares repurchased from
employees upon
termination at a price
of $0.50 per share in
September 1998..........     --       --     (8)   --         (4)       --           --          --            (4)
Deferred stock
compensation............     --       --     --    --      2,694        --           --      (2,694)           --
Amortization of deferred
compensation............     --       --     --    --         --        --           --         405           405
Accretion on redeemable
convertible preferred
stock...................     --    1,383     --    --     (1,383)       --           --          --        (1,383)
Net loss................     --       --     --    --         --        --      (10,257)         --       (10,257)
                          -----  ------- ------   ---    -------     -----     --------     -------      --------
Balance at December 31,
1998 ...................  6,688  $23,469 11,939   $12    $14,897     $(653)    $(26,192)    $(2,289)     $(14,225)
</TABLE>

                            See accompanying notes.

                                      F-6
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

 STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
                             (DEFICIT) (Continued)
                   (In thousands, except per share amounts)

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

<TABLE>
<CAPTION>
                            Redeemable
                           Convertible                                          Deficit
                            Preferred                                Notes    Accumulated                  Total
                              Stock      Common Stock   Additional Receivable During the               Stockholders'
                          -------------- --------------  Paid-In      From    Development   Deferred      Equity
                          Shares Amount  Shares  Amount  Capital   Employees     Stage    Compensation   (Deficit)
<S>                       <C>    <C>     <C>     <C>    <C>        <C>        <C>         <C>          <C>
Exercise of stock
options for cash by
employees during 1999
(unaudited).............    --   $   --      50   $ 1    $    23    $   --     $    --      $   --       $     24
Issuance of notes
receivable from
employees for exercise
of stock options
(unaudited).............    --       --   1,774     1      1,667     (1,668)        --          --            --
Shares repurchased from
employee upon
termination at $0.50 per
share in March 1999
(unaudited).............    --       --    (328)  --        (164)       164         --          --            --
Deferred stock
compensation
(unaudited).............    --       --     --    --       8,947        --          --       (8,947)          --
Amortization of deferred
compensation
(unaudited).............    --       --     --    --         --         --          --        1,927         1,927
Accretion on redeemable
convertible preferred
stock (unaudited).......    --     1,176    --    --      (1,176)       --          --          --         (1,176)
Net loss (unaudited)....    --       --     --    --         --         --      (10,843)        --        (10,843)
                          -----  ------- ------   ---    -------    -------    --------     -------      --------
Balance at June 30, 1999
(unaudited).............  6,688  $24,645 13,435   $14    $24,194    $(2,157)   $(37,035)    $(9,309)     $(24,293)
                          =====  ======= ======   ===    =======    =======    ========     =======      ========
</TABLE>


                            See accompanying notes.

                                      F-7
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                      Six months ended
                          Year ended December 31,         June 30,       Period from inception
                          --------------------------  -----------------     (April 26, 1994)
                           1996     1997      1998     1998      1999    through June 30, 1999
                                                        (Unaudited)           (Unaudited)
<S>                       <C>      <C>      <C>       <C>      <C>       <C>
Operating activities
Net loss................  $(6,339) $(7,678) $(10,257) $(4,455) $(10,843)       $(37,035)
Adjustments to reconcile
 net loss to net cash
 used in operating
 activities:
 Depreciation and
  amortization..........      163      366       405      222       155           1,156
 Loss on disposal of
  assets................       --       --        65       --        --             150
 Amortization of
  deferred compensation
  expense...............      688      414       405       --     1,927           3,464
 Issuance of common
  stock for services....      100      175        82       --        --             457
 Changes in assets and
  liabilities:
  Note receivable.......      (60)      60        --       --        --              --
  Other assets..........       27      (14)      (88)     (10)     (354)           (498)
  Accounts payable and
   accrued liabilities..      501      957      (172)     (65)    1,189           2,718
                          -------  -------  --------  -------  --------        --------
Net cash used in
 operating activities...   (4,920)  (5,720)   (9,560)  (4,308)   (7,926)        (29,588)
Investing activities
Purchase of property and
 equipment..............     (669)    (119)     (324)    (144)     (387)         (1,881)
Purchase of short-term
 investments............       --       --        --       --        --            (969)
Sale of short-term
 investments............      871       98        --       --        --             969
                          -------  -------  --------  -------  --------        --------
Net cash provided by
 (used in) investing
 activities.............      202      (21)     (324)    (144)     (387)         (1,881)
Financing activities
Repayments of lease
 obligations............      (28)     (34)      (36)     (20)      (12)            (82)
Proceeds from issuance
 of notes payable.......       --       --       700      700        --             700
Repayments of notes
 payable................       --       --      (700)      --        --            (700)
Repayments of notes
 payable to related
 parties................     (540)      --        --       --        --          (5,740)
Proceeds from issuance
 of notes payable to
 related parties........       --       --        --       --        --             521
Net proceeds from
 exercise of stock
 options................       31       46        66       38        24             167
Net proceeds from
 issuance of redeemable
 convertible preferred
 stock..................       --    5,930    15,960       --        --          21,890
Net proceeds from
 issuance of common
 stock..................    8,975       --        --       --        --          16,629
                          -------  -------  --------  -------  --------        --------
Net cash provided by
 financing activities...    8,438    5,942    15,990      718        12          33,385
                          -------  -------  --------  -------  --------        --------
Net increase (decrease)
 in cash and cash
 equivalents............    3,720      201     6,106   (3,734)   (8,301)          1,916
Cash and cash
 equivalents at
 beginning of period....      190    3,910     4,111    4,111    10,217              --
                          -------  -------  --------  -------  --------        --------
Cash and cash
 equivalents at end of
 period.................  $ 3,910  $ 4,111  $ 10,217  $   377  $  1,916        $  1,916
                          =======  =======  ========  =======  ========        ========
Supplemental cash flow
 information
Cash paid for interest..  $     3  $    14  $     10  $     3  $      3        $     88
                          =======  =======  ========  =======  ========        ========
Schedule of non-cash
 financing and investing
 transactions
Issuance of notes
 receivable from
 employees for exercise
 of stock options.......  $    --  $    --  $   (653) $  (653) $ (1,668)       $ (2,321)
                          =======  =======  ========  =======  ========        ========
Common stock repurchased
 from employee upon
 termination by
 forgiveness of notes
 receivable.............  $    --  $    --  $     --  $    --  $    164        $    164
                          =======  =======  ========  =======  ========        ========
Conversion of related
 party notes payable to
 shares.................  $    --  $    --  $     --  $    --  $     --        $    180
                          =======  =======  ========  =======  ========        ========
Redemption of 905 shares
 for related party notes
 payable (Note 3).......  $    --  $    --  $     --  $    --  $     --        $  5,400
                          =======  =======  ========  =======  ========        ========
Assets acquired under
 capital lease
 obligations............  $    --  $    80  $     --  $    --  $     --        $    113
                          =======  =======  ========  =======  ========        ========
</TABLE>

                            See accompanying notes.

                                      F-8
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS

   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

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 is a development stage company which 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.

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>

                                      F-9
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


1. Background and Summary of Significant Policies (continued)

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, 1998, 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 except for direct-
response advertising costs meeting certain specific criteria. 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. To date,
no direct-response advertising costs have been capitalized.

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 minimum value method
prescribed by FAS 123. (See Note 3 for pro forma disclosures of stock-based
compensation pursuant to FAS 123.)

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.

                                      F-10
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


1. Background and Summary of Significant Policies (continued)

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-
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 130"). 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 adoption of SOP 98-1 has not
had a material impact on our financial position or results of operations.

   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.

                                      F-11
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


1. Background and Summary of Significant Policies (continued)

Unaudited Financial Statements

   According to management, the accompanying unaudited financial statements for
the six months ended June 30, 1998 and 1999 and for the period from inception
(April 26, 1994) to June 30, 1999 have been prepared on substantially the same
basis as the audited financial statements and include all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of the financial information set forth therein.

Unaudited Pro Forma Information

   If the offering contemplated by this prospectus is consummated, the Series A
and B redeemable convertible preferred stock outstanding as of the closing date
will be converted into shares of the Company's common stock. The pro forma
stockholders' equity as of June 30, 1999 reflects conversion of the outstanding
preferred stock into 6,688,000 shares of common stock. Pro forma net loss per
share is computed as if the outstanding preferred stock had been converted into
common stock on the date of issuance.

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 and June
30, 1999, no amounts were outstanding under this arrangement; however, a
$35,000 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. At June 30, 1999, $143,000 was
outstanding on the letter of credit and $1,107,000 was available.

3. Stockholders' Equity

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, the shares of Series A and B redeemable convertible preferred
stock are convertible into an equal number of 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 2,500,000 and
4,188,000 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

                                      F-12
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)



3. Stockholders' Equity (continued)

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.

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 2,000,000
to 2,750,000 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 2,750,000 shares of common stock are currently
reserved for issuance pursuant to the Employee Plan. As of December 31, 1998,
options to purchase 1,007,393 shares of common stock at a weighted-average
exercise price of $0.75 per share were outstanding of which 829,730 were
vested, and 163,125 shares of common stock remained available for future grants
under the Employee Plan.

                                      F-13
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


3. Stockholders' Equity (continued)

 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 100,000 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 100,000 shares of common stock are currently reserved for
issuance pursuant to the Director Plan. As of December 31, 1998, options to
purchase 15,250 shares of common stock at a weighted-average exercise price of
$0.50 per share were outstanding of which 11,125 were vested, and 84,750 shares
of common stock remained available for future grants under the Director Plan.

   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...........     659       $5.83
     Granted..........................................   1,215        0.71
     Exercised........................................     (23)       2.00
     Canceled.........................................    (179)       7.24
                                                        ------
   Options outstanding at December 31, 1997...........   1,672        0.63
     Granted..........................................   1,088        0.69
     Exercised........................................  (1,533)       0.52
     Canceled.........................................    (204)       0.51
                                                        ------
   Options outstanding at December 31, 1998...........   1,023        0.75
     Granted (unaudited)..............................   2,296        0.98
     Exercised (unaudited)............................  (1,824)       0.93
     Canceled (unaudited).............................    (466)       0.90
                                                        ------
   Options outstanding at June 30, 1999 (unaudited)...   1,029        0.90
                                                        ======
   Exercisable at December 31, 1998...................   1,023
                                                        ======
</TABLE>

<TABLE>
<CAPTION>
                                       Options Outstanding and Exercisable
                                  ----------------------------------------------
                                     Options
                                  Outstanding at Weighted-Average   Weighted-
                                   December 31,     Remaining        Average
                                       1998      Contractual Life Exercise Price
     Range of Exercise Prices     -------------- ---------------- --------------
                                  (In thousands)    (In years)
     <S>                          <C>            <C>              <C>
       $0.05-$0.25...............        25            5.23           $0.17
       $0.50-$0.50...............       303            7.65            0.50
       $0.80-$0.80...............       685            9.82            0.80
       $6.00-$6.60...............        10            1.00            6.00
                                      -----            ----
                                      1,023            8.98
                                      =====            ====
</TABLE>

                                      F-14
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


3. Stockholders' Equity (continued)

   During the year ended December 31, 1998, 1,252,920 unvested options were
exercised for cash and in exchange for notes (see Note 7) by various employees
of the Company. At December 31, 1998, 841,757 of these options were still
unvested and subject to repurchase in the event of termination of the
employees.

 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>

   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) $(11,640)
                                                   =======  =======  ========
     Pro forma.................................... $(7,146) $(8,831) $(12,190)
                                                   =======  =======  ========
   Net loss per share (basic and diluted):
     As reported.................................. $ (0.63) $ (0.76) $  (1.11)
                                                   =======  =======  ========
     Pro forma.................................... $ (0.71) $ (0.85) $  (1.13)
                                                   =======  =======  ========
</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 $(1,132,000 for the
period from inception to December 31, 1998).

                                      F-15
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


3. Stockholders' Equity (continued)

   The Company has recorded additional deferred stock compensation of
approximately $2,694,000 during the year ended December 31, 1998 and $8,947,000
during the six months ended June 30, 1999 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 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 $405,000 for the year ended December 31, 1998
and approximately $1,927,000 for the six months ended June 30, 1999.

4. Partnership 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.

5. 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
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


5. 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.

6. 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
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


6. Commitments (continued)

   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>

   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.

7. 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.

8. 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
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)


8. 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           Six months ended
                                       December 31,              June 30,
                                 --------------------------  -----------------
                                  1996     1997      1998     1998      1999
                                                               (unaudited)
   <S>                           <C>      <C>      <C>       <C>      <C>
   Basic and diluted:
     Net loss..................  $(6,339) $(7,678) $(10,257) $(4,455) $(10,843)
     Accretion on redeemable
      convertible preferred
      stock....................      --      (196)   (1,383)    (307)   (1,176)
                                 -------  -------  --------  -------  --------
     Net loss attributable to
      common stock.............  $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
                                 =======  =======  ========  =======  ========
     Weighted-average shares of
      common stock
      outstanding..............   10,034   10,373    11,235   10,560    12,323
     Less: weighted-average
      shares subject to
      repurchase...............      --       --       (775)    (139)   (1,534)
                                 -------  -------  --------  -------  --------
     Weighted-average shares
      used in computing basic
      and diluted net loss per
      share....................   10,034   10,373    10,460   10,421    10,789
                                 =======  =======  ========  =======  ========
     Basic and diluted net loss
      per share................  $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
                                 =======  =======  ========  =======  ========
   Pro forma basic and diluted:
     Net loss..................                    $(10,257)          $(10,843)
                                                   ========           ========
     Shares used above.........                      10,460             10,789
     Pro forma adjustment to
      reflect weighted effect
      of assumed conversion of
      convertible preferred
      stock (unaudited)........                       4,542              6,688
                                                   --------           --------
     Shares used in computing
      pro forma basic and
      diluted net loss per
      share (unaudited)........                      15,002             17,477
                                                   ========           ========
     Pro forma basic and
      diluted net loss per
      share (unaudited)........                    $  (0.68)          $  (0.62)
                                                   ========           ========
</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, and 2,998,000 and 7,717,000 for the six months ended
June 30, 1998 and 1999, 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.

9. Subsequent Events

Strategic Distribution Agreements (unaudited)

   From January 1, 1999 through August 2, 1999, the Company entered into
agreements for online advertising with Yahoo!, Inc., Microsoft Corporation,
Earthlink Operations, Inc. and Excite@Home. Aggregate

                                      F-19
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

9. Subsequent Events (continued)

noncancelable advertising commitments related to these agreements total
approximately $4.4 million, $6.1 million and $2.4 million for the second half
of 1999 and for the years ending December 31, 2000 and 2001, respectively. The
Company has paid $500,000 under these agreements in the six months ended June
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.

Pitney Bowes Litigation (unaudited)

   On June 10, 1999, Pitney Bowes filed suit against us in U.S. District Court
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. On
July 30, 1999, we filed our answer to Pitney Bowes' complaint in which we deny
all allegations of patent infringement and assert 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,
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
strategic partners from investing and entering into partnerships with E-Stamp.
Our suit seeks compensatory and treble damages, injunctive relief and recovery
of attorney's fees. 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 solutions, delays and costs associated with
redesigning our solutions and payments of license fees and other payments. An
injunction obtained by Pitney Bowes could eliminate our 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 38,797 shares of common stock with an exercise price of
$10.31 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 July 27, 1999, options to purchase 626,000 shares were
issued to employees pursuant to the 1996 Stock Option Plan with an exercise
price of $1.50 per share. The Company estimates that

                                      F-20
<PAGE>

                              E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

9. Subsequent Events (continued)

additional deferred compensation of $4.5 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
2,750,000 to 4,750,000 subject to shareholder approval. The shareholders
approved the increase in April 1999.

1999 Stock Plan (unaudited)

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

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.

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.

Sales of Stock

   In August 1999, the Company issued 2,931,229 shares of Series C redeemable
convertible preferred stock at $10.31 per share. Series C redeemable
convertible preferred stock carries an 8%, noncumulative dividend, is
convertible into one share 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 21,235 warrants to purchase shares of Series C
redeemable convertible preferred stock at $10.31 per share to Donaldson Lufkin
& Jenrette Securities Corporation as placement agent.


                                      F-21
<PAGE>


                       [INSIDE BACK COVER OF PROSPECTUS]
<PAGE>

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
      , 1999

                                    [LOGO]

                              E-Stamp Corporation

                                 Shares of Common Stock

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

                                  PROSPECTUS

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

                         Donaldson, Lufkin & Jenrette

                        Banc of America Securities LLC

                           Deutsche Banc Alex. Brown

                                DLJdirect Inc.

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

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.

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

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

Until      , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.

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

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

   The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by E-Stamp Corporation in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.

<TABLE>
   <S>                                                                 <C>
   SEC registration fee............................................... $ 23,630
   NASD filing fee.................................................... $  9,000
   Nasdaq National Market listing fee................................. $ 95,000
   Printing and engraving costs....................................... $250,000
   Legal fees and expenses............................................ $400,000
   Accounting fees and expenses.......................................    *
   Blue Sky fees and expenses......................................... $ 15,000
   Transfer Agent and Registrar fees..................................    *
   Miscellaneous expenses............................................. $ 75,000

   Total..............................................................    *
</TABLE>

  * To be filed by amendment

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.

   The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.

Item 15. Recent Sales of Unregistered Securities

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

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

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

                                      II-1
<PAGE>

   On July 26, 1999, we granted a warrant to a lender to purchase up to 38,797
shares of Common Stock at $10.31 per share.

   On August 10, 1999, we issued an aggregate of 2,931,229 shares of our Series
C Preferred Stock to certain accredited investors for an aggregate offering
price of $30,220,971.

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

   From January 1996 to August 1999, we have granted options to purchase an
aggregate of 5,889,175 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $1.05. As
of August 10, 1999, options to purchase 3,898,735 shares at a weighted exercise
price of $.87 per share had been exercised.

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

   (b) As of August 10, 1999, an aggregate of 3,555,712 shares of common stock
had been issued upon exercise of options under the Registrant's 1996 Stock
Option and Restricted Stock Plan. 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 was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. 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.

Item 16. Exhibits and Financial Statement Schedules

   (a) Exhibits

<TABLE>
<CAPTION>
 Exhibit
 Number
 -------
 <C>     <S>
  1.1    Form of Underwriting Agreement.
  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.
  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.
 23.1    Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
         (see Exhibit 5.1).
 23.2    Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>

                                      II-2
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number
 -------
 <C>     <S>
 23.3    Consent of Howrey & Simon.
 24.1    Power of Attorney (Included on page II-4).
 27.1    Financial Data Schedules.
</TABLE>
---------------------
 * To be filed by amendment.

   (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

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

   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-3
<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 17th day of August, 1999.

                                          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      August 17,
____________________________________  Officer and Director              1999
          Robert H. Ewald             (Principal Executive
                                      Officer)

     /s/ Anthony H. Lewis, Jr.       Vice President and Chief      August 17, 1999
____________________________________  Financial Officer
       Anthony H. Lewis, Jr.          (Principal Financial and
                                      Accounting Officer)

       /s/ Marcelo A. Gumucio        Chairman of the Board         August 17, 1999
____________________________________
         Marcelo A. Gumucio

         /s/ John V. Balen           Director                      August 17, 1999
____________________________________
           John V. Balen

        /s/ Thomas L. Rosch          Director                      August 17, 1999
____________________________________
          Thomas L. Rosch

       /s/ Gregory S. Stanger        Director                      August 17, 1999
____________________________________
         Gregory S. Stanger

          /s/ Adam Wagner            Director                      August 17, 1999
____________________________________
            Adam Wagner
</TABLE>

                                      II-4
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number
 -------
 <C>     <S>
  1.1    Form of Underwriting Agreement.
  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.
  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.
 23.1    Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
         (see Exhibit 5.1).
 23.2    Consent of Ernst & Young LLP, Independent Auditors.
 23.3    Consent of Howrey & Simon.
 24.1    Power of Attorney (Included on page II-4).
 27.1    Financial Data Schedules.
</TABLE>
---------------------
*  To be filed by amendment.
[{"type": "S-1", "sequence": "1", "description": "FORM S-1", "secsgml_size_bytes": 336229}]
{"company-data": {"conformed-name": "E STAMP CORP", "cik": "0001092917", "assigned-sic": "", "irs-number": "760518568", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-85359", "film-number": "99694189"}, "business-address": {"street1": "2855 CAMPUS DRIVE", "street2": "SUITE 100", "city": "SAN MATEO", "state": "CA", "zip": "94403", "phone": "6505548454"}, "mail-address": {"street1": "2855 CAMPUS DRIVE", "street2": "SUITE 100", "city": "SAN MATEO", "state": "CA", "zip": "94403"}}
As filed with the Securities and Exchange Commission on August 17, 1999
                                                       Registration No. 333-

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

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

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

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

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

                               ----------------
Delaware                  5961                       76-0518568
(State or other   (Primary Standard Industrial        (I.R.S. Employer
jurisdiction of    Classification Code Number)     Identification Number)
incorporation or
 organization)
2855 Campus Drive, Suite 100
                          San Mateo, California 94403
                                 (650) 554-8454
  (Address, including zip code, and telephone number, including area code, of
                   Registrant's principal executive offices)

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

                                ROBERT H. EWALD
                     President and Chief Executive Officer
                          2855 Campus Drive, Suite 100
                          San Mateo, California 94403
                                 (650) 554-8454
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

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

                                   Copies to:
DAVID J. SEGRE                        MICHAEL J. HALLORAN
      MICHELLE L. WHIPKEY                        JAMES P. CLOUGH
       MARK D. BEARIAULT                        PATRICK J. DEVINE
Wilson Sonsini Goodrich & Rosati                 JAMES J. MASETTI
    Professional Corporation              Pillsbury Madison & Sutro LLP
       650 Page Mill Road                      2550 Hanover Street
  Palo Alto, California 94104              Palo Alto, California 94304
         (650) 493-9300                           (650) 233-4500
----------------

   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

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Proposed Maximum
           Title of Each Class of            Aggregate Offering    Amount of
        Securities to be Registered               Price(1)      Registration Fee
--------------------------------------------------------------------------------
Common Stock $0.001 par value..............     $85,000,000         $23,630
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
    registration fee pursuant to Rule 457(o) under the Securities Act.

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

   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.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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--AUGUST 17, 1999

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Prospectus

      , 1999
                                     [LOGO]

                              E-Stamp Corporation
                               Shares of Common Stock

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

  . We provide an easy-to-use Internet postage solution 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

  Proposed Symbol & Market:

  . ESTM/Nasdaq National Market

  The Offering:

  . We are offering         shares of our common stock.

  . The underwriters have an option to purchase an additional     shares from
    the Company to cover over-allotments.

  . This is our initial public offering, and no public market currently exists
    for our shares. We anticipate that the initial public offering price will
    be between $      and $      per share.

  . We plan to use the proceeds from this offering for sales and marketing
    expenses and general corporate purposes.

  . Closing:        , 1999.

  -------------------------------------------------
Per Share       Total
  -------------------------------------------------
   Public offering price:      $             $
   Underwriting fees:
   Proceeds to Company:
  -------------------------------------------------
This investment involves risk. See "Risk Factors" beginning on Page 7.

--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Nor
have they made, nor will they make, any determination as to whether anyone
should buy these securities. Any representation to the contrary is a criminal
offense.
--------------------------------------------------------------------------------

Donaldson, Lufkin & Jenrette

                         Banc of America Securities LLC

                                                       Deutsche Banc Alex. Brown

                                                                  DLJdirect Inc.
[INSIDE FRONT COVER OF PROSPECTUS]

                               [Graphics to come]
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" is a registered trademark, and "E-Stamp.com," "The Internet
Postage Company," and the E-Stamp logo are trademarks of E-Stamp. All other
trademarks or service marks appearing in this prospectus are trademarks or
service marks of others.

                               TABLE OF CONTENTS
Page
Prospectus Summary.......................................................   3
Risk Factors.............................................................   7
Use of Proceeds..........................................................  15
Dividend Policy..........................................................  16
Corporate Information....................................................  16
Capitalization...........................................................  17
Dilution.................................................................  18
Selected Financial Data..................................................  19
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  20
Page
Business...................................................................  26
Management.................................................................  40
Certain Transactions.......................................................  50
Principal Stockholders.....................................................  52
Description of Capital Stock...............................................  55
Shares Eligible for Future Sale............................................  58
Underwriting...............................................................  60
Legal Matters..............................................................  62
Experts....................................................................  62
Additional Information.....................................................  62
Index to Financial Statements.............................................. F-1
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 buying shares in the offering. You should read the
entire prospectus carefully.

                              E-Stamp Corporation

Our Business

   We provide an easy-to-use Internet postage solution 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. We received approval from the
U.S. Postal Service in August 1999 for our Internet postage solution, and since
then have been selling our solution nationally. Our Internet postage solution
is targeted at small business, small office and home office users, collectively
known as SOHO 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. In addition, our Internet postage solution is tightly integrated
with popular business computer programs including Microsoft Word and Outlook,
and Intuit's Quickbooks. We believe our cost-effective Internet postage
solution will enhance customer satisfaction during the mail and postage process
by improving overall access, convenience and flexibility for SOHO users, and
will increase operating efficiencies and decrease postal fraud for the U.S.
Postal Service.

   We have focused on forming strategic relationships with industry leaders in
order to quickly build our brand awareness with SOHOs and to accelerate the
adoption of our Internet postage solution. Our strategic relationships include
the following:

  . Microsoft, which is also one of our equity investors, has selected us as
    its premium online postage partner for its Microsoft Office Update Web
    site;

  . Yahoo! has chosen us to be the premier 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 the preferred Internet
    postage provider on its @Work Web site;

  . America Online has agreed to include us as a tenant in its new Postage
    Services Center, currently scheduled for launch in August 1999;

  . Compaq, which is also one of our equity investors, has agreed to market
    our Internet postage solution as part of the online services available to
    owners of its Prosignia line of personal computers for small businesses;

  . Francotyp-Postalia, which is also one of our equity investors, has agreed
    to distribute our Internet postage solution; and

  . Avery Dennison has agreed to promote exclusively our Internet postage
    solution in packages of Avery labels and other printable supplies.

   In addition, we have developed strategic relationships with Sunbeam Corp.'s
Pelouze Scale Co. division, Tension Envelope, EarthLink and Dymo-Costar.

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 SOHO market, the U.S. Postal Service
developed the Information Based Indicia Program. This program is designed to
authorize third party

                                       3
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 SOHO users currently underserved by existing solutions.
According to International Data Corporation, there were 44.7 million SOHOs in
the U.S. in 1998, which is expected to grow to 57.6 million by 2002. In terms
of postage usage, SOHOs generally conduct an essential part of their
communications with suppliers and customers through the postal system.
Nevertheless, few SOHOs use postage meters to automate the mailing process. In
addition, SOHOs are increasingly adopting the Internet to improve their
business processes.

Our Strategy

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

  . Partner with industry leaders to quickly acquire customers. We have
    formed strategic relationships with industry leaders to rapidly acquire
    customers, build brand recognition and accelerate adoption of our
    Internet postage solution. We anticipate continuing to add additional
    strategic partners as our business grows and we expand our portfolio of
    products and services.

  . Initially focus on the large and growing SOHO market. We are initially
    focusing on the SOHO market due to its attractive characteristics, such
    as a large and growing number of SOHOs, high personal computer
    penetration, and heavy reliance on the postal system for business
    communications.

  . Build and promote our brand. We intend to invest in building brand
    awareness through a variety of marketing and promotional techniques, both
    independently and in conjunction with our strategic partners. Our brand
    will be promoted through television, print and radio advertising, online
    banner advertising, and through viral marketing, such as including our
    logo and Web site address on each digital stamp.

  . Leverage our technology platform and expertise to extend our family of
    Internet postage solutions. We intend to leverage our customer-centric
    focus, scalable platform, and patent portfolio, currently consisting of
    over 20 issued patents, to develop a family of Internet postage
    solutions, including a server-based solution for the low-volume consumer
    and early adopters of broadband access and an intranet-based solution
    that will simplify routine processes for the high volume mailer and
    corporate enterprise.

  . Pursue multiple and recurring revenue streams. In addition to developing
    and marketing Internet postage solutions domestically, we are
    concentrating on the sale of postage related consumables and peripherals,
    and we intend to pursue international Internet postage opportunities and
    the purchase and printing of authenticated documents, such as tickets and
    gift certificates.

                                       4
The Offering
Common stock offered by E-Stamp..             shares
 Common stock to be outstanding
  after this offering.............             shares
 Use of proceeds..................  We plan to use the net proceeds from this
                                    offering principally for sales and
                                    marketing expenses, with the balance for
                                    general corporate purposes, including
                                    working capital and expansion of our
                                    corporate infrastructure.
 Proposed Nasdaq National Market
  symbol..........................  ESTM
Unless otherwise indicated, this prospectus assumes the conversion of our
outstanding preferred stock into common stock upon the closing of this
offering, and that the underwriters do not exercise the option granted by us to
purchase additional shares in the offering to cover over-allotments.

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

   The number of shares of common stock to be outstanding after this offering
is based on shares outstanding as of August 10, 1999. This number excludes:

  . 2,821,498 shares of common stock reserved for future issuance under our
    stock option, director stock option and employee stock purchase plans;

  . 1,172,790 shares of common stock subject to outstanding options; and

  . 60,032 shares of common stock issuable upon the exercise of outstanding
    warrants.

                                       5
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 excludes our
sale in August 1999 of shares of our convertible preferred stock for aggregate
proceeds of $30.2 million and includes the automatic conversion of all other
outstanding shares of our convertible preferred stock into shares of our common
stock, which will occur upon the closing of this offering.
Six Months Ended
                                 Year Ended December 31,         June 30,
                                 --------------------------  -----------------
                                  1996     1997      1998     1998      1999
                                                               (unaudited)
Statement of Operations Data:
  Net revenues.................. $   --   $   --   $    --   $   --   $    --
  Operating loss ...............  (6,575)  (7,821)  (10,627)  (4,498)  (11,019)
  Net loss......................  (6,339)  (7,678)  (10,257)  (4,455)  (10,843)
  Accretion on redeemable
   convertible
   preferred stock .............     --      (196)   (1,383)    (307)   (1,176)
  Net loss attributable to
   common stockholders.......... $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
  Net loss per common share:
    Basic and diluted........... $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
    Weighted average shares.....  10,034   10,373    10,460   10,421    10,789
  Pro forma net loss per
   share:.......................
    Basic and diluted
     (unaudited)................                   $  (0.68)          $  (0.62)
    Weighted average shares
     (unaudited)................                     15,002             17,477
The following table summarizes our balance sheet data. The pro forma data
reflects our sale in August 1999 of shares of our convertible preferred stock
for aggregate proceeds of $30.2 million, the use of a portion of those proceeds
to pay off an existing bank loan entered into and drawn upon in July 1999 and
the automatic conversion of all outstanding shares of our convertible preferred
stock into shares of our common stock, which will occur upon the closing of
this offering. The pro forma as adjusted data reflects the sale of
shares of common stock in this offering at an assumed initial public offering
price of $       per share after deducting the underwriting discount and
estimated offering expenses payable by us.
As of June 30, 1999
                                                     ---------------------------
                                                                Pro   Pro Forma
                                                      Actual   Forma As Adjusted
                                                            (unaudited)
Balance Sheet Data:
  Cash and cash equivalents......................... $  1,916
  Working capital (deficit).........................     (324)
  Total assets......................................    3,096
  Long-term obligations, net of current portion.....        6
  Total stockholders' equity (deficit)..............  (24,293)
6
RISK FACTORS

   You should carefully consider the risks described below before buying shares
in this offering.

We have a limited operating history with a history of losses, 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 June 30, 1999, we
had not generated any revenues and had an accumulated deficit of $37.0 million.
Since U.S. Postal Service approval of our Internet postage solution in August
1999, we have generated only nominal revenues. 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 solution.

   The U.S. Postal Service approved our Internet postage solution for
commercial sale in August 1999. We expect that our Internet postage solution
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 solution. Any failure to successfully gain commercial acceptance of our
Internet postage solution would seriously harm our business and results of
operations. 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 solution.

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 in which we deny all allegations of patent
infringement, assert certain affirmative defenses based on statutory and common
law grounds, and bring antitrust counterclaims against Pitney Bowes. 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. The Pitney Bowes suit could result in limitations on how we
implement our solutions, delays and costs associated with redesigning our
solution and payments of license fees and other monies. An injunction obtained
by Pitney Bowes could eliminate our ability to market critical products or
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 the 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.

                                       7
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 business would suffer dramatically.

   Although the U.S. Postal Service has approved us to market and sell our
Internet postage solution nationally in accordance with approved quantities and
distribution channels, we will continue to be subject to U.S. Postal Service
scrutiny and other government regulations. 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 solution could be
adversely affected. Further, the U.S. Postal Service could change certification
requirements or specifications for Internet postage or revoke the approval of
our Internet postage solution. If we are unable to adapt our Internet postage
solution to any new requirements or specifications or if the U.S. Postal
Service discontinues Internet postage as an approved postage method, our
business will suffer dramatically. U.S. Postal Service regulations may require
that our personnel with access to postal information or resources obtain
security clearances, which 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.

If we cannot successfully manage the commercial availability of our Internet
postage solution, our business and reputation will be harmed.

   Our reputation and our ability to attract, retain and provide solutions 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 solution in a satisfactory
manner, our business and reputation may be damaged. We will face numerous risks
concurrent with the introduction of our Internet postage solution. Under the
Information Based Indicia Program, the commercial roll-out of our Internet
postage solution is initially limited to 10,000 customers, with expanding
numbers of customers based upon successful evaluations by the U.S. Postal
Service. We have very limited experience conducting marketing campaigns, and we
may fail to generate significant interest in our Internet postage solution. On
the other hand, if we generate extensive interest in our solution, we cannot
assure you that we will be able to effectively manage commercial availability
of our Internet postage solution 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 strategic relationships, our
Internet postage solution may not achieve commercial acceptance.

   We have established strategic relationships with a limited number of third
parties. These strategic relationships include sales, marketing and
distribution agreements. We rely heavily upon these relationships to build our
E-Stamp brand and to accelerate the adoption of our Internet postage solution.
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 business will suffer and our financial
condition and results of operation will be seriously harmed. In addition, given
the recent commercial launch of our Internet postage solution, a number of our
strategic partners are still in the process of establishing the marketing,
promotional and distribution activities for our solution 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 solution.

If we do not achieve broad brand recognition, our business will suffer.

   We must quickly build our E-Stamp brand to gain market acceptance for our
solution. If we fail to gain market acceptance for our Internet postage
solution, our business will suffer dramatically. We believe it is imperative to
our long term success that we obtain significant acceptance of our solution. We
cannot be certain that we will have sufficient resources to build our brand and
achieve commercial acceptance of our solution. To

                                       8
establish our brand awareness, we must invest substantial resources to develop
our products, pursue strategic relationships, implement marketing initiatives,
and provide a high quality experience to our users.

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

   Although we recently received approval from the U.S. Postal Service for our
Internet postage solution, we have not begun the approval process for future
solutions under development, including our server-based solution. Our Internet
postage solution took approximately 18 months to complete the beta test portion
of the U.S. Postal Service's approval process. While we believe subsequent
approvals should take less time because we may be able to leverage portions of
our prior approval experience, we cannot assure you of the duration of the
approval process for our server-based or any subsequent solution, or that these
solutions 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 solutions in
a timely manner or at all. Failure to timely receive U.S. Postal Service
approval for our server-based solution or subsequent solutions could limit our
ability to successfully grow our business.

We have experienced significant growth in our business in recent periods, and
any failure to manage this growth could damage our business.

   Our ability to successfully offer our Internet postage solution 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. If we are unable to manage growth effectively or experience
disruptions during our expansion, our business will suffer and our financial
condition and results of operations 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.

If the sole supplier of our Internet postage device is unable to timely meet
our commercial supply needs, our revenues and operating results would be
materially harmed.

   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 harm our business. If we cannot
obtain an adequate supply of our Internet postage device, our operating results
and business would be materially and adversely harmed. 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 business and reputation and substantially and
adversely affect our operating results.

   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 during initial commercial launch of our service and we may suffer
additional interruptions in our service. Our customer acquisition and
processing systems and those of our third party hosted facilities contain
redundancy features but

                                       9
are not fully redundant, and 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 plan to expand our systems infrastructure on an ongoing basis but we
cannot assure you that we will be able to timely expand these capabilities to
support growth in traffic from our customers. In addition, 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.

The inability to expand our systems 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. Our failure to provide new features or
functionality also could result in these consequences. 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.

We rely heavily upon third parties to deliver our Internet postage solution to
customers.

   We rely upon third parties to distribute and sell our Internet postage
solution. 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 solution. We are in discussions with a number of office supply and computer
retailers to carry our Internet postage solution and we cannot assure you that
these retailers will carry our solution or devote sufficient marketing, shelf
space or other resources to them. If we are unable to provide an adequate
distribution channel for our Internet postage solution, our business will be
seriously harmed. 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 solution
to our customers.

The 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.

                                       10
A breach of our online security would harm our business and 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 business and reputation and would likely
result in the loss of customers. Furthermore, if we are unable to provide
adequate security, the U.S. Postal Service could prohibit us from selling
postage over the Internet. 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.

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 solutions, 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. We generally enter into confidentiality agreements with
our employees, consultants and other third parties to control and limit access
and disclosure of our proprietary information. These contractual arrangements
or other 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 solutions 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 our business. 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. 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 of investors and analysts.

   Since the U.S. Postal Service's approval of our Internet postage solution in
August 1999, we have generated only nominal revenues from our operations.
Accordingly, we have little basis upon which to predict

                                       11
future operating results. We expect that our revenues, margins and operating
results will fluctuate significantly due to a variety of factors, a number of
which are outside of our control. These factors include:

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

  .  our ability to develop and maintain strategic and distribution
     relationships;

  .  timing of the commercial release of additional Internet postage
     solutions developed by us;

  .  the number, timing and significance of new solutions introduced by our
     competitors;

  .  the level of service and price competition;

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

  .  general economic factors.

   A substantial portion of our operating expenses is related to personnel
costs, marketing programs and overhead, which cannot be adjusted quickly and
are therefore relatively fixed in the short term. Our operating expense levels
are based, in significant part, on our expectations of future revenues. If our
expenses precede increased revenues, both gross margins and results of
operations 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 the expectations of
public market analysts and investors. 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. The loss of the services of these 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 next 12 months 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 solution 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 solutions, or else
our products and services may become noncompetitive or obsolete. We also could
incur substantial costs to modify our solutions or infrastructure and to
develop new solutions, 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.

                                       12
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 solutions. 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 solutions 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 solution 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 solutions 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.

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. While we believe
that Internet postage solutions such as ours could be of benefit to customers
in foreign countries or to send mail from the United States to foreign
countries, unless and until foreign postal authorities create a certification
process and recognize information-based indicia postage, our Internet postage
solution will not be able to address these 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 solutions internationally, regulation by international
agencies could disrupt our operations.

   If foreign postal authorities in the future accept postage generated by our
solutions 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 solutions,
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 certain 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.

If we do not adequately address "Year 2000" issues, we may incur significant
costs and our business could suffer.

   Failure of our internal computer systems or third-party equipment or
software, or systems maintained by our users and strategic sales and marketing
partners, to operate properly with regard to the Year 2000 issues could require
us to incur significant unanticipated expenses to remedy any problems and could
cause system interruptions and loss of data. Any of these events could harm our
reputation and materially and adversely affect our business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."

                                       13
We may need additional capital and failure to obtain such capital could harm
our business.

   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 the net
proceeds of this offering, together with our available funds, 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 solution, our development and introduction of
new solutions 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.

Regulatory and legal uncertainties could harm our business.

   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 solutions. A decline in
the growth of the Internet could decrease demand for our solutions and increase
our cost of doing business. Moreover, the applicability of existing laws to the
Internet is uncertain with regard 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 also harm our
business.

Shares eligible for future sale by our existing stockholders may adversely
affect our stock price.

   If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. In
addition, such sales could create the perception to the public of difficulties
or problems with our products and services. As a result, these sales also might
make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem appropriate.

   Upon completion of this offering, we will have outstanding          shares
of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options after June 30, 1999. Of these
shares, the shares sold in this offering are freely tradable. The remaining
         shares will become eligible for sale in the public market as follows:
Number
     of
   Shares Date of Availability for Sale
At the date of this prospectus

          90 days after the date of this prospectus

          180 days after the date of this prospectus subject to certain
          restrictions under the federal securities laws

          More than 180 days after the date of this prospectus, subject to
          certain restrictions under the federal securities laws
The above table gives effect to lock-up arrangements with the underwriters
under which our directors, officers and certain stockholders have agreed not to
sell or otherwise dispose of their shares of common stock for a period of 180
days after the date of this prospectus. The underwriters may remove these lock-
up restrictions prior to 180 days after the offering without prior notice.

                                       14
We have broad discretion to use the proceeds from this offering and may not use
the proceeds effectively.

   The majority of the net proceeds of this offering are not allocated for
specific uses other than working capital and general corporate purposes. Thus,
our management has broad discretion over how these proceeds are used and could
spend most of these proceeds in ways with which our stockholders may not agree.
We cannot assure you that the proceeds will be invested in a way that yields a
favorable return.

Our securities have no prior market and our stock price may decline after the
offering.

   Before this offering, there has not been a public market for our common
stock and an active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price has been
determined by negotiations between E-Stamp and the representatives of the
underwriters, and we cannot assure you that the trading market price of our
common stock will not decline below the initial public offering price.

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, without regard to our operating
performance. In particular, following initial public offerings, the market
prices for stock of Internet related companies often reach levels that bear no
relation to the operating performance of these companies. The market prices are
generally not sustainable and could vary widely. If our common stock trades to
high levels following this offering, it could eventually experience a
significant decline.

You should not rely on forward-looking statements because they are inherently
uncertain.

   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 certain 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 above and elsewhere in this
prospectus.

                                USE OF PROCEEDS

   Our net proceeds from the sale of the          shares of common stock
offered hereby are estimated to be $        , based on an assumed initial
public offering price of $           per share and after deducting the
underwriting discount and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, our net proceeds will be
approximately $          .

   We expect to use the net proceeds for sales and marketing expenditures
related to promoting our Internet postage solution, building E-Stamp brand
recognition, and developing additional strategic relationships, with the
balance for general corporate purposes, including working capital and expansion
of our corporate infrastructure. In addition, we may use a portion of the net
proceeds to acquire complementary products, technologies or businesses;
however, we currently have no commitments or agreements and are not involved in
any negotiations to do so. Pending use of the net proceeds of this offering, we
intend to invest the funds in short-term, interest-bearing, investment-grade
securities.

                                       15
DIVIDEND POLICY

   We have never declared or paid any 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 2855 Campus Drive, Suite 100,
San Mateo, California 94403 and our telephone number is (650) 554-8454. Our Web
site is located at http://www.e-stamp.com. Information contained on our Web
site does not constitute part of this prospectus.

                                       16
CAPITALIZATION

   The following table sets forth the following information:

  .  our actual capitalization as of June 30, 1999;

  .  our pro forma capitalization after giving effect to our sale of
     2,931,229 shares of convertible preferred stock in August 1999, for an
     aggregate purchase price of $30.2 million, and the use of $5.0 million
     of those proceeds to pay off an existing bank loan entered into and
     drawn upon in July 1999, the automatic conversion of all outstanding
     shares of redeemable convertible preferred stock into shares of common
     stock, including shares sold in August 1999, which will occur upon the
     closing of this offering; and

  .  our pro forma as adjusted capitalization to give effect to the sale of
            shares of common stock at an assumed initial public offering
     price of $      per share in this offering, after deducting the
     underwriting discount and estimated offering expenses payable by us.
As of June 30, 1999
                                                     --------------------------
                                                                         Pro
                                                                 Pro   Forma As
                                                      Actual    Forma  Adjusted
                                                     (In thousands, except par
                                                            value data)
Long-term obligations, net of current portion....... $      6  $       $
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 and pro forma as adjusted..................    7,084
  Series B redeemable convertible preferred stock;
   4,188 shares authorized, issued and outstanding,
   actual; no shares authorized, issued or
   outstanding, pro forma and pro forma as
   adjusted.........................................   17,561
Stockholders' equity (deficit):
  Common stock, par value $0.001; 100,000 shares
   authorized, 13,435 shares issued and outstanding,
   actual; 200,000 shares authorized, 20,123 shares
   issued and outstanding, pro forma; 200,000 shares
   authorized,          shares issued and
   outstanding, pro forma as adjusted...............       14
  Additional paid-in capital........................   24,194
  Notes receivable from employees and officers......   (2,157)
  Deferred stock compensation.......................   (9,309)
  Deficit accumulated during development stage......  (37,035)
                                                     --------  ------- -------
    Total stockholders' equity (deficit)............  (24,293)
                                                     --------  ------- -------
Total capitalization................................ $    358  $       $
                                                     ========  ======= =======
This table excludes the following shares:

  .  2,821,498 shares of common stock reserved for future issuance under our
     stock option, director stock option and employee stock purchase plans;

  .  1,029,000 shares of common stock subject to outstanding options as of
     June 30, 1999 with an average exercise price of $0.90 per share; and

  .  60,032 shares of common stock issuable upon exercise of outstanding
     warrants.

                                       17
DILUTION

   The pro forma net tangible book value of our common stock on June 30, 1999
(after giving effect to the conversion of all outstanding shares of our
convertible preferred stock, our sale of 2,931,229 shares of convertible
preferred stock in August 1999 for an aggregate purchase price of approximately
$30.2 million) was $        , or approximately $      per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to our sale of
         shares of common stock offered by this prospectus at an assumed
initial public offering price of $        per share and after deducting the
underwriting discount and estimated offering expenses payable by us, our net
tangible book value would have been approximately $        , or $       per
share. This represents an immediate increase in net tangible book value of
$       per share to existing stockholders and an immediate dilution in net
tangible book value of $       per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution.
Assumed initial public offering price per share.................        $
Pro forma net tangible book value per share as of June 30,
 1999........................................................... $
Increase per share attributable to new investors................
                                                                 ------
As adjusted pro forma net tangible book value per share after
 the offering...................................................
                                                                        ------
Dilution in pro forma net tangible book value per share to new
 investors......................................................        $
                                                                        ======
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. As of June 30, 1999, there were options
outstanding to purchase a total of 1,029,000 shares of common stock with an
average exercise price of $0.90 per share. See Notes 3 and 9 of Notes to
Financial Statements. The exercise of outstanding options and warrants having
an exercise price less than the offering price would increase the dilutive
effect to new investors.

   The following table sets forth, as of June 30, 1999, on the pro forma basis
described above, the differences between the number of shares of common stock
purchased from us, the total price paid and average price per share paid by
existing stockholders and by the new investors in this offering at an assumed
initial public offering price of $      per share (before deducting the
underwriting discount and estimated offering expenses payable by us).
Shares           Total
                                      Purchased     Consideration
                                   --------------- --------------- Average Price
                                   Number  Percent Amount  Percent   Per Share
Existing stockholders.............             .0% $           .0%    $
New investors.....................             .0%             .0%
                                   -------  -----  -------  -----
  Total...........................          100.0% $        100.0%
                                   =======  =====  =======  =====
If the underwriters over-allotment option is exercised in full, the
following will occur:

  . the number of shares of common stock held by existing stockholders will
    decrease to          or approximately      % of the total number of
    shares of our common stock outstanding after this offering, and

  . the number of shares held by new public investors will increase to
             or approximately      % of the total number of shares of our
    common stock outstanding after this offering.

                                       18
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 six months ended June 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.
Period from
                             Inception                                          Six Months Ended
                          (April 26, 1994)     Year Ended December 31,              June 30,
                          through Dec. 31, -----------------------------------  -----------------
                                1994        1995     1996     1997      1998     1998      1999
Statement of Operations
 Data:
Net revenues............       $   --      $    --  $    --  $    --  $     --  $    --  $     --
Operating expenses:
  Research and
   development..........          378          701    2,387    3,916     5,603    2,458     5,225
  Sales and marketing...           34           96    1,761    1,743     2,722    1,137     2,494
  General and
   administrative.......          160          534    1,739    1,748     1,897      903     1,373
  Amortization of
   deferred stock
   compensation.........           --           --      688      414       405       --     1,927
                               ------      -------  -------  -------  --------  -------  --------
Operating loss..........         (572)      (1,331)  (6,575)  (7,821)  (10,627)  (4,498)  (11,019)
Interest income
 (expense), net.........           --          (17)     236      143       370       43       176
                               ------      -------  -------  -------  --------  -------  --------
Net loss................         (572)      (1,348)  (6,339)  (7,678)  (10,257)  (4,455)  (10,843)
Accretion on redeemable
 convertible preferred
 stock..................          --           --       --      (196)   (1,383)    (307)   (1,176)
                               ------      -------  -------  -------  --------  -------  --------
Net loss attributable to
 common stockholders....        $(572)     $(1,348) $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
                               ======      =======  =======  =======  ========  =======  ========
Net loss per common
 share (basic and
 diluted)...............       $(0.06)     $ (0.14) $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
                               ======      =======  =======  =======  ========  =======  ========
Pro forma net loss per
 share basic and
 diluted(1).............                                              $  (0.68)          $  (0.62)
                                                                      ========           ========
Weighted average shares
 outstanding (basic and
 diluted)...............        8,940        9,546   10,034   10,373    10,460   10,421    10,789
Shares used in
 calculation of pro
 forma net loss per
 share basic and
 diluted(1).............                                                15,002             17,477
As of December 31,
                             -----------------------------------      As of
                             1994   1995   1996   1997    1998    June 30, 1999
Balance Sheet Data:
Cash and cash equivalents..  $ 19  $  190 $3,910 $4,111  $10,217    $  1,916
Working capital (deficit)..  (426)    386  3,394  2,398    8,805        (324)
Total assets...............    93   1,428  4,873  4,763   10,811       3,096
Long-term obligations, net
 of current portion........    --      --     88     38       11           6
Total stockholders' equity
 (deficit).................  (352)    644  4,101 (3,138) (14,225)    (24,293)
--------------------
(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.

                                       19
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 easy-to-use Internet postage solution that enables users to
purchase, download and print Internet postage directly from their personal
computers. 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. From November 1994 to March 1998, we
incurred operating costs primarily related to the development of our Internet
postage solution 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. In August 1999, we received final approval
from the U.S. Postal Service for our Internet postage solution and since then
have been selling our solution nationally in accordance with approved
quantities and distribution channels.

   In addition to working with the U.S. Postal Service to obtain approval of
our Internet postage solution, our primary activities since inception have
included:

  . developing our business model;

  . developing and testing our Internet postage solution;

  . hiring management and other key personnel;

  . building our infrastructure; and

  . entering into strategic alliances.

   Subsequent to June 30, 1999, we have recognized only nominal revenues from
our desktop Internet postage solution. We intend to recognize revenue from an
initial license fee for our Internet postage solution, ongoing convenience fees
for the purchase of postage on 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.

   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
have incurred net losses in each quarterly and annual period since our
inception, and as of June 30, 1999, our accumulated deficit was $37.0 million.

   During the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999, in connection with the grant of certain stock options to
employees, we recorded deferred stock compensation totaling $12.8 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. We recorded amortization of deferred stock compensation
in the amount of $688,000, $414,000 and $405,000 for the years ended December
31, 1996, 1997 and 1998 and $1.9 million for the six months ended June 30,
1999. At June 30, 1999, we had a total of $9.3 million remaining to be
amortized over the corresponding vesting periods of the stock options. We
anticipate that additional deferred compensation will be recorded for options
granted in July and August 1999. See Notes 3 and 9 of Notes to Financial
Statements.

                                       20
Results of Operations

 Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

   Research and Development. Research and development expenses include expenses
for research, design and development of our Internet postage solution, expenses
related to obtaining patents from the U.S. Patent Office, and server and
network operations. Research and development expenses increased 113% to $5.2
million for the six months ended June 30, 1999 from $2.5 million for the
six months ended June 30, 1998. The increase in research and development
expenses was due primarily to increases in employee headcount, consulting
costs, contractor expenses and project materials due to further development of
our Internet postage solution, server-based solution, 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 solution and our server-
based solution 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, Web site
development, package design, advertising and promotional expenses, and trade
show expenses. Sales and marketing expenses increased 119% to $2.5 million for
the six months ended June 30, 1999 from $1.1 million for the six months ended
June 30, 1998. The increase in sales and marketing expenses was due primarily
to expenses related to growth in the number of strategic relationships,
expenses related to the anticipated launch of our Internet postage solution,
costs related to the continued development of our marketing campaigns, and an
increase in sales and marketing personnel. We expect sales and marketing
expenses to increase in dollar amount as we promote and launch our Internet
postage solution and as we hire additional personnel, continue to promote our
brand and add new strategic 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 52% to $1.4 million for the six
months ended June 30, 1999 from $903,000 for the six months ended June 30,
1998. The increase in general and administrative expenses was due primarily to
a one-time charge for severance accrual for a former executive officer and, to
a lesser extent, an increase in administrative staff and professional fees. 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 in connection with the Pitney Bowes litigation, and associated with
being a public reporting company.

   Amortization of Deferred Compensation. Amortization of deferred stock
compensation was $1.9 million for the six months ended June 30, 1999. There was
no amortization of deferred stock compensation for the six months ended June
30, 1998. We recorded aggregate deferred stock compensation of $11.6 million in
the period from July 1, 1998 through June 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 309% to
$176,000 for the six months ended June 30, 1999 from $43,000 for the six months
ended June 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
this offering as a result of increased cash balances resulting from this
offering.

 Year Ended December 31, 1998 Compared to Years Ended December 31, 1997 and
 1996

   Research and Development. Research and development expenses increased 43% to
$5.6 million in 1998 from $3.9 million in 1997 and increased 64% in 1997 from
$2.4 million in 1996. The increases in research and development expenses in
1998 and 1997 were due primarily to increases in employee headcount, contractor
expenses, project materials and network operations investments.

                                       21
Sales and Marketing. Sales and marketing expenses increased 56% to $2.7
million in 1998 from $1.7 million in 1997 and decreased 1% in 1997 from $1.8
million in 1996. The increase in sales and marketing expenses in 1998 was due
primarily to an increase in sales and marketing personnel, costs related to the
continued development of our marketing and branding campaigns, expenses related
to the anticipated launch of our Internet postage solution, and expenses
related to growth in the number of strategic relationships. Sales and marketing
expenses in 1997 decreased modestly due to a reduction in trade show activity.

   General and Administrative. General and administrative expenses increased 9%
to $1.9 million in 1998 from $1.7 million in 1997 and increased 1% in 1997 from
$1.7 million in 1996. The increase in general and administrative expenses in
1998 was due primarily to increases in administrative staff, rent, professional
services and general office expenses. General and administrative expenses in
1997 increased modestly due to a small increase in administrative staff.

   Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased 2% to $405,000 in 1998 from $414,000 in 1997 and
decreased 40% in 1997 from $688,000 in 1996. In 1996, we recorded deferred
stock compensation of approximately $1.1 million related to equity awards to
employees. We also recorded aggregate deferred stock compensation of
approximately $2.7 million in 1998 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, increased 159% to $370,000 in
1998 from $143,000 in 1997 and decreased 39% in 1997 from $236,000 in 1996. The
increase in interest income, net, in 1998 was due to increasing average cash
and cash equivalent balances as we received funds from our financing activities
in 1998. The decrease in interest income, net, in 1997 was due to declining
average cash and cash equivalent balances as we spent funds that had been
received.

Liquidity and Capital Resources

   Since inception, we have financed our operations primarily through private
sales of equity securities. We have received approximately $68.9 million in
private funding, including $30.2 million through our most recent financing in
August 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 lease and capital lease obligations totaling $26,000 as of June
30, 1999.

   Net cash used in operating activities totaled $7.9 million for the six
months ended June 30, 1999, $9.6 million for the year ended December 31, 1998,
$5.7 million for the year ended December 31, 1997, and $4.9 million for the
year ended December 31, 1996. Cash used in operating activities for each period
resulted primarily from net operating losses in those periods.

   Net cash provided by (used in) investing activities totaled $(387,000) for
the six months ended June 30, 1999, $(324,000) for the year ended December 31,
1998, $(21,000) for the year ended December 31, 1997, and $202,000 for the year
ended December 31, 1996. 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 $12,000 for the six months
ended June 30, 1999, $16.0 million for the year ended December 31, 1998, $5.9
million for the year ended December 31, 1997, and $8.4 million for the year
ended December 31, 1996. Cash provided by financing activities for each period
resulted primarily from issuances of common stock and redeemable convertible
preferred stock, offset by the repayment of lease obligations and notes payable
to related parties.

   We believe that the net proceeds from this offering, together with our
current cash balances and cash flows from operations, if any, 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
forecast of the period of time through

                                       22
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 solution, our introduction of new solutions 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. Also, 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
June 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 are in the process of developing a
comprehensive plan to make our internal computer software and hardware systems
Year 2000 compliant. Our Year 2000 compliance plan is comprised of 3 phases: an
assessment phase; an implementation phase; and a testing phase. This plan,
initiated in the first quarter of fiscal 1999, will be implemented by the end
of the fourth quarter of fiscal 1999. While we believe that this plan for
addressing the Year 2000 problem will be completed in a timely manner, we
cannot be certain that these Year 2000 compliance efforts will be successful.
The financial impact of making the required systems changes cannot be known
precisely at this time, but we currently expect these expenses to be less than
approximately $500,000. The financial impact, could, however, exceed this
estimate. Nonetheless, these costs are not expected to be material to our
business, financial condition, or results of operation. To date, we have
incurred expenses of less than approximately $100,000.

   Since inception, we have internally developed substantially all of the
systems for the operation of our Internet postage solution. These systems
include the software used to provide customer interaction and transactional and
distribution functions to our solutions, as well as monitoring and back-up
capabilities. Based upon our assessment to date, we believe that our systems
will be Year 2000 compliant and have submitted Year 2000 readiness statements
to the U.S. Postal Service to indicate our Year 2000 compliance. However, we
cannot be sure how our Internet postage solution will integrate with other
vendor-provided software.

   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 is, to a
large extent, dependent upon the Year 2000 readiness of these third parties'
hardware and software products. We are currently assessing the Year 2000
readiness of other third-party supplied software, computer technology and other
services. We have initiated communications or obtained information from our
vendors and suppliers of third-party equipment and software to validate that
their products and systems are Year 2000 compliant. Based on the
representations that we have received and obtained from our third party vendors
and suppliers, we believe that their systems are Year 2000 compliant. We will
develop and implement, if necessary, a remediation plan with respect to third-
party software, third-party vendors and computer technology and services that
may fail to be Year 2000 compliant.

   If Year 2000 issues prevent our users from accessing the Internet or our
Internet postage solution or from processing postage, our business and
operations will suffer. Any failure of our third-party equipment or software to
operate properly could require us to incur unanticipated expenses, which could
seriously harm our business, operating results and financial condition. For
example, pursuant to regulations of the Information

                                       23
Based Indicia Program, we rely on the U.S. Postal Service's secure postage
accounting vault to purchase postage credit for our customers. If the
U.S. Postal Service systems are not Year 2000 compliant, our users may not be
able to purchase additional postage.

   The Year 2000 readiness of the Internet infrastructure necessary to support
our operations is 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 is limited and relies 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 are carefully reviewing and attempting to remediate issues relating to
Year 2000 compliance, but it is not possible to predict whether these efforts
will be successful in reducing or eliminating the potential negative impact of
Year 2000 issues. A significant disruption in the ability of customers to
reliably access the Internet would have an adverse effect on demand for our
solutions and would harm our results of operations.

   Contingency Planning. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 problems
affecting our internal systems. We expect to complete these contingency plans
by the end of the third quarter of 1999. Depending on the systems affected,
these plans could include (1) accelerated replacement of effected equipment or
software, (2) increase work hours for our personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 problems which
may arise, (3) the provision of manual workarounds for information systems and
(4) other similar approaches. If we are required to implement any of these
contingency plans, such plans may have a material adverse effect on our
business, financial condition or results of operations. Additionally, we may
not complete these contingency plans in a timely manner, and failure to do so
could have a material adverse effect on our business, financial condition or
results and operations.

   The discussion of our efforts and expectations relating to Year 2000
compliance are forward-looking statements that are subject to risks and
uncertainties and actual results may differ materially from those indicated in
these forward-looking statements. Our ability to achieve Year 2000 compliance
and the level of anticipated expenses related to Year 2000 compliance could be
adversely affected by, among other things, the availability and cost of testing
and programming resources, the ability of third parties to resolve Year 2000
issues associated with their systems and software and unanticipated problems
that may in the future be identified in our ongoing compliance review.

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

                                       24
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 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 June 30, 1999, our exposure to interest rate risk is not material.

                                       25
BUSINESS

 Overview

   We provide an easy-to-use Internet postage solution 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. We received approval from the
U.S. Postal Service in August 1999 for our Internet postage solution, and since
then have been selling our solution nationally. We are targeting our Internet
postage solution at small business, small office and home office users,
collectively known as SOHO users. To help build our brand awareness and
accelerate the adoption of our Internet postage solution, we have formed
strategic relationships with industry leaders, such as Microsoft, Yahoo!,
Excite@Home, America Online, Compaq, Earthlink, Francotyp-Postalia and Avery
Dennison. We believe our cost-effective Internet postage solution will enhance
customer satisfaction during the mail and postage process by improving overall
access, convenience and flexibility for SOHO users, in addition to increasing
operating efficiencies and decreasing postal fraud for the U.S. Postal Service.

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-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;

                                       26
.  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, collectively known as the SOHO market;

  .  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.

   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]
.  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.
27
The Growth of SOHOs and Their Postage and Internet Usage

   The United States has a large and growing number of small businesses, small
offices and home offices, collectively known as SOHOs. According to
International Data Corporation, there were 44.7 million SOHOs in the U.S. in
1998, which is expected to grow to 57.6 million by 2002. Of the 44.7 million
SOHOs 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 1.7 million were small businesses with more than ten employees. Further,
International Data Corporation estimates that SOHOs accounted for $3.7 billion
of electronic commerce in 1998 and will account for $69.7 billion of electronic
commerce in 2002. In addition, SOHOs are typically identified with the
following characteristics:

  .  limited amount of time and resources, resulting in the desire for
     solutions 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. SOHOs 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, SOHO 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
business/small office 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, SOHOs 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, SOHOs
have become more willing to rely on its functionality to improve their
businesses. Accordingly, there has been increased adoption of the Internet by
SOHOs, 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 SOHOs are
constrained by limited bandwidth Internet connections. Currently, International
Data Corporation estimates that:

  .  approximately 80% of SOHOs 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 SOHOs with Internet access use a broadband connection,
     which provides faster access but the availability of which is limited;
     and

  .  approximately 71% of SOHOs share 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
SOHOs, a substantial opportunity exists to provide an automated method for
purchasing, downloading and printing postage. We believe the attractiveness of
Internet postage solutions for the SOHO user will depend upon the solution'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;

                                       28
.  be easy to use and flexible to meet the SOHO 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 Solution

   We provide an easy-to-use Internet postage solution that enables our
customers to quickly and efficiently 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 over 20 issued patents to create a solution that offers
convenience and flexibility to small business, small office and home office
users, collectively known as SOHO users. To help build our brand awareness and
accelerate the adoption of our Internet postage solution, we have formed
strategic relationships with industry leaders. In addition, our Internet
postage solution is tightly integrated with popular business computer programs,
including Microsoft Word and Outlook, and Intuit's Quickbooks.

   We believe our desktop Internet postage solution provides the following
benefits to SOHO users and the U.S. Postal Service:

 Benefits to SOHO Users

   Enhanced Flexibility. With our Internet postage solution, SOHO users receive
the benefits of buying and downloading postage online, with the flexibility of
printing postage while connected or disconnected from the Internet. Our
solution is tailored to most SOHO 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 solution provides unlimited,
convenient access to postage from the computer desktop, 24 hours a day, seven
days a week. SOHO 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 solution is tightly integrated with
popular software applications, including Microsoft Word and Outlook, to enable
SOHO users to conveniently print postage while using their most commonly used
software programs;

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

   Simple and Secure. Our Internet postage solution can be installed in minutes
and includes easy-to-use instructions and an intuitive user interface. Further,
our solution is designed to provide SOHOs 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; and

   Cost-Effective. Our Internet postage solution is cost-effective for SOHO
users relative to traditional postage stamps, by eliminating overposting and
foregone wages from time spent travelling to and from the post office, and
relative to postage meters, by eliminating lease fees. In addition, our
solution enables SOHOs to leverage their existing investments in personal
computers, printers and software.

                                       29
Benefits to the U.S. Postal Service

   A New Low-Cost Distribution Channel. Our Internet postage solution 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 solution 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 solution 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 solution 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.

Growth Strategy

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

 Partner with Industry Leaders to Quickly Acquire Customers

   Our strategy includes partnering with industry leaders to rapidly acquire
customers, build brand recognition and accelerate the adoption of our Internet
postage solution. We have entered into strategic relationships with Microsoft,
Yahoo!, Excite@Home, America Online, Compaq, EarthLink, Francotyp-Postalia,
Dymo-CoStar, Tension Envelope, Avery Dennison and Sunbeam's Pelouze division.
Partnering with well-known and trusted names in the Internet, computer hardware
and software, and business supply industries enables us to leverage our
partners' installed customer bases, distribution channels and marketing
expertise, and facilitate the adoption, usage and accessibility of our Internet
postage solution. We anticipate continuing to add additional strategic partners
as our business grows and we expand our portfolio of products and services.

 Initially Focus on the Large and Growing SOHO Market

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

  . a large and growing number of SOHOs;

  . high personal computer penetration;

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

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

   We have conducted extensive qualitative and quantitative research on SOHO
users, and have tailored our Internet postage solution 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 premier strategic
partners and high quality solutions 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 our strategic partners. We intend to
promote our brand through television, print and radio advertising, and online
banner advertising through partnerships 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.

                                       30
Leverage Our Technology Platform and Expertise to Extend Our Family of
 Internet Postage Solutions

   We intend to leverage our customer-centric focus, scalable electronic
commerce platform and our patent portfolio to develop a family of Internet
postage solutions for the high volume mailer and corporate enterprise and for
the low volume individual consumer. We intend to offer an intranet-based
solution 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 solution, 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 solutions 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.

 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 intend to 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
partnered with third party vendors of integrated scales and other postage
supplies.

   International Internet Postage Market. We believe that there are significant
opportunities in international markets for our Internet postage solution. In
particular, we believe our Internet postage solution is ideally suited for many
international markets because users pay for connecting to the Internet based on
usage time and thus are seeking solutions that can reduce expensive connection
time.

   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.

Our Internet Postage Solution

   Our Internet postage solution 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, collectively known as SOHOs, most of whom usually connect to the
Internet on modems at speeds of 28.8 or 33.6 kilobytes per second. Our solution
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 solution nationally in August 1999. Our Internet postage solution is
currently available through our Web site and through a toll-free telephone
number, with software and our secure postage device each being delivered via
overnight delivery services, and we expect our Internet postage solution to
also be available at many retail outlets beginning in fall 1999. The estimate
of when our Internet postage solution will be available in retail outlets is a
forward-looking statement that is subject to risks and uncertainties. The
actual timing may differ materially from this estimate as a result of a number
of factors, including the availability of shelf space and product fulfillment.

                                       31
Installation

   The installation process is simple and 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 solution 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 easy to install
software, our Internet postage solution also
includes our silver-dollar size, secure postage
device that easily 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]

 Printing Postage

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

   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 simply 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 solution.

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

  . Microsoft Word -- Our Internet postage solution 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 -- Our software's integration with QuickBooks enables
    users to send invoices faster and more easily to their customers.

   Address Software Functionality. Our Internet postage solution enables users
to print Internet postage using their existing mailing databases, and is
compatible with over 17 types of address storage software. Further, addresses
are stored on the user's personal computer with our Internet postage solution,
negating any need to upload confidential information to a shared server.

                                       32
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 solution. The sale of these postage supplies requires U.S. Postal
Service approval and we are in the process of obtaining necessary approvals.

Strategic Relationships

   We believe that market penetration, brand awareness and adoption of our
Internet postage solution 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 and easy-to-use access to our
Internet postage solution. To achieve these goals, we have established a
strategy of partnering with the industry leaders in business segments related
to the Internet, computer hardware and software, postage and business supplies.
Our strategic relationships allow us to leverage our partners' installed
customer bases, distribution channels and marketing expertise to facilitate the
adoption, usage and accessibility of our Internet postage solution.

   Microsoft. In July 1999, Microsoft, an investor in E-Stamp since 1997,
selected us as its premium online postage partner for its Microsoft Office
Update Web site. As a featured service on the Microsoft Office Update Web site,
we significantly increase our reach into the small business, small office and
home office market by making our Internet postage solution available to the
large base of Microsoft Office users who frequent the site. The initial term of
our agreement with Microsoft is one year, although the agreement is terminable
on 60 days prior notice. We have also worked with Microsoft's product
development teams to integrate our Internet postage solution with Microsoft
applications, including Microsoft Word and Microsoft Outlook.

   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, with over 80 million users worldwide, and is
one of the most recognized brands associated with the Internet. Under this
agreement, we are Yahoo!'s premier Internet postage provider, and Yahoo! users
will have direct access to the E-Stamp service from within the Yahoo! Postal
Center. Additionally, Yahoo! users will have access to our Internet postage
service from other small-business targeted properties throughout the Yahoo!
network through banner advertisements placed by us on these sites.

   Excite@Home. In August 1999, we entered into a binding letter of intent with
Excite@Home to be the preferred Internet postage provider across Excite@Home's
@Work division. This relationship is designed to provide early broadband
adapters with access to our solution through the @Work site. As part of this
relationship, our service offering will be integrated into @Work's portfolio of
products and services. This service is currently expected to be available later
in 1999. Excite@Home also is one of our equity investors.

   America Online. In November 1998, we agreed to become a tenant in America
Online's new Postage Services Center, currently scheduled to launch in August
1999. America Online's Postage Services Center will feature direct links to our
Web site where America Online members can purchase our Internet postage
solution. As part of the agreement, America Online has agreed to promote our
solution until May 2000 with banner advertisements across several of America
Online's branded properties, including CompuServe, AOL.com and Digital City.

                                       33
Compaq. In June 1998, we entered into an agreement with Compaq to help
accelerate the adoption of Internet postage. Under this agreement, Compaq will
market our Internet postage solution 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 solution 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 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 solution through its Web
site. Additionally, we intend to leverage Francotyp-Postalia's established
distribution channels and existing customer base to distribute our solution.
Francotyp-Postalia also is one of our equity investors.

   Avery Dennison. In July 1999, we entered into a strategic relationship with
Avery Dennison that includes sales, marketing and distribution agreements.
Under this agreement, our Internet postage solution is to be the only online
postage solution promoted in packages of Avery labels and other printable
supplies. Additionally, we have agreed to offer a free sample pack of Avery PC
Postage Labels to our new customers. We plan to sell these labels in our online
supplies store.

   Sunbeam Corp.'s Pelouze Scale Co. Division. In February 1999, we entered
into a strategic marketing and sales agreement with Signature Brands, Inc., a
subsidiary of Sunbeam Corporation, the leading manufacturer and distributor of
postal scales. We intend to leverage Sunbeam's already established distribution
channels and promote our solution 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
solution, is currently expected to be available to our customers through our
online store later in 1999.

   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 submitted for required approvals to the U.S. Postal Service.

   EarthLink. In June 1999, we entered into an agreement with EarthLink, a
leading Internet service provider. Under this agreement, we and EarthLink have
agreed to develop a co-branded postal center accessible to EarthLink's more
than 1.3 million users from their personal start pages and elsewhere in the
EarthLink network. Additionally, EarthLink has agreed to make our Internet
postage solution available for purchase through EarthLink's mall and to place
banner advertisements for our solution in their service. In addition, EarthLink
has agreed to place an advertisement for our solution 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 strategic 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 has agreed to jointly promote
our solution in retail channels, promote us to its existing customer base, and
to integrate support for our service directly into its printer software. Dymo-
CoStar's specialty label printer has been approved for sale by the U.S. Postal
Service and the related labels have been submitted for required approvals to
the U.S. Postal Service.

Acquisition of Customers

   The initial focus of our Internet postage solution is on the large and
growing SOHO market, which consists of small businesses, small offices and home
offices. We have established relationships with leading

                                       34
Internet, computer and business supply companies to distribute our Internet
postage solution through channels most frequented by SOHOs. In addition, we are
leveraging our strategic partners' 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.

   Product Distribution. We intend to make our Internet postage solution
available through all standard distribution channels in order to increase
product availability and accelerate the adoption of Internet postage.
Specifically, we will target the following:

  .  Retail -- We have identified top retail accounts to target for our
     Internet postage solution since SOHOs typically purchase a substantial
     portion of their office supply needs from these sources. These targets,
     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; and

  .  Direct Marketing and Mail Order -- We will 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.

   Promotional Bundling Arrangements. We have partnered with Compaq, Avery
Dennison, Dymo-CoStar and Sunbeam's Pelouze division to bundle promotions for
our Internet postage solution in selected products, which enables us to
leverage our partners' installed customer base, distribution channels and
marketing experience.

   Affiliate and Affinity Programs. We intend to establish an extensive
affiliate program with premier sites and we will offer other revenue-sharing
opportunities for affiliates who promote or provide links to our products from
their Web site. In addition, we plan to extend promotional offers to trade
associations with substantial SOHO membership.

   Online and Offline Advertising. We currently have strategic relationships in
place with some of the top Internet sites, including Yahoo!, Microsoft, America
Online, Excite@Home and EarthLink, and we intend to partner 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
intend to utilize various offline forms of advertising, such as television,
print, radio and other targeted publications that focus on specific attractive
markets for our solution.

   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 to prominently display our logo
and Web site address, in order 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 solution
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

                                       35
through the mail system. The final stage before commercial release is vendor
product approval, which 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:
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)
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.

Competition

   We believe that our Internet postage solution is well positioned to compete
in the SOHO 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, has been approved
for commercial release by the U.S. Postal Service to date. 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 solution provides significant benefits
over traditional postage methods, especially for the SOHO 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 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 our market
include: (1) U.S. Postal Service product certification; (2) brand recognition;
(3) integration with other software applications; (4) convenience; (5) service
availability and reliability; (6) price; (7) security; and (8) 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
solution that meets our customers' needs and fulfills the U.S. Postal Service's
certification requirements.

                                       36
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, Microsoft
Outlook and Intuit's QuickBooks, 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 ours.

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

   Internet Postage Device. We have developed a proprietary silver-dollar size
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 for being 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
solution. 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.

Future Product Development

   We are currently developing a server-based solution 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 solution will be positioned to meet
the needs of this base of users. The server-based solution will enable a user
to purchase and store Internet postage directly on our secure electronic
commerce server and print from their local printer.

Employees

   As of June 30, 1999, we employed 75 full-time people, including 29 in
engineering, 13 in operations, eight in customer service and support, 13 in
sales, marketing and business development, and 12 in general and

                                       37
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 over 20 U.S. patents and have 12 patent applications pending. 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, including "E-Stamp." Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which our solutions 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 by Pitney Bowes against us, could prevent or delay our
ability to provide our Internet postage solutions" and "--Legal Proceedings."

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 lease which will expire in June 2000. We will
need to obtain additional office space prior to the end of 1999 and are
currently in discussions with respect to additional space.

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 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, 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

                                       38
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. Our suit seeks compensatory and treble damages, injunctive relief
and recovery of attorney's fees. 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 solutions, delays and costs associated with
redesigning our solutions and payments of license fees and other payments. An
injunction obtained by Pitney Bowes could eliminate our ability to market
critical products or services. See "Risk Factors--Intellectual property
infringement claims, including claims by Pitney Bowes against us, could prevent
or hinder our ability to sell Internet postage."

   On May 10, 1999, in U.S. District Court, E-Stamp obtained a temporary
restraining order against Dave Lahoti ordering Mr. Lahoti (a cybersquatter) 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.

                                       39
MANAGEMENT

Executive Officers and Directors

   The following table sets forth certain information with respect to our
executive officers and directors as of August 10, 1999.
Name            Age                  Position
Robert H. Ewald...........  51 President, Chief Executive Officer and
                                  Director

   Anthony H. Lewis, Jr.  ...  45 Vice President and Chief Financial Officer

   Nicole Eagan..............  34 Senior Vice President, Marketing and Sales

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

   Roderick Witmond..........  35 Vice President, Strategic Development and
                                  Operations

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

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

   Marcelo A. Gumucio........  61 Chairman of the Board

   John V. Balen(1)(2).......  38 Director

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

   Gregory S. Stanger(2).....  35 Director

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

                                       40
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, including Technical
Manager, Operations for its Internet and electronic commerce strategies and
Program Manager for the design of distributed computing enhancements, also
known as the Cairo Project. 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.

   Roderick Witmond has been our Vice President, Strategic Development and
Operations (Acting), since August 1999. From July 1995 to August 1999, Mr.
Witmond was a Principal Consultant with the Government Consulting Practice of
PriceWaterhouseCoopers, focusing primarily on assignments with the U.S. Postal
Service and, most recently, E-Stamp. Mr. Witmond obtained his B.S. from London
University in London, England in 1986 and his M.B.A. from the Darden Graduate
School of Business Administration, University of Virginia in 1995.

   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, 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, 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 between 1989 and 1995. Mr. Reinemer
received his degrees in electronic processing and in industrial electronic
processing equipment from the Freidrich Ebert Technical College in Weisbaden,
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., 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. 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. 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 has been a Principal of Canaan Partners, a national venture capital
investment firm, since September 1995. 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 AT&T Ventures in December 1996 and where he is currently a
Principal. AT&T Ventures is an independent venture capital fund that invests in
information technology companies. Previously, Mr. Rosch served as a senior
member of The Boston Consulting Group from November 1989 to November 1996. Mr.
Rosch currently serves

                                       41
on the board of directors of Veridicom, Inc. and PaymentNet, Inc. Mr. Rosch
received his A.B. in government and philosophy from Harvard University and
J.D./M.B.A. from Stanford University.

   Gregory S. Stanger has served on the Board of Directors since September
1997. Mr. Stanger is a Senior Director, Corporate Development at Microsoft
Corporation and has held various positions in Corporate Development at
Microsoft since July 1993 and within the Microsoft Finance Organization since
joining Microsoft Corporation in September 1991. Previously, Mr. Stanger worked
in investment banking at PaineWebber from March 1987 to June 1989. Mr. Stanger
received his B.A. in economics from Williams College and M.B.A. from the
University of California, Berkeley.

   Adam Wagner has served on the Board of Directors since November 1996. Mr.
Wagner has been Vice President, Investments at Wagner & Brown, Ltd., a closely-
held oil and gas investment company, since June 1992. Mr. Wagner currently
serves on the board of directors of PFS Thermoplastics, Inc., SeaSound, LLC,
nStream 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.

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 and Thomas L. Rosch have been designated
Class I directors whose terms expire at the 2000 annual meeting of
stockholders. Marcelo A. Gumucio and Adam Wagner have been designated Class II
directors whose terms expire at the 2001 annual meeting of stockholders.
Gregory S. Stanger and John V. Balen 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. See "Description of Capital
Stock--Antitakeover Effects of Provisions of Certain Charter Provisions, Bylaws
and Delaware Law."

   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.

Board Committees

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

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

   Our compensation committee currently consists of Messrs. Balen, Rosch and
Stanger. 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.

                                       42
Director Compensation

   We do not currently compensate our directors in cash for their service as
members of the board of directors, although they are reimbursed for certain
expenses in connection with attendance at board of director and compensation
committee meetings. 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 1998, the board granted options to
purchase an aggregate of 298,470 shares to Marcelo A. Gumucio at an exercise
price per share of $0.80. Please see also "--Incentive Stock Plans--Director
Option Plan" for a description of options to be granted to our non-employee
directors after this offering.

Executive Compensation

                           Summary Compensation Table

   The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal year ended December 31, 1998 by our former
chief executive officer and our next four most highly compensated executive
officers who earned more than $100,000 during the fiscal year ended December
31, 1998. These executives are referred to as the Named Executive Officers
elsewhere in this prospectus.
Long-Term
                                            Compensation
                                               Awards
                                            ------------
                               Annual
                            Compensation
                         ------------------  Securities
Name and Principal                           Underlying
Position                 Salary($) Bonus($)  Options(#)
Sunir Kapoor............  153,042   70,000    296,210
 Former Chief Executive
  Officer and
  President(1)

Martin Pagel............  153,750      --      15,195
 Chief Technical Officer

Nicole Eagan............  128,750   35,000     26,000
 Senior Vice President,
  Marketing and Sales

Thomas J. Reinemer......  128,750   30,000     28,000
 Vice President,
  International(2)

Rick D. Prime...........  128,750      --      10,000
 Former Vice President,
  Finance(3)
---------------------
(1) Mr. Kapoor served as Chief Executive Officer and President of E-Stamp from
    December 1996 until February 1999. Robert H. Ewald joined E-Stamp as our
    Chief Executive Officer and President in February 1999. Mr. Ewald currently
    is compensated with an annual salary of $250,000 and a guaranteed bonus of
    $25,000.

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

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

                                       43
Option Grants in Last Fiscal Year

   The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers in the fiscal year
ended December 31, 1998, 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. 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, 1998, we granted options to purchase
up to an aggregate of 1,361,055 shares to employees, directors and consultants.
All options were granted under our 1996 Stock Option and Restricted 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.
Individual Grants
                         -------------------------------------------
                                                                         Potential
                                                                     Realizable Value
                                                                     at Assumed Annual
                         Number of  % of Total                        Rates of Stock
                         Securities   Options                              Price
                         Underlying Granted to                       Appreciation for
                          Options    Employees  Exercise                Option Term
                          Granted     In Last     Price   Expiration -----------------
Name                        (#)     Fiscal Year ($/share)    Date       5%      10%
Sunir Kapoor............   59,210       4.4%      $0.80    11/01/08  $ 29,789 $ 75,492
                          237,000      17.4        0.80    12/15/08   119,238  302,174

Martin Pagel............   15,195       1.1        0.80    11/01/08     7,645   19,374

Nicole Eagan............   26,000       1.9        0.80    11/01/08    13,081   33,150

Thomas J. Reinemer......   28,000       2.1        0.80    11/01/08    14,087   35,700

Rick D. Prime...........   10,000       0.7        0.80    11/01/08     5,031   12,750
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, 1998, and exercisable and
unexercisable options held by them as of December 31, 1998.

   The "Value of Unexercised In-the-Money Options at December 31, 1998" is
based on a value of $0.80 per share, the fair market value of our common stock
as of December 31, 1998, as determined by the board of directors, less the per
share exercise price, multiplied by the number of shares issued upon exercise
of the option. All options were granted under our 1996 Stock Option and
Restricted Stock Plan. The shares vest over four years, with 25% of the shares
vesting one year after the grant date and the remaining shares vesting ratably
each quarter thereafter.
Number of Securities
                                                   Underlying Unexercised   Value of Unexercised In-
                                                   Options At December 31,    the-Money Options at
                                          Value           1998 (#)            December 31, 1998 ($)
                         Shares Acquired Realized ------------------------- -------------------------
Name                     on Exercise (#)   ($)    Exercisable Unexercisable Exercisable Unexercisable
Sunir Kapoor............     599,200     $23,063    296,210        --          $ --         $ --

Martin Pagel............     180,260       6,406     15,195        --            --           --

Nicole Eagan............     266,154       6,406     26,000        --            --           --

Thomas J. Reinemer......     245,536       6,406     28,000        --            --           --

Rick D. Prime...........     100,000         --         --         --            --           --
44
1999 Stock Plan

   The board of directors adopted our 1999 Stock Plan, referred to as the 1999
Plan, in August 1999, subject to approval of our stockholders. This stock
option 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.

   A total of 2,000,000 shares of common stock is reserved for issuance, plus
annual increases, beginning in fiscal year 2000, equal to the lesser of:

  . 1,000,000 shares;

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

  . a lesser amount determined by the board.

   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 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 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.

                                       45
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
4,750,000 shares of common stock were authorized for issuance under the 1996
Plan. As of August 10, 1999, options to purchase an aggregate of 1,172,790
shares of our common stock were outstanding under this stock option plan, and a
total of 3,555,712 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, subject to approval of our stockholders. 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.

                                       46
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 will become effective on the effective date of this
offering and will terminate in 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,
subject to approval of our stockholders, but it will not become effective until
the day following the closing of this offering. The director plan has a term 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

                                       47
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 100,000 shares of our common stock are authorized for issuance
under the 1996 Director Plan. As of August 10, 1999, a total of 15,250 shares
were subject to outstanding options granted under this plan. Although 84,750
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 certain 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 agreed to give Mr. Ewald a grant of 100,000
shares of common stock if we successfully complete an initial public offering
within twelve months of his commencement of employment. We agreed to provide
Mr. Lewis with a promissory note in the amount of $30,000 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, and if we
experience a change of control, Mr. Gumucio's option shall become immediately
exercisable.

   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. 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.

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.

                                       48
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.

                                       49
CERTAIN 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 2,931,229 shares of Series C
preferred stock for $10.31 per share. Listed below are the directors, executive
officers and stockholders who beneficially own more than 5% of our securities
who participated in these financings.
Aggregate
                                   Series A  Series B  Series C      Cash
Name                               Preferred Preferred Preferred Consideration
Microsoft Corporation............. 1,250,000   261,750  109,231   $5,126,174
Entities affiliated with AT&T
 Ventures(1)...................... 1,250,000   261,750  218,462    6,252,343
Canaan Equity, L.P................     --    1,047,000  113,476    5,169,478
Unified Holdings, L.L.C...........     --    1,047,000    --       4,000,000
John V. Balen(2)..................     --    1,047,000  113,476    5,169,478
Thomas L. Rosch(3)................ 1,250,000   261,750  218,462    6,252,343
Gregory S. Stanger(4)............. 1,250,000   261,750  109,231    5,126,174
Adam Wagner(5)....................     --    1,047,000    5,416    4,055,379
---------------------
(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 113,476 shares of
    Series C preferred stock held by Canaan Equity, L.P. Mr. Balen disclaims
    beneficial ownership of these shares.

(3) 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. Mr. Rosch 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. Stanger 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.

                                       50
Certain Sales to Executive Officers

   On May 30, 1999, we sold 1,225,000 shares of common stock at a price of
$0.90 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 266,154 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 240,529
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 180,260 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 154,635
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 245,536 shares of common stock at
a price of $0.25 per share for 25,625 shares and $0.50 per share for 219,911
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 150,000 shares of common stock at a price of $1.50
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 August 4, 1999, we sold 300,000 shares of common stock at a price of
$1.50 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 4, 1999, we sold 150,000 shares of common stock at a price of
$1.50 per share to Roderick Witmond. We have the right to repurchase such
shares in the event Mr. Witmond's services to us terminate, which right lapses
progressively over four years after the date of grant. Mr. Witmond 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.

Other Transactions

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

   We have granted options to certain of our executive officers and directors.
See "Management--Option Grants in Last Fiscal Year."

   Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of the preferred stock.
See "Description of Capital Stock--Registration Rights."

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

                                       51
PRINCIPAL STOCKHOLDERS

   The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of August 10, 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, 2855 Campus Drive, Suite 100, San
Mateo, California 94403. 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 August 10, 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
23,541,541 shares of common stock outstanding as of August 10, 1999, as
adjusted to reflect the conversion of all outstanding shares of preferred stock
upon the closing of this offering. The numbers shown in the table below assume
no exercise by the underwriters of their over-allotment option.

                                       52
Principal Stockholders Table
Percentage of
                                                                  Shares
                                                 Number of      Outstanding
                                                   Shares    -----------------
                                                Beneficially  Before   After
   Name                                            Owned     Offering Offering
5% Stockholders:
   Entities affiliated with AT&T Ventures(1)...  1,730,212      7.3%
   Microsoft Corporation(2)....................  1,620,981      6.9
   John Trotter(3).............................  1,586,250      7.6
   Directors and Executive Officers:
   Robert H. Ewald(4)..........................  1,225,000      5.2
   Anthony H. Lewis, Jr.(5)....................    300,000      1.3
   Martin Pagel(6).............................    197,621        *
   Nicole Eagan(7).............................    342,154      1.5
   Thomas J. Reinemer(8).......................    273,536      1.2
   Rick D. Prime(9)............................    101,083        *
   Sunir Kapoor................................    274,005      1.2
   Marcelo A. Gumucio(10)......................    298,470      1.3
   John V. Balen(11)...........................  1,160,476      4.9
   Thomas L. Rosch(12).........................  1,730,212      7.3
   Gregory S. Stanger(13)......................  1,620,981      6.9
   Adam Wagner(14).............................  1,462,416      6.2
   All directors and executive officers as a
    group (14 persons)(15).....................  9,285,954     39.4
---------------------
 *  Less than 1% of the outstanding shares of common stock.

(1) The aggregated shares listed for entities affiliated with AT&T Ventures are
    owned as follows: 1,360,575 shares are beneficially owned by AT&T Venture
    Fund II, L.P. and 151,175 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.

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

(3) The address for Mr. Trotter is 1000 Louisiana #3600, Houston, Texas 77002.

(4) At August 10, 1999, 1,225,000 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 August 10, 1999, 300,000 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 August 10, 1999, 117,655 shares held by Mr. Pagel were vested, and
    77,800 shares were unvested and subject to a right of repurchase in favor
    of us, which right lapses over time.

(7) At August 10, 1999, 168,695 shares held by Ms. Eagan were vested, and
    173,459 shares were unvested and subject to a right of repurchase in favor
    of us, which right lapses over time.

(8) At August 10, 1999, 157,137 shares held by Mr. Reinemer were vested, and
    116,399 shares were unvested and subject to a right of repurchase in favor
    of us, which right lapses over time.

(9) At August 10, 1999, 40,625 shares held by Mr. Prime were vested, and 59,375
    shares were unvested and subject to a right of repurchase in favor of us,
    which right lapses over time.

(10) Includes 298,470 shares issuable upon exercise of options held by Mr.
     Gumucio within 60 days of August 10, 1999, all of which would be subject
     to a right of repurchase in favor of us, which right lapses over time.

(11) 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.

(12) 1,557,191 shares are beneficially owned by AT&T Venture Fund II, L.P. and
     173,021 shares are beneficially owned by Venture Fund I, L.P. Mr. Rosch is
     a partner at AT&T Ventures. Mr. Rosch disclaims beneficial ownership of
     these shares.

(13) The shares are beneficially owned by Microsoft Corporation. Mr. Stanger is
     Senior Director, Corporate Development at Microsoft Corporation. Mr.
     Stanger disclaims beneficial ownership of these shares.

                                       53
(14) Includes 200,000 shares of common stock held by Wagner & Brown, Ltd, Mr.
     Wagner's employer. Mr. Wagner has disclaimed beneficial ownership of these
     shares. Includes 50,000 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 160,000 shares of common
     stock held in escrow and for which Mr. Wagner is an escrow agent. Wagner &
     Brown, Ltd. claims beneficial ownership of 30,624 shares and Wagner Family
     Partnership VI claims beneficial ownership of 7,648 shares. 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. claims beneficial ownership of 130,875 shares and Wagner
     Family Partnership VI 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.

(15) Includes 758,117 shares issued under the 1996 Stock Option and Restricted
     Stock Plan which were vested and 1,950,503 shares which were unvested at
     August 10, 1999 and subject to a right of repurchase in favor of us, which
     right lapses over time. Includes 298,470 shares issuable upon exercise of
     options within 60 days of August 10, 1999, all of which would be subject
     to a right of repurchase in favor of us, which right lapses over time.

                                       54
DESCRIPTION OF CAPITAL STOCK

General

   Upon the completion of this offering, we will be 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 August 10, 1999, there were 23,541,541 shares of common stock
outstanding which were held of record by approximately 465 stockholders, as
adjusted for the conversion of all outstanding shares of convertible preferred
stock into common stock, which will occur upon the closing of this offering.

   The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. 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. See "Dividend Policy." 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.
The shares of common stock to be issued upon the closing of this offering will
be 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 August 10, 1999, there were warrants outstanding to purchase 21,235
shares of Series C preferred stock, which will be exercisable to purchase as
aggregate of 21,235 shares of common stock upon closing of this offering. At
August 10, 1999, there were warrants outstanding to purchase 38,797 shares of
common stock.

                                       55
Registration Rights

   The holders of preferred stock convertible into 9,619,229 shares of common
stock (the "registrable securities") are entitled to certain 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 180 days following the date of this prospectus,
holders of at least 25% of the then outstanding registrable securities obtained
from conversion of our Series A 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 180
days following the date of this prospectus, 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 180 days following the date
of this prospectus, 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. These registration rights have been waived with respect to this
offering. 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 Certain Charter and Bylaw Provisions

   Certain 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 certain types
of 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. See "Management--Board
of directors and Executive Officers." 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.

                                       56
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 "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

   We have applied for the listing of our shares on The Nasdaq National Market
under the symbol "ESTM."

                                      57
SHARES ELIGIBLE FOR FUTURE SALE

   Prior to this offering, there has been no market for our common stock, and
there can be no assurance that a significant public market for our common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of its equity securities. As
described below, no shares currently outstanding will be available for sale
immediately after this offering because of certain contractual restrictions on
resale. Sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.

   Upon completion of this offering, we will have outstanding            shares
of common stock based upon shares outstanding as of August 10, 1999, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants prior to completion of this offering. Of these
shares, the            shares sold in this offering will be 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.
The remaining       shares of common stock held by existing stockholders are
restricted shares as that term is defined in Rule 144. All such restricted
shares are subject to 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 the date of this prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of
these shares will be resellable until 181 days after the date of this
prospectus. Beginning 181 days after the date of this prospectus, approximately
           restricted shares will be eligible for sale in the public market,
all of which are subject to volume limitations under Rule 144, except
           shares eligible for sale under Rule 144(k) and            shares
eligible for sale under Rule 701. In addition, as of August 10, 1999, there
were outstanding options to purchase 1,172,790 shares of common stock, warrants
to purchase 38,797 shares of common stock and warrants to purchase preferred
stock convertible into 21,235 shares of common stock, some of which may be
exercised prior to this offering. All such options and warrants are subject to
lock-up agreements. 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, however any release shall
apply pro-rata to all stockholders subject to the lock-up agreements.

   In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, 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.

   Sales under Rule 144 are also subject to certain 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.

   Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee,

                                       58
officer or director of or consultant to us who purchased shares under a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, all Rule 701 shares are subject
to lock-up agreements and will only become eligible for sale at the earlier of
the expiration of the 180-day lock-up agreements.

   Within 90 days following the effectiveness of this offering, we will file a
Registration Statement on Form S-8 registering 3,994,288 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of August 10, 1999, options to purchase a total 1,172,790 shares were
outstanding and 2,821,498 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 six months after the date of this offering, holders of
9,619,229 restricted shares will be entitled to certain registration rights for
sale in the public market. See "Description of Capital Stock--Registration
Rights." 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.

                                       59
UNDERWRITING

   Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Banc of America Securities LLC,
Deutsche Bank Securities Inc. and DLJdirect Inc., have severally agreed to
purchase from us the respective number of shares of common stock set forth
opposite their names below:
Number
                                                                            of
   Underwriters:                                                          Shares
Donaldson, Lufkin & Jenrette Securities Corporation...................
   Banc of America Securities LLC........................................
   Deutsche Bank Securities Inc..........................................
   DLJdirect Inc. .......................................................
                                                                           ---
     Total...............................................................
                                                                           ===
The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock in the offering
are subject to approval by their counsel of legal matters concerning the
offering and to condition precedents that must be satisfied by us. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock in the offering, other than those shares covered by the over-
allotment option described below, if any are purchased.

   The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $   per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $   per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the Representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority. An electronic prospectus will be available on the Web site
maintained by DLJdirect Inc., one of the underwriters and an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation.

   We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase, from time to time, in whole or in
part, up to an aggregate of additional shares of common stock at the initial
public offering price less underwriting discounts and commission. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.

   The following table sets forth the compensation payable to the underwriters
by us in connection with the offering:
Total
                          Discounts and              -----------------------------
                           Commissions   Additional     Without          With
                            per Share   Compensation Over-Allotment Over-Allotment
Underwriting discounts
 and commissions
 paid by us.............      $             $             $              $
Expenses payable by us..
Donaldson, Lufkin & Jenrette Securities Corporation acted as the placement
agent for a private placement of E-Stamp's Series C Preferred Stock in August
1999. As compensation for its services as placement agent, Donaldson, Lufkin &
Jenrette Securities Corporation received a cash fee of approximately $1.1
million and warrants to purchase an aggregate of 21,235 shares of Series C
preferred stock at an exercise price $10.31 per share, the same price per share
paid by all investors who participated in the private placement. Certain
entities affiliated with Donaldson, Lufkin & Jenrette Securities Corporation
also invested in the private placement,

                                       60
purchasing an aggregate of 87,294 shares of Series C preferred stock on the
same terms and conditions as the other investors in the private placement,
including price per share.

   We have agreed to indemnify the underwriters against liabilities which may
arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.

   Our executive officers, directors and certain other stockholders and option
holders have agreed not to:

  .  offer, pledge, sell, contract to sell, sell any option or contract to
     purchase, purchase any option or contract to sell, grant any option,
     right or warrant to purchase, lend, or otherwise transfer or dispose of,
     directly or indirectly, any shares of common stock, other than shares
     acquired in the initial public offering or on the Nasdaq National
     Market, or any securities convertible into or exercisable or
     exchangeable for common stock; or

  .  enter into any swap or other arrangement that transfers to another, in
     whole or in part, any of the economic consequences of ownership of the
     common stock, whether any such transaction described above is to be
     settled by delivery of common stock or other securities, in cash, or
     otherwise.

   Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the 180-
day period lock-up period with or without notice, although it has no current
intention of doing so.

   In addition, during such 180-day period, we have also agreed not to file any
registration statement with respect to, and each of our executive officers,
directors and stockholders have agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of common stock or
any securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.

   Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered will be determined by negotiation among E-Stamp and the underwriters.
The factors to be considered in determining the initial public offering price
include:

  . the history of and the prospects for the industry in which we compete;

  . our past and present operations;

  . our historical results of operations;

  . our prospects for future operational results;

  . the recent market prices of securities of generally comparable companies;
    and

  . the general condition of the securities markets at the time of the
    offering.

   Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.

   In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and stabilize the price
of the common stock.

                                       61
In addition, the underwriting syndicate may reclaim selling concessions from
syndicate members and selected dealers if they repurchase previously
distributed common stock in syndicate covering transactions, in stabilizing
transactions or otherwise. These activities may stabilize or maintain the
market price of the common stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.

   The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock to be sold in the offering for certain
individuals and entities designated by us who have expressed an interest in
purchasing shares in the offering. The number of shares available for sale to
the general public will be reduced to the extent these individuals and entities
purchase these reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same basis as other
shares offered hereby.

                                 LEGAL MATTERS

   The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Selected legal matters in connection with this offering will be
passed upon for the underwriters by Pillsbury Madison & Sutro LLP, Palo Alto,
California. As of the date of this prospectus, an investment partnership
composed of certain members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, as well as certain individual
attorneys of this firm, beneficially own an aggregate of 18,728 shares of our
Series C preferred 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.

   Statements in this prospectus and registration statement in the first
paragraph under the caption "Risk Factors--Intellectual property infringement
claims, including a claim asserted by Pitney Bowes against us, could prevent or
hinder our ability to sell Internet postage" and in the first two paragraphs
under the caption "Business--Legal Proceedings" have been reviewed and approved
by Howrey & Simon, patent litigation counsel to E-Stamp, as experts in such
matters, and are included herein in reliance upon its review and approval.

                             ADDITIONAL INFORMATION

   We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by 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.

   Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the Web site of the Commission referred to above.

                                       62
E-STAMP CORPORATION
                         (a development stage company)

                         INDEX TO FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
 Equity (Deficit)......................................................... F-5
Statements of Cash Flows.................................................. F-8
Notes to Financial Statements............................................. F-9
F-1
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, 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 Note 9 as to which the date is August 13, 1999.

                                      F-2
E-STAMP CORPORATION
                         (a development stage company)

                                 BALANCE SHEETS
                    (In thousands, except par value amounts)
Pro forma
                                                                       Stockholders'
                                          December 31,                    Equity
                                         ----------------   June 30,   (Deficit) at
                                          1997     1998       1999     June 30, 1999
                                                           (Unaudited)  (Unaudited)
ASSETS
                ------

Current assets:
  Cash and cash equivalents............  $ 4,111  $10,217    $ 1,916
  Other current assets.................       24      144        498
                                         -------  -------    -------
Total current assets...................    4,135   10,361      2,414
Property and equipment:
  Computers............................      964    1,039      1,350
  Furniture and fixtures...............      198      165        192
  Leasehold improvements...............       30       --         49
                                         -------  -------    -------
                                           1,192    1,204      1,591
  Accumulated depreciation and
   amortization........................     (596)    (754)      (909)
                                         -------  -------    -------
Net property and equipment.............      596      450        682
Other assets...........................       32       --         --
                                         -------  -------    -------
    Total assets.......................  $ 4,763  $10,811    $ 3,096
                                         =======  =======    =======

 LIABILITIES AND STOCKHOLDERS' EQUITY
               (DEFICIT)
 ------------------------------------
Current liabilities:
  Accounts payable and accrued
   liabilities.........................  $ 1,701  $ 1,529    $ 2,718
  Current portion of obligations under
   capital lease.......................       36       27         20
                                         -------  -------    -------
Total current liabilities..............    1,737    1,556      2,738
Capital lease obligations..............       38       11          6

Commitments and contingencies..........
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 and June 30, 1999 (none pro
   forma)..............................    6,126    6,746      7,084     $     --
  Series B redeemable convertible
   preferred stock: 4,188 shares
   authorized, 4,188 shares issued and
   outstanding at December 31, 1997 and
   1998 and June 30, 1999 (none pro
   forma)..............................       --   16,723     17,561           --
Stockholders' equity (deficit):
  Common stock, $0.001 par value per
   share: 100,000 shares authorized,
   10,406, 11,939, and 13,435 shares
   issued and outstanding at December
   31, 1997 and 1998 and June 30, 1999,
   respectively (200,000 shares
   authorized and 20,123 shares
   outstanding pro forma)..............       10       12         14           20
  Additional paid-in capital...........   12,787   14,897     24,194       48,833
  Notes receivable from employees and
   officers............................       --     (653)    (2,157)      (2,157)
  Deferred stock compensation..........       --   (2,289)    (9,309)      (9,309)
  Deficit accumulated during
   development stage...................  (15,935) (26,192)   (37,035)     (37,035)
                                         -------  -------    -------     --------
Total stockholders' equity (deficit)...   (3,138) (14,225)   (24,293)    $    352
                                         -------  -------    -------     ========
Total liabilities and stockholders'
 equity (deficit)......................  $ 4,763  $10,811    $ 3,096
                                         =======  =======    =======
See accompanying notes.

                                      F-3
E-STAMP CORPORATION
                         (a development stage company)

                            STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
Period from
                                                      Six months ended      inception
                          Year ended December 31,         June 30,       (April 26, 1994)
                          --------------------------  -----------------  through June 30,
                           1996     1997      1998     1998      1999          1999
                                                        (Unaudited)        (Unaudited)
Net revenues............  $    --  $    --  $     --  $    --  $     --      $     --
Operating expenses:
  Research and
   development..........    2,387    3,916     5,603    2,458     5,225        18,154
  Sales and marketing...    1,761    1,743     2,722    1,137     2,494         8,853
  General and
   administrative.......    1,739    1,748     1,897      903     1,373         7,472
  Amortization of
   deferred stock
   compensation.........      688      414       405       --     1,927         3,464
                          -------  -------  --------  -------  --------      --------
Operating loss..........   (6,575)  (7,821)  (10,627)  (4,498)  (11,019)      (37,943)
Interest income.........      239      157       380       46       177         1,017
Interest expense........       (3)     (14)      (10)      (3)       (1)         (109)
                          -------  -------  --------  -------  --------      --------
Net loss................   (6,339)  (7,678)  (10,257)  (4,455)  (10,843)      (37,035)
Accretion on redeemable
 convertible preferred
 stock..................       --     (196)   (1,383)    (307)   (1,176)       (2,755)
                          -------  -------  --------  -------  --------      --------
Net loss attributable to
 common stock...........  $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)     $(39,790)
                          =======  =======  ========  =======  ========      ========
Net loss per common
 share (basic and
 diluted)...............  $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
                          =======  =======  ========  =======  ========
Weighted-average shares
 outstanding (basic and
 diluted)...............   10,034   10,373    10,460   10,421    10,789
Unaudited pro forma net
 loss per share (basic
 and diluted)...........                    $  (0.68)          $  (0.62)
                                            ========           ========
Unaudited pro forma
 weighted-average shares
 outstanding (basic and
 diluted)...............                      15,002             17,477
See accompanying notes.

                                      F-4
E-STAMP CORPORATION
                         (a development stage company)

 STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCKAND STOCKHOLDERS' EQUITY
                                   (DEFICIT)
                   (In thousands, except per share amounts)

         Period from inception (April 26, 1994) through June 30, 1999
Redeemable
                           Convertible                                         Deficit
                            Preferred                               Notes    Accumulated                  Total
                              Stock     Common Stock   Additional Receivable During the               Stockholders'
                          ------------- --------------  Paid-In      From    Development   Deferred      Equity
                          Shares Amount Shares  Amount  Capital   Employees     Stage    Compensation   (Deficit)
Initial capital
contribution............    --    $ --   8,850   $ 9    $   201      $ --      $    --     $     --      $   210
Issuance of units at
$272.73 per unit for
services................    --      --     180    --         10        --           --           --           10
Net loss................    --      --      --    --         --        --         (572)          --         (572)
                           ---    ----  ------   ---    -------      ----      -------     --------      -------
Balance at December 31,
1994....................    --      --   9,030     9        211        --         (572)          --         (352)
Redemption of common
stock...................    --      --    (905)   (1)    (5,399)       --           --           --       (5,400)
Issuance of common stock
to investors at $5.95
per share for cash, net
of issuance costs of
$56, and conversion of
notes...................    --      --   1,290     1      7,623        --           --           --        7,624
Issuance of common stock
for services at $6.00
per share...............    --      --      15    --         90        --           --           --           90
Deferred compensation
related to restricted
common stock grants.....    --      --      --    --         60        --           --         (60)           --
Amortization of deferred
compensation............    --      --      --    --         --        --           --           30           30
Net loss................    --      --      --    --         --        --       (1,346)          --       (1,346)
                           ---    ----  ------   ---    -------      ----      -------     --------      -------
Balance at December 31,
1995....................    --      --   9,430     9      2,585        --       (1,918)         (30)         646
Issuance of common stock
at $10.00 per share for
cash to investors in May
1996, net of issuance
costs of $25............    --      --     900     1      8,974        --           --           --        8,975
Issuance of common stock
for services to
consultants at $10.00
per share during 1996...    --      --      10    --        100        --           --           --          100
Exercise of stock
options for cash by
employees during 1996...    --      --      15    --         31        --           --           --           31
Deferred compensation
related to restricted
common stock grants and
stock options...........    --      --      --    --      1,072        --           --      (1,072)           --
Stock issuance and
amortization of deferred
compensation............    --      --      10    --         --        --           --          688          688
Net loss................    --      --      --    --         --        --       (6,339)          --       (6,339)
                           ---    ----  ------   ---    -------      ----      -------     --------      -------
Balance at December 31,
1996....................    --    $ --  10,365   $10    $12,762      $ --      $(8,257)    $   (414)     $ 4,101
See accompanying notes.

                                      F-5
E-STAMP CORPORATION
                         (a development stage company)

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

       Period from inception (April 26, 1994) through December 31, 1998
Reedemable
                           Convertible                                          Deficit
                            Preferred                                Notes    Accumulated                  Total
                              Stock      Common Stock   Additional Receivable During the               Stockholders'
                          -------------- --------------  Paid-In      From    Development   Deferred      Equity
                          Shares Amount  Shares  Amount  Capital   Employees     Stage    Compensation   (Deficit)
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 $10.00
per share between
September and December
1997....................     --       --     18    --        175        --           --          --           175
Exercise of stock
options for cash by
employees during 1997...     --       --     23    --         46        --           --          --            46
Amortization of deferred
compensation............     --       --     --    --         --        --           --         414           414
Accretion on redeemable
convertible preferred
stock...................     --      196     --    --       (196)       --           --          --          (196)
Net loss................     --       --     --    --         --        --       (7,678)         --        (7,678)
                          -----  ------- ------   ---    -------     -----     --------     -------      --------
Balance at December 31,
1997....................  2,500    6,126 10,406    10     12,787        --      (15,935)         --        (3,138)
Issuance of Series B
redeemable convertible
preferred stock to
investors at $3.82 per
share in July 1998, net
of issuance costs of
$40.....................  4,188   15,960     --    --         --        --           --          --            --
Issuance of notes
receivable from
employees for exercise
of stock options........     --       --  1,391     1        652     (653)           --          --            --
Issuance of common stock
for services to
consultants at $10.00
per share between
January and June 1998...     --       --      8    --         82        --           --          --            82
Exercise of stock
options for cash by
employees during 1998...     --       --    142     1         69        --           --          --            70
Shares repurchased from
employees upon
termination at a price
of $0.50 per share in
September 1998..........     --       --     (8)   --         (4)       --           --          --            (4)
Deferred stock
compensation............     --       --     --    --      2,694        --           --      (2,694)           --
Amortization of deferred
compensation............     --       --     --    --         --        --           --         405           405
Accretion on redeemable
convertible preferred
stock...................     --    1,383     --    --     (1,383)       --           --          --        (1,383)
Net loss................     --       --     --    --         --        --      (10,257)         --       (10,257)
                          -----  ------- ------   ---    -------     -----     --------     -------      --------
Balance at December 31,
1998 ...................  6,688  $23,469 11,939   $12    $14,897     $(653)    $(26,192)    $(2,289)     $(14,225)
See accompanying notes.

                                      F-6
E-STAMP CORPORATION
                         (a development stage company)

 STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
                             (DEFICIT) (Continued)
                   (In thousands, except per share amounts)

       Period from inception (April 26, 1994) through December 31, 1998
Redeemable
                           Convertible                                          Deficit
                            Preferred                                Notes    Accumulated                  Total
                              Stock      Common Stock   Additional Receivable During the               Stockholders'
                          -------------- --------------  Paid-In      From    Development   Deferred      Equity
                          Shares Amount  Shares  Amount  Capital   Employees     Stage    Compensation   (Deficit)
Exercise of stock
options for cash by
employees during 1999
(unaudited).............    --   $   --      50   $ 1    $    23    $   --     $    --      $   --       $     24
Issuance of notes
receivable from
employees for exercise
of stock options
(unaudited).............    --       --   1,774     1      1,667     (1,668)        --          --            --
Shares repurchased from
employee upon
termination at $0.50 per
share in March 1999
(unaudited).............    --       --    (328)  --        (164)       164         --          --            --
Deferred stock
compensation
(unaudited).............    --       --     --    --       8,947        --          --       (8,947)          --
Amortization of deferred
compensation
(unaudited).............    --       --     --    --         --         --          --        1,927         1,927
Accretion on redeemable
convertible preferred
stock (unaudited).......    --     1,176    --    --      (1,176)       --          --          --         (1,176)
Net loss (unaudited)....    --       --     --    --         --         --      (10,843)        --        (10,843)
                          -----  ------- ------   ---    -------    -------    --------     -------      --------
Balance at June 30, 1999
(unaudited).............  6,688  $24,645 13,435   $14    $24,194    $(2,157)   $(37,035)    $(9,309)     $(24,293)
                          =====  ======= ======   ===    =======    =======    ========     =======      ========
See accompanying notes.

                                      F-7
E-STAMP CORPORATION
                         (a development stage company)

                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
Six months ended
                          Year ended December 31,         June 30,       Period from inception
                          --------------------------  -----------------     (April 26, 1994)
                           1996     1997      1998     1998      1999    through June 30, 1999
                                                        (Unaudited)           (Unaudited)
Operating activities
Net loss................  $(6,339) $(7,678) $(10,257) $(4,455) $(10,843)       $(37,035)
Adjustments to reconcile
 net loss to net cash
 used in operating
 activities:
 Depreciation and
  amortization..........      163      366       405      222       155           1,156
 Loss on disposal of
  assets................       --       --        65       --        --             150
 Amortization of
  deferred compensation
  expense...............      688      414       405       --     1,927           3,464
 Issuance of common
  stock for services....      100      175        82       --        --             457
 Changes in assets and
  liabilities:
  Note receivable.......      (60)      60        --       --        --              --
  Other assets..........       27      (14)      (88)     (10)     (354)           (498)
  Accounts payable and
   accrued liabilities..      501      957      (172)     (65)    1,189           2,718
                          -------  -------  --------  -------  --------        --------
Net cash used in
 operating activities...   (4,920)  (5,720)   (9,560)  (4,308)   (7,926)        (29,588)
Investing activities
Purchase of property and
 equipment..............     (669)    (119)     (324)    (144)     (387)         (1,881)
Purchase of short-term
 investments............       --       --        --       --        --            (969)
Sale of short-term
 investments............      871       98        --       --        --             969
                          -------  -------  --------  -------  --------        --------
Net cash provided by
 (used in) investing
 activities.............      202      (21)     (324)    (144)     (387)         (1,881)
Financing activities
Repayments of lease
 obligations............      (28)     (34)      (36)     (20)      (12)            (82)
Proceeds from issuance
 of notes payable.......       --       --       700      700        --             700
Repayments of notes
 payable................       --       --      (700)      --        --            (700)
Repayments of notes
 payable to related
 parties................     (540)      --        --       --        --          (5,740)
Proceeds from issuance
 of notes payable to
 related parties........       --       --        --       --        --             521
Net proceeds from
 exercise of stock
 options................       31       46        66       38        24             167
Net proceeds from
 issuance of redeemable
 convertible preferred
 stock..................       --    5,930    15,960       --        --          21,890
Net proceeds from
 issuance of common
 stock..................    8,975       --        --       --        --          16,629
                          -------  -------  --------  -------  --------        --------
Net cash provided by
 financing activities...    8,438    5,942    15,990      718        12          33,385
                          -------  -------  --------  -------  --------        --------
Net increase (decrease)
 in cash and cash
 equivalents............    3,720      201     6,106   (3,734)   (8,301)          1,916
Cash and cash
 equivalents at
 beginning of period....      190    3,910     4,111    4,111    10,217              --
                          -------  -------  --------  -------  --------        --------
Cash and cash
 equivalents at end of
 period.................  $ 3,910  $ 4,111  $ 10,217  $   377  $  1,916        $  1,916
                          =======  =======  ========  =======  ========        ========
Supplemental cash flow
 information
Cash paid for interest..  $     3  $    14  $     10  $     3  $      3        $     88
                          =======  =======  ========  =======  ========        ========
Schedule of non-cash
 financing and investing
 transactions
Issuance of notes
 receivable from
 employees for exercise
 of stock options.......  $    --  $    --  $   (653) $  (653) $ (1,668)       $ (2,321)
                          =======  =======  ========  =======  ========        ========
Common stock repurchased
 from employee upon
 termination by
 forgiveness of notes
 receivable.............  $    --  $    --  $     --  $    --  $    164        $    164
                          =======  =======  ========  =======  ========        ========
Conversion of related
 party notes payable to
 shares.................  $    --  $    --  $     --  $    --  $     --        $    180
                          =======  =======  ========  =======  ========        ========
Redemption of 905 shares
 for related party notes
 payable (Note 3).......  $    --  $    --  $     --  $    --  $     --        $  5,400
                          =======  =======  ========  =======  ========        ========
Assets acquired under
 capital lease
 obligations............  $    --  $    80  $     --  $    --  $     --        $    113
                          =======  =======  ========  =======  ========        ========
See accompanying notes.

                                      F-8
E-STAMP CORPORATION
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS

   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

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 is a development stage company which 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.

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:
Computer and other equipment............................. 3 years
     Furniture and fixtures................................... 3 years
     Leasehold improvements................................... Life of the lease
F-9
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

1. Background and Summary of Significant Policies (continued)

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, 1998, 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 except for direct-
response advertising costs meeting certain specific criteria. 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. To date,
no direct-response advertising costs have been capitalized.

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 minimum value method
prescribed by FAS 123. (See Note 3 for pro forma disclosures of stock-based
compensation pursuant to FAS 123.)

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.

                                      F-10
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

1. Background and Summary of Significant Policies (continued)

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-
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 130"). 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 adoption of SOP 98-1 has not
had a material impact on our financial position or results of operations.

   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.

                                      F-11
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

1. Background and Summary of Significant Policies (continued)

Unaudited Financial Statements

   According to management, the accompanying unaudited financial statements for
the six months ended June 30, 1998 and 1999 and for the period from inception
(April 26, 1994) to June 30, 1999 have been prepared on substantially the same
basis as the audited financial statements and include all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of the financial information set forth therein.

Unaudited Pro Forma Information

   If the offering contemplated by this prospectus is consummated, the Series A
and B redeemable convertible preferred stock outstanding as of the closing date
will be converted into shares of the Company's common stock. The pro forma
stockholders' equity as of June 30, 1999 reflects conversion of the outstanding
preferred stock into 6,688,000 shares of common stock. Pro forma net loss per
share is computed as if the outstanding preferred stock had been converted into
common stock on the date of issuance.

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 and June
30, 1999, no amounts were outstanding under this arrangement; however, a
$35,000 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. At June 30, 1999, $143,000 was
outstanding on the letter of credit and $1,107,000 was available.

3. Stockholders' Equity

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, the shares of Series A and B redeemable convertible preferred
stock are convertible into an equal number of 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 2,500,000 and
4,188,000 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

                                      F-12
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

3. Stockholders' Equity (continued)

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.

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 2,000,000
to 2,750,000 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 2,750,000 shares of common stock are currently
reserved for issuance pursuant to the Employee Plan. As of December 31, 1998,
options to purchase 1,007,393 shares of common stock at a weighted-average
exercise price of $0.75 per share were outstanding of which 829,730 were
vested, and 163,125 shares of common stock remained available for future grants
under the Employee Plan.

                                      F-13
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

3. Stockholders' Equity (continued)

 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 100,000 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 100,000 shares of common stock are currently reserved for
issuance pursuant to the Director Plan. As of December 31, 1998, options to
purchase 15,250 shares of common stock at a weighted-average exercise price of
$0.50 per share were outstanding of which 11,125 were vested, and 84,750 shares
of common stock remained available for future grants under the Director Plan.

   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.
Weighted-
                                                       Number of    Average
                                                        Options  Exercise Price
                                                       --------- --------------
                                                        (In thousands, except
                                                          per share amounts)
Options outstanding at December 31, 1996...........     659       $5.83
     Granted..........................................   1,215        0.71
     Exercised........................................     (23)       2.00
     Canceled.........................................    (179)       7.24
                                                        ------
   Options outstanding at December 31, 1997...........   1,672        0.63
     Granted..........................................   1,088        0.69
     Exercised........................................  (1,533)       0.52
     Canceled.........................................    (204)       0.51
                                                        ------
   Options outstanding at December 31, 1998...........   1,023        0.75
     Granted (unaudited)..............................   2,296        0.98
     Exercised (unaudited)............................  (1,824)       0.93
     Canceled (unaudited).............................    (466)       0.90
                                                        ------
   Options outstanding at June 30, 1999 (unaudited)...   1,029        0.90
                                                        ======
   Exercisable at December 31, 1998...................   1,023
                                                        ======
Options Outstanding and Exercisable
                                  ----------------------------------------------
                                     Options
                                  Outstanding at Weighted-Average   Weighted-
                                   December 31,     Remaining        Average
                                       1998      Contractual Life Exercise Price
     Range of Exercise Prices     -------------- ---------------- --------------
                                  (In thousands)    (In years)
$0.05-$0.25...............        25            5.23           $0.17
       $0.50-$0.50...............       303            7.65            0.50
       $0.80-$0.80...............       685            9.82            0.80
       $6.00-$6.60...............        10            1.00            6.00
                                      -----            ----
                                      1,023            8.98
                                      =====            ====
F-14
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

3. Stockholders' Equity (continued)

   During the year ended December 31, 1998, 1,252,920 unvested options were
exercised for cash and in exchange for notes (see Note 7) by various employees
of the Company. At December 31, 1998, 841,757 of these options were still
unvested and subject to repurchase in the event of termination of the
employees.

 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:
Years ended
                                                                December 31,
                                                               ----------------
                                                               1996  1997  1998
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%
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):
Years ended December 31,
                                                   --------------------------
                                                    1996     1997      1998
Net loss attributable to common stockholders:
     As reported.................................. $(6,339) $(7,874) $(11,640)
                                                   =======  =======  ========
     Pro forma.................................... $(7,146) $(8,831) $(12,190)
                                                   =======  =======  ========
   Net loss per share (basic and diluted):
     As reported.................................. $ (0.63) $ (0.76) $  (1.11)
                                                   =======  =======  ========
     Pro forma.................................... $ (0.71) $ (0.85) $  (1.13)
                                                   =======  =======  ========
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 $(1,132,000 for the
period from inception to December 31, 1998).

                                      F-15
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

3. Stockholders' Equity (continued)

   The Company has recorded additional deferred stock compensation of
approximately $2,694,000 during the year ended December 31, 1998 and $8,947,000
during the six months ended June 30, 1999 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 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 $405,000 for the year ended December 31, 1998
and approximately $1,927,000 for the six months ended June 30, 1999.

4. Partnership 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.

5. 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
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

5. Income Taxes (continued)

   Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes are as follows:
December 31,
                                                              -----------------
                                                               1997      1998
                                                               (In thousands)
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................................... $    --  $     --
                                                              =======  ========
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.

6. 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
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

6. Commitments (continued)

   The following represents future minimum rental payments under noncancelable
operating leases and capital leases:
Operating Capital
                                                                (In thousands)
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
                                                                           ===
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.

7. 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.

8. 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
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

8. 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):
Years ended           Six months ended
                                       December 31,              June 30,
                                 --------------------------  -----------------
                                  1996     1997      1998     1998      1999
                                                               (unaudited)
Basic and diluted:
     Net loss..................  $(6,339) $(7,678) $(10,257) $(4,455) $(10,843)
     Accretion on redeemable
      convertible preferred
      stock....................      --      (196)   (1,383)    (307)   (1,176)
                                 -------  -------  --------  -------  --------
     Net loss attributable to
      common stock.............  $(6,339) $(7,874) $(11,640) $(4,762) $(12,019)
                                 =======  =======  ========  =======  ========
     Weighted-average shares of
      common stock
      outstanding..............   10,034   10,373    11,235   10,560    12,323
     Less: weighted-average
      shares subject to
      repurchase...............      --       --       (775)    (139)   (1,534)
                                 -------  -------  --------  -------  --------
     Weighted-average shares
      used in computing basic
      and diluted net loss per
      share....................   10,034   10,373    10,460   10,421    10,789
                                 =======  =======  ========  =======  ========
     Basic and diluted net loss
      per share................  $ (0.63) $ (0.76) $  (1.11) $ (0.46) $  (1.11)
                                 =======  =======  ========  =======  ========
   Pro forma basic and diluted:
     Net loss..................                    $(10,257)          $(10,843)
                                                   ========           ========
     Shares used above.........                      10,460             10,789
     Pro forma adjustment to
      reflect weighted effect
      of assumed conversion of
      convertible preferred
      stock (unaudited)........                       4,542              6,688
                                                   --------           --------
     Shares used in computing
      pro forma basic and
      diluted net loss per
      share (unaudited)........                      15,002             17,477
                                                   ========           ========
     Pro forma basic and
      diluted net loss per
      share (unaudited)........                    $  (0.68)          $  (0.62)
                                                   ========           ========
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, and 2,998,000 and 7,717,000 for the six months ended
June 30, 1998 and 1999, 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.

9. Subsequent Events

Strategic Distribution Agreements (unaudited)

   From January 1, 1999 through August 2, 1999, the Company entered into
agreements for online advertising with Yahoo!, Inc., Microsoft Corporation,
Earthlink Operations, Inc. and Excite@Home. Aggregate

                                      F-19
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

9. Subsequent Events (continued)

noncancelable advertising commitments related to these agreements total
approximately $4.4 million, $6.1 million and $2.4 million for the second half
of 1999 and for the years ending December 31, 2000 and 2001, respectively. The
Company has paid $500,000 under these agreements in the six months ended June
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.

Pitney Bowes Litigation (unaudited)

   On June 10, 1999, Pitney Bowes filed suit against us in U.S. District Court
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. On
July 30, 1999, we filed our answer to Pitney Bowes' complaint in which we deny
all allegations of patent infringement and assert 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,
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
strategic partners from investing and entering into partnerships with E-Stamp.
Our suit seeks compensatory and treble damages, injunctive relief and recovery
of attorney's fees. 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 solutions, delays and costs associated with
redesigning our solutions and payments of license fees and other payments. An
injunction obtained by Pitney Bowes could eliminate our 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 38,797 shares of common stock with an exercise price of
$10.31 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 July 27, 1999, options to purchase 626,000 shares were
issued to employees pursuant to the 1996 Stock Option Plan with an exercise
price of $1.50 per share. The Company estimates that

                                      F-20
E-STAMP CORPORATION
                         (a development stage company)

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
   (Information for the six months ended June 30, 1998 and 1999 is unaudited)

9. Subsequent Events (continued)

additional deferred compensation of $4.5 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
2,750,000 to 4,750,000 subject to shareholder approval. The shareholders
approved the increase in April 1999.

1999 Stock Plan (unaudited)

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

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.

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.

Sales of Stock

   In August 1999, the Company issued 2,931,229 shares of Series C redeemable
convertible preferred stock at $10.31 per share. Series C redeemable
convertible preferred stock carries an 8%, noncumulative dividend, is
convertible into one share 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 21,235 warrants to purchase shares of Series C
redeemable convertible preferred stock at $10.31 per share to Donaldson Lufkin
& Jenrette Securities Corporation as placement agent.

                                      F-21
[INSIDE BACK COVER OF PROSPECTUS]
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      , 1999

                                    [LOGO]

                              E-Stamp Corporation

                                 Shares of Common Stock

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

                                  PROSPECTUS

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

                         Donaldson, Lufkin & Jenrette

                        Banc of America Securities LLC

                           Deutsche Banc Alex. Brown

                                DLJdirect Inc.

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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.

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Until      , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these shares of common stock may be required to
deliver a prospectus. This is in addition to the dealer's obligation to
deliver a prospectus when acting as an underwriter and with respect to their
unsold allotments or subscriptions.

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PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

   The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by E-Stamp Corporation in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
SEC registration fee............................................... $ 23,630
   NASD filing fee.................................................... $  9,000
   Nasdaq National Market listing fee................................. $ 95,000
   Printing and engraving costs....................................... $250,000
   Legal fees and expenses............................................ $400,000
   Accounting fees and expenses.......................................    *
   Blue Sky fees and expenses......................................... $ 15,000
   Transfer Agent and Registrar fees..................................    *
   Miscellaneous expenses............................................. $ 75,000

   Total..............................................................    *
* To be filed by amendment

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.

   The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.

Item 15. Recent Sales of Unregistered Securities

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

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

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

                                      II-1
On July 26, 1999, we granted a warrant to a lender to purchase up to 38,797
shares of Common Stock at $10.31 per share.

   On August 10, 1999, we issued an aggregate of 2,931,229 shares of our Series
C Preferred Stock to certain accredited investors for an aggregate offering
price of $30,220,971.

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

   From January 1996 to August 1999, we have granted options to purchase an
aggregate of 5,889,175 shares of common stock to our directors, executive
officers, employees and consultants at a weighted exercise price of $1.05. As
of August 10, 1999, options to purchase 3,898,735 shares at a weighted exercise
price of $.87 per share had been exercised.

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

   (b) As of August 10, 1999, an aggregate of 3,555,712 shares of common stock
had been issued upon exercise of options under the Registrant's 1996 Stock
Option and Restricted Stock Plan. 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 was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. 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.

Item 16. Exhibits and Financial Statement Schedules

   (a) Exhibits
Exhibit
 Number
 -------
1.1    Form of Underwriting Agreement.
  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.
  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.
 23.1    Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
         (see Exhibit 5.1).
 23.2    Consent of Ernst & Young LLP, Independent Auditors.
II-2
Exhibit
 Number
 -------
23.3    Consent of Howrey & Simon.
 24.1    Power of Attorney (Included on page II-4).
 27.1    Financial Data Schedules.
---------------------
 * To be filed by amendment.

   (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

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

   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-3
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 17th day of August, 1999.

                                          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.
Signature                           Title                  Date
             ---------                           -----                  ----
/s/ Robert H. Ewald          President, Chief Executive      August 17,
____________________________________  Officer and Director              1999
          Robert H. Ewald             (Principal Executive
                                      Officer)

     /s/ Anthony H. Lewis, Jr.       Vice President and Chief      August 17, 1999
____________________________________  Financial Officer
       Anthony H. Lewis, Jr.          (Principal Financial and
                                      Accounting Officer)

       /s/ Marcelo A. Gumucio        Chairman of the Board         August 17, 1999
____________________________________
         Marcelo A. Gumucio

         /s/ John V. Balen           Director                      August 17, 1999
____________________________________
           John V. Balen

        /s/ Thomas L. Rosch          Director                      August 17, 1999
____________________________________
          Thomas L. Rosch

       /s/ Gregory S. Stanger        Director                      August 17, 1999
____________________________________
         Gregory S. Stanger

          /s/ Adam Wagner            Director                      August 17, 1999
____________________________________
            Adam Wagner
II-4
Exhibit
 Number
 -------
1.1    Form of Underwriting Agreement.
  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.
  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.
 23.1    Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
         (see Exhibit 5.1).
 23.2    Consent of Ernst & Young LLP, Independent Auditors.
 23.3    Consent of Howrey & Simon.
 24.1    Power of Attorney (Included on page II-4).
 27.1    Financial Data Schedules.
---------------------
*  To be filed by amendment.