AUTOWEB COM INC, 424B3, 1999-03-23

AUTOWEB COM INC
424B3, 1999-03-23
AUTOMOTIVE REPAIR, SERVICES & PARKING

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<PAGE>

Pursuant to Rule 424(b)(3)
Registration No. 333-71177
5,000,000 Shares

[LOGO OF AUTOWEB.COM APPEARS HERE]

Common Stock

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

We are selling 4,900,000 shares of common stock and the selling
stockholders are selling 100,000 shares of common
stock. We will not receive any proceeds from
shares of common stock sold by
the selling
stockholders.

The underwriters have an option to purchase a maximum of
750,000 additional shares to
cover
over-
allotments
of
shares.

Prior to this offering, there has been no public market for the
common stock. The common stock will be listed on The
Nasdaq Stock Market's National Market under
the symbol "AWEB."

Investing in the common stock involves certain risks. See "Risk Factors" on
page 6.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Autoweb.com Stockholders
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share.................. $14.00 $0.98 $13.02 $13.02
Total...................... $70,000,000 $4,900,000 $63,798,000 $1,302,000
</TABLE>

Delivery of the shares of common stock will be made on or about March 26,
1999, against payment in immediately available funds.

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

Credit Suisse First Boston

Hambrecht & Quist

BancBoston Robertson Stephens

U.S. Bancorp Piper Jaffray

Prospectus dated March 22, 1999.
<PAGE>

[ARTWORK]

AutoTalkTM, Autoweb.comTM and Blow Your Horn!TM are trademarks of Autoweb.com.
This prospectus also includes trade names and trademarks of other companies.
<PAGE>

On the left side, a flow chart depicting the consumer process for purchasing
various products and services on Autoweb.com, and a flow chart depicting the
Dealer Certification process. On the right side various screen-shots of the Web
site and logos of marketing partners and advertising clients.

[Artwork]

<PAGE>

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 30
Management............................................................... 44
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Transactions....................................................... 55
Principal and Selling Stockholders......................................... 57
Description of Capital Stock............................................... 59
Shares Eligible for Future Sale............................................ 62
Underwriting............................................................... 64
Notice to Canadian Residents............................................... 66
Legal Matters.............................................................. 67
Experts.................................................................... 67
Statements Regarding Forward-looking Information........................... 67
Additional Information..................................................... 67
Index to Financial Statements.............................................. F-1
</TABLE>
------------

You should rely only on the information contained in this document or to
which we have referred you. 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
on the date of this document.

Except as otherwise indicated, all information in this prospectus assumes:

. the Underwriters' over-allotment option will not be exercised;
. all outstanding shares of preferred stock are converted into shares of
common stock upon the consummation of this offering;
. the reincorporation of Autoweb.com in Delaware and a three-for-two stock
split of Autoweb.com's common stock and preferred stock, which occurred
in March 1999; and
. the adoption of various new employee benefit plans, which occurred in
March 1999.

See "Description of Capital Stock" and "Underwriting."

Dealer Prospectus Delivery Obligation

Until April 16, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, 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 unsold
allotments or subscriptions.

3
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all the information you should consider before
buying shares in this offering. You should read the entire prospectus
carefully.

Autoweb.com

Autoweb.com is a leading consumer automotive Internet service. Our Web site
centralizes an extensive collection of automotive-related commerce, content and
community offerings to assist consumers in researching, evaluating and buying
new and pre-owned vehicles. In addition, our Web site enables consumers to
conveniently purchase automotive-related products and services such as
insurance and financing. Our Web site and purchase process are designed to
provide consumers with dedicated customer care, choice and the means to execute
their buying decisions through a process that we believe is faster, better and
easier than traditional alternatives. We currently have a network of
approximately 3,900 member dealers (where each franchise location for a
particular vehicle manufacturer is defined as a member dealer), including
approximately 1,200 pre-owned vehicle locations. In the fourth quarter of 1998,
we delivered approximately 250,000 vehicle and vehicle-related purchase
inquiries to member dealers and automotive-related vendors. We have developed a
scalable business model characterized by multiple revenue sources and a
leveragable online infrastructure. In 1998, we recognized $13.0 million of net
revenues and incurred a net loss of $11.5 million.

The total United States market for vehicles and automotive-related products
and services exceeds $1 trillion. According to CNW Marketing/Research, this
amount includes approximately $670 billion of new and pre-owned vehicle sales.
Buying a vehicle traditionally has been difficult for consumers, who view
dealerships as pressure-filled environments where they must make significant
purchase decisions with incomplete information. In addition, consumers
historically have not had access to competitively-priced automotive-related
products and services in a single centralized location. For dealers, a highly-
fragmented, intensely-competitive distribution system has resulted in high
consumer acquisition costs and declining operating margins. We believe the
Internet offers an ideal medium for improving automotive commerce interactions
for both consumers and dealers. According to JD Power and Associates, 25% of
new vehicle purchasers used the Internet to search for information or otherwise
assist them with their purchases in 1998 and this number is expected to
increase to approximately 37% by the end of 2001.

Our Web site and purchase process provide an environment that can
significantly reduce the traditional friction between dealers and consumers.
Consumers benefit from choice, rapid member dealer response and a competitive,
firm, upfront price. They also benefit from a single location where they can
obtain automotive-related products and services, such as insurance and
financing. In addition, our Customer Care Center acts as an independent
intermediary that provides personal attention to consumers, as they request it,
throughout the vehicle purchasing process. Member dealers benefit from our
cost-effective, performance-based pricing structure, which, unlike subscription
models where dealers pay a fixed monthly fee, requires dealers to pay only for
qualified purchase inquiries that we provide. Our Dealer Development and
Support Group certifies, and strives to maintain communication with, each
member dealer in order to help promote a convenient and efficient purchase
process. Further, we provide member dealers, automotive-related vendors,
manufacturers and advertisers with access to a large number of purchase-minded
consumers. According to surveys we received in the fourth quarter of 1998,
approximately 60% of all consumers who submitted a new vehicle purchase inquiry
through our Web site purchased a vehicle from one of our member dealers or
elsewhere within one month. Of these 60% who submitted a new vehicle purchase
inquiry and purchased a vehicle within one month, approximately 40% of those
who were contacted by a member dealer within 24 hours purchased a vehicle from
one of our member dealers.

Autoweb.com was incorporated in California in October 1995 and
reincorporated in Delaware in March 1999. Unless the context otherwise
requires, the terms "we," "our," "us" and "Autoweb.com" refer to Autoweb.com,
Inc., a Delaware corporation, and its California predecessor. Our principal
executive offices are located at 3270 Jay Street, Building 6, Santa Clara,
California 95054, and our telephone number is (408) 554-9552.

4
<PAGE>

The Offering

<TABLE>
<C> <S>
Common stock offered by Autoweb.com......... 4,900,000 shares

Common stock offered by Selling
Stockholders............................... 100,000 shares
Common stock to be outstanding after this
offering................................... 23,458,464 shares *

Use of proceeds............................. For general corporate purposes,
including advertising, capital
expenditures and working
capital. See "Use of Proceeds."

Nasdaq National Market symbol............... AWEB
</TABLE>
- --------
* Based on 18,558,464 shares of common stock outstanding as of December 31,
1998. Excludes (1) 2,386,990 shares issuable upon the exercise of stock
options and warrants outstanding as of December 31, 1998 and (2) 4,266,428
shares available for future grant or issuance under our employee benefit
plans.

Summary Financial Information

See Note 2 of Notes to Financial Statements for a description of the method
that we used to compute our basic and diluted net loss per share. The Pro Forma
column in the Balance Sheet Data below gives effect to the conversion of all
outstanding shares of preferred stock into common stock upon the closing of
this offering. The Pro Forma As Adjusted data give effect to the sale of the
4,900,000 shares of common stock that we are offering under this prospectus at
an initial public offering price of $14.00 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses. See
"Use of Proceeds" and "Capitalization."

<TABLE>
<CAPTION>
Date of Incorporation Year Ended December 31,
(October 3, 1995) to -------------------------
December 31, 1995 1996 1997 1998
--------------------- ------ ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues................. $ 26 $ 307 $ 3,492 $ 13,041
Gross profit................. 14 283 3,248 12,199
Stock-based compensation..... -- -- -- 5,601
Loss from operations......... (93) (835) (2,971) (11,425)
Net loss..................... (94) (845) (2,920) (11,484)
Net loss per share:
Basic and diluted........... $(0.01) $(0.11) $ (0.41) $ (1.58)
Weighted average shares--
basic and diluted.......... 7,200 7,497 7,794 7,850
Pro forma net loss per share:
Basic and diluted........... $ (0.69)
Weighted average shares--
basic and diluted.......... 16,669
</TABLE>

<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 2,714 $2,714 $65,512
Working capital............................... 800 800 63,598
Total assets.................................. 7,185 7,185 69,983
Long-term obligations, net of current
portion...................................... 654 654 654
Mandatorily redeemable convertible preferred
stock........................................ 12,969 -- --
Total stockholders' (deficit) equity.......... (11,661) 1,308 64,106
</TABLE>

5
<PAGE>

RISK FACTORS

You should carefully consider the risks described below before buying shares
in this offering. The risks and uncertainties described below are not the only
risks we face. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may impair our business operations. If any of
the following risks actually occur, our business, results of operations and
financial condition could be materially adversely affected, the trading price
of our common stock could decline, and you might lose all or part of your
investment. Please also see "Statements Regarding Forward-Looking Information."

We are an early stage company.

We were incorporated in October 1995. Therefore, we have a limited operating
history upon which to base an evaluation of our current business and prospects.
Moreover, our business model is evolving and depends on our ability to generate
revenues from multiple sources through our Web site. Before investing, you
should evaluate the risks, expenses and problems frequently encountered by
companies such as ours that are in the early stages of development and that are
entering new and rapidly changing markets like the Internet. In particular, to
address these risks we face the following challenges:

. maintaining and increasing our consumer base;
. maintaining and increasing our network of member dealers;
. managing the quality of services delivered by member dealers and
automotive-related vendors;
. generating continuing revenues through our Web site from consumers,
member dealers and other commercial vendors;
. competing effectively with existing and potential competitors;
. developing further our unproven business model;
. developing further Autoweb.com awareness and brand loyalty;
. anticipating and adapting to the evolving e-commerce market;
. continuing to develop our technology infrastructure to handle greater
Internet traffic efficiently;
. managing expanding operations;
. broadening our service offerings and attracting and retaining additional
automotive-related vendors and content providers to enable us to expand
our service offerings; and
. attracting and retaining qualified personnel.

We may not successfully implement any of our strategies or successfully
address these risks and uncertainties. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Our quarterly financial results are subject to significant fluctuations.

Our results of operations have varied widely in the past, and we expect that
they will continue to vary significantly from quarter to quarter due to a
number of factors described below and elsewhere in this prospectus:

6
<PAGE>

Due to the foregoing factors and factors described elsewhere in this
prospectus, we believe that quarter-to-quarter comparisons of our results of
operations are not a good indication of our future performance. It is likely
that our results of operations in some future quarter may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock is likely to decline. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Fluctuations in
Quarterly Operating Results."

We have a history of net losses and expect net losses for the foreseeable
future.

We have incurred net losses in each fiscal year since our inception,
including a net loss of $11.5 million in 1998, and we had an accumulated
deficit of $17.6 million as of December 31, 1998. We expect to have increasing
net losses and negative cash flows for the next several quarters and net losses
and continued negative cash flows at least through the end of 2000. The size of
these net losses will depend, in part, on the rate of growth in our revenues
from member dealer fees, other commercial vendor fees, advertising sales and
other electronic-commerce ("e-commerce") activities. It is critical to our
success that we continue to expend financial and management resources to
develop Autoweb.com brand awareness and loyalty through marketing and
promotion, expansion of our member dealer network, development of our online
content and expansion of our other services. As a result, we expect that our
operating expenses will increase significantly during the next several years,
especially in sales and marketing. With increased expenses, we will need to
generate significant additional revenues to achieve profitability. As a result,
we may never achieve or sustain profitability, and, if we do achieve
profitability in any period, we may not be able to sustain or increase
profitability on a quarterly or annual basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

We have a new and unproven business model.

The manner in which we conduct our business and charge for our services is
new and unproven. The model depends upon our ability to generate revenue
streams from multiple sources through our Web site, including:

. fees paid by member dealers for consumer referrals;
. fees paid by companies in industries related to vehicles such as
insurance and financing industries;
. advertising fees paid by manufacturers and other companies that want
access to vehicle purchasers; and
. fees paid by individuals who want to advertise their vehicles for sale.

In order for us to be successful, we must have consumers visit our Web site
regularly to increase the likelihood that they will use our service when they
are interested in buying a vehicle or a related product or service. Therefore,
we must not only develop services that directly generate revenue, but also
provide information and community offerings that attract consumers to our Web
site frequently. We will need to develop new offerings in each of these areas
as consumer preferences change and new competitors emerge. We cannot assure you
that we will be able to provide consumers with an acceptable blend of services,
informational and community offerings. We provide information and community
offerings without charge, and we may not be able to generate sufficient
services revenue to pay for these offerings. Accordingly, we are not sure our
business model will be successful or that we can sustain revenue growth or be
profitable.

The online market for automotive services is new and rapidly developing. As
is typical for any new, rapidly evolving market, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty and risk. For example, in 1998 we changed our pricing model from a
fixed-rate, subscription-based pricing model to a "pay for performance" pricing
model under which each member dealer pays a fee for each qualified purchase
inquiry that we deliver to it from a pre-selected geographic radius. In 1998,
we also changed our pricing levels. These changes may not prove to be
successful. It is also difficult to predict the market's future growth rate, if
any. Because of the low barriers to entry, the market is characterized by an
increasing number of market entrants. If the market fails to develop, develops
more slowly than expected or becomes saturated with competitors, or our
services do not achieve or sustain market acceptance, our business, results of
operations and financial condition could be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Background."

7
<PAGE>

We must reduce our allowances for doubtful accounts.

In 1998, we changed our pricing model and began selling our services to new
dealers using a "pay for performance" model instead of a subscription-based
pricing model. The increased risk of non-collection associated with a greater
scrutiny by member dealers of the validity of each purchase inquiry and
possibly the longer dealer credit cycle under the "pay for performance" model
have resulted in allowances for doubtful accounts increasing from 13% of
accounts receivable at December 31, 1997 to 19% of accounts receivable at
December 31, 1998. If we are unable to reduce our allowances for doubtful
accounts in the future, it could have a material adverse effect on our
business, results of operations and financial condition.

We are in an intensely competitive market.

The market for the purchase of vehicles and automotive-related products and
services is intensely competitive, and we expect competition to increase
significantly, particularly on the Internet. Barriers to entry on the Internet
are relatively low, and we may face competitive pressures from numerous
companies. Currently, we believe our most significant competitors are
Microsoft's CarPoint and Autobytel.com. There are also a number of Web sites
that offer vehicles, particularly vehicle manufacturers' own Web sites and
sites for electronic classifieds, and vehicle-related products and services. In
addition, there are numerous Web sites that offer vehicle information and other
content, as well as community offerings, directly to the vehicle buying
consumer generally or to targeted audiences such as car collectors. We could
face competition in the future from vehicle manufacturers, large dealer groups
or traditional media companies, such as newspaper, television and radio
companies, many of which currently operate a Web site. In addition to direct
competitors, we also compete indirectly with vehicle brokerage firms, discount
warehouse clubs and automobile clubs. Several auction Web sites have also
recently announced their intention to auction vehicles on the Internet.

Many of our existing and potential competitors have longer operating
histories in the Internet market, greater name recognition, larger consumer
bases and significantly greater financial, technical and marketing resources
than we do. Additionally, the e-commerce market is new and rapidly evolving,
and we expect competition among e-commerce companies to increase significantly.
We cannot assure you that Web sites maintained by our existing and potential
competitors will not be perceived by consumers, vehicle dealers, other
potential automotive-related vendors or advertisers as being superior to ours.
We also cannot assure you that we will be able to maintain or increase our Web
site traffic levels, purchase inquiries and click-throughs or that competitors
will not experience greater growth in these areas than we do. See "Business--
Competition."

Our business is dependent on the economic strength of the automotive industry.

The economic strength of the automotive industry impacts significantly the
revenues we derive from our member dealers and other automotive-related
vendors, advertising revenues and consumer traffic to our Web site. The
automotive industry is cyclical, with sales of vehicles changing due to changes
in national and global economic forces. Since our incorporation, sales of
vehicles in the United States have been at historically high levels. We cannot
assure you that sales of vehicles will stay at their current levels, and a
decrease in the current level of vehicle sales could have a material adverse
effect on our business, results of operations and financial condition.

We rely heavily on member dealers.

We derive the majority of our revenues from member dealer fees (payments
from member dealers for each consumer inquiry that we provide to them), and we
expect to continue to do so for the foreseeable future. Member dealer fees
represented approximately 85% of our net revenues in 1997 and approximately 70%
of our net revenues in 1998. Republic Industries, our largest member dealer,
represented less than 6% of our net revenues in 1998. Consequently, our
business is highly dependent on consumers' use of Autoweb.com to purchase
vehicles so that member dealers will achieve a satisfactory return on their
investment in the Autoweb.com program.

The success of our business strategy depends on our member dealers'
adherence to the Autoweb.com purchase process, including responding to consumer
purchase inquiries within 24 hours, providing a competitive, firm quote to
consumers during the initial communication, explaining the Autoweb.com purchase

8
<PAGE>

process to the consumer and answering any consumer questions. We devote
significant efforts and resources to certifying and supporting participating
member dealers in these practices that are intended to increase consumer
satisfaction. Our inability to certify and support member dealers effectively,
or member dealers' failure to adopt such practices, respond rapidly and
professionally to vehicle purchase inquiries, or sell vehicles in accordance
with our marketing strategies, could result in low consumer satisfaction and
materially adversely affect our business, results of operations and financial
condition. See "Business--Services."

We must reduce our high member dealer turnover.

To maintain and increase our network of member dealers, we must reduce the
rate of turnover of our member dealers. Commencing in February 1998, we
introduced a new "pay for performance" pricing model and began actively to
convert our existing member dealers to this model. Prior to that time, all of
our member dealers were on a subscription model under which they paid a fixed
amount per month regardless of the number of purchase inquiries that we
provided to them. During 1998, we lost approximately 60% of the member dealers
that we had at the beginning of the year and converted approximately 30% to the
new pricing model. As of January 25, 1999, there were approximately 105 member
dealers (approximately 3% of the total) that were on the subscription model,
but we anticipate that there will be almost no subscription-based member
dealers by the end of 1999. During 1998, we lost approximately 22% of the
performance-based member dealers that we converted or with which we first
entered into a contract in 1998. We believe there were three primary reasons
for this attrition:

. a number of our member dealers were not satisfied with our service as
subscription-based member dealers;
. a number of member dealers were unwilling to adequately devote the
resources required to obtain results from the performance-based model,
such as contacting consumers who submitted a purchase inquiry within 24
hours and dedicating a person at the dealer to ensure compliance with the
Autoweb.com purchase process; and
. a number of member dealers were inadequately trained and supported by us,
due to our inability to focus our resources adequately.

We believe that we can reduce our attrition rate over time as our member dealer
network stabilizes, due to the efforts of our Dealer Development and Support
Group and due to reduced conversion activity. Nevertheless, we cannot assure
you that we will be able to reduce the level of this attrition, and our failure
to do so could materially and adversely affect our business, results of
operations and financial condition.

We need to build strong brand loyalty.

We believe that establishing and maintaining our brand loyalty is critical
to attract consumers, member dealers, automotive-related vendors and
advertisers. Furthermore, we believe that the importance of brand loyalty will
increase as low barriers to entry encourage the proliferation of Web sites. In
order to attract and retain consumers, member dealers, advertisers and
partners, and in response to competitive pressures, we intend to increase
spending substantially to create and maintain brand loyalty among these groups.
We plan to accomplish this by expanding our current online advertising
campaigns and by conducting advertising campaigns in traditional forms of
media, such as newspaper, radio and television. We believe that advertising
rates, and the cost of our online advertising campaigns in particular, could
increase substantially in the future. If our branding efforts are not
successful, our business, results of operations and financial condition will be
materially and adversely affected.

Promotion and enhancement of the Autoweb.com brand will also depend, in
part, on our success in consistently providing a high-quality consumer
experience for purchasing vehicles and related products, relevant and useful
information and a quality "community experience." If consumers, other Internet
users, member dealers, automotive-related vendors and advertisers do not
perceive the Autoweb.com service offerings to be of high quality, or if we
introduce new services or enter into new business ventures that are not
favorably received by such groups, the value of our brand could be impaired or
diluted. Such brand impairment or dilution could decrease the attractiveness of
Autoweb.com to one or more of these groups, which could materially and
adversely affect our business, results of operations and financial condition.
See "Business--Marketing."

9
<PAGE>

We depend on third-party relationships.

We have entered into agreements with various commercial vendors, some of
which require us to feature them exclusively in certain sections of our Web
site. For example, we have entered into agreements with State Farm Mutual
Automobile Insurance Company ("State Farm"), pursuant to which State Farm has
the exclusive right to offer insurance services on our Web site through June
1999 and vehicle financing on our Web site through January 2000. Existing and
future exclusive arrangements may prevent us from entering into other content
agreements, advertising or sponsorship arrangements or other commercial
relationships. Many companies that we may pursue for a commercial relationship
may also offer competing services. As a result, these competitors may be
reluctant to enter into commercial relationships with us. Our business could be
adversely affected if we do not maintain our existing commercial relationships
on terms as favorable as currently in effect, if we do not establish additional
commercial relationships on commercially reasonable terms or if our commercial
relationships do not result in the expected increased use of our Web site.

We also depend on establishing and maintaining a number of commercial
relationships with high-traffic Web sites to increase traffic on Autoweb.com.
We currently have agreements with America Online, Yahoo!, Netscape
Communications and CNET's Search.com. There is intense competition for
placements on these sites, and in the future we may not be able to enter into
distribution relationships on commercially reasonable terms or at all. Even if
we enter into distribution relationships with these Web sites, they themselves
may not attract significant numbers of consumers. Therefore, our Web site may
receive less than the number of additional consumers we expect from these
relationships. Moreover, we may have to pay significant fees to establish or
renew these relationships.

We also depend on establishing and maintaining a number of commercial
relationships with other companies. Our current relationships include:

. New Car Test Drive and the Pep Boys, under which we purchase content for
use by our consumers;
. America Online's Digital City, Ameritech, Car and Driver and USA Today,
under which we share the revenue generated from automotive and related
purchase inquiries submitted by consumers and directed to our Web site
through links between our Web site and the other company's Web site; and
. members of the Autoweb.com Affiliates Program, each of which receives a
commission from us for each new or pre-owned vehicle purchase inquiry or
classified ad delivered to us through a link to the affiliate's Web site.

We cannot assure you that we will be able to establish new agreements or
maintain existing agreements or that the above agreements can be renewed on
commercially acceptable terms.

We also may not be able to maintain relationships with third parties that
supply us with the software or products that are crucial to our success, and
the vendors of these software or products may not be able to sustain any third-
party claims or rights against their use. Furthermore, we cannot assure you
that the software, services or products of those companies that provide access
or links to our services or products will achieve market acceptance or
commercial success. In addition, we cannot assure you that our existing
relationships will result in sustained business arrangements, successful
service or product offerings or the generation of significant revenues for us.
Failure of one or more of our relationships to achieve or maintain market
acceptance or commercial success or the termination of one or more relationship
could have a material adverse effect on our business, results of operations and
financial condition. See "Business--Marketing."

We need to continue to develop Autoweb.com content and service offerings.

To remain competitive we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of the Autoweb.com site and
develop new services in addition to continuing to improve the consumer
purchasing experience. These efforts may require the development or licensing
of increasingly complex technologies. We may not be successful in developing or
introducing new features, functions and services, and these features, functions
and services may not achieve market acceptance or enhance our brand loyalty. If
we fail to develop and introduce new features, functions or services
effectively, it could have a material adverse effect on our business, results
of operations and financial condition. See "Business--Strategy."

10
<PAGE>

We need to manage our growth.

Our recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources.
Several executive officers joined us recently. Any inability to manage growth
effectively could have a material adverse effect on our business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."

We are dependent on certain key personnel.

Our future success is substantially dependent on our senior management and
key technical personnel. We do not have key person life insurance, other than
for Farhang Zamani and Payam Zamani as required by the terms of certain of our
prior private financings. We do not intend to renew these policies upon their
expiration. If one or more of our key employees decided to leave us, join a
competitor or otherwise compete directly or indirectly with us, this could have
a material adverse effect on our business, results of operations and financial
condition.

Our future success depends on our continuing ability to retain and attract
highly qualified technical and managerial personnel. As of December 31, 1998,
we had 81 full-time employees, and we anticipate that the number of employees
will increase significantly during the next 12 months. Wages for managerial and
technical employees are increasing and are expected to continue to increase in
the foreseeable future due to the competitive nature of the current employment
market, particularly in Northern California. We may be unable to retain key
technical and managerial personnel or to attract and retain additional highly
qualified technical and managerial personnel in the future. We have experienced
difficulty from time to time attracting the personnel necessary to support the
growth of our business, and we may experience similar difficulty in the future.
Inability to attract and retain the technical and managerial personnel
necessary to support the growth of our business could have material adverse
effect upon our business, results of operations and financial condition. See
"Business--Technology," "--Employees" and "Management."

We face risks associated with possible regulation under state or federal
franchise laws.

If our relationships or written agreements with our member dealers are found
to constitute "franchises" under federal or state franchise laws, we would be
subject to regulations, such as franchise disclosure, registration requirements
and limitations on our ability to effect changes in our relationships with our
member dealers. We believe that neither our relationship with our member
dealers nor our member dealer subscription agreements constitute "franchises"
under state or federal franchise laws. However, we have not received legal
advice on this matter.

The state of Texas has challenged our pricing model under their Motor Vehicle
Code.

In May 1998, the Texas Department of Transportation notified us that, in
their opinion, our performance-based pricing model is illegal, because it makes
us a broker under Texas law. They have taken the position that the fee paid to
us by member dealers for each qualified purchase inquiry is equivalent to a
finder's or broker's fee and that we are arranging for two persons to meet and
enter into a transaction that involves the sale of a motor vehicle. We
currently intend to challenge this decision and have engaged counsel to advise
us in this matter. We presently intend to have a member of the Texas
legislature seek an Attorney General's opinion that the operation of a Web site
in the manner that we operate does not constitute us as a "broker" under the
Texas Motor Vehicle Code. However, if we are not successful in challenging this
decision, we not only may have to pay significant fines, but also will have
either to cease doing business in Texas or to change our pricing model for
member dealers in Texas from performance-based to subscription-based.

11
<PAGE>

We generally face risks associated with possible regulation under vehicle
brokerage, insurance, financing or other laws.

Substantially all states have laws that broadly define brokerage activities,
any of which could determine that we are acting as a broker. If this occurs, we
may be required to comply with burdensome licensing requirements or terminate
our operations in those states. In either case, our business, results of
operations and financial condition could be materially and adversely affected.
We believe that our service does not qualify as an vehicle brokerage activity
and therefore that state broker licensing requirements do not apply to us.
However, we have not sought a legal opinion regarding whether our service, in
general, or our performance-based pricing, in particular, would qualify us as a
vehicle brokerage activity in any state. State regulatory requirements may also
include us within an industry-specific regulatory scheme, such as those for the
vehicle insurance or vehicle financing industries. In the event that individual
states' regulatory requirements change or additional requirements are imposed
on us, we may be required to modify aspects of our business in those states in
a manner that might undermine the attractiveness of the Autoweb.com purchase
process to consumers, member dealers, automotive-related vendors or advertisers
or require us to terminate operations in that state, either of which could have
a material adverse effect on our business, results of operations and financial
condition.

We face risks associated with government regulation and legal uncertainties
associated with the Internet.

There are numerous state laws regarding the sale of vehicles. In addition,
government authorities may take the position that state or federal insurance
licensing laws, motor vehicle dealer laws or related consumer protection or
product liability laws apply to aspects of our business. As we introduce new
services and expand our operations to other countries, we will need to comply
with additional licensing and regulatory requirements.

A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as
to how existing laws will be applied to the Internet. The adoption of new laws
or the application of existing laws may decrease the growth in the use of the
Internet, which could in turn decrease the demand for our services, increase
our cost of doing business or otherwise have a material adverse effect on our
business, results of operations and financial condition.

The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. Recently, the Internet Tax
Information Act was signed into law placing a three-year moratorium on new
state and local taxes on Internet commerce. However, we cannot assure you that
future laws imposing taxes or other regulations on commerce over the Internet
would not substantially impair the growth of e-commerce and as a result have a
material adverse effect on our business, results of operations and financial
condition.

Certain local telephone carriers have asserted that the increasing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If such access fees are imposed, the
costs of communicating on the Internet could increase substantially,
potentially slowing the increasing use of the Internet, which could in turn
decrease demand for our services or increase our cost of doing business, and
thus have a material adverse effect on our business, results of operations and
financial condition. See "Business--Government Regulation."

We depend on increased use of the Internet.

Consumers and businesses will likely widely accept and adopt the Internet
for conducting business and exchanging information only if the Internet
provides these consumers and businesses with greater efficiencies and
improvements in commerce and communication. Our future success and revenue
growth depends

12
<PAGE>

substantially upon continued growth in the use of the Internet. In addition, e-
commerce generally, and the purchase of automotive and automotive related
products and services on the Internet in particular, must become widespread.
The Internet may prove not to be a viable commercial marketplace generally, or,
in particular, for vehicles and related products and services. If use of the
Internet does not continue to increase, our business, results of operations and
financial condition would be materially and adversely affected. See "Business--
Background."

We depend on continued improvements in our systems and the Internet
infrastructure.

Our ability to retain and attract consumers, member dealers, automotive-
related vendors and advertisers, and to achieve market acceptance of our
services and our brand, depends significantly upon the performance of our
systems and network infrastructure. Any system or network failure that causes
interruption or slower response time of our services could result in less
traffic to our Web site and, if sustained or repeated, could reduce the
attractiveness of our services to consumers, member dealers, automotive-related
vendors and advertisers. An increase in the volume of our Web site traffic
could strain the capacity of our technical infrastructure, which could lead to
slower response times or system failures. This would cause the number of
purchase inquiries, advertising impressions, other revenue producing e-commerce
offerings and our information and community offerings to decline, any of which
could hurt our revenue growth and our brand loyalty. In addition, if traffic
increases, we cannot assure you that our technical infrastructure, such as a
reliable network backbone with the necessary speed and data capacity and the
development of complementary products such as high-speed modems, will be able
to increase accordingly, and we face risks related to our ability to scale up
to expected consumer levels while maintaining performance. Further, security
and authentication concerns regarding the transmission of confidential
information over the Internet, such as credit card numbers, may continue. Any
failure of our server and networking systems to handle current or higher
volumes of traffic would have a material adverse effect on our business,
results of operations and financial condition.

The recent growth in Internet traffic has caused frequent periods of
decreased performance, requiring Internet service providers and users of the
Internet to upgrade their infrastructures. If Internet usage continues to
increase rapidly, the Internet infrastructure may not be able to support the
demands placed on it by this growth and its performance and reliability may
decline. If outages or delays on the Internet occur frequently, overall
Internet usage or usage of our Web site could increase more slowly or decline.
Our ability to increase the speed with which we provide services to consumers
and to increase the scope of such services is limited by and dependent upon the
speed and reliability of the Internet. Consequently, the emergence and growth
of the market for our services is dependent on future improvements to the
entire Internet.

In addition, our operations depend upon our ability to maintain and protect
our computer systems, all of which are located at our corporate headquarters in
Santa Clara, California. We currently do not have a backup disaster recovery
program or fully redundant systems for our service at an alternate site. The
system therefore is vulnerable to damage from fire, floods, earthquakes, power
loss, telecommunications failures and similar events. Although we maintain
insurance against fires, floods, earthquakes and general business
interruptions, the amount of coverage may not be adequate in any particular
case. The occurrence of such an event could have a material adverse effect on
our business, results of operations and financial condition.

The Internet industry is characterized by rapid technological change.

Rapid technological developments, evolving industry standards and consumer
demands, and frequent new product introductions and enhancements characterize
the market for Internet products and services. These market characteristics are
exacerbated by the emerging nature of the market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Our future success will significantly depend on our ability to
continually improve the vehicle purchasing experience, the addition of new and
useful services and content to our Web site, and the performance, features and
reliability of our Web site. In addition, the widespread adoption of developing
multimedia-enabling technologies could require fundamental and costly changes
in our technology and could fundamentally affect the nature, viability and

13
<PAGE>

measurability of Internet-based advertising, which could adversely affect our
business, results of operations and financial condition.

We could face liability for information retrieved from or transmitted over the
Internet and liability for products sold over the Internet.

We could be exposed to liability with respect to third-party information
that may be accessible through our Web site, or content and materials that may
be posted by consumers through our AutoTalk service. Such claims might assert,
among other things, that, by directly or indirectly providing links to Web
sites operated by third parties, we should be liable for copyright or trademark
infringement or other wrongful actions by such third parties through such Web
sites. It is also possible that, if any third-party content information
provided on our Web site contains errors, consumers could make claims against
us for losses incurred in reliance on such information.

We also enter into agreements with other companies under which any revenue
that results from the purchase of services through direct links to or from our
Web site is shared. Such arrangements may expose us to additional legal risks
and uncertainties, including local, state, federal and foreign government
regulation and potential liabilities to consumers of these services, even if we
do not provide the services ourselves. We cannot assure you that any
indemnification provided to us in our agreements with these parties, if
available, will be adequate.

Even to the extent such claims do not result in liability to us, we could
incur significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our system could require us to implement measures to
reduce our exposure to such liability, which might require the expenditure of
substantial resources or limit the attractiveness of our services to consumers,
member dealers, automotive-related vendors and others.

Our general liability insurance and our communications liability insurance
may not cover all potential claims to which we are exposed and may not be
adequate to indemnify us for all liability that may be imposed. Any imposition
of liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse effect on our business, results of
operations and financial condition.

Our intellectual property protection may be inadequate.

Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights. Despite the precautions we
have taken, 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.

Although we have not conducted any comprehensive searches, we are aware that
the name "Autoweb" is already in use in several regions in the United States
and in Australia. Due to our resource constraints and the perceived priority of
this issue, we have not yet researched the effect of the use of the name
"Autoweb" by other companies on our trademark or the impact of this use on our
ability to obtain the mark in other countries. As a result, we cannot guarantee
that we will be able to continue to use the name "Autoweb" in the future. If in
the future we were required to change our name and adopt a new trademark, we
would incur significant expenses related to marketing a replacement trademark,
and such a change would likely have a materially adverse effect on our
business. See "Business--Intellectual Property, Proprietary Rights and
Licenses."

We face risks associated with litigation.

Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management
attention. Furthermore, our business activities may infringe upon the
proprietary rights of others and other parties may assert infringement claims
against us, including claims that arise from directly or indirectly providing
hyperlink text links to Web sites

14
<PAGE>

operated by third parties. Moreover, from time to time, we may be subject to
claims of alleged infringement by us or our member dealers of the trademarks,
service marks and other intellectual property rights of third parties. Such
claims and any resultant litigation, should it occur, might subject us to
significant liability for damages, might result in invalidation of our
proprietary rights and, even if not meritorious, could result in substantial
costs and diversion of resources and management attention and have a material
adverse effect on our business, results of operations and financial condition.
See "Business--Intellectual Property, Proprietary Rights and Licenses."

We depend on third party technology.

We currently license from third parties certain technologies and information
incorporated into our Web site. As we continue to introduce new services that
incorporate new technologies and information, we may be required to license
additional technology and information from others. We cannot assure you that
these third-party technology and information licenses will continue to be
available to us on commercially reasonable terms, if at all. Additionally, we
cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also adversely
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated. See "Business--
Intellectual Property, Proprietary Rights and Licenses."

We may particularly be affected by general economic conditions.

Purchases of new vehicles are typically discretionary for consumers and may
be particularly affected by negative trends in the general economy. The success
of our operations depends to a significant extent upon a number of factors
relating to discretionary consumer spending, including economic conditions (and
perceptions of such conditions by consumers) affecting disposable consumer
income (such as employment, wages and salaries, business conditions, interest
rates, availability of credit and taxation) for the economy as a whole and in
regional and local markets where we operate. In addition, because the purchase
of a vehicle is a significant investment and is relatively discretionary, any
reduction in disposable income in general may affect us more significantly than
companies in other industries. In addition, our business strategy relies on
advertising by and agreements with other Internet companies. Any significant
deterioration in general economic conditions that adversely affects these
companies could also have a material adverse effect on our business, results of
operations and financial condition.

We have security risks.

On occasion, some experienced programmers have attempted to penetrate our
network security ("hackers"). We expect that these attempts, some of which have
succeeded, will continue to occur from time to time. Because a hacker who
penetrates our network security could misappropriate proprietary information or
cause interruptions in our services, we might be required to expend significant
capital and resources to protect against, or to alleviate, problems caused by
hackers. Additionally, we may not have a timely remedy against a hacker who is
able to penetrate our network security. In addition to purposeful security
breaches, the inadvertent transmission of computer viruses could expose us to
litigation or to a material risk of loss. Such security breaches and
inadvertent transmissions could have a material adverse effect on our business,
results of operations and financial condition.

In offering certain online payment services, we may increasingly rely on
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as consumer credit card numbers. 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 that we use
to protect our consumers' transaction data or our software vendors' products.
Any well-publicized compromise of security could deter use of the Internet in
general or use of the Internet to conduct transactions that involve
transmitting confidential information or downloading sensitive materials.

15
<PAGE>

We have risks associated with international operations and expansions.

A part of our long-term strategy is to establish Autoweb.com in
international markets. However, the Internet, or our commerce, content and
community services model, may not become widely accepted in any market. In
addition, we expect that the success of any additional foreign operations we
initiate will be substantially dependent upon our member dealers, automotive-
related vendors and content services. We may experience difficulty in managing
international operations as a result of failure to locate an effective foreign
partner, competition, technical problems, local laws and regulations, distance
and language and cultural differences. Our international partners may not be
able to successfully market and operate our community model in foreign markets.
There are also certain risks inherent in doing business internationally,
including:

. cultural and business practices differences;
. fluctuations in currency exchange rates;
. political;
. legal and economic instability;
. seasonal reductions in business activity in certain other parts of the
world; and
. potentially adverse tax consequences.

One or more of such factors might have a material adverse effect on our future
international operations and, consequently, on our business, results of
operations and financial condition.

Certain existing stockholders own a large percentage of our voting stock.

Following consummation of this offering, it is anticipated that our
officers, directors and 5% or greater stockholders will beneficially own or
control, directly or indirectly, 18,622,674 shares of common stock, which in
the aggregate will represent approximately 73% of the outstanding shares of
common stock. If the Underwriters' over-allotment option is exercised in full,
the number of shares and percentage will decrease to 18,522,674 and 71%,
respectively. As a result, if such persons act together, they will have the
ability to control all matters submitted to our stockholders for approval,
including (1) the election and removal of directors and (2) any merger,
consolidation or sale of all or substantially all of our assets. See "Principal
and Selling Stockholders."

We face Year 2000 risks.

The Year 2000 issue involves the potential for system and processing
failures of date-related data and is the result of the computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. We have not
completed our assessment of our internal and external (third-party) IT systems
and non-IT systems. To the extent that our assessment is finalized without
identifying any material noncompliant IT systems operated by us or by third
parties, the most reasonably likely worst case Year 2000 scenario is a
systematic failure beyond our control, such as a prolonged telecommunications
or electrical failure. Such a failure could prevent us from operating our
business, prevent users from accessing our Web site, or change the behavior of
advertising consumers or persons accessing our Web site. Any of these
eventualities could have a material adverse effect on our business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Impact of Year 2000."

Future sales of our common stock may depress our stock price.

After this offering, we will have outstanding 23,458,464 shares of common
stock. Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price of our common stock
to decline. All the shares sold in this offering will be freely tradable. Of
the remaining 18,458,464 shares of common stock outstanding after this
offering, 14,706 shares will be eligible for sale in the

16
<PAGE>

public market beginning 91 days after the date of this prospectus and
17,557,354 shares will become available for sale 181 days after the date of
this prospectus. The remaining 886,404 shares will become available at various
times thereafter upon the expiration of one-year holding periods. See "Shares
Eligible for Future Sale" and "Underwriting."

Our certificate of incorporation and bylaws and Delaware law contain provisions
that could discourage a takeover.

Certain provisions of Delaware law and our Certificate of Incorporation and
Bylaws could have the effect of delaying or preventing a change in control. See
"Description of Capital Stock."

17
<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 4,900,000
shares of common stock that we are offering hereby will be approximately $62.8
million, at an initial public offering price of $14.00 per share and after
deducting the underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that such net proceeds will be approximately $71.3 million. The
primary purposes of this offering are to obtain additional capital, create a
public market for our common stock and facilitate future access to public
capital markets. We will not receive any proceeds from the sale of the common
stock by the selling stockholders.

We intend to use at least $14.0 million of the net proceeds of this offering
to fund advertising and other promotions and at least $1.5 million of the net
proceeds of this offering to fund capital expenditures in 1999. The remaining
$47.3 million of the net proceeds of this offering will be utilized primarily
for working capital and other general corporate purposes. We may also use a
portion of the net proceeds from this offering to acquire or invest in
businesses, technologies or products that are complementary to our business.
However, we have no present plans or commitments and are not currently engaged
in any negotiations with respect to such transactions. Pending such uses, we
intend to invest the net proceeds from this offering in short-term, interest-
bearing, investment-grade securities.

DIVIDEND POLICY

We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future. In
addition, the terms of our Loan Agreement with CivicBank of Commerce dated
December 15, 1997 prohibit the payment of cash dividends on our capital stock.

18
<PAGE>

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
Autoweb.com as of December 31, 1998 (i) on an actual basis, (ii) on a pro forma
basis to reflect the conversion of all outstanding shares of preferred stock
into shares of common stock upon the closing of this offering and (iii) the pro
forma capitalization as adjusted to reflect the receipt of the net proceeds
from the sale of the 4,900,000 shares of common stock that Autoweb.com is
offering hereby at an initial public offering price of $14.00 per share and
after deducting the underwriting discounts and commissions and estimated
offering expenses.

<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(In thousands)
<S> <C> <C> <C>
Short-term debt:
Capital lease obligations.................... $ 14 $ 14 $ 14
Notes payable................................ 289 289 289
-------- -------- --------
Total short-term debt...................... $ 303 $ 303 $ 303
======== ======== ========
Notes payable, net of current portion(1)....... $ 654 $ 654 $ 654
-------- -------- --------
Mandatorily redeemable convertible preferred
stock(2)...................................... 12,969 -- --
-------- -------- --------
Stockholders' (deficit) equity (3):
Preferred stock, $0.001 par value per share;
actual and pro forma--no shares authorized,
issued or outstanding; pro forma as
adjusted--5,000,000 shares authorized, no
shares issued or outstanding................ -- -- --
Common stock, $0.001 par value per share;
actual--60,000,000 shares authorized,
8,063,173 shares issued and outstanding; pro
forma--60,000,000 shares authorized,
18,558,464 shares issued and outstanding;
pro forma as adjusted--60,000,000 shares
authorized, 23,458,464 shares issued and
outstanding................................. 2 12 17
Additional paid-in capital................... 11,371 24,330 87,123
Unearned stock-based compensation............ (5,406) (5,406) (5,406)
Accumulated deficit.......................... (17,628) (17,628) (17,628)
-------- -------- --------
Total stockholders' (deficit) equity ...... (11,661) 1,308 64,106
-------- -------- --------
Total capitalization..................... $ 1,962 $ 1,962 $ 64,760
======== ======== ========
</TABLE>
- ---------------------
(1) See Note 5 of Notes to Financial Statements.
(2) See Note 7 of Notes to Financial Statements.
(3) Excludes (a) 1,831,391 shares issuable upon the exercise of stock options
outstanding under our 1997 Stock Option Plan (the "1997 Plan") as of
December 31, 1998, at a weighted average per share exercise price of $0.49,
(b) 916,428 shares available as of that date for future grant under the
1997 Plan, (c) 2,950,000 shares available for future grant or issuance
under our 1999 Equity Incentive Plan (the "Equity Incentive Plan") and 1999
Directors Stock Option Plan (the "Directors Plan"), (d) 400,000 shares
available for issuance under our 1999 Employee Stock Purchase Plan (the
"Purchase Plan"), which number is subject to automatic annual increases up
to a maximum of 3,000,000 shares, (e) 395,661 shares issuable upon the
exercise of a stock option outstanding outside of the 1997 Plan as of
December 31, 1998, at a per share exercise price of $2.37 and (f) 159,938
shares issuable upon the exercise of warrants outstanding as of December
31, 1998, at a weighted average per share exercise price of $1.39. In
January and February 1999, we granted options to purchase approximately
528,752 shares at a weighted average exercise price of $3.41 and we issued
approximately 667,944 shares and 32,616 shares of common stock pursuant to
the exercises of options and warrants, respectively. See "Management--
Director Compensation," "Management--Employee Benefit Plans," "Description
of Capital Stock" and Notes 8, 9 and 13 of Notes to Financial Statements.

19
<PAGE>

DILUTION

The pro forma net tangible book value of Autoweb.com as of December 31, 1998
was $1.3 million or $0.07 per share of common stock, assuming the conversion of
all outstanding shares of preferred stock into shares of common stock. "Pro
forma net tangible book value per share" is determined by dividing the pro
forma number of outstanding shares of common stock into the net tangible book
value of Autoweb.com (total tangible assets less total liabilities). After
giving effect to the receipt of the estimated net proceeds from the sale by
Autoweb.com of the 4,900,000 shares of common stock that it is offering hereby
(based upon an initial public offering price of $14.00 per share and after
deducting the underwriting discounts and commissions and estimated offering
expenses), the pro forma net tangible book value of Autoweb.com as of December
31, 1998 would have been approximately $64.1 million, or $2.73 per share. This
represents an immediate increase in pro forma net tangible book value of $2.66
per share to existing stockholders and an immediate dilution of $11.27 per
share to new investors purchasing shares at the initial public offering price.
The following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share........................... $14.00
Pro forma net tangible book value per share as of December 31,
1998........................................................... $0.07
Increase per share attributable to new investors................ 2.66
-----
Pro forma net tangible book value per share after offering........ 2.73
------
Dilution per share to new investors............................... $11.27
======
</TABLE>

The following table summarizes as of December 31, 1998, on the pro forma
basis described above, the number of shares of common stock purchased from
Autoweb.com, the total consideration paid to Autoweb.com and the average price
per share paid by existing stockholders and by investors purchasing shares of
common stock in this offering (before deducting the underwriting discounts and
commissions and estimated offering expenses):

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...... 18,558,464 79.1% $12,637,487 15.6% $ 0.68
New investors(1).............. 4,900,000 20.9 68,600,000 84.4 14.00
---------- ----- ----------- -----
Total....................... 23,458,464 100.0% $81,237,487 100.0%
========== ===== =========== =====
</TABLE>
- ---------------------
(1) The sales by the Selling Stockholders in this offering will reduce the
number of shares of common stock held by existing stockholders to
18,458,464, or approximately 78.7% of the total shares of common stock
outstanding immediately after this offering, and will increase the number
of shares of common stock held by new investors to 5,000,000, or 21.3% of
the total number of shares of common stock outstanding immediately after
this offering. See "Principal and Selling Stockholders."

The foregoing discussion and tables assume no exercise of any stock options
or warrants after December 31, 1998. As of December 31, 1998, there were
options and warrants outstanding to purchase a total of 2,386,990 shares of
common stock. To the extent that any of these options or warrants are
exercised, there will be further dilution to new public investors. See
"Capitalization," "Management--Employee Benefit Plans," "Description of Capital
Stock" and Notes 8, 9 and 13 of Notes to Financial Statements.

20
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with,
and are qualified by reference to, the financial statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The statement of operations
data for the years in the three-year period ended December 31, 1998, and the
balance sheet data as of December 31, 1997 and 1998, are derived from, and are
qualified by reference to, the audited financial statements of Autoweb.com
included elsewhere in the prospectus. The statement of operations data for the
year ended December 31, 1995 and for each of the four quarters of 1998 and the
balance sheet data as of December 31, 1995 and 1996 are derived from our
unaudited financial statements. The unaudited financial statements have been
prepared on substantially the same basis as the audited financial statements
and include all adjustments, consisting only of normal recurring adjustments,
that we consider necessary for a fair presentation of the financial position
and results of operations for the period.

<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended
---------------------------------- --------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1995(1) 1996 1997 1998 1998 1998 1998 1998
------- ------ ------- -------- -------- -------- -------- --------
(In thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ 26 $ 307 $ 3,492 $ 13,041 $ 2,156 $ 2,811 $ 3,287 $ 4,787
Cost of net revenues.... 12 24 244 842 111 156 245 330
------ ------ ------- -------- ------- ------- ------- -------
Gross profit........... 14 283 3,248 12,199 2,045 2,655 3,042 4,457
------ ------ ------- -------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 54 866 5,216 13,619 2,654 3,686 3,546 3,733
Product development.... 29 57 325 586 130 136 124 196
General and
administrative........ 24 195 678 3,818 955 958 990 915
Stock-based
compensation.......... -- -- -- 5,601 4 11 11 5,575
------ ------ ------- -------- ------- ------- ------- -------
Total operating
expenses.............. 107 1,118 6,219 23,624 3,743 4,791 4,671 10,419
------ ------ ------- -------- ------- ------- ------- -------
Loss from operations.... (93) (835) (2,971) (11,425) (1,698) (2,136) (1,629) (5,962)
Interest and other
income (expense), net.. (1) (10) 51 (59) (2) 2 (33) (26)
------ ------ ------- -------- ------- ------- ------- -------
Net loss................ (94) (845) (2,920) (11,484) $(1,700) $(2,134) $(1,662) $(5,988)
======= ======= ======= =======
Accretion of mandatorily
redeemable convertible
preferred stock to
redemption value....... -- (8) (276) (890)
------ ------ ------- --------
Net loss attributable to
common stockholders.... $ (94) $ (853) $(3,196) $(12,374)
====== ====== ======= ========
Net loss per share(2):
Basic and diluted...... $(0.01) $(0.11) $ (0.41) $ (1.58)
====== ====== ======= ========
Weighted average
shares--basic and
diluted............... 7,200 7,497 7,794 7,850
====== ====== ======= ========
Pro forma net loss per
share(2):
Basic and diluted...... $ (0.69)
========
Weighted average
shares--basic and
diluted............... 16,669
========
</TABLE>

<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1996 1997 1998
----- ----- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $ -- $ 11 $ 1,819 $ 2,714
Working capital (deficiency)................. (118) (761) 773 800
Total assets................................. 57 261 3,294 7,185
Long-term obligations, less current portion.. 9 81 17 654
Mandatorily redeemable convertible preferred
stock....................................... -- 158 5,261 12,969
Total stockholders' deficit.................. (93) (884) (4,030) (11,661)
</TABLE>
- ---------------------
(1)Represents the results of operations for Autoweb.com from incorporation
(October 3, 1995) through December 31, 1995.
(2)See Note 2 of Notes to Financial Statements for a description of the method
used to compute basic and diluted net loss per share.

21
<PAGE>

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

This prospectus contains forward-looking statements, the accuracy of which
involves risks and uncertainties. We use words such as "anticipates,"
"believes," "plans," "expects," "future" and "intends" and similar expressions
to identify forward-looking statements. This prospectus also contains forward-
looking statements attributed to certain third parties relating to their
estimates regarding the growth of certain e-commerce, automotive and
automotive-related product and service markets and spending. You should not
place undue reliance on these forward-looking statements, which apply only as
of the date of this prospectus. Our actual results could differ materially from
those anticipated in our forward-looking statements for many reasons, including
the risks described in "Risk Factors" and elsewhere in this prospectus.

Overview

We originally charged our member dealers based on a subscription model,
where each member dealer paid a flat monthly fee in exchange for our directing
consumer purchase inquiries to them. Because the number of purchase inquiries
directed to member dealers varied widely, due to factors such as their location
and franchise type, the cost per purchase inquiry under this model differed
substantially from member dealer to member dealer. In February 1998, we changed
our pricing model and began selling our services to new dealers using a "pay
for performance" model. Under this arrangement, a member dealer pays us a fee
only for a qualified purchase inquiry that it actually receives. We believe our
"pay for performance" model enables our member dealers to maximize their return
from, and enhances their satisfaction with, our services. In February 1998, we
also began converting our existing member dealer subscription contracts to
contracts utilizing the pay for performance model. As of January 25, 1999,
approximately 97% of our member dealer contracts utilized the pay for
performance model. We expect that there will be almost no subscription paying
member dealers by the end of 1999.

We derive the majority of our revenues from fees charged to our member
dealers in exchange for qualified purchase inquiries and expect to continue to
do so for the foreseeable future. The revenue related to each fee is recognized
at the time the qualified purchase inquiry is provided to the member dealer. We
maintain a returns reserve against purchase inquiries that are later deemed not
to have been "qualified." In December 1996, we began providing online
advertising space on the Autoweb.com site and recognizing revenues from fees
paid by these advertisers. Revenues from advertising contracts, which typically
have terms of less than three months, are recognized as the contracts are
fulfilled. We expect that this component of our revenues will continue to
increase in absolute dollar terms. In February 1997, we began offering
automotive-related services on the Autoweb.com Web site through agreements with
third-party vendors. We derive revenues from certain of these agreements where
a third party pays us for the right to provide its consumer services, such as
automobile financing and insurance, on our Web site. Revenues from these
agreements are generally recognized ratably over the terms of the agreements.
We expect that this component of our revenues will continue to increase both in
absolute dollar terms and as a percentage of net revenues.

Our recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. To
manage our potential growth, we must continue to implement and

22
<PAGE>

improve our operational and financial systems, and must expand, train and
manage our employee base. Our Chief Technology Officer and our Vice President,
Product Management have been with us only since February 1999. Our Senior Vice
President, Sales and Member Services has been with us only since January 1999.
Our Chief Executive Officer and our Vice President, Business Development and
Advertising Sales joined us during December 1998. In addition, our Vice
President, Dealer Operations has been with us since January 1998 and our Chief
Financial Officer and our Vice President, Marketing have been with us for less
than two years. We cannot assure you that we will be able to manage the
expansion of our operations effectively, that our systems, procedures or
controls will be adequate to support our operations or that our management will
be able to fully exploit the market opportunity for our services. Any inability
to manage growth effectively could have a material adverse effect on our
business, results of operations and financial condition.

We incurred net losses of $845,000, $2.9 million and $11.5 million
(including $5.6 million of stock-based compensation) in 1996, 1997 and 1998,
respectively. We intend to increase our focus and spending on brand
development, marketing and promotion, site content development, strategic
relationships and technology and operating infrastructure development. As a
result, we expect to have increasing net losses and negative cash flows from
operations for the next several quarters, and net losses and negative cash
flows at least through the end of 2000. Our limited operating history makes it
difficult to forecast future operating results. Although our net revenues have
grown in recent quarters, we cannot be certain that net revenues will increase
at a rate sufficient to achieve and maintain profitability. Even if we were to
achieve profitability in any period, we might fail to sustain or increase that
profitability on a quarterly or annual basis.

Quarterly Results of Operations

The following table sets forth our unaudited statements of operations for
each quarter in 1998. These financial statements have been prepared on
substantially the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, that we
consider necessary for a fair presentation of the results of operations for
each quarter. The results for any quarter are not necessarily indicative of the
results to be expected in any future period.

<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1998 1998 1998 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues............................... $ 2,156 $ 2,811 $ 3,287 $ 4,787
Cost of net revenues....................... 111 156 245 330
------- ------- ------- -------
Gross profit.............................. 2,045 2,655 3,042 4,457
------- ------- ------- -------
Operating expenses:
Sales and marketing....................... 2,654 3,686 3,546 3,733
Product development....................... 130 136 124 196
General and administrative................ 955 958 990 915
Stock-based compensation.................. 4 11 11 5,575
------- ------- ------- -------
Total operating expenses.................. 3,743 4,791 4,671 10,419
------- ------- ------- -------
Loss from operations....................... (1,698) (2,136) (1,629) (5,962)
Interest and other income (expense), net... (2) 2 (33) (26)
------- ------- ------- -------
Net loss................................... $(1,700) $(2,134) $(1,662) $(5,988)
======= ======= ======= =======
</TABLE>

Net Revenues

Net revenues increased sequentially in each of the last three quarters.
Member dealer fee revenues represented at least 60% of net revenues in each
quarter. Substantially all of our member dealer fee revenues in the first
quarter of 1998 were derived from fixed subscription fees. In February 1998, we
began to convert our member dealers to a "pay for performance" model where they
pay a fee only for qualified purchase inquiries

23
<PAGE>

that we provide to them. As of January 25, 1999, approximately 3% of our member
dealers were on the subscription model. We plan to convert substantially all of
these remaining member dealers to the new model during 1999.

Member dealer fee revenues remained relatively constant in absolute dollars
and declined as a percentage of net revenues in the third quarter of 1998 and
then increased in absolute dollars and as a percentage of net revenues in the
fourth quarter of 1998 as alterations to our Web site caused variations in the
ratio of purchase inquiries to number of Web site visitors. Revenue from State
Farm for vehicle insurance referrals that we made to them increased
sequentially, and represented at least 10% of total net revenues, in each of
the last three quarters. We expect that revenue from State Farm for vehicle
insurance referrals in the first two quarters of 1999 will be the same as
revenue from State Farm in the fourth quarter of 1998. None of our other
sources of revenue has exceeded 10% of net revenues in any quarter except that
corporate advertising revenues exceeded 10% of total net revenues in the third
quarter of 1998. Our goal over time is to increase aggregate revenues from
sources other than dealer fees as a percentage of total net revenues.

Cost of Net Revenues

Cost of net revenues primarily represents costs for Web site operations,
revenue sharing expenses related to the operation of co-branded Web pages, and
royalties paid to third parties whose information is provided on our Web site.
Our cost of net revenues increased sequentially in the last three quarters of
1998. These increases resulted from increases in the number of Web site
operations personnel and higher depreciation charges as we increased our
investment in Web site equipment. In addition, there were increases in revenue
sharing expenses as the co-branded sites began to contribute an increasing
number of consumer inquiries. We anticipate continuing increases in cost of net
revenues as our dealer fee revenues increase and as we continue to make
investments to increase the size and speed of our Web site.

Sales and Marketing

Our sales and marketing expenses are comprised primarily of compensation for
sales and marketing personnel, expenses for online advertising, trade shows and
other advertising and promotion and an allocation of our occupancy costs and
other overhead. Sales and marketing expenses increased significantly from the
first quarter of 1998 to the second quarter of 1998 primarily as a result of
increased sales commissions paid for enrolling new member dealers, increased
online advertising and growth in the number of sales personnel. Sales and
marketing expenses decreased from the second quarter of 1998 to the third
quarter of 1998 primarily as a result of reduced aggregate sales commissions.
Sales and marketing expenses increased again in the fourth quarter of 1998,
primarily as a result of increases in online advertising, partly offset by
reduced personnel expenses. We expect that sales and marketing expenses will
increase significantly in the next several quarters as a result of increased
online advertising and, to a lesser extent, increased personnel and advertising
in traditional media.

Product Development

Our product development expenses consist primarily of compensation for
product development personnel and an allocation of our occupancy costs and
other overhead. We expense product development costs as they are incurred.
Product development expenses were relatively constant in the first three
quarters of 1998 and then increased significantly in the fourth quarter as a
result of increased product development headcount and associated recruiting
costs. We expect that product development expenses will continue to increase
over the next several quarters as we continue to hire additional personnel in
this area.

General and Administrative

Our general and administrative expenses consist primarily of compensation
for administrative personnel, fees for outside professional advisors and an
allocation of our occupancy costs and other overhead. General and

24
<PAGE>

administrative expenses remained relative constant in the comparison periods.
We expect that general and administrative expenses will increase over the next
several quarters as we continue to hire additional personnel but will decrease
as a percentage of our total operating expenses.

Stock-Based Compensation

Under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock-based Compensation," compensation expense is recognized based on the
difference, if any, between the fair value of our stock on the date of each
option grant and the exercise price of the option. In the fourth quarter, we
recognized unearned stock-based compensation of approximately $11.0 million. Of
this amount, $5.6 million was amortized in the fourth quarter of 1998 when a
significant portion of the options became vested. The remaining unearned stock-
based compensation of $5.4 million will be amortized at approximately $340,000
per quarter through 2002. We anticipate recognizing substantial additional
stock-based compensation in 1999. Based on option grants in January and
February 1999, we expect to record an additional $2.2 million of unearned
stock-based compensation, which will result in additional amortization of
approximately $239,000 in the first quarter of 1999 and a further $395,000 in
the remainder of 1999.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, in each quarter resulted primarily
from interest expense on borrowings under our credit facilities, offset partly
by interest income earned on our cash and cash equivalent balances. The
decrease in interest and other income (expense), net, between the third and
fourth quarters of 1998 was a result of interest expense paid on higher levels
of borrowing, offset partly by interest income earned in the fourth quarter on
the net proceeds from our sale of Series D preferred stock in October 1998.

Annual Results of Operations

Net Revenues

Our net revenues increased from $307,000 in 1996 to $3.5 million in 1997 and
to $13.0 million in 1998. Approximately 85% of the increase in net revenues
from 1996 to 1997 and approximately 65% of the increase from 1997 to 1998 were
due to higher levels of net dealer fee revenues. Revenues derived from
insurance referrals and advertisers accounted for most of the remaining
increase in net revenues for these periods. Dealer fee revenues increased as a
result of increases in the size of our member dealer network and the number of
purchase inquiries that we provided to our member dealers. As described above,
we began to change our pricing model in February 1998 from a subscription-based
model to a "pay for performance" model.

Cost of Net Revenues

Cost of net revenues increased from $24,000 in 1996 to $244,000 in 1997 to
$842,000 in 1998. Approximately 58% of the increase in cost of net revenues
from 1996 to 1997 and approximately 37% of the increase from 1997 to 1998 were
due to increases in the costs of Web site operations, including personnel,
equipment, depreciation and occupancy costs. Approximately 27% of the increase
in cost of net revenues from 1996 to 1997 and approximately 38% of the increase
from 1997 to 1998 were due to increases in the cost of providing site content
information, such as Kelley Blue Book data. Revenue sharing expenses, related
to the operation of our co-branded sites, which began contributing an
increasing number of consumer inquiries, accounted for most of the remaining
increases.

Sales and Marketing

Our sales and marketing expenses increased from $866,000 in 1996 to $5.2
million in 1997 to $13.6 million in 1998. Approximately 44% of the increase in
sales and marketing expenses from 1996 to 1997 and approximately 53% of the
increase from 1997 to 1998 were due to increases primarily in online
advertising and, to a lesser extent, our spending on public relations,
advertising in the traditional media, trade

25
<PAGE>

shows and other promotions. Approximately 45% of the increase in sales and
marketing expenses from 1996 to 1997 and approximately 28% of the increase from
1997 to 1998 were due to increases in personnel costs caused by significant
increases in headcount, primarily salespersons focused on enrolling member
dealers.

Product Development

Our product development expenses increased from $57,000 in 1996 to $325,000
in 1997 to $586,000 in 1998. These expenses increased primarily as a result of
increased hiring of product development personnel and, to a lesser extent, as a
result of increased occupancy costs.

General and Administrative

Our general and administrative expenses increased from $195,000 in 1996 to
$678,000 in 1997 to $3.8 million in 1998. Approximately 19% of the increase in
general and administrative expenses from 1996 to 1997 and approximately 51% of
the increase from 1997 to 1998 were due to increases in personnel costs
resulting from increased hiring of administrative personnel, including most of
our current officers. Approximately 58% of the increase from 1996 to 1997 and
approximately 15% of the increase from 1997 to 1998 were due to increases in
information technology support related to administrative functions and
occupancy costs.

Stock-Based Compensation

We incurred no stock-based compensation expense in 1996 or 1997. We recorded
a total of $11.0 million of unearned stock-based compensation in 1998, of which
$5.6 million was amortized in 1998, primarily in the fourth quarter.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, in 1996 and 1998 represents
interest expense on borrowings under capital leases and our credit facilities,
partially offset by interest income earned on our cash and cash equivalent
balances. In 1997, interest income earned on our cash and cash equivalent
balances from the net proceeds from our sale of Series B preferred stock in
June 1997 exceeded interest expense on borrowings.

Income Taxes

We recorded net losses of $845,000, $2.9 million and $11.5 million in 1996,
1997 and 1998, respectively. Accordingly, no provision for income taxes was
recorded in any of these years. The resulting deferred tax asset, representing
such net operating loss carryforwards, has been reduced in full by a valuation
allowance as it is more likely than not that the deferred tax asset will not be
realized.

Recent Accounting Pronouncements

In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. We do not expect that the
adoption of SOP No. 98-1 will have a material impact on its financial
statements.

In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP No. 98-5 will have a material impact on its
financial statements.

26
<PAGE>

Fluctuations in Quarterly Operating Results

Our results of operations have varied widely in the past, and we expect that
they will continue to vary significantly from quarter to quarter due to a
number of factors, including:

. demand for the products and services from our member dealers and other
automotive-related vendors, and for our online services;
. announcement or introduction of new or enhanced services by us or by our
competitors;
. loss of relationships with any of our major member dealers or other major
automotive-related vendors;
. loss of relationships with a significant number of our member dealers;
. level of traffic on our Web site and other Web sites that refer consumers
to our Web site;
. delays in providing additional online content and services;
. our ability to retain existing and attract new consumers, member dealers,
other automotive-related vendors and advertisers;
. changes in our pricing model and changes in our or our competitor's
pricing of services;
. acceptance by our member dealers of our policies regarding service
quality, response time to consumers and vehicle pricing;
. changes in the growth rate of Internet usage;
. acceptance by consumers and advertisers of using the Internet for
automotive and automotive-related products and services;
. technical difficulties, system failures or Internet downtime;
. changes in state and federal government regulations and their
interpretations, especially with respect to the automotive or Internet
industries;
. our ability to upgrade and develop our information technology systems and
infrastructure;
. costs related to acquisitions of technology or businesses; and
. general economic conditions, as well as those specific to the Internet
and the automotive and automotive-related industries.

Our revenue growth rates may not be sustainable. Any shortfall in our
revenues would immediately increase our operating losses and would adversely
affect the market price of our common stock. We expect that over time our
revenues will come from a mix of fees from member dealers, automotive-related
vendors and advertisers. However, we expect to be substantially dependent on
member dealer fees. Therefore, our quarterly revenues and operating results are
likely to be particularly affected by the level of member dealer fees in each
quarter. We plan to increase our operating expenses significantly in order to
expand our sales and marketing operations, broaden our consumer and member
dealer capabilities, and fund greater levels of online service development. Our
operating expenses, which include sales and marketing, product development and
general and administrative expenses, are based on our expectations of future
revenues and are relatively fixed in the short term. We generally operate with
minimal backlog, and consequently our revenues for each quarter depend on sales
completed in that quarter. If revenues fall below our expectations, we will not
be able to reduce our spending rapidly in response to such a shortfall. This
will adversely affect our operating results.

We believe that we may experience seasonality in our business. The seasonal
patterns of Internet usage and vehicle purchasing do not completely overlap.
Internet usage typically declines during the summer and certain holiday
periods, while vehicle purchasing in the United States is strongest in the late
spring and summer months. Because of our limited operating history, we do not
know which seasonal pattern, if any, will predominate. Additionally, the
automotive industry is cyclical, with sales of vehicles changing due to changes
in national and global economic forces. Since our incorporation, sales of
vehicles in the United States have been at historically high levels. There is
no guarantee that sales of vehicles will stay at their current levels.

Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our results of operations are not a good indication of our future
performance. It is likely that our results of operations in some future quarter
may be below the expectations of public market analysts and investors. In this
event, the price of our common stock is likely to decline.

27
<PAGE>

Liquidity and Capital Resources

Since incorporation, we have financed our operations primarily from sales of
preferred stock and, in 1998 to a significantly lesser extent, borrowings under
a long-term debt facility.

Net cash used in operating activities was $36,000 in 1996, $2.4 million in
1997 and $4.6 million in 1998, in each case primarily as a result of our net
loss before noncash expenses. In 1996, our $845,000 net loss was largely offset
by an increase in deferred revenue of $486,000 and an increase in accounts
payable and other accrued expenses of $181,000. In 1997, our $2.9 million net
loss was partially offset by a $634,000 increase in accounts payable and other
accrued expenses. In 1998, our $5.9 million net loss before stock-based
compensation expense was partially offset by an increase of $1.7 million in
accounts payable and other accrued expenses.

Net cash used in investing activities was $82,000 in 1996, $519,000 in 1997
and $1.2 million in 1998, substantially all of which was used to acquire
property and equipment, primarily computer equipment and software.

Net cash provided by financing activities was $129,000 in 1996, $4.7 million
in 1997 and $6.7 million in 1998. In 1996 and 1997, net cash provided by
financing activities was almost entirely the result of proceeds from the
issuance of preferred stock. In 1998, net cash provided by financing activities
was primarily the result of proceeds from the issuance of preferred stock (net
of repurchases) and, to a lesser extent, the result of proceeds from borrowings
under a long-term credit facility.

At December 31, 1998, we had cash and cash equivalents of $2.7 million. We
also had a revolving bank line of credit under which we may borrow up to the
lesser of 70% of eligible accounts receivable or $1.3 million. There were no
borrowings under this line of credit at December 31, 1998. Any borrowings under
this line of credit would bear interest at prime plus 1.0% (8.75% at December
31, 1998) and would be collateralized by accounts receivable. The line of
credit requires us to comply with certain financial covenants.

In 1998, we changed our pricing model and began selling our services to new
dealers using a "pay for performance" model instead of a subscription-based
pricing model. The increased risk of non-collection associated with the longer
dealer credit cycle under the "pay for performance" model has resulted in
allowances for doubtful accounts increasing from 13% of accounts receivable at
December 31, 1997 to 19% of accounts receivable at December 31, 1998.

We had no material commitments for capital expenditures at December 31,
1998. As of that date, we had total minimum lease obligations of $2.2 million
under certain noncancellable operating leases. Also, as a result of a December
1998 agreement with Yahoo!, we are obligated to made aggregate payments of $2.2
million to Yahoo! over the 13-month term of the agreement. We believe that the
net proceeds from this offering, together with the availability of additional
funds under our line of credit will be sufficient to meet our cash requirements
for the next 12 months. Depending on our rate of growth and cash requirements,
we may require additional equity or debt financing to meet future working
capital or capital expenditure needs. There can be no assurance that such
additional financing will be available or, if available, that such financing
can be obtained on terms satisfactory to us.

Impact of Year 2000

The Year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.

28
<PAGE>

We may be affected by Year 2000 issues related to non-compliant information
technology ("IT") systems or non-IT systems operated by us or by third parties.
We have not completed our assessment of our internal and external (third-party)
IT systems and non-IT systems. At this point in our assessment, we believe we
will require upgrades, or patches, from certain vendors, including Microsoft,
that have provided certain software that we have included in our Web site.
Although none of these vendors has informed us of any specific delivery
schedule for receipt of their upgrades, we expect to receive their upgrades
later in 1999. In addition, we believe that we will be required to modify
certain software on our Web site that we developed. We intend to include these
modifications in various upgrades to our Web site throughout 1999. At this
point in our assessment, we believe we will become Year 2000 compliant shortly
after receiving the necessary upgrades, or patches, from certain vendors. We do
not have a contingency plan. The costs associated with remediating our
noncompliant IT systems and non-IT systems have not been material to date and
we do not anticipate that such costs will be material in the future, although
we cannot assure you that such costs will not be material.

To the extent that our assessment is finalized without identifying any
material noncompliant IT systems operated by us or by third parties, the most
reasonably likely worst case Year 2000 scenario is a systematic failure beyond
our control, such as a prolonged telecommunications or electrical failure. Such
a failure could prevent us from operating our business, prevent users from
accessing our Web site, or change the behavior of advertising consumers or
persons accessing our Web site. We believe that the primary business risks, in
the event of such failure, would include:

. lost advertising revenues;
. increased operating costs;
. loss of consumers or persons accessing our Web site; and
. claims of mismanagement, misinterpretation or breach of contract.

Any of these risks could have a material adverse effect on our business,
results of operations and financial condition.

29
<PAGE>

BUSINESS

This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors."

Autoweb.com is a leading consumer automotive Internet service. Our Web site
and centralizes an extensive collection of automotive-related commerce, content
and community offerings to assist consumers in researching, evaluating and
buying new and pre-owned vehicles. In addition, our Web site enables consumers
to conveniently purchase automotive-related products and services such as
insurance and financing. Our Web site and purchase process are designed to
provide consumers with dedicated customer care, choice and the means to execute
their buying decisions through a process that we believe is faster, better and
easier than traditional alternatives. We currently have a network of
approximately 3,900 member dealers (where each franchise location for a
particular vehicle manufacturer is defined as a member dealer) including
approximately 1,200 pre-owned vehicle locations. In the fourth quarter of 1998,
we delivered approximately 250,000 vehicle and vehicle-related purchase
inquiries to member dealers and automotive-related vendors. We have developed a
scalable business model characterized by multiple revenue sources and a
leveragable online infrastructure.

Background

The Market for Vehicles and Related Products and Services

The global proliferation of cars and light trucks ("vehicles") and related
products and services has served to make the automotive industry one of the
largest in the world. The Polk Company, an automotive research firm, estimates
that there were over 192 million registered vehicles in the United States as of
December 31, 1997. The Wall Street Journal and CNW Marketing/Research, a market
research firm, estimate that approximately 15 million new and 41 million pre-
owned vehicles, respectively, were sold in the United States in 1997. Based on
these figures, CNW Marketing/Research estimates that the new and pre-owned
vehicle market exceeded $670 billion. A large market also exists for
automotive-related products and services, such as insurance, financing, parts,
repairs and accessories. According to A.M. Best, an insurance research firm,
total automobile insurance premiums were expected to exceed $136 billion in
1998. In addition, the U.S. Federal Reserve Board estimates that the automotive
consumer credit market totaled approximately $440 billion as of November 1998.
Total sales for automotive parts, repairs, and accessories, as forecasted by
the Automotive Parts and Accessories Association, are expected to exceed $156
billion in 1998. Combining these market size estimates results in a total
United States market for vehicles and automotive-related products and services
in excess of $1 trillion.

Despite its size and impact, the new and pre-owned vehicle market suffers
from an aging distribution infrastructure that is fragmented and inefficient
for both consumers and dealers. Automotive News estimates that there are
approximately 22,000 franchised dealerships (excluding independent dealerships)
in the United States, representing about 49,000 franchises (a dealership
selling Ford, Lincoln and Mercury vehicles would have three franchises). The
unit sales of the top ten dealership groups, as reported by Automotive News,
accounted for only about 4% of the approximately 31 million new and pre-owned
vehicles that CNW Marketing/Research reports as having been sold by franchised
dealerships in 1997. The recent consolidation of some major dealership groups
has done little to reduce the considerable fragmentation in the industry, and
no national dealer brand has emerged. We believe that a combination of the
highly competitive dealership landscape and a salesperson compensation system
based on sales dollar volume rather than sales unit volume has contributed to
an unpleasant buying experience for consumers and a decline in profit margins
for dealers. As a result, consumers often view dealerships as pressure-filled
environments where they must make significant purchase decisions with
incomplete information. Further, when purchasing pre-owned vehicles consumers
find that each vehicle has a unique price, set of accessories, mileage, history
of use and maintenance record. The higher profit contribution to the dealer
from the sale of a pre-owned vehicle, as compared to that of a new vehicle,
further increases the pressure for the dealer to complete a sale and often
makes the process more difficult for the

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consumer. In addition, consumers historically have not had access to
competitively-priced automotive-related products and services in a single
centralized location.

Growth of the Internet and E-Commerce

The Internet has emerged as a global medium for communication, content
delivery and e-commerce, and Internet use continues to increase rapidly.
International Data Corporation ("IDC") estimates that the number of users
worldwide with access to the Internet will increase from 97 million in 1998 to
over 319 million in 2002, representing a compound annual growth rate of
approximately 35%. As consumers have become increasingly adept at utilizing the
Internet for evaluating and purchasing a wide variety of goods, the dollar
volume of online commerce transactions has risen dramatically. IDC estimates
that the volume of goods and services purchased over the Internet will increase
from $32 billion in 1998 to $425 billion in 2002, representing a compound
annual growth rate in excess of 90%.

In addition to providing the basic medium for e-commerce, the Internet
offers online retailers the opportunity to market and respond to consumer
preferences and behavior directly. Jupiter Communications, Inc. estimates that
the dollar volume of online advertising will increase from $1.9 billion in 1998
to $7.7 billion in 2002. Because the Internet offers "point-to-point"
communications, online advertisers are able to present messages to specific,
predetermined audiences and interact immediately with these targeted
individuals. In this way, online retailers can target, measure and manage a
broad consumer base rapidly and economically, while establishing and
maintaining direct consumer relationships more easily. Consumers benefit from
improved overall convenience, better information regarding available products
and services, enhanced sales interactions and, often, more competitive pricing.

The Online Automotive Opportunity

We believe that, like participants in other industries, vehicle
manufacturers and dealers and vendors of automotive-related products and
services increasingly desire to use the Internet to improve consumer
interaction, information management and sales. According to JD Power and
Associates, 25% of new vehicle purchasers used the Internet to search for
information or otherwise assist them with their purchases in 1998 and this
figure is expected to increase to approximately 37% by the end of 2000.
However, to avail themselves of the Internet opportunity, vehicle
manufacturers, dealers and vendors of automotive-related products and services
vendors must address the need for sophisticated Web site development and
maintenance, increased demand for electronic consumer interaction and support,
and integration of their Web sites with existing internal systems. For
consumers, while the Internet substantially increases the amount of information
available for researching and evaluating automotive purchasing decisions, this
information is often not aggregated at a central, organized source. In
addition, a large portion of this information is located on automotive
manufacturers' own Web sites, which we believe frequently do not provide
complete or unbiased content.

The Autoweb.com Solution

Our Web site centralizes an extensive collection of automotive-related
commerce, content and community offerings to assist consumers in researching,
evaluating and buying new and pre-owned vehicles. In addition, our Web site
enables consumers to conveniently purchase automotive-related products and
services such as insurance and financing. Our Customer Care Center acts as an
independent intermediary that provides personal attention to consumers, as they
request it, throughout the vehicle purchasing experience. Our Web site and
purchase process are designed to provide consumers with centralized
information, choice and the means to execute their buying decisions through a
process that we believe is faster, better and easier than traditional
alternatives. We currently have a network of approximately 3,900 member dealers
(where each franchise location for a particular vehicle manufacturer is defined
as a member dealer) including approximately 1,200 pre-owned vehicle locations.
In the fourth quarter of 1998, we delivered approximately 250,000 vehicle and
related purchase inquiries to member dealers and automotive-related vendors.
According to surveys we received in the fourth quarter of 1998, approximately
60% of all consumers who submitted a new vehicle purchase

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inquiry through our Web site purchased a vehicle from one of our member dealers
or elsewhere within one month. Of these 60% who submitted a new vehicle
purchase inquiry and purchased a vehicle within one month, approximately 40% of
those who were contacted by a member dealer within 24 hours purchased a vehicle
from one of our member dealers.

Benefits to Consumers

Convenient Purchase Process. Our Web site and purchase process provide an
environment that can significantly reduce the traditional friction between
dealers and consumers. Consumers can select new or pre-owned vehicles
conveniently in the privacy of their home or office. Our service allows
consumers to submit each purchase inquiry to up to two member dealers in a
geographic area. Member dealers have agreed to respond to consumers within 24
hours of receiving purchase inquiries. We have designed our process to insulate
consumers from unpleasant price negotiations by requiring our member dealers to
provide a competitive, firm, upfront price to consumers. We certify and support
member dealers in order to provide a better experience to consumers.

Informed Purchase Decision. Consumers obtain online access to a wide range
of comprehensive, up-to-date information about vehicle models, options and
dealer costs at no charge. Information such as vehicle specifications, Kelley
Blue Book pre-owned vehicle values and reviews from New Car Test Drive are
collected in a centralized location, providing consumers with an objective,
convenient means to make informed purchase decisions.

Availability of Automotive-Related Products and Services. Traditionally,
consumers have been dependent on dealers and third-party vendors for
automotive-related products and services, such as financing, insurance and
repair services. Our Web site offers consumers convenient access to a wide
range of these services before and after the purchase of a vehicle. We believe
that providing a variety of service offerings in a single location improves a
consumer's ability to make an automotive purchase decision and enhances
consumers' satisfaction with our service.

Dedicated Customer Care Center. The Autoweb.com Customer Care Center acts as
an independent intermediary providing personal attention to consumers, as they
request it, throughout the purchase process. We monitor the purchase process to
ensure that consumers receive timely and appropriate responses from our member
dealers and other automotive-related vendors. We believe that this ongoing
involvement in the process substantially increases consumer satisfaction.

Online Automotive-Related Community. Our Web site serves as an online
community where consumers can come to inquire, participate in message-board
discussions and learn about a wide variety of topics related to the automotive
world.

Benefits to Member Dealers

Performance-Based Program. Autoweb.com has designed a "pay for performance"
model to provide member dealers with a cost-effective pricing structure for
receiving consumer purchase inquiries. Unlike subscription models, where
dealers pay a flat monthly fee regardless of performance, we charge member
dealers only when we provide a qualified purchase inquiry to them. Our program
also is non-exclusive and therefore does not prevent member dealers from
generating sales leads through other online sources. In addition, our program
permits member dealers to customize the geographic radius from which they
receive purchase inquiries, based on their evaluation of which purchase
inquiries will be most likely to result in vehicle sales.

Efficient Marketing and Sales Process. Autoweb.com provides member dealers
with incremental revenues and, according to our surveys, a reduction in their
average advertising cost per vehicle. By joining our member dealer network,
member dealers gain access to a large number of purchase-minded consumers who
have, in many instances, already chosen the vehicle they wish to purchase. As a
result, member dealers can complete the sales process more quickly and
efficiently, potentially enabling them over time to reduce their labor and
overhead costs.

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Improved Consumer Interaction. Autoweb.com's Dealer Development and
Support Group instructs and supports member dealers regarding the Autoweb.com
purchase process. Our certification program is designed to enhance customer
satisfaction and increase member dealer sales. In addition, the Autoweb.com
Customer Care Center serves as an extension of each member dealer's sales
process, helping to facilitate consumer satisfaction by monitoring the
progress of consumer purchase inquiries and facilitating timely and
appropriate responses. By enhancing the consumer buying experience, we believe
that we also help member dealers generate ongoing consumer loyalty.

Competitive Advantage in Local Marketplace. Autoweb.com member dealers
generally have limited exclusive territories. Our program allows member
dealers to exclude up to three franchises of the same vehicle make within
their selected radius, up to a maximum of 50 miles. This limited exclusive
territory offers member dealers a competitive advantage in those areas by
enabling them to exclude their most significant local competition while still
providing consumers with choices.

Benefits to Others

Vehicle Manufacturers. Autoweb.com provides vehicle manufacturers with
access to a large number of purchase-minded consumers from an attractive
demographic base. Using the targeted nature of Internet advertising,
manufacturers can advertise their brand image effectively to specific subsets
of Autoweb.com consumers. Furthermore, vehicle manufacturers can deliver
advertisements to consumers who are researching vehicles of direct
competitors, thereby increasing the likelihood of influencing their purchase
decisions.

Automotive-Related Vendors. We provide automotive-related vendors with
access to a large number of purchase-minded consumers in the process of
researching vehicles and automotive-related products and services. In many
instances, consumers seeking to purchase a vehicle also require insurance,
financing, a roadside assistance program or other related services. Consumers
seeking automotive information are also often interested in or specifically
researching competitive providers for their current automotive-related
services. Automotive-related vendors can advertise to these consumers or
integrate their product with our Web site. This provides vendors with a
competitive advantage and an opportunity to gain market share in the online
automotive services market.

Strategy

Our objective is to be the leading consumer automotive Internet service.
Key elements of our strategy include:

Leverage Operating Efficiencies. We have developed a scalable business
model characterized by multiple revenue sources and a leveragable online
infrastructure. Unlike a subscription-based model, our performance-based
pricing model results in increased revenue as more consumers make purchase
inquiries. Further, as we expand our range of service offerings, we can
generate greater revenue per visitor. We believe our Internet-based model can
support a significant increase in visitor traffic without a corresponding
increase in operating expenses. We intend to pursue these operating
efficiencies by continued cost-effective advertising to increase visitor
traffic to our Web site.

Increase Brand Awareness. We believe that building awareness of the
Autoweb.com brand is critical in our effort to be the leading consumer
automotive Internet service. To date, we have focused our consumer marketing
efforts primarily on online advertising on selected high traffic Web sites. We
currently have marketing arrangements with America Online, Netscape
Communications, Yahoo! and CNET's Search.com. Our strategy is to increase our
brand awareness further through continued online advertising, as well as
through advertising in traditional media, such as newspaper, radio and
television, ongoing public relations efforts and expanded affiliate
arrangements.

Increase Consumer Traffic. As part of our efforts to increase our consumer
traffic, we intend to continue to focus our online advertising on a variety of
high traffic and specialty Web sites. In addition, in order to

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expand our reach on the Internet, we launched the Autoweb.com Affiliates
Program in the second quarter of 1998. Under this program, affiliated Web sites
are paid a fee to provide us with purchase inquiries. We currently have
revenue-sharing arrangements with companies such as Ameritech, America Online's
Digital City, Car and Driver and USA Today as a result of purchase inquiries
submitted by consumers through links between our Web site and the other
company's Web site. We intend to expand our revenue-sharing and affiliate
programs with other selected Web sites in an effort to drive additional
consumer traffic to our Web site.

Enhance and Broaden Content Offerings. We work with leading automotive
content providers, such as New Car Test Drive, Pep Boys and Kelley Blue Book,
to provide consumers with expert advice and information on our Web site. We
intend to improve the presentation and integration of our content and deploy
new versions of our Web site, thereby further establishing ourselves as a
comprehensive independent destination for automotive information and
encouraging repeat consumer visits. Additionally, we intend to broaden the
resources available to consumers by developing relationships with other leading
automotive content providers.

Deliver Additional Service Offerings. We intend to leverage our brand name
and online infrastructure by expanding the range of services that we provide to
consumers, member dealers and other third-party vendors. For example, we
anticipate offering consumers additional service offerings such as service
reminders, service appointment scheduling and expanded financing options. We
also intend to provide manufacturers with additional services such as general
consumer preference and behavior information derived from our consumer
database.

Expand and Enhance Member Dealer Network. We believe that expanding the size
and enhancing the quality of our member dealer network is critical to our
success. Our objective is to have at least one member dealer of each make
within a reasonable driving distance of every consumer in the United States,
with most consumers given a choice of several dealers within a given geography.
We currently are offering our service in Canada and intend to expand our
Canadian member dealer network. Further, we intend to expand our member dealer
certification programs to continue to improve the quality of the consumer
service that they offer. For example, our Dealer Development and Support Group
evaluates member dealers, identifies "best practices" among them and
disseminates those practices across our entire member dealer network.

Encourage Loyalty Through Our Online Community. We believe that, by creating
an online automotive community that is attractive to consumers, we can
encourage repeat consumer visits, expand traffic through word-of-mouth
referrals and provide a differentiated competitive advantage to our member
dealers and automotive-related vendors. Our AutoTalk message board service
provides a forum for automobile enthusiasts to discuss topics of mutual
interest. In addition, we recently introduced our Blow Your Horn! service,
which provides consumers with the opportunity to respond to online surveys. We
intend to expand our community offerings through internal development as well
as strategic relationships.

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Services

We currently offer the following services on our Web site.

<TABLE>
<CAPTION>
CONSUMER SERVICES
- -------------------------------------------------------------------------------
Name of Service Description
- -------------------------------------------------------------------------------
<C> <S>
Commerce
- -------------------------------------------------------------------------------
Autoweb.com New Vehicle Program . Buy a new vehicle from our
network of certified member
dealers
Autoweb.com Pre-Owned Vehicle Program . Buy a vehicle listed in our
database of pre-owned inventory,
either from one of our member
dealers or from another consumer
. List a pre-owned vehicle for sale
Autoweb.com Vehicle Insurance . Obtain insurance quotes from
State Farm Insurance
Autoweb.com Vehicle Financing . Arrange to finance your vehicle
with State Farm
Autoweb.com Accessories . Obtain accessories from
Autoaccessory.com
Autoweb.com Roadside Rescue . Join our emergency assistance,
towing and trip planning program
Autoweb.com Credit Reports . Purchase a personal credit report
- -------------------------------------------------------------------------------
Content
- -------------------------------------------------------------------------------
Autoweb.com New Car Showroom . Obtain new vehicle specifications
(MSRP and invoice pricing,
performance, interior comfort,
safety, warranties, engine,
dimensions, wheel and suspension)
and photographs
Autoweb.com Pre-Owned Vehicle Prices . Obtain Kelley Blue Book pre-owned
vehicle values
Autoweb.com Test Drive Reviews . Obtain reviews from New Car Test
Drive
Autoweb.com Tips & Hints . Obtain automotive tips and hints
provided by Pep Boys
Autoweb.com Recalls & Service Bulletins . Obtain engine recall information
and technical service bulletins
Autoweb.com Member Dealer Pages . Obtain directions, contact
information and operating hours
Autoweb.com Loan Calculator . Calculate your loan payments
- -------------------------------------------------------------------------------
Community
- -------------------------------------------------------------------------------
Autoweb.com AutoTalk . Consumer automotive message board
discussion forums
Autoweb.com Blow Your Horn! . Cast your vote on automotive-
related issues
Autoweb.com Customer Care Center . Interact with our Customer Care
Center specialists
Autoweb.com Auto Notify . Receive automatic notification
when a specified pre-owned
vehicle is located
Autoweb.com Canada . Visit our Canadian version with
member dealers, price and
specifications exclusive to
Canada
</TABLE>

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<PAGE>

Commerce Services

New Vehicle Program. Consumers wishing to purchase a new vehicle first
complete a purchase inquiry through our Web site. They specify the desired
vehicle make, model and options on the purchase inquiry and provide their
contact information, including name, telephone number and e-mail address.
Member dealers agree to respond to consumers within 24 hours of receipt of a
purchase inquiry. Member dealer representatives explain the Autoweb.com vehicle
purchase process and answer consumers' questions about the vehicle or the
Autoweb.com purchase process. In addition, our contracts require member dealers
to designate a contact person and to give a competitive, firm quote to
consumers during their initial communication. If the quote is acceptable, the
consumer can visit the showroom to finalize the purchase or the member dealer,
in some cases, can deliver the vehicle directly to the consumer and complete
the necessary documentation upon delivery. The Autoweb.com purchase process is
provided to consumers without charge; only member dealers pay a fee.

To monitor the process and ensure that our member dealers provide consumers
with high quality customer service, we created the Autoweb.com Customer Care
Center. The Autoweb.com Customer Care Center serves as an extension of each
member dealer's sales process, helping to facilitate consumer satisfaction by
monitoring the progress of consumer purchase inquiries and facilitating timely
and appropriate responses. On the day that a purchase inquiry is submitted, the
Autoweb.com Customer Care Center contacts the consumer by e-mail to:

. thank the consumer for using Autoweb.com;

. assure the consumer that the purchase inquiry has been forwarded to the
chosen member dealer(s);

. summarize the Autoweb.com purchase process;

. provide the name of the designated contact person(s) at the member
dealer(s); and

. provide an e-mail address at Autoweb.com for the submission of questions
and concerns.

We contact the consumer again within the next 48 hours to determine if the
process is being followed. Two weeks after each purchase inquiry is submitted,
the Autoweb.com Customer Care Center sends the consumer an electronic survey
concerning the process and the Autoweb.com experience. The results of this
survey are summarized, evaluated by our management and made available to member
dealers so that they can monitor their success.

We allow member dealers to create limited exclusive territories by excluding
up to three franchises of the same vehicle make within their selected radius,
up to 50 miles. We believe the exclusive territories are sufficiently limited
to ensure that, once the member dealer network is complete, consumers will
always be within a reasonable driving distance of at least one Autoweb.com
member dealer.

Prospective member dealers are informed of our consumers' value
expectations, as well as our sales standards and certification process. The
Autoweb.com Dealer Development and Support Group educates member dealers on the
Autoweb.com purchase program. For example, our member dealer certification team
evaluates member dealers, identifies "best practices" among them and
disseminates those practices across our entire member dealer network. We intend
to expand the Autoweb.com Dealer Development and Support Group to continue to
improve the quality of services offered by our member dealers to our consumers.
We believe this program improves consumer satisfaction by making the vehicle
buying process faster, better and easier and improves member dealer
satisfaction by increasing their closing rate and consumer loyalty. We use
sales standards and sales satisfaction metrics from our electronic surveys to
monitor our member dealers and assure high quality customer service. Member
dealers that consistently fail to satisfy the agreed-upon standards are
terminated if additional training proves unsuccessful. To date, the number of
such terminations has not been significant.

In February 1998, we introduced a new "pay for performance" pricing model.
Under this pricing model, member dealers pay a fee for each qualified purchase
inquiry that includes a specific desired vehicle, as well as a valid name and
phone number or e-mail address. In addition, member dealers identify a radius,
generally between 15 and 50 miles as measured between the centers of the member
dealer's and the consumer's zip codes, from which to receive inquiries. In this
way, we believe member dealers can accurately target their potential customers
and pay only for what they deem to be qualified, high potential leads.

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<PAGE>

Prior to the introduction of the "pay for performance" pricing model, we
used a fixed-rate, subscription-based model. We believe this model proved
unsuccessful for the following reasons:

. The number of purchase inquiries provided to each dealer varied
considerably and thus did not correlate with the cost of our service to
the member dealer. This resulted in member dealers in areas that received
comparatively few purchase inquiries, such as member dealers in rural
areas or areas in which use of the Internet was less widespread, paying
us the same fee as member dealers that received a far greater number of
purchase inquiries.

. Because the cost of our service was fixed regardless of the number of
purchase inquiries delivered, many member dealers responded only to the
purchase inquiries that appeared to be the most likely to result in an
eventual sale. Under the "pay for performance" pricing model, in which
the member dealer must pay for each qualified purchase inquiry that it
receives, the member dealer has an incentive to perform in accordance
with the Autoweb.com purchase process and respond to each purchase
inquiry.

Pre-Owned Vehicle Program. Consumers wishing to purchase a pre-owned vehicle
from Autoweb.com's member dealers or from private sellers initiate a process
similar to that for purchasing new vehicles. However, unlike a new vehicle,
which can be obtained from numerous dealers, pre-owned vehicles have unique
colors, options, mileage and maintenance records. Consumers can search our pre-
owned vehicle database by specifying desired mileage, distance to a member
dealer and make, model and price of vehicle. Consumers then automatically
receive the search results indicating whether the vehicle is available through
a member dealer or private seller, and a detailed description of the pre-owned
vehicle, including mileage, equipment and, if available, a photograph. If a
consumer's search is successful, the consumer may complete a purchase inquiry
that we forward by e-mail or fax to the appropriate member dealer or private
seller. If the type of vehicle a consumer desires is not available at the time
of the request, the consumer can specify the make, model and age of the vehicle
that they are seeking and request notification by e-mail when a vehicle
matching the requirements of the purchase inquiry becomes available. Upon
receiving notification, a consumer can then complete a purchase inquiry. Our
Customer Care Center also supports consumers in the pre-owned vehicle buying
process.

Member dealers participating in the Pre-Owned Vehicle Program are bound to
the same process and customer service standards as member dealers in the
Autoweb.com New Vehicle Program. Unlike the New Vehicle Program, however, we do
not allow member dealers to exclude other dealers within their selected radius.
We believe that each pre-owned vehicle is unique, and, as a result, exclusive
territories unduly restrict consumer selection without a corresponding
advantage to the member dealers.

The Pre-Owned Vehicle Program utilizes the same "pay for performance"
pricing model as the New Vehicle Program. Member dealers pay a fee for each
qualified purchase inquiry. Typically, however, member dealers specify a
greater radius from which to receive inquiries about pre-owned vehicles than
they do for new vehicles, due to the unique nature of each pre-owned vehicle.
Our Pre-Owned Vehicle Program also enables private sellers, for a fee, to list
their pre-owned vehicles by putting a description and optional photograph in
our database of pre-owned vehicles. If the private seller is dissatisfied with
our service, we will refund the fee.

Vehicle Insurance. We believe the sale of vehicle insurance is an important
extension to our vehicle purchase process. State Farm has the exclusive right
to market their insurance services and provide consumers with insurance quotes
on our Web site until June 1999.

Vehicle Financing. A natural extension of our vehicle purchase service is to
aid consumers, regardless of their credit profiles, in obtaining vehicle
financing. To provide a comprehensive financing service offering to our
consumers, we have entered into an agreement under which State Farm Bank will
offer prime and sub-prime vehicle financing to consumers in the United States
on an exclusive basis through January 2000.

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<PAGE>

Advertising. Advertisers can purchase targeted banner advertising offering
automotive products and services related to the consumers' activities on our
Web site. In particular, using the interactive nature of online advertising, we
can reach this highly targeted audience at the time manufacturers most want to
promote, influence and maintain brand image and awareness.

Other. We provide consumers with the opportunity to purchase Autoweb.com
Roadside Rescue through our agreement with Continental Car Club, the largest
supplier of roadside assistance to dealers and lenders in the United States. We
intend to expand existing services and include additional automotive-related
services in order to provide consumers with a single online source to meet all
of their automotive needs. Planned services include a service to facilitate the
scheduling of vehicle service appointments, a personal valet system that
provides an electronic notification or reminder to vehicle owners of important
vehicle-ownership milestones and dates, and a new parts and improved
accessories service to bring additional convenience to consumers.

Content Services

Our Web site's New Vehicle Showroom, in addition to offering photographs of
listed vehicles, provides consumers with comprehensive new vehicle
specifications, including MSRP and invoice pricing, performance, interior
comfort, safety, warranties, engine, dimensions and wheel and suspension
information. Our Web site also contains supplementary expert advice and
information from leading automotive content providers, such as Kelley Blue
Book, New Car Test Drive and Pep Boys. In addition, we provide recall
information from 1963 to the present as well as a loan calculator to enable
consumers to calculate their potential loan payments. We provide consumers with
directions to our member dealers and list their contact information and hours
of operation.

Community Services

We believe that, by creating an online automotive community that is
attractive to consumers, we can encourage repeat consumer visits, expand
traffic through word-of-mouth referrals and provide a competitive advantage to
our member dealers and automotive-related vendors. We believe that we are the
only online vehicle purchasing service that provides a forum for automobile
enthusiasts to discuss topics of mutual interest. This forum, AutoTalk, is
provided to consumers at no charge. Our Web site also contains a polling
feature called Blow Your Horn! that enables visitors to respond to online
questions and view survey results and comments. We believe that AutoTalk and
Blow Your Horn! could become popular places to advertise goods and services. We
intend to add an e-mail based service to remind consumers of license renewal
dates, smog test appointments and other service requirements. We also intend to
create "membership" benefits that will motivate consumers to return to our Web
site.

Sales

Sales to Dealers. We believe that the size and quality of our member dealer
network is critical to our success. Our sales force seeks to ensure that our
member dealer network provides coverage such that consumers are always within a
reasonable driving distance of at least one member dealer. Our regional
specialists analyze purchase inquiries from areas not currently covered by our
member dealer network and target dealers within these areas to join our
program. Dealers are chosen based on their ability to meet this unsatisfied
demand and their agreement to adhere to the Autoweb.com purchase process.
Regional Sales Managers are compensated based on building successful, long-term
dealer relationships. We offer member dealers a source of incremental sales and
also ongoing information to increase future sales. We believe that this is
critical to dealers faced with the prospect of unprecedented industry change
and that it greatly increases our value to these dealers. The activities of our
sales force are primarily conducted over the telephone from our headquarters in
Santa Clara, California. The same sales force is responsible for both the New
and Pre-owned Vehicle Programs, since our pre-owned vehicle program is also
primarily targeted to franchised dealers, as opposed to independent dealers.

Sales to Vehicle Manufacturers and Automotive-Related Vendors. The
Autoweb.com Business Development Group is responsible for expanding our
commerce services in the vehicle and automotive-related

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<PAGE>

markets. Vendors are selected based on their ability to provide quality
services online that enhance our value to consumers. The Autoweb.com Business
Development Group is focused on expanding existing service categories and
adding new consumer categories.

Sales to Advertisers. Our advertising sales effort is primarily targeted to
vehicle manufacturers and automotive-related mass market consumer vendors.
Campaign specifications are typically negotiated with the advertising agency or
directly with the manufacturer or automotive-related vendor.

Marketing

Our marketing strategy includes the following key points:

Build Our Brand. To date, we have focused almost exclusively on online
promotions, press releases to a broad range of consumer and trade publications,
and consumer promotion events to increase consumer traffic to our Web site. In
addition, our regular advertising in the leading automotive trade publications
has helped to build dealer brand awareness. However, over the longer term, we
believe that we will need to increase the use of traditional broad-based media
such as television, radio and newspapers in order to build our brand loyalty
among consumers, dealers, advertisers and automotive-related vendors.

Spend Efficiently on Advertising. Broad consumer interest in the automotive
category allows us to use a versatile advertising strategy. As a result, we
have been able to build our brand effectively through the efficient use of
online advertising, including high profile, high traffic Web sites such as
America Online, Yahoo!, Netscape Communications and CNET's Search.com.

Increase Revenue Per Visitor. To increase revenue per visitor, we must
enhance and expand the content and increase the services available on our Web
site. We intend to add products and services to address additional steps in the
car ownership cycle.

Develop Strategic Relationships. In addition to our advertisements, we have
created revenue-sharing relationships with brand leaders such as America
Online's Digital City, Ameritech, Car and Driver and USA Today. We intend to
continue to develop strategic relationships that will provide not only brand
exposure but also valuable content for our Web site.

Expand the Autoweb.com Affiliates Program. The Autoweb.com Affiliates
Program allows other Web sites to link with the Autoweb.com Web site. The
affiliates receive a commission for each new or pre-owned vehicle purchase
inquiry or classified ad delivered. This program generates brand awareness and
revenue for a very low relative cost. We intend to expand this program in the
future.

Support Services

Our Dealer Development and Support Group certifies that our member dealers
adopt the Autoweb.com purchase process and maintains communication with each
member dealer contact in order to seek to ensure a convenient, efficient
purchasing process for our consumers and member dealers. We make available
detailed monthly activity summaries for each member dealer that include the
total number of purchase inquiries and the results of consumer surveys. Our
Dealer Development and Support Group develops and presents formal training and
regional workshops, and produces and disseminates training tapes and regular
updates to our training manuals.

Technology

We believe that we have built a robust, scalable user interface and
transaction processing system that is designed around industry standard
architectures and internally-developed proprietary software. Our system
maintains operational data records regarding franchised dealers, including
billing information, pre-owned

39
<PAGE>

vehicle listings and new and pre-owned vehicle purchase inquiries. Our system
also handles all other aspects of the new and pre-owned vehicle buying process,
including submitting e-mail and facsimile copies to member dealers and
submitting insurance and finance inquiries, as well as other inquiries and
information, to various vendors. Furthermore, the system sends a daily list
that matches pre-owned vehicles to those registered.

We have an online system available for member dealers, advertisers and
vendors to access relevant information. For example, member dealers can access
Autoweb.com's extranet to manage their pre-owned car inventory by adding,
modifying or updating their listings, as well as uploading pictures of pre-
owned cars. Member dealers can view their customer information and generate
reports based on their customers' survey responses. Autoweb.com affiliates can
also use our extranet to view activity summaries of their account.

The Autoweb.com service provides 24 hour a day, seven day a week
availability, subject to occasional short maintenance periods and power
outages. Our system hardware is hosted at our facility in Santa Clara,
California, which is equipped with redundant communications lines and emergency
power backup. Our network is protected by a firewall by Checkpoint. Our system
consists of Dell and Micron database servers running Microsoft SQL Server and a
suite of Pentium-based Microsoft Internet servers running on the Windows NT
operating system. Our Internet servers also utilize VeriSign, Inc. digital
certificates for authentication. We use a load balancing system and our own
redundant servers for our banner ad delivery. We use Allaire Cold Fusion for
most of our Web application development and delivery.

We incurred $57,000, $325,000 and $586,000 in product development expenses
in 1996, 1997 and 1998, respectively. We anticipate that we will increase
resources for product development in the future as we add new features and
functionality to the Autoweb.com Web site.

Competition

The market for the purchase of vehicles and automotive-related products and
services is intensely competitive, and we expect competition to increase
significantly, particularly on the Internet. Barriers to entry on the Internet
are relatively low, and we may face competitive pressures from numerous
companies. Currently, we believe our most significant competitors are
Microsoft's CarPoint and Autobytel.com. There are also a number of Web sites
that offer vehicles, particularly vehicle manufacturers' own Web sites and
sites for electronic classifieds, as well as vehicle-related products and
services. In addition, there are numerous Web sites that offer vehicle
information and other content, as well as community offerings, directly to the
vehicle buying consumer generally or to targeted audiences such as car
collectors. We could face competition in the future from vehicle manufacturers,
large dealer groups or traditional media companies, such as newspaper,
television and radio companies, many of which currently operate a Web site. In
addition to direct competitors, we also compete indirectly with vehicle
brokerage firms, discount warehouse clubs and automobile clubs. Several auction
Web sites have also recently announced their intention to auction vehicles on
the Internet.

We believe that the principal competitive factors in attracting consumers to
our Web site are:

. a positive vehicle purchasing experience for the consumer;
. brand awareness and loyalty;
. breadth of selections;
. ease of use;
. having adequate geographic coverage of member dealers;
. Web site functionality, responsiveness and information; and
. quality of content, other service offerings and customer service.

We believe that the principal competitive factors in attracting member
dealers, other automotive-related vendors and advertisers include:

. the volume of our Web site traffic;
. our brand awareness and loyalty;

40
<PAGE>

. the demographics of our consumers;
. the cost effectiveness of purchase inquiries we deliver; and
. the cost effectiveness of advertising on our Web site.

Many of our existing and potential competitors have longer operating
histories in the Internet market, greater name recognition, larger consumer
bases and significantly greater financial, technical and marketing resources
than we do. These competitors may be able to undertake more extensive marketing
campaigns for their brand, products and services, adopt more aggressive pricing
policies or make more attractive offers to potential employees. Furthermore,
our existing and potential competitors may develop offerings that equal or
exceed the quality of our offerings, or that achieve greater market acceptance,
than ours. We cannot assure you that we will be able to compete successfully
against our current or future competitors or that competition will not have a
material adverse effect on our business, results of operations and financial
condition.

Additionally, the e-commerce market is new and rapidly evolving, and we
expect competition among e-commerce companies to increase significantly. Our
ability to generate revenues from any of our present or future automotive-
related vendors may be adversely affected by competition among any such vendor
and other Internet retailers.

We cannot assure you that Web sites maintained by our existing and potential
competitors will not be perceived by consumers, vehicle dealers, other
potential automotive-related vendors or content providers, or advertisers as
being superior to ours. We also cannot assure you that we will be able to
increase our Web site traffic levels, purchase inquiries and click-throughs or
that competitors will not experience greater growth in these areas than we do.

Intellectual Property, Proprietary Rights and Licenses

We regard substantial elements of our Web site and underlying technology as
proprietary and attempt to protect them by relying on trademark, service mark,
copyright and trade secret laws, restrictions on disclosure and transferring
title and other methods. We also generally enter into confidentiality
agreements with our employees and consultants and with third parties in
connection with our license agreements. Such confidentiality agreements
generally seek to control access to, and distribution of, our technology,
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. Although we have not conducted any comprehensive searches, we
are aware that the name "Autoweb" is already in use in several regions in the
United States and in Australia. Due to our resource constraints and the
perceived priority of this issue, we have not yet researched the effect of the
use of the name "Autoweb" by other companies on our trademark or the impact of
this use on our ability to obtain the mark in other countries. As a result, we
cannot guarantee that we will be able to continue to use the name "Autoweb" in
the future. If in the future we are required to change our name and adopt a new
trademark, we would incur significant expenses related to marketing a
replacement trademark, and such a change would likely have a materially adverse
effect on our business. Further, even if the mark is available, effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our services are distributed or made
available through the Internet, and policing unauthorized use of our
proprietary information may be difficult or expensive.

Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights. We also cannot assure you
that the steps that we have taken will prevent misappropriation or infringement
of our proprietary information, which could have a material adverse effect on
our business, results of operations and financial condition.

41
<PAGE>

We believe that issues relating to privacy and use of personal information
relating to Internet users are becoming increasingly important as the Internet
and its commercial use increase. We have adopted a privacy policy concerning
how we use information about our consumer visitors and the extent to which
others may have access to this information. We do not sell or rent any
personally identifiable information about our consumer visits to any third
party, although we may consider doing so in the future. We do use information
about our consumer visits for internal purposes in order to improve marketing
and promotional efforts, to analyze Web site usage statistically and to improve
content, product offerings and Web site layout.

Government Regulation

There are numerous state laws regarding the sale of vehicles. In addition,
government authorities may take the position that state or federal franchise
laws, vehicle brokerage laws, insurance licensing laws, motor vehicle dealer
laws or related consumer protection or product liability laws apply to aspects
of our business. As we introduce new services and expand our operations to
other countries, we will need to comply with additional licensing and
regulatory requirements.

We believe that neither our relationship with our member dealers nor our
member dealer subscription agreements constitute "franchises" under state or
federal franchise laws and that we are not subject to the coverage of state
motor vehicle dealer licensing laws. However, if our relationship or written
agreement with our member dealers were found to be a "franchise" under federal
or state franchise laws, we could be subjected to other regulations, such as
franchise disclosure, registration requirements and limitations on our ability
to effect changes in our relationships with our member dealers.

We also believe that our service does not qualify as an vehicle brokerage
activity and therefore state broker licensing requirements do not apply to us.
In May 1998, however, the Texas Department of Transportation notified us that,
in their opinion, our performance-based pricing model is illegal, because it
makes us a broker under Texas law. They have taken the position that the fee
paid to us by member dealers for each qualified purchase inquiry is equivalent
to a finder's or broker's fee and that we are arranging for two persons to meet
and enter into a transaction that involves the sale of a motor vehicle. We
currently intend to challenge this decision and have engaged counsel to advise
us in this matter. We presently intend to have a member of the Texas
legislature seek an Attorney General's opinion that the operation of a Web site
in the manner that we operate does not constitute us as a "broker" under the
Texas Motor Vehicle Code. However, if we are not successful in challenging this
decision, we not only may have to pay significant fines, but also will have
either to cease doing business in Texas or to change our pricing model for
member dealers in Texas from performance-based to subscription-based. In the
event that a state determines that we are acting as a broker, we

42
<PAGE>

may be required to comply with burdensome licensing requirements or terminate
our operations in that state. In each case, our business, results of operations
and financial condition could be materially and adversely affected.

State regulatory requirements may also include us within an industry-
specific regulatory scheme, such as the vehicle insurance or vehicle financing
industries. In the event that individual states' regulatory requirements change
or additional requirements are imposed on us, we may be required to modify
aspects of our business in those states in a manner that might undermine the
attractiveness of the Autoweb.com purchase process to consumers, member
dealers, automotive-related vendors or advertisers or require us to terminate
operations in that state, either of which could have a material adverse effect
on our business, results of operations and financial condition.

Employees

As of December 31, 1998, we had 81 employees, including 43 in sales and
marketing, 17 in product development, and 21 in general and administration. We
consider our relations with our employees to be good. We have never had a work
stoppage, and no employees are represented under collective bargaining
agreements. We believe that our future success will depend in part on our
continued ability to attract, integrate, retain and motivate highly qualified
personnel, and upon the continued service of our senior management and key
technical personnel. Other than as described in "Management--Employment and
Severance Agreements," none of these individuals is bound by an employment
agreement. Competition for qualified personnel in our industry and geographical
location is intense, and we cannot assure you that we will be successful in
attracting, integrating, retaining and motivating a sufficient number of
qualified personnel to conduct our business in the future.

Facilities

Our principal administrative, marketing and product development facilities
are located in approximately 23,880 square feet of office space in Santa Clara,
California. The lease for this space expires on October 31, 2002 and does not
provide for a renewal option. We believe that this space will be adequate to
meet our needs for the foreseeable future.

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<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information regarding our executive
officers and directors.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Dean A. DeBiase......... 40 President, Chief Executive Officer and a Director

Farhang Zamani.......... 34 Chairman and Secretary

Samuel M. Hedgpeth III.. 52 Vice President, Finance and Administration,
Treasurer and
Chief Financial Officer

Gordon H. Kass.......... 44 Chief Technology Officer

Payam Zamani............ 28 Executive Vice President and a Director

Garrett R. Mullins...... 41 Senior Vice President, Sales and Member Services
Catherine Y. Gordon..... 48 Vice President, Product Management

David L. Greene......... 40 Vice President, Dealer Operations
Michele Hickford........ 41 Vice President, Marketing
Robert M. Shapiro....... 53 Vice President, Business Development and
Advertising Sales
Mark N. Diker(1)........ 32 Director

Jay C. Hoag(1).......... 40 Director

Mark R. Ross(1)......... 53 Director

Peter S. Sealey......... 58 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee and the Audit Committee.

Dean A. DeBiase has served as President, Chief Executive Officer and a
director of Autoweb.com since December 1998. From March 1998 to December 1998,
he was the President of Start-Up-Partners, an Internet consulting company,
where he served as interim Chief Executive Officer and director of CatchTV, a
television/Web advertising and programming company. From January 1995 to March
1998, Mr. DeBiase was the President, Chief Executive Officer and a director of
Worldplay Entertainment, an online games and community company, which was a
wholly-owned subsidiary of America Online. From September 1993 to January 1995,
he was Vice President of Marketing of Zenith Electronics and Senior Vice
President of its Network Systems Division. Mr. DeBiase received a Bachelor of
Science degree in marketing from Northern Illinois University and a Masters in
Business Administration degree from the Keller Graduate School of Management.

Farhang Zamani is a co-founder of Autoweb.com and a brother of co-founder
Payam Zamani. He has been a director of Autoweb.com since October 1995 and has
served as Chairman since October 1995. He also served as Chief Technology
Officer of Autoweb.com from September 1998 to February 1999 and as President
and Chief Executive Officer from October 1995 to September 1998. From January
1993 to November 1995, Mr. Zamani held various positions with Microsoft,
including software engineer in the Microsoft Office Group. Mr. Zamani received
a Bachelor of Science degree in computer science from California State
University, Chico.

Samuel M. Hedgpeth III has served as Vice President, Finance and
Administration, Treasurer and Chief Financial Officer of Autoweb.com since
September 1997. From April 1997 to September 1997, Mr. Hedgpeth served as a
consultant to various high technology companies, including Excite, Inc. From
September 1994 to April 1997, Mr. Hedgpeth was Vice President, Finance and
Administration and Chief Financial Officer for

44
<PAGE>

Prism Solutions, a data warehousing software company. From July 1990 to July
1994, Mr. Hedgpeth was Vice President, Finance and Administration of Versant
Object Technology Corporation, a computer database company. Mr. Hedgpeth
received a Bachelor of Science degree in business administration from the
University of California and a Master of Business Administration degree from
the University of California at Los Angeles.

Gordon H. Kass has served as Chief Technology Officer of Autoweb.com since
February 1999. From October 1997 to February 1999, Mr. Kass was Vice President,
Engineering of Starwave Corp., a producer of online sports, news and
international services. From August 1995 to October 1997, he was President and
Chief Executive Officer of SporTVision, Inc., a full-service technology company
for sports television. From August 1994 to August 1995, Mr. Kass was Vice
President, Engineering for PowerOpen Association, a systems and applications
software company. From August 1987 to August 1994, Mr. Kass held various
positions with Sun Microsystems, most recently as Director of Systems Software.
Mr. Kass received a Bachelor of Arts degree in mathematics from the University
of California at Los Angeles and a Master of Science degree in computer science
from the University of California at Berkeley.

Payam Zamani is a co-founder of Autoweb.com and a brother of co-founder
Farhang Zamani. He has been a director of Autoweb.com since October 1995 and
has served as Executive Vice President of Autoweb.com since January 1999, as
President and Chief Executive Officer from October 1998 to December 1998, as
Executive Vice President of Marketing and Business Development from September
1997 to October 1998 and as Vice President, Chief Financial Officer and
Treasurer from October 1995 to September 1997. From August 1993 to October
1995, Mr. Zamani was the Vice President of Operations for TOTL Inc., a home and
commercial property painting company and the parent company of Student Works
Painting. Mr. Zamani received a Bachelor of Science degree in Environmental
Toxicology with an emphasis in environmental law from the University of
California at Davis.

Garrett R. Mullins has served as Senior Vice President, Sales and Member
Services since January 1999. From January 1996 to January 1999, Mr. Mullins
held various positions at Teletech Telecommunications, a teleservices company,
most recently as Corporate Director of Operations. From April 1995 to January
1996, Mr. Mullins was Vice President, Sales and Member Services with AT&T
Imagination Network, an online games company. From April 1994 to April 1995,
Mr. Mullins was Vice President, Sales with Zenith Electronics' Network Systems
Group, a developer of cable modems and set-top devices. From April 1993 to
April 1994, Mr. Mullins was Corporate Director of Customer Service with Tele-
Communications, Inc. Mr. Mullins received a Bachelor of Science degree in
political science from Auburn University.

Catherine Y. Gordon has served as Vice President, Product Management of
Autoweb.com since February 1999. From June 1998 to February 1999, Ms. Gordon
was Chief Operating Officer and Vice President, Marketing for DATAFUSION, Inc.,
a software development company. From January 1998 to April 1998, Ms. Gordon
provided consulting services to technology companies. From July 1984 to January
1998, she held various positions with Knight-Ridder Information, an online
research service, most recently as Senior Vice President Marketing and Product
Management. Ms. Gordon received a Bachelor of Arts degree in history from
Immaculata College and a Masters in Library Science degree from Villanova
University.

David L. Greene has served as Vice President, Dealer Operations of
Autoweb.com since January 1998. From December 1997 to January 1998, Mr. Greene
was a Training and Performance Consultant with the Rikess Group, a Los Angeles
based training and consulting company focusing in automotive sales. Prior to
this, Mr. Greene was General Sales Manager with several automotive dealerships,
including Stanford Lincoln-Mercury from June 1997 to December 1997, Burlingame
Ford from March 1996 to June 1997 and McHugh Lincoln-Mercury from January 1989
to March 1996. Mr. Greene attended the University of Southern California, where
he majored in journalism.

Michele Hickford has served as Vice President, Marketing of Autoweb.com
since December 1997. From July 1997 to November 1997, she served with
Autoweb.com as Director of Business Development. From February 1996 to May
1997, she was the Head of New Media for I.D.E.A., a London-based international
economic analysis firm. From August 1995 to January 1996, Ms. Hickford was Vice
President, Marketing of Sci-Fi Channel Europe, a cable and satellite television
broadcast company. From March 1994 to August 1995,

45
<PAGE>

she was Vice President, Marketing and Research for Turner International, a
cable and satellite television broadcast company. Ms. Hickford received a
Bachelor of Arts degree with a minor in advertising in telecommunications and
film from San Diego State University.

Robert M. Shapiro has served as Vice President, Business Development and
Advertising Sales of Autoweb.com since December 1998. From June 1997 to
December 1998, he was a consultant with Shapiro Group, a consulting firm. From
May 1995 to June 1997, Mr. Shapiro was the Senior Vice President of Product
Management and Marketing with R. L. Polk, a global information services
company. From January 1984 to May 1995, Mr. Shapiro held a variety of
positions, including Vice President of Marketing, with Prodigy Services
Company, an interactive services provider. Mr. Shapiro received a Bachelor of
Arts degree in political science from the University of San Diego.

Mark N. Diker has been a director of Autoweb.com since June 1997. Since
December 1998, Mr. Diker has been a General Partner of Geocapital Partners,
L.L.C., a venture capital firm. He served as a Principal with Geocapital from
August 1996 to November 1998. From September 1994 to May 1996, he attended the
Harvard Graduate School of Business. From January 1992 to April 1994, Mr. Diker
served with Bankers Trust Company as a Vice President of its Japanese Equity
Derivative Group in Asia, where his responsibilities included risk management,
structuring and trading equity derivative products. Mr. Diker received a
Bachelor of Arts degree in government from Harvard College and a Masters in
Business Administration degree from the Harvard Graduate School of Business.

Jay C. Hoag has been a director of Autoweb.com since May 1998. Since June
1995, Mr. Hoag has been a General Partner of Technology Crossover Ventures, a
venture capital firm. From 1982 to December 1994, he served in a variety of
capacities at Chancellor Capital Management, Inc., a venture capital/portfolio
management firm. He received a Bachelor of Arts degree in Economics and
Political Science from Northwestern University and a Masters in Business
Administration degree with an emphasis in finance from the University of
Michigan. Since October 1998, Mr. Hoag has been a director of ONYX Software, a
publicly held customer management software company.

Mark R. Ross has been a director of Autoweb.com since July 1996. Since May
1984, Mr. Ross has been the President, Chief Executive Officer and a director
of On Word Information, Inc., a database company specializing in imaging,
optical character recognition and document management. Since May 1996, Mr. Ross
has also been Managing Director of Internet Content Partners, L.L.C., a
merchant bank focusing on servicing Internet companies. During May and June
1994, Mr. Ross acted as a consultant to Motorola, helping Motorola evaluate its
investments in Internet information/service businesses. Mr. Ross received a
Bachelor of Science degree in finance from Lehigh University and studied at the
graduate level in education at the University of Massachusetts.

Peter S. Sealey has been a director of Autoweb.com since February 1999.
Since January 1998, Dr. Sealey has been an adjunct Professor of Marketing at
the Haas School of Business of the University of California-Berkeley. Since
October 1995, he has also served as Management Consultant to several companies,
including Anheuser-Busch, Inc., CKS/Group, Inc., CyberGold, Inc., Encanto
Networks, Inc., Hewlett-Packard Company, ImproveNet, Inc., Intouch Group, Inc.,
Round Table Pizza, SOMA Research and Technology, Sony Online Ventures, United
Parcel Service and Visa U.S.A. Dr. Sealey received a Bachelor of Science degree
in business from the University of Florida, a Masters in Industrial
Administration degree from Yale University and Masters and Doctorate degrees in
management at Claremont Graduate University.

Our Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, which will become effective upon the completion of this
offering, provide that the Board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. The
Class I directors, initially Messrs. DeBiase and Ross, will stand for re-
election or election at the 2000 annual meeting of stockholders. The Class II
directors, initially Messrs. Diker and Payam Zamani, will stand for reelection
or election at the 2001 annual meeting of stockholders and the Class III
directors, initially Messrs. Hoag, Sealey and Farhang Zamani, will stand for
reelection or election at the 2002 annual meeting of stockholders. Each officer
serves at the discretion of the Board.

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<PAGE>

Board Committees

The Audit Committee of the Board and the Compensation Committee of the Board
consist of Messrs. Diker, Hoag and Ross. The Audit Committee reviews our
financial statements and accounting practices, makes recommendations to the
Board regarding the selection of independent auditors and reviews the results
and scope of the audit and other services provided by our independent auditors.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for our officers and employees and
administers our employee benefit plans.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee of the Board has at any
time since the formation of Autoweb.com been an officer or employee of
Autoweb.com. No executive officer of Autoweb.com serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving on Autoweb.com's Board or Compensation Committee.

Director Compensation

Directors of Autoweb.com do not receive cash compensation for their services
as directors but are reimbursed for their reasonable and necessary expenses for
attending Board and Board committee meetings. In February 1999, Mr. Sealey was
elected to the Board and received an option to purchase 15,000 shares of common
stock at an exercise price of $6.00 per share under our 1997 Stock Option Plan.

In January 1999, the Board adopted, and in March 1999 our stockholders
approved, the Directors Plan. We have reserved a total of 150,000 shares of
common stock for issuance under the Directors Plan. Members of the Board who
are not employees of Autoweb.com, or any parent, subsidiary or affiliate of
Autoweb.com, will be eligible to participate in the Directors Plan unless they
are representatives of venture capital funds or corporate investors. The option
grants under the Directors Plan are automatic and nondiscretionary, and the
exercise price of the options must be 100% of the fair market value of the
common stock on the date of grant. Each eligible director who is or becomes a
member of the Board on or after the effective date of the Registration
Statement of which this prospectus forms a part (the "Effective Date") will
initially be granted an option to purchase 15,000 shares (an "Initial Grant")
on the later of the Effective Date or the date such director first becomes a
director. Immediately following each Annual Meeting of Autoweb.com, each
eligible director will automatically be granted an additional option to
purchase 7,500 shares if such director has served continuously as a member of
the Board since the date of such director's Initial Grant. The term of such
options is ten years, provided that they will terminate seven months following
the date the director ceases to be a director or a consultant of Autoweb.com or
12 months if the termination is due to death or disability. All options granted
under the Directors Plan will vest over four years at a rate of 2.08% per
month, provided the optionee continues as a member of the Board or as a
consultant to Autoweb.com. In the event of Autoweb.com's dissolution or
liquidation or a "change in control" transaction, options granted under the
Directors Plan will become 100% vested and exercisable in full.

47
<PAGE>

Executive Compensation

The following table sets forth all compensation awarded to, earned by or
paid for services rendered to Autoweb.com in all capacities during 1998 by each
executive officer who earned more than $100,000 and each individual who served
as chief executive officer during any portion of 1998 (the "Named Executive
Officers").

Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual
Compensation Awards
------------------ ------------
Securities
Underlying
Name and Principal Positions Salary(1) Bonus Options
- ---------------------------- --------- -------- ------------
<S> <C> <C> <C>
Dean A. DeBiase
President and Chief Executive Officer(2)...... $ -- $ -- 1,780,476

Farhang Zamani
Chairman and Chief Technology Officer(2)...... 95,000 220,102 --

Payam Zamani
Executive Vice President(2)................... 95,000 220,102 --

David L. Greene
Vice President, Sales and Dealer Operations... 110,032 66,121 52,893

Samuel M. Hedgpeth III
Vice President, Finance and Chief Financial
Officer...................................... 140,833 36,101 60,883

Michele Hickford
Vice President, Marketing..................... 110,000 30,101 3,750
</TABLE>
- ---------------------
(1) Dean A. DeBiase and Robert M. Shapiro were each hired in December 1998 and
are compensated at the annual base salary rates of $250,000 and $120,000
respectively. Subsequent to December 31, 1998, Gordon H. Kass, Catherine Y.
Gordon and Garrett R. Mullins were hired at annual base salary rates of
$185,000, $150,000 and $144,000, respectively, and were granted options to
purchase 112,500 shares, 85,000 shares and 112,500 shares, respectively, of
common stock, each at an exercise price of $3.33 per share. Also subsequent
to December 31, 1998, we granted David L. Greene and Samuel M. Hedgpeth III
an option to purchase 6,000 shares and 15,000 shares, respectively, of
common stock at an exercise price of $3.33 per share and granted to each of
David L. Greene and Michele Hickford an option to purchase 12,500 shares of
common stock at an exercise price of $9.00 per share. See "Employment and
Severance Agreements" below.
(2) Mr. DeBiase joined Autoweb.com as President and Chief Executive Officer in
December 1998. Payam Zamani was Chief Executive Officer from October 1998
to December 1998. Farhang Zamani was President and Chief Executive Officer
from October 1995 to September 1998.

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<PAGE>

Option Grants in 1998

The following executive officers received grants of options in 1998.

<TABLE>
<CAPTION>
Number of Percentage of Potential Realizable Value at
Securities Total Options Assumed Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for Option Term(4)
Options Employees Price Expiration ---------------------------------------
Name Granted(1) in 1998(2) Per Share(3) Date 0% 5% 10%
- ---- ---------- ------------- ------------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dean A. DeBiase......... 1,384,815 59.4 $0.50 12/16/08 $18,695,002 $30,887,631 $49,593,537
395,661 17.0 $2.37 3/31/99 4,601,537 8,085,142 13,429,680
Farhang Zamani.......... -- -- -- -- -- -- --
Payam Zamani............ -- -- -- -- -- -- --
David L. Greene......... 33,393 1.4 $0.50 02/18/08 450,806 744,815 1,195,883
19,500 0.8 $0.50 10/21/08 263,250 434,938 698,342
Samuel M. Hedgpeth III.. 60,883 2.6 $0.50 03/18/08 821,921 1,357,966 2,180,365
Michele Hickford........ 3,750 0.2 $0.50 10/21/08 50,625 83,642 134,296
Robert M. Shapiro....... 52,500 2.3 $0.50 12/10/08 708,750 1,170,987 1,880,151
</TABLE>
- ---------------------
(1) All options granted are immediately exercisable and are either incentive
stock options or nonqualified stock options and generally vest over four
years at the rate of 25% of the shares subject to the option on the first
anniversary of the date of grant and 12.5% each six months thereafter.
Exceptions to this vesting schedule are noted under "Employment and
Severance Agreements." Unvested shares are subject to Autoweb.com's right
of repurchase upon termination of employment. Options expire ten years from
the date of grant.
(2) Based on options to purchase a total of 2,330,241 shares of common stock
and Series D Preferred Stock of Autoweb.com granted during 1998.
(3) Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by the Board.
(4) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by the initial public
offering price of $14.00 per share, (b) assuming that the aggregate stock
value derived from that calculation compounds at the annual 0%, 5% or 10%
rates shown in the table for the entire ten-year term of the option and (c)
subtracting from that result the aggregate option exercise price. The 0%,
5% and 10% assumed annual rates of stock price appreciation are mandated by
the rules of the Securities and Exchange Commission and do not represent
our estimate or projection of future common stock prices.

In January and February 1999, we granted options to three new officers. See
"--Employment and Severance Agreements." We also granted additional options to
several existing officers. See footnote (1) to the "Summary Compensation Table"
above.

Aggregate Option Exercises in 1998 and Values at December 31, 1998

The following table sets forth the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares of
common stock subject to exercisable and unexercisable stock options held as of
December 31, 1998 by each of our executive officers. Also reported are values
of "in-the-money" options, which represent the positive spread between the
respective exercise prices of outstanding stock options and the initial public
offering price of $14.00 per share.

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options at
Shares Options at December 31, 1998 December 31, 1998
Acquired on Value ---------------------------- -------------------------
Name Exercise Realized(2) Exercisable(3) Unexercisable Exercisable Unexercisable
---- ----------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dean A. DeBiase......... -- $ -- 1,780,476 -- $23,296,539 --
Farhang Zamani.......... -- -- -- -- -- --
Payan Zamani............ -- -- -- -- -- --
David L. Greene......... -- -- 52,893 -- 714,056 --
Samuel M. Hedgpeth III.. 177,011(1) 2,389,649 -- -- -- --
Michele Hickford........ -- -- 56,250 -- 769,393 --
Robert M. Shapiro....... -- -- 52,500 -- 708,750 --
</TABLE>
- ---------------------
(1) Of these shares, 36,290 are vested and 140,721 are unvested. The unvested
shares are subject to Autoweb.com's right of repurchase upon termination of
employment at a price equal to the exercise price of the option pursuant to
which the shares were acquired.
(2) Based on a value of $14.00, the initial public offering price per share,
minus the per share exercise price, multiplied by the number of shares
issued upon exercise of the option.
(3) Of these shares, the following numbers are vested: Dean A. DeBiase--
1,018,828 shares, David L. Greene--none, Michele Hickford--13,126 shares
and Robert M. Shapiro--none.

49
<PAGE>

Employee Benefit Plans

1997 Stock Option Plan. In April 1997, the Board adopted and our
stockholders approved the 1997 Plan. At that time, 675,000 shares of common
stock were reserved for issuance under the 1997 Plan, which number has since
been increased to 2,970,894. As of December 31, 1998, options to purchase
223,075 shares of common stock had been exercised and options to purchase
1,831,391 shares of common stock were outstanding under the 1997 Plan with a
weighted average exercise price of $0.49, and 916,428 shares were available for
future grants. No further options will be granted under the 1997 Plan after the
Effective Date. Options granted under the 1997 Plan before its termination will
remain outstanding according to their terms. Options granted under the 1997
Plan are generally immediately exercisable and subject to repurchase by
Autoweb.com at the exercise price until they vest. In general, options vest
over a four-year period. Options under the 1997 Plan are subject to terms
substantially similar to those described below with respect to options to be
granted under the 1999 Equity Incentive Plan. The 1997 Plan does not provide
for issuance of restricted stock or stock bonus awards.

1999 Equity Incentive Plan. In January 1999 the Board adopted, and in March
1999 our stockholders approved, the Equity Incentive Plan and reserved for
issuance thereunder 2,800,000 shares in addition to shares under the 1997 Plan
not issued or subject to outstanding grants on the Effective Date and any
shares issued under the 1997 Plan that are forfeited or repurchased by
Autoweb.com or that are issuable upon exercise of options granted pursuant to
the 1997 Plan that expire or become unexercisable for any reason without having
been exercised in full. The Equity Incentive Plan will become effective on the
Effective Date and will serve as the successor to the 1997 Plan. Shares that:
(a) are subject to issuance upon exercise of an option granted under the Equity
Incentive Plan that cease to be subject to such option for any reason other
than exercise of such option; (b) have been issued pursuant to the exercise of
an option granted under the Equity Incentive Plan that are subsequently
forfeited or repurchased by Autoweb.com at the original purchase price; (c) are
subject to an award granted pursuant to a restricted stock purchase agreement
under the Equity Incentive Plan that are subsequently forfeited or repurchased
by Autoweb.com at the original issue price; or (d) are subject to stock bonuses
granted under the Equity Incentive Plan that otherwise terminate without shares
being issued, will again be available for grant and issuance under the Equity
Incentive Plan. The Equity Incentive Plan will terminate in January 2009,
unless it is terminated earlier in accordance with its term. The Equity
Incentive Plan authorizes the award of options, restricted stock awards and
stock bonuses (each an "Award"). No person will be eligible to receive more
than 1,000,000 shares in any calendar year pursuant to Awards under the Equity
Incentive Plan other than a new employee of Autoweb.com who will be eligible to
receive no more than 2,000,000 shares in the calendar year in which such
employee commences employment. The Equity Incentive Plan is administered by the
Compensation Committee, which currently consists of Messrs. Diker, Hoag and
Ross, all of whom are "non-employee directors" under applicable federal
securities laws and "outside directors" as defined under applicable federal tax
laws. The Compensation Committee has the authority to construe and interpret
the Equity Incentive Plan and any agreement made thereunder, grant Awards and
make all other determinations necessary or advisable for the administration of
the Equity Incentive Plan.

The Equity Incentive Plan provides for the grant of both incentive stock
options ("ISOs") that qualify under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and nonqualified stock options ("NQSOs"). ISOs
may be granted only to employees of Autoweb.com or of a parent or subsidiary of
Autoweb.com. NQSOs (and all other Awards other than ISOs) may be granted to
employees, officers, directors, consultants, independent contractors and
advisors of Autoweb.com or any parent or subsidiary of Autoweb.com, provided
such consultants, independent contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction. The exercise price of ISOs must be at least equal to the
fair market value of Autoweb.com's common stock on the date of grant. (The
exercise price of ISOs granted to 10% stockholders must be at least equal to
110% of that value.) The exercise price of NQSOs must be at least equal to 85%
of the fair market value of Autoweb.com's common stock on the date of grant.
Options may be exercisable only as they vest or immediately exercisable with
the shares issued thereunder subject to our right of repurchase that lapses as
the shares vest. In general, options vest over a four-year period. The maximum
term of options granted under the Equity Incentive Plan is ten years. Awards
granted under the Equity Incentive Plan may

50
<PAGE>

not be transferred in any manner other than by will or by the laws of descent
and distribution and may be exercised during the lifetime of the optionee only
by the optionee (unless otherwise determined by the Compensation Committee and
set forth in the Award agreement with respect to Awards that are not ISOs).
Options granted under the Equity Incentive Plan generally may be exercised for
a period of time after the termination of the optionee's service to Autoweb.com
or a parent or subsidiary of Autoweb.com. Options will generally terminate
immediately upon termination for cause. The purchase price for restricted stock
will be determined by the Compensation Committee. Stock bonuses may be issued
for past services or may be awarded upon the completion of certain services or
performance goals.

In the event of Autoweb.com's dissolution or liquidation or a "change in
control" transaction, outstanding awards may be assumed or substituted by the
successor corporation (if any). In the discretion of the Compensation Committee
the vesting of such Awards may accelerate upon such transaction.

1999 Employee Stock Purchase Plan. In January 1999 the Board adopted, and in
March 1999 our stockholders approved, the Purchase Plan and reserved a total of
400,000 shares of common stock for issuance thereunder. On each January 1, the
aggregate number of shares reserved for issuance under the Purchase Plan will
increase automatically by a number of shares equal to 1% of Autoweb.com's
outstanding shares on the preceding December 31. The aggregate number of shares
reserved for issuance under the Purchase Plan may not exceed 3,000,000 shares.
The Purchase Plan will be administered by the Compensation Committee of the
Board. The Compensation Committee will have the authority to construe and
interpret the Purchase Plan and its decision in such capacity will be final and
binding. The Purchase Plan will become effective on the first business day on
which price quotations for Autoweb.com's common stock are available on the
Nasdaq National Market. Employees generally will be eligible to participate in
the Purchase Plan if they are customarily employed by Autoweb.com (or its
parent or any subsidiaries that Autoweb.com designates) for more than 20 hours
per week and more than five months in a calendar year and are not (and would
not become as a result of being granted an option under the Purchase Plan) 5%
stockholders of Autoweb.com (or its designated parent or subsidiaries). Under
the Purchase Plan, eligible employees will be permitted to acquire shares of
Autoweb.com's common stock through payroll deductions. Eligible employees may
select a rate of payroll deduction between 2% and 15% of their compensation as
defined in the Purchase Plan and are subject to certain maximum purchase
limitations described in the Purchase Plan. A participant may change the rate
of payroll deductions or withdraw from an offering period by notifying
Autoweb.com in writing. Participation in the Purchase Plan will end
automatically upon termination of employment for any reason. Each offering
period under the Purchase Plan will be for two years and consist of four six-
month Purchase Periods. The first offering period is expected to begin on the
first business day on which price quotations for Autoweb.com's common stock are
available on the Nasdaq National Market. Depending on the Effective Date, the
first Purchase Period may be more or less than six months long. Offering
periods and purchase periods thereafter will begin on May 1 and November 1. The
purchase price for Autoweb.com's common stock purchased under the Purchase Plan
is 85% of the lesser of the fair market value of Autoweb.com's common stock on
the first day of the applicable offering period or the last day of each
purchase period. A participant may not purchase more than 1,000 shares in any
purchase period. The Compensation Committee will have the power to change the
duration of offering periods without stockholder approval, if such change is
announced at least 15 days prior to the beginning of the offering period will
be affected. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Code. Rights granted under the Purchase
Plan will not be transferable by a participant other than by will or the laws
of descent and distribution. The Purchase Plan provides that, in the event of
the proposed dissolution or liquidation of Autoweb.com, each offering period
that commenced prior to the closing of such proposed transaction shall continue
for the duration of such offering period, provided that the Compensation
Committee may fix a different date for termination of the Purchase Plan. The
Purchase Plan will terminate in January 2009, unless it is terminated earlier
pursuant to the terms of the Purchase Plan. The Board will have the authority
to amend, terminate or extend the term of the Purchase Plan, except that no
such action may adversely affect any outstanding options previously granted
under the Purchase Plan and except for the increased shares due to the
evergreen provision, stockholder approval is required to increase the number of
shares that may be issued or to change the terms of eligibility under the
Purchase Plan. Notwithstanding the

51
<PAGE>

foregoing, the Board may make such amendments to the Purchase Plan as the Board
determines to be advisable if the financial accounting treatment for the
Purchase Plan is different than the financial accounting treatment in effect on
the date the Purchase Plan was adopted by the Board.

401(k) Plan. Autoweb.com sponsors the Downtown Web, Inc. 401(k) Plan (the
"401(k) Plan"), a defined contribution plan intended to qualify under Section
401 of the Code. Employees who are at least 21 years old and who have been
employed with us for at least 90 days are generally eligible to participate and
may enter the 401(k) Plan as of the first day of any calendar quarter
("Participants"). Participants may make pre-tax contributions to the 401(k)
Plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Each Participant is fully vested in his or her
contributions and the investment earnings thereon. We may make matching
contributions on a discretionary basis to the 401(k) Plan but had not done so
as of December 31, 1998. Contributions by the participants or Autoweb.com to
the 401(k) Plan, and the income earned on such contributions, are generally not
taxable to the participants until withdrawn. Contributions by Autoweb.com, if
any, are generally deductible by Autoweb.com when made. Participant and company
contributions are held in trust as required by law. Individual Participants may
direct the trustee to invest their accounts in authorized investment
alternatives.

Employment and Severance Agreements

Mr. DeBiase's offer letter, dated December 16, 1998, provides for an initial
annual salary of at least $250,000 commencing on January 1, 1999 and a $50,000
bonus to be paid on each of June 30, 1999 and December 31, 1999. The letter
provides that Mr. DeBiase's annual salary will not decrease below $250,000
during the course of his employment and that he will be eligible to earn an
annual bonus of at least $100,000 if he achieves certain performance objectives
and meets certain other requirements. The letter also provides for
reimbursement of up to $120,000 for relocation and interim living expenses. Mr.
DeBiase received an option, expiring on March 31, 1999, to purchase 395,661
shares of Autoweb.com Series D Preferred Stock at an exercise price of $2.37
per share. He exercised this option in January 1999, paying the exercise price
with a combination of $250,000 of cash and a promissory note for $686,398, and
borrowed an additional $135,586 from us to pay his withholding tax. The
promissory notes are full recourse, interest-free and secured by the shares
purchased. The notes are due and payable in three years. Mr. DeBiase also
received options to purchase 1,384,815 shares of Autoweb.com common stock, to
be classified as incentive stock options to the maximum extent possible, at an
exercise price of $0.50 per share. These options vested on issue as to 623,166
shares and will vest as to 21,157 shares monthly commencing on January 16, 2000
until fully vested. Mr. DeBiase exercised these options in January 1999 with
regard to 199,999 shares, paying the exercise price with a $100,000 promissory
note. The promissory note is full recourse, interest-free and secured by the
shares purchased. The note is due and payable in three years. In the event of a
"change of control" event, 75% of the unvested portion of these options will
become vested at the time of the event; thereafter, if he is terminated without
formal cause or he voluntarily resigns due to a constructive termination, the
remainder of his options will become vested. If Mr. DeBiase is terminated
without formal cause, he will receive a severance payment equal to twelve
months' salary plus any "parachute payment" excise tax and will be entitled to
benefits for this same period. Mr. DeBiase's employment is at will and may be
terminated at any time, with or without formal cause.

Farhang and Payam Zamani each entered into employment agreements with us
that commenced on July 5, 1996, terminated on December 31, 1998 and provided
for an initial annual salary of $60,000. The agreements provided for
unspecified "incentive compensation" at the discretion of the Board and an
additional bonus of 2% of Autoweb.com net revenues in excess of $2.0 million
for each calendar year during the term of the agreement. If either individual's
employment was terminated or constructively terminated without good cause, he
would have received severance up to a maximum of six months' salary.

Mr. Kass' offer letter, dated February 9, 1999, provides for an initial
annual salary of $185,000 commencing on February 24, 1999 and an annual bonus
of up to 30% of his annual salary, based on company performance and on
individual objectives. The letter also provides for reimbursement of certain
relocation

52
<PAGE>

expenses, and for commuting expenses until May 1999. Mr. Kass received options
to purchase 112,500 shares of Autoweb.com common stock at an exercise price of
$3.33 per share under the 1997 Plan, of which options to purchase 11,250 shares
vested upon grant and options to purchase 2,812 shares will vest monthly over
three years commencing February 2000. In the event of a "change of control"
event, 50% of the unvested portion of these options will become vested if Mr.
Kass is not retained as an employee of the company after such event. If Mr.
Kass's employment is terminated without formal cause, he will receive a
severance payment equal to six months' salary and he will be entitled to
benefits for six months after his termination date. Mr. Kass' employment is at
will and may be terminated at any time, with or without formal cause.

Mr. Mullins' offer letter, dated January 19, 1999, provides for an initial
annual salary of $144,000 commencing on February 16, 1999 and an annual bonus
of up to $50,000, which bonus is guaranteed for his first year. The letter also
provides for reimbursement of certain relocation expenses, and for
reimbursement of commuting expenses until August 1999. Mr. Mullins received
options to purchase 112,500 shares of Autoweb.com common stock at an exercise
price of $3.33 per share under the 1997 Plan, of which options to purchase
7,500 shares vested upon grant and options to purchase 1,875 shares will vest
monthly over three years commencing January 2000. If Mr. Mullins' employment is
terminated without formal cause, he will receive a severance payment equal to
six months' salary. Mr. Mullins' employment is at will and may be terminated at
any time, with or without formal cause.

Ms. Gordon's offer letter, dated February 19, 1999, provides for an initial
annual salary of $150,000 commencing on February 24, 1999 and an annual bonus
of up to 30% of her annual salary, based on company performance and individual
objectives. Ms. Gordon received options to purchase 85,000 shares of
Autoweb.com common stock at an exercise price of $3.33 per share under the 1997
Plan. Ms. Gordon's employment is at will and may be terminated at any time,
with or without formal cause.

Mr. Greene's offer letter, dated December 18, 1997, provides for an initial
annual salary of $110,000 commencing on January 19, 1998 and an annual bonus of
up to 60% of his annual salary based on dealer renewal and retention and on the
overall dealer training success rate. Mr. Greene received options to purchase
33,393 shares of Autoweb.com common stock at an exercise price of $0.50 per
share under the 1997 Plan. If Mr. Greene's employment is terminated without
cause, he will receive a severance payment equal to six months' salary.
Mr. Greene's employment is at will and may be terminated at any time, with or
without formal cause.

Mr. Hedgpeth's employment agreement, dated May 4, 1998, provides for an
initial annual salary of $145,000 commencing on March 1, 1998 and an annual
bonus of up to 25% of his annual salary based upon Autoweb.com's overall
performance and on the performance of Autoweb.com's finance department.
Mr. Hedgpeth was issued stock options to purchase 134,128 shares of Autoweb.com
common stock at an exercise price of $0.20 per share, and options to purchase
60,883 shares of Autoweb.com common stock at an exercise price of $0.50 per
share issued under the 1997 Plan. If Mr. Hedgpeth is terminated without formal
cause prior to July 1, 1999, 100% of the unvested portion of his options will
become vested on the date of termination, he will receive severance equal to
his salary, without bonus, for a period of up to nine months after the
termination date, and he will be entitled to benefits during the period for
which he receives salary. Mr. Hedgpeth's employment is at will and may be
terminated at any time, with or without formal cause.

Ms. Hickford's offer letter, dated July 28, 1997, provides for an initial
annual salary of $95,000 commencing on July 30, 1997 and an annual bonus equal
to 1% of our revenues over $4 million during 1997 and 1% of such revenues over
$10 million during 1998. Ms. Hickford received options to purchase 33,000
shares of Autoweb.com common stock at an exercise price of $0.50 per share
under the 1997 Plan. Ms. Hickford's employment is at will and may be terminated
at any time, with or without formal cause.

Mr. Shapiro's offer letter, dated November 9, 1998, provides for an initial
annual salary of $120,000 commencing on December 7, 1998 and an annual bonus of
up to $80,000. The letter also provides for reimbursement of certain relocation
expenses. Mr. Shapiro received options to purchase 52,500 shares of

53
<PAGE>

Autoweb.com common stock at an exercise price of $0.50 per share under the 1997
Plan. Mr. Shapiro's employment is at will and may be terminated at any time,
with or without formal cause.

Indemnification of Directors and Executive Officers and Limitation of Liability

As permitted by the Delaware General Corporation Law (the "DGCL"), our
Certificate of Incorporation includes a provision that eliminates the personal
liability of a director for monetary damages resulting from breach of his
fiduciary duty as a director, except for liability:

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

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

. under section 174 of the DGCL (regarding unlawful dividends and stock
purchases); or

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

As permitted by the DGCL, our Bylaws provide that:

. we are required to indemnify its directors and officers to the fullest
extent permitted by the DGCL, subject to certain limited exceptions;

. we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our Certificate of Incorporation, our Bylaws or agreements;

. we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the DGCL, subject to certain limited exceptions; and

. the rights conferred in the Bylaws are not exclusive.

Prior to the completion of this offering, we intend to enter into
Indemnification Agreements with each of our current directors and officers to
give such directors and officers additional contractual assurances regarding
the scope of the indemnification set forth in our Certificate of Incorporation
and Bylaws and to provide additional procedural protections. At present, there
is no pending litigation or proceeding involving a director, officer or
employee of Autoweb.com for which indemnification is sought, nor are we aware
of any threatened litigation that may result in claims for indemnification.

We currently carry liability insurance for our directors and officers and
intend to obtain a rider to extend that coverage for public securities matters.

54
<PAGE>

CERTAIN TRANSACTIONS

Since Autoweb.com was incorporated in October 1995, there has not been, nor
is there currently proposed, any transaction or series of similar transactions
to which Autoweb.com was or is 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 the common stock of Autoweb.com had or will have a direct or
indirect interest other than (1) compensation arrangements, which are described
where required under "Management," and (2) the transactions described below.

For clarity of presentation, share numbers and per share prices for the
transactions described below are adjusted for a three-for-two stock split of
our common stock and preferred stock to be effected prior to the effective date
of the Registration Statement of which this prospectus is a part.

Formation of Autoweb.com. In connection with the incorporation of
Autoweb.com in October 1995, Autoweb.com sold 3,600,000 shares of common stock
to each of Farhang Zamani and Payam Zamani, the founders of Autoweb.com. In
exchange for these shares, the founders assigned to Autoweb.com the assets and
liabilities of Autoweb Interactive, a partnership, including all right, title
and interest in the computer programs necessary to its Web site (together with
all related intellectual property rights), all right, title and interest in its
trade and service marks, the contracts with dealers that were assignable and
all goodwill in the company. For accounting purposes, no value was assigned to
this transaction as the predecessor entity had no basis in the technology and
other intangible assets.

Series A Financing Round. In June 1996 and June 1997, we sold 1,270,503
shares and 813,111 shares, respectively, of Series A Preferred Stock to On Word
Information, Inc., a 10% stockholder, for aggregate purchase prices of $150,000
and $95,773, respectively. On Word also received 594,360 shares of common
stock, valued at $70,002, for consulting services provided to Autoweb.com. We
also sold 466,972 shares of Series A Preferred Stock to each of Farhang and
Payam Zamani for an aggregate purchase price of $110,000. Each share of Series
A Preferred Stock will convert automatically into 1.0 share of common stock
upon the consummation of this offering.

Series B Financing Round. In June 1997, we sold 2,448,445 shares of Series B
Preferred Stock to one venture capital firm and a group of investors. Mark N.
Diker, one of our directors, is an affiliate of Geocapital IV, L.P., which
purchased 2,387,235 shares of Series B Preferred Stock for an aggregate
purchase price of $4,875,000. Each share of Series B Preferred Stock will
convert automatically into approximately 1.85 shares of common stock upon the
consummation of this offering.

Series C Financing Round. In May 1998, we sold 2,369,967 shares of Series C
Preferred Stock to five venture capital funds affiliated with Technology
Crossover Ventures for an aggregate purchase price of $5,000,002. Jay C. Hoag,
one of our directors, is a managing member of the general partner of Technology
Crossover Ventures. Each share of Series C Preferred Stock will convert
automatically into approximately 1.15 shares of common stock upon the
consummation of this offering. In connection with this financing round,
Technology Crossover Ventures also received an option to purchase, subject to
the managing underwriter's consent, up to $3 million of our common stock in
this offering at the initial public offering price per share.

Series D Financing Round. In October 1998, we sold 859,859 shares of Series
D Preferred Stock to one corporation and two venture capital funds for an
aggregate of $2,035,002. Each share of Series D Preferred Stock will convert
automatically into 1.0 share of common stock upon the consummation of this
offering.

Stock Repurchases. In May 1998, we repurchased 271,537 shares and 271,536
shares of Series A Preferred Stock from Farhang and Payam Zamani, respectively,
for an aggregate purchase price of $1,000,000. In October 1998, we repurchased
42,254 shares and 42,253 shares of Series A Preferred Stock from Farhang and
Payam Zamani, respectively, for an aggregate purchase price of $200,000.

55
<PAGE>

Rights Agreement. In October 1998, Autoweb.com, the founders and other
certain stockholders entered into an Amended and Restated Rights Agreement
under which the founders and such stockholders have certain registration rights
with respect to their shares of common stock following this offering. See
"Description of Capital Stock--Registration Rights."

Officer Loans. In January 1999, Dean DeBiase, our President and Chief
Executive Officer, borrowed an aggregate of $871,982 from us pursuant to three
full-recourse, three-year, interest free promissory notes in the amounts of
$100,000, $636,396 and $135,586 in connection with the exercise of his options
to purchase 199,999 shares of common stock and 395,661 shares of our Series D
Preferred Stock. The $100,000 note is secured by the 199,999 shares of common
stock purchased and the $636,396 and $135,586 promissory notes are each secured
by the 395,661 shares of Series D Preferred Stock purchased.

Policy Regarding Transactions with Affiliates. It is our policy that the
terms of transactions entered into with affiliated parties are no less
favorable than we could have obtained from unaffiliated third parties.
Transactions with affiliated parties are subject to approval by a majority of
the disinterested members of the Board of Directors.

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<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of December 31, 1998 by (1) each
stockholder known by us to be the beneficial owner of more than 5% of our
common stock, (2) each of our directors, (3) each Named Executive Officer, (4)
all executive officers and directors as a group and (5) each Selling
Stockholder.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering(1) Number of Offering(1)(2)
-----------------------Shares Being -----------------------
Name of Beneficial Owner Number Percent Offered(2) Number Percent
- ------------------------ ------------ ---------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Mark N. Diker........... 4,416,842 23.8% -- 4,416,842 18.8%
Geocapital IV, L.P.(3)
Farhang Zamani(4)....... 3,753,181 20.2 75,000 3,678,181 15.7
Payam Zamani(5)......... 3,735,933 20.1 25,000 3,710,933 15.8
Jay C. Hoag............. 2,715,367 14.6 -- 2,715,367 11.6
Technology Crossover
Ventures(6)
Mark R. Ross............ 1,964,221 10.6 -- 1,964,221 8.4
On Word Information,
Inc.(7)
Dean A. DeBiase(8)...... 1,780,476 8.8 -- 1,780,476 7.6
Samuel M. Hedgpeth
III(9)................. 195,011 1.1 -- 195,011 *
Michele Hickford(10).... 56,250 * -- 56,250 *
David L. Greene(11)..... 52,893 * -- 52,893 *
All directors and
executive officers as a
group
(10 persons)(12)....... 18,722,674 91.3 100,000 18,622,674 73.3
</TABLE>
- ---------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. Shares of common
stock subject to options that are currently exercisable or exercisable
within 60 days of December 31, 1998 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Assumes that the underwriters' over-allotment option to purchase up to
650,000 shares from Autoweb.com, 75,000 shares from Farhang Zamani and
25,000 shares from Payam Zamani is not exercised.
(3) The address of Mr. Diker and Geocapital IV, L.P. is Two Executive Drive,
Fifth Floor, Fort Lee, New Jersey 07024.
(4) Mr. Zamani is Chairman and a director of Autoweb.com. His address is c/o
Autoweb.com, Inc., 3270 Jay Street, Building 6, Santa Clara, California
95054. Subsequent to December 31, 1998, Mr. Zamani gifted 88,500 shares to
various individuals.
(5) Mr. Zamani is Executive Vice President and a director of Autoweb.com. His
address is c/o Autoweb.com, Inc., 3270 Jay Street, Building 6, Santa
Clara, California 95054. Subsequent to December 31, 1998, Mr. Zamani
gifted 60,000 shares to various individuals.
(6) Represents 1,298,961 shares held of record by Technology Crossover
Ventures II, L.P., 998,659 shares held of record by TCV II (Q), L.P.,
198,325 shares held of record by Technology Crossover Ventures II, C.V.,
177,226 shares held of record by TCV II Strategic Partners, L.P. and
42,196 shares held of record by TCV II, V.O.F. Mr. Hoag, a director of the
company, is a managing member of Technology Crossover Management II,
L.L.C., the general partner of Technology Crossover Ventures. Mr. Hoag has
shared voting and investment power over all of these shares and he
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in such shares arising from his interest in Technology
Crossover Management II, L.L.C. Technology Crossover Ventures also has an
option to purchase, subject to the managing underwriter's consent, up to
$3.0 million of our common stock in this offering at the initial public
offering price per share. The address for Mr. Hoag and each of these
entities is Technology Crossover Ventures, 575 High Street, Suite 400,
Palo Alto, California 94301.
(7) Represents 1,864, 863 held of record by On Word Information, Inc., 84,906
shares held of record by Mr. Ross' wife and 14,452 shares held of record
by Mr. Ross. The address of Mr. Ross and On Word Information, Inc. is
8063 E. Glenrose Avenue, Scottsdale, AZ 85251. Subsequent to December 31,
1998, Chatsworth Capital assigned to Mr. Ross a warrant to purchase 24,462
shares of our common stock at an exercise price of $1.27 per share.

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<PAGE>

(8) Includes an immediately exercisable option to purchase 1,384,815 shares of
common stock, of which 623,167 shares are vested and 761,648 shares are
unvested. Also includes an immediately exercisable option to purchase
395,661 shares of common stock which is fully vested. In January 1999, Mr.
DeBiase exercised in full the option to purchase 395,661 shares of common
stock and exercised the option to purchase 1,384,815 shares of common
stock to the extent of 199,999 shares of common stock. Mr. DeBiase is
President, Chief Executive Officer and a director of Autoweb.com. His
address is c/o Autoweb.com, Inc., 3270 Jay Street, Building 6, Santa
Clara, California 95054.
(9) Represents 41,915 shares which are vested and 92,213 shares and 60,883
shares which are unvested as of December 31, 1998 and subject to
Autoweb.com's right of repurchase at their original exercise prices of
$0.20 per share and $0.50 per share, respectively. Mr. Hedgpeth is Vice
President, Finance and Administration, Treasurer and Chief Financial
Officer of Autoweb.com.
(10) Represents an immediately exercisable option to purchase 56,250 shares of
common stock, of which 13,126 shares are vested and 43,124 shares are
unvested as of December 31, 1998. Ms. Hickford is Vice President,
Marketing of Autoweb.com.
(11) Represents an immediately exercisable option to purchase 52,893 shares of
common stock, which is unvested as of December 31, 1998. Mr. Greene is
Vice President, Dealer Operations of Autoweb.com.
(12) Includes the shares beneficially owned by the persons and entities
described in footnotes (3)-(11). Subsequent to December 31, 1998, we hired
three new executive officers and granted them immediately exercisable
options to purchase an aggregate of 310,000 shares of common stock,
granted an immediately exercisable option to purchase 15,000 shares of
common stock to Mr. Sealey, our new director, and granted immediately
exercisable options to purchase an aggregate of 46,000 shares to existing
executive officers.

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DESCRIPTION OF CAPITAL STOCK

Immediately following the closing of this offering, the authorized capital
stock of Autoweb.com will consist of 60,000,000 shares of common stock, $0.001
par value per share, and 5,000,000 shares of preferred stock, $0.001 par value
per share. As of December 31, 1998, and assuming the conversion of all
outstanding preferred stock into common stock upon the closing of this
offering, there were outstanding 18,558,464 shares of common stock held of
record by 58 stockholders, options to purchase 2,227,052 shares of common stock
and warrants to purchase 159,938 shares of common stock.

Common Stock

Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. Each
stockholder is entitled to one vote for each share of common stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not provided for in Autoweb.com's Certificate of Incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon a
liquidation, dissolution or winding-up of Autoweb.com, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the common stock and any participating preferred stock outstanding
at that time after payment of liquidation preferences, if any, on any
outstanding preferred stock and payment of other claims of creditors. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.

Preferred Stock

Upon the closing of this offering, each outstanding share of preferred stock
(the "Convertible Preferred" ) will be converted into shares of common stock.
See Note 7 of Notes to Financial Statements for a description of the
Convertible Preferred. Following the offering, Autoweb.com will be authorized,
subject to limitations prescribed by Delaware law, to provide for the issuance
of preferred stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding) without any further vote or action by
the stockholders. The Board may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of the common stock. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in control of Autoweb.com and may
adversely affect the market price of the common stock and the voting and other
rights of the holders of common stock. We have no current plan to issue any
shares of preferred stock.

Registration Rights

Pursuant to the Amended and Restated Rights Agreement dated October 16, 1998
between Autoweb.com, the founders and certain investors (the "Rights
Agreement"), the investors, holding an aggregate of 10,788,286 shares of common
stock of Autoweb.com, 10,188,927 of which are issuable upon conversion of the
Series A, Series B, Series C and Series D preferred stock (collectively the
"Registrable Securities" and the holders of Registrable Securities,
collectively the "Holders"), have certain registration rights pertaining to the
Registrable Securities at any time after 180 days following the closing of this
offering. Under the Rights Agreement, the Holders, by written request of at
least 50% of the Registrable Securities then outstanding, may demand that
Autoweb.com file a registration statement under the Securities Act covering all
or a portion of the Holders' Registrable Securities, provided that, in the case
of a registration statement on a form other than a Form S-3, the registration
statement has an aggregate proposed offering price to the public, net of
underwriters' discounts

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<PAGE>

and commissions, of at least $5,000,000 or, in the case of a registration on a
Form S-3, there is a reasonably anticipated aggregate offering price to the
public of at least $2,500,000. The Holders may not demand more than three Form
S-3 registrations in total or more than two in any one year. These registration
rights are subject to Autoweb.com's right to delay the filing of a registration
statement not more than once in a 12-month period for not more than 90 days.

In addition, certain "piggyback" registration rights exist for the Holders'
Registrable Securities and the founders' 7,389,114 shares of common stock of
Autoweb.com (including an aggregate of 306,364 shares of common stock that are
issuable upon the conversion of the Series A preferred stock), or 7,289,114
shares if the underwriter's over-allotment is exercised in full ("Founders'
Shares"). If Autoweb.com proposes to register any of its common stock under the
Securities Act (other than pursuant to the Holders' demand registration rights
noted above), the Holders or founders may require Autoweb.com to include all or
a portion of their Registrable Securities or Founders' Shares in such
registration; provided, however, that the managing underwriter, if any, of any
such offering has certain rights to limit the number of Registrable Securities
and Founders' Shares proposed to be included in such registration to 30% of the
aggregate shares included in the offering.

All registration expenses incurred in connection with the above
registrations will be borne by Autoweb.com. The selling investor or founder
will pay all underwriting discounts and selling commissions applicable to the
sale of his, her or its Registrable Securities or Founders' Shares.

Demand and piggyback registration rights under the Rights Agreement
terminate with respect to each investor or founder, as applicable, when:

. such investor or founder can sell his, her or its Registrable Securities
or Founders' Shares under Rule 144(k); or

. such investor or founder may sell all his, her or its shares in a three-
month period under Rule 144 of the Securities Act.

Anti-Takeover Provisions

Delaware Law

Upon the closing of this offering, Autoweb.com will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the "Anti-
Takeover Law") regulating corporate takeovers. The Anti-Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging, under certain circumstances, in a
"business combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested stockholder" (a stockholder who owns
15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such stockholder) for three years following
the date that such stockholder became an "interested stockholder" unless:

. the transaction is approved by the Board of Directors prior to the date
the "interested stockholder" attained such status;

. upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding those shares owned by (a)
persons who are directors and also officers and (b) employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer); or

. on or subsequent to such date the "business combination" is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."

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<PAGE>

A Delaware corporation may "opt out" of the Anti-Takeover Law with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not "opted out" of the provisions of the Anti-Takeover Law. The statute
could prohibit or delay mergers or other takeover or change-in-control attempts
with respect to Autoweb.com and, accordingly, may discourage attempts to
acquire Autoweb.com.

Charter and Bylaw Provisions

Our Certificate of Incorporation and Bylaws provide, upon the completion of
this offering, for the division of the Board into three classes of two
directors each with staggered three-year terms. The classification of the Board
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, control of Autoweb.com. In
addition, the Bylaws provide that any action required or permitted to be taken
by the stockholders of Autoweb.com at an annual meeting or a special meeting of
the stockholders may only be taken if it is properly brought before such
meeting and may not be taken by written action in lieu of a meeting. The Bylaws
provide that special meetings of the stockholders may only be called by the
Chairman of the Board, the Chief Executive Officer, the President, the holders
of shares of Autoweb.com that are entitled to cast not less than 10% of the
total number of votes entitled to be cast by all stockholders at such meeting
or by the Board.

Our Bylaws provide that Autoweb.com will indemnify officers and directors
against losses that they may incur in investigations and legal proceedings
resulting from their services to Autoweb.com, which may include services in
connection with takeover defense measures. Such provisions may have the effect
of preventing changes in the management of Autoweb.com.

Transfer Agent and Registrar

The Transfer Agent and Registrar for Autoweb.com's common stock is American
Securities Transfer & Trust, Inc.

Listing

We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "AWEB."

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock, and
we cannot assure you 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) in the public market after this offering could adversely affect market
prices prevailing from time to time and could impair our ability to raise
capital through sale of equity securities. As described below, no shares
currently outstanding will be available for sale immediately after this
offering due to 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, Autoweb.com will have outstanding
23,458,464 shares of common stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, the 5,000,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act unless purchased by
"affiliates" of Autoweb.com as that term is defined in Rule 144 under the
Securities Act. Of the remaining shares, 14,706 shares will be eligible for
sale in the public market beginning 91 days after the date of this offering and
18,443,758 shares are subject (1) to lock-up agreements providing that, with
certain limited exceptions, the stockholder will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any shares of
common stock of Autoweb.com or any securities convertible into or exchangeable
or exercisable for such shares of common stock or publicly disclose an
intention to make any such offer, sale, pledge or disposal for a period of 180
days following the date of the final prospectus for this offering or (2) to
holding period requirements under Rule 144 under the Securities Act. Beginning
181 days after the date of the final prospectus, 17,557,354 of these shares
will be eligible for sale in the public market, although 16,700,190 shares will
be subject to certain volume limitations. The majority of the remaining 886,404
shares will become eligible for sale, subject to certain volume limitations, on
October 16, 1999.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
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) 1% of the number of shares of common stock then outstanding
(which will equal approximately 235,000 shares immediately after this offering)
or (2) 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
Autoweb.com. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Autoweb.com 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 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, officer or director of or consultant to Autoweb.com
who purchased his or her shares pursuant to 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 shares issued pursuant to Rule 701 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 or no sooner than 90 days after
the offering upon obtaining the prior written consent of Credit Suisse First
Boston Corporation.

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<PAGE>

Immediately after this offering, Autoweb.com intends to file a registration
statement under the Securities Act covering shares of common stock subject to
options outstanding under the 1997 Plan or reserved for issuance under the
Equity Incentive Plan, the Directors Plan and the Purchase Plan. Based on the
number of shares subject to outstanding options at December 31, 1998 and
currently reserved for issuance under all such plans, such registration
statement would cover approximately 6,097,819 shares. Such registration
statement will automatically become effective upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of Autoweb.com, be available for sale in
the open market immediately after the 180-day lock-up agreements expire. Also
beginning 180 days after the date of this offering, certain holders of shares
of common stock will be entitled to certain rights with respect to registration
of such shares of common stock for offer and sale to the public. See
"Description of Capital Stock--Registration Rights."

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<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in the underwriting
agreement dated March 22, 1999, we and the selling stockholders have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Hambrecht & Quist LLC, BancBoston Robertson Stephens, Inc. and
U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the following
respective numbers of shares of common stock:

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................ 1,861,800
Hambrecht & Quist LLC ............................................ 1,016,500
BancBoston Robertson Stephens, Inc. .............................. 1,016,500
U.S. Bancorp Piper Jaffray Inc. .................................. 385,200
ABN AMRO Incorporated............................................. 60,000
Bear, Stearns & Co. Inc. ......................................... 60,000
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated... 30,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 60,000
EVEREN Securities, Inc............................................ 30,000
Invemed Associates, Inc. ......................................... 60,000
Keane Securities Co., Inc. ....................................... 30,000
Morgan Stanley & Co. Incorporated................................. 60,000
NationsBanc Montgomery Securities LLC............................. 60,000
Needham & Company, Inc. .......................................... 30,000
Raymond James & Associates, Inc. ................................. 30,000
Salomon Smith Barney Inc. ........................................ 60,000
Charles Schwab & Co., Inc......................................... 60,000
Volpe Brown Whelan & Company, LLC................................. 30,000
Warburg Dillon Read LLC........................................... 60,000
---------
Total........................................................... 5,000,000
=========
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of nondefaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 650,000 additional shares from us and an aggregate of 100,000
additional outstanding shares from the selling stockholders at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $0.59 per share. The
underwriters and the selling group members may allow a discount of $0.10 per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.

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<PAGE>

The following table summarizes the compensation and expenses we and the
selling stockholders will pay.

<TABLE>
<CAPTION>
Total
---------------------------------------
Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us........................... $0.98 $4,802,000 $5,439,000
Expenses payable by us................ $0.20 $1,000,000 $1,000,000
Underwriting discounts and commissions
paid by the selling stockholders..... $0.98 $ 98,000 $ 196,000
</TABLE>

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

We and our officers and directors and certain other stockholders have agreed
not to offer, sell, contract to sell, announce our intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any additional shares of our common stock or securities convertible into to
exchangeable or exercisable for any shares of our common stock without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except in the case of issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.

The underwriters intend to reserve for sale, at the initial public offering
price, a certain number of shares of common stock (not to exceed 5% of the
total number of shares offered in this offering) for Autoweb.com's customers,
partners and business associates. In addition, the underwriters may reserve, at
the initial public offering price, up to $3 million of common stock offered in
this offering for entities affiliated with Technology Crossover Ventures, all
of which are existing stockholders. See "Certain Transactions" and "Principal
and Selling Stockholders." As a result, the number of shares of common stock
available for sale to the general public in the offering will be reduced to the
extent such persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.

We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments which the underwriters may be required to
make in respect thereof.

We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include: the information set forth in
this prospectus and otherwise available to the underwriters; the history and
the prospects for the industry in which we will compete; the ability of our
management; the prospects for our future earnings; the present state of our
development and our current financial condition; the general condition of the
securities markets at the time of this offering; and the recent market prices
of, and the demand for, publicly traded common stock of generally comparable
companies.

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

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NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that Autoweb.com and the
selling stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of common stock are
effected. Accordingly, any resale of the common stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the common stock.

Representations of Purchasers

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Autoweb.com and the selling
stockholders and the dealer from whom such purchase confirmation is received
that: (i) such purchaser is entitled under applicable provincial securities
laws to purchase such common stock without the benefit of a prospectus
qualified under such securities laws, (ii) where required by law, such
purchaser is purchasing as principal and not as agent, and (iii) such purchaser
has reviewed the text above under "Resale Restrictions."

Rights of Action (Ontario Purchasers)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.

Enforcement of Legal Rights

All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders, may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.

Notice to British Columbia Residents

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from Autoweb.com. Only one
such report must be filed in respect of common stock acquired on the same date
and under the same prospectus exemption.

Taxation and Eligibility for Investment

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

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<PAGE>

LEGAL MATTERS

Fenwick & West LLP, Palo Alto, California will pass upon the validity of the
issuance of the shares of common stock offered hereby. Wilson Sonsini Goodrich
& Rosati, Professional Corporation, Palo Alto, California will pass upon
certain legal matters in connection with this offering for the underwriters.

EXPERTS

The financial statements as of December 31, 1997 and 1998 and for each of
the years in the three-year period ended December 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
this firm as experts in auditing and accounting.

STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This prospectus contains forward-looking statements with respect to our
financial condition, results of operations and business. We use words such as
"anticipates," "believes," "plans," "expects," "future" and "intends" and
similar expressions to identify forward-looking statements. This prospectus
also contains forward-looking statements attributed to certain third parties
relating to their estimates regarding the growth of certain e-commerce,
automotive and automotive-related service markets and spending, which we
believe are accurate. You should not place undue reliance on these forward-
looking statements, which apply only as of the date of this prospectus. Our
actual results could differ materially from those anticipated in these forward-
looking statements for many reasons, including those risks described in "Risk
Factors" and elsewhere in this prospectus. Please carefully consider the risks
set forth in the section entitled "Risk Factors" starting on page 6 of this
prospectus.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form S-1 under the Securities Act with respect to
the shares of common stock offered hereby. This prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedule thereto. For further information with respect to Autoweb.com and the
common stock offered hereby, you should refer to the Registration Statement and
the exhibits and schedule thereto. Statements contained in this prospectus
regarding the contents of any contract or any other document to which we make
reference are not necessarily complete, and, in each instance, we make
reference to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. You may inspect a copy of the Registration Statement and the
exhibits and schedule thereto without charge at the offices of the Commission
at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and you may
obtain copies of all or any part of the Registration Statement from the Public
Reference Section of the Commission, Washington, D.C. 20549 upon the payment of
the fees prescribed by the Commission. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as Autoweb.com, that file
electronically with the Commission.

67
<PAGE>

AUTOWEB.COM, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statement of Stockholders' Deficit......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Autoweb.com, Inc.

In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and of cash flows present fairly, in all
material respects, the financial position of Autoweb.com, Inc. as of December
31, 1997 and 1998 and the results of its operations and its cash flows for the
years ended December 31, 1996, 1997 and 1998, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audits 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, 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 expressed above.

/s/ Pricewaterhouse Coopers LLP
San Jose, California
January 25, 1999, except for Note 13 for which
the date is March 17, 1999.

F-2
<PAGE>

AUTOWEB.COM, INC

BALANCE SHEETS
(In thousands, except share amounts)

<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
----------------- December 31,
1997 1998 1998
------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 1,819 $ 2,714
Accounts receivable, net of allowance for
doubtful accounts of $65 and $498 in 1997
and 1998, respectively.................... 450 2,147
Prepaid expenses and other current assets.. 550 1,162
------- --------
Total current assets..................... 2,819 6,023
Property and equipment, net.................. 475 1,162
------- --------
Total assets............................. $ 3,294 $ 7,185
======= ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and other accrued
expenses.................................. $ 816 $ 2,557
Accrued payroll and related expenses....... 164 624
Deferred revenue........................... 999 1,739
Current portion of capital lease
obligations............................... 27 14
Current portion of notes payable........... 40 289
------- --------
Total current liabilities................ 2,046 5,223
Capital lease obligations, net of current
portion..................................... 14 --
Notes payable, net of current portion........ 3 654
------- --------
Total liabilities........................ 2,063 5,877
------- --------
Mandatorily redeemable convertible preferred
stock, $0.001 par value:
Authorized: 13,649,976 shares
Issued and outstanding: 5,465,998 shares in
1997, 8,068,244 shares in 1998 and none
pro forma................................. 5,261 12,969
------- --------
Commitments (Note 6)
Stockholders' (deficit) equity:
Common stock, $0.001 par value:
Authorized: 60,000,000 shares
Issued and outstanding: 7,812,360 shares
in 1997, 8,063,173 shares in 1998 and
18,558,464 pro forma..................... 2 2 $ 12
Additional paid-in capital.................. 111 11,371 24,330
Unearned stock-based compensation........... -- (5,406) (5,406)
Accumulated deficit......................... (4,143) (17,628) (17,628)
------- -------- --------
Total stockholders' (deficit) equity.... (4,030) (11,661) $ 1,308
------- -------- ========
Total liabilities, mandatorily
redeemable convertible preferred
stock and stockholders' (deficit)
equity............................... $ 3,294 $ 7,185
======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

AUTOWEB.COM, INC.

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

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------ ------- --------
<S> <C> <C> <C>
Net revenues....................................... $ 307 $ 3,492 $ 13,041
Cost of net revenues............................... 24 244 842
------ ------- --------
Gross profit................................... 283 3,248 12,199
------ ------- --------
Operating expenses:
Sales and marketing.............................. 866 5,216 13,619
Product development.............................. 57 325 586
General and administrative....................... 195 678 3,818
Stock-based compensation......................... -- -- 5,601
------ ------- --------
Total operating expenses....................... 1,118 6,219 23,624
------ ------- --------
Loss from operations............................... (835) (2,971) (11,425)
Interest and other income (expense), net........... (10) 51 (59)
------ ------- --------
Net loss........................................... (845) (2,920) (11,484)
Accretion of mandatorily redeemable convertible
preferred stock to redemption value............... (8) (276) (890)
------ ------- --------
Net loss attributable to common stockholders....... $ (853) $(3,196) $(12,374)
====== ======= ========
Net loss per share:
Basic and diluted................................ $(0.11) $ (0.41) $ (1.58)
====== ======= ========
Weighted average shares--basic and diluted....... 7,497 7,794 7,850
====== ======= ========
Pro forma net loss per share:
Basic and diluted................................ $ (0.69)
========
Weighted average shares--basic and diluted....... 16,669
========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

AUTOWEB.COM, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
for the years ended December 31, 1996, 1997 and 1998
(In thousands)

<TABLE>
<CAPTION>
Mandatorily
Redeemable
Convertible
Preferred
Stock Common Stock Additional Unearned
--------------- ------------- Paid-in Stock-Based Accumulated
Shares Amount Shares Amount Capital Compensation Deficit Total
------ ------- ------ ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996..................... 7,200 $ 1 $ (94) $ (93)
Issuance of Series A mandatorily redeemable
convertible preferred stock................. 1,271 $ 150
Accretion of Series A mandatorily redeemable
convertible preferred stock to redemption
value....................................... 8 (8) (8)
Issuance of common stock in exchange for
services.................................... 594 1 $ 61 62
Net loss..................................... (845) (845)
----- ------- ----- --- ------- -------- --------
Balances, December 31, 1996................... 1,271 158 7,794 2 61 (947) (884)
Issuance of Series A mandatorily redeemable
convertible preferred stock................. 813 96
Accretion of Series A mandatorily redeemable
convertible preferred stock to redemption
value....................................... 26 (26) (26)
Issuance of Series B mandatorily redeemable
convertible preferred stock, net of costs
$46......................................... 2,448 4,621
Accretion of Series B mandatorily redeemable
convertible preferred stock to redemption
value....................................... 250 (250) (250)
Conversion of loans into Series A mandatorily
redeemable convertible preferred stock...... 934 110
Exercise of stock options.................... 18 4 4
Issuance of warrant to purchase common stock
in exchange for services.................... 46 46
Net loss..................................... (2,920) (2,920)
----- ------- ----- --- ------- -------- --------
Balances, December 31, 1997................... 5,466 5,261 7,812 2 111 (4,143) (4,030)
Accretion of Series A mandatorily redeemable
convertible preferred stock to redemption
value ...................................... 32 (32) (32)
Accretion of Series B mandatorily redeemable
convertible preferred stock to redemption
value ...................................... 499 (499) (499)
Issuance of Series C mandatorily redeemable
convertible preferred stock, net of costs
$50......................................... 2,370 4,965
Accretion of Series C mandatorily redeemable
convertible preferred stock to redemption
value....................................... 317 (317) (317)
Issuance of Series D mandatorily redeemable
convertible preferred stock, net of costs,
$93......................................... 860 1,942
Accretion of Series D mandatorily redeemable
convertible preferred stock to redemption
value....................................... 42 (42) (42)
Repurchase of Series A mandatorily redeemable
convertible preferred stock................. (628) (89) (1,111) (1,111)
Exercise of stock options.................... 205 57 57
Issuance of common stock in exchange for
intangible asset............................ 15 13 13
Issuance of common stock in exchange for
services.................................... 15 50 50
Issuance of common stock in exchange for
services.................................... 16 54 54
Issuance of warrant to purchase common
stock....................................... 79 79
Unearned stock-based compensation............ 11,007 $(11,007)
Amortization of unearned stock-based
compensation................................ 5,601 5,601
Net loss..................................... (11,484) (11,484)
----- ------- ----- --- ------- -------- -------- --------
Balances, December 31, 1998................... 8,068 $12,969 8,063 $ 2 $11,371 $ (5,406) $(17,628) $(11,661)
===== ======= ===== === ======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

AUTOWEB.COM, INC.

STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1996 1997 1998
----- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(845) $(2,920) $(11,484)
Adjustments to reconcile net loss to net cash used
in operating activities:
Issuance of common stock in exchange for
services........................................ 62 -- 133
Depreciation and amortization.................... 40 158 551
Write down of intangible assets.................. -- 103 13
Provision for doubtful accounts.................. 20 45 433
Stock-based compensation expense for options
granted......................................... -- -- 5,601
Change in assets and liabilities:
Accounts receivable............................ (22) (471) (2,130)
Prepaid expenses and other current assets...... (5) (542) (612)
Payable to related parties..................... 44 -- --
Accounts payable and other accrued expenses.... 181 634 1,741
Accrued payroll and related expenses........... 3 160 460
Deferred revenue............................... 486 441 740
----- ------- --------
Net cash used in operating activities........ (36) (2,392) (4,554)
----- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.............. (59) (519) (1,238)
Acquisition of intangibles......................... (23) -- --
----- ------- --------
Net cash used in investing activities............ (82) (519) (1,238)
----- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations
and notes payable................................. (21) (48) (61)
Proceeds from borrowings under long-term debt
facility.......................................... -- -- 934
Proceeds from issuance of mandatorily redeemable
convertible preferred stock....................... 150 4,763 6,957
Proceeds from issuance of common stock............. -- 4 57
Repurchase of Series A mandatorily redeemable
convertible preferred stock....................... -- -- (1,200)
----- ------- --------
Net cash provided by financing activities........ 129 4,719 6,687
----- ------- --------
Net increase in cash and cash equivalents............ 11 1,808 895
Cash and cash equivalents, at beginning of year...... -- 11 1,819
----- ------- --------
Cash and cash equivalents, at end of year............ $ 11 $ 1,819 $ 2,714
===== ======= ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Note issued to purchase intangibles................ $ 80 $ -- $ --
Obligations under capital leases acquired during
the year.......................................... $ 63 $ -- $ --
Conversion of loans into Series A mandatorily
redeemable convertible preferred stock............ $ -- $ 110 $ --
Unearned stock-based compensation related to stock
option grants..................................... $ -- $ -- $ 11,007
Accretion of mandatorily redeemable convertible
preferred stock................................... $ 8 $ 276 $ 890
Revenue and advertising expense from barter
transactions...................................... $ -- $ 331 $ 733
Acquisition of intangibles in exchange for common
stock............................................. $ -- $ -- $ 13
Issuance of common stock warrant/common stock in
exchange for series............................... $ -- $ 46 $ 50
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest............. $ 10 $ 34 $ 101
Taxes paid during the year......................... $ 1 $ 1 $ 1
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS

1. The Company

Autoweb.com, Inc. ("Company"), a California corporation, was incorporated on
October 3, 1995 as Downtown Web, Inc. The Company provides a consumer
automotive Internet service, whereby its Web site enables consumers to select
new or pre-owned vehicles from member dealers. In addition, the Company offers
services that enable consumers to purchase automotive-related products and
services such as insurance and financing. The Company markets and sells its
services primarily in North America and operates in one business segment. In
connection with the incorporation of the Company, the founders transferred some
proprietary technology and other intangible assets to the Company in exchange
for 7,200,000 shares of common stock. For accounting purposes, no value was
assigned to this transaction as there was no predecessor basis in the
technology and other intangible assets.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with three high credit
quality financial institutions in the United States. The Company maintains
allowances for potential credit losses and such losses have been within
management's expectations. In 1998, there was one customer that accounted for
13.8% of the Company's 1998 net revenues. There were no customers with a
balance due to the Company in excess of 10% of aggregate accounts receivable as
of December 31, 1998.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original
maturities of ninety days or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.

Fair Value of Financial Instruments

Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities, approximate fair value due to their short
maturities.

Property and Equipment

Property and equipment are stated at cost and are depreciated on a straight
line basis over the estimated useful lives of the assets, generally two years.

Revenue Recognition

Revenues are derived primarily from fees charged to member dealers for each
qualified purchase inquiry provided to them by the Company. The revenue related
to the fee is recognized at the time the purchase inquiry is forwarded to the
member dealer provided that no significant obligations for the Company remain
and

F-7
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

collection of the resulting receivable is probable. The Company establishes a
returns reserve for unqualified purchase inquiries at the time of revenue
recognition based upon the Company's historical experience. The Company
initially charged member dealers on a "subscription" model basis, whereby each
member dealer paid an initial set-up fee and/or a flat monthly fee in exchange
for receiving qualified purchase inquiries from the Company. In February 1998,
the Company began converting member dealers to the current "pay for
performance" model whereby a member dealer pays the Company a fee for each
qualified purchase inquiry. Under the former subscription model, revenue from
both the initial and/or monthly fee was initially deferred and then recognized
ratably over the term of the agreement, generally one year. Revenue from the
former subscription model is expected to largely cease in 1999.

The Company also derives revenue from the sale of banner advertisements,
which is recognized ratably in the period in which the advertisement is
displayed, provided that no significant obligations for the Company remain and
collection of the resulting receivable is probable. To the extent that minimum
guaranteed page deliveries are not met, the Company defers recognition of the
corresponding revenues until the guaranteed page deliveries are achieved.
Barter advertisement transactions are recorded at the lower of estimated fair
value of the services received or the estimated fair value of the
advertisements given.

Another significant source of revenue for the Company is derived from a
contract with an insurance company for providing customer referrals for
insurance. The fee from this contract is being recognized ratably over the term
of the agreement.

Product Development Costs

Product development costs include expenses incurred by the Company to
develop and enhance the Company's Web site. Product development costs are
expensed as incurred.

Advertising Expense

Advertising costs are expensed as incurred and totaled $226,000, $1.8
million and $5.8 million during the years ended December 31, 1996, 1997 and
1998, respectively.

Stock-Based Compensation

In 1997, the Company adopted the disclosure provisions of Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-based Compensation ." The Company has
elected to continue accounting for stock-based compensation issued to employees
using Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, pro forma disclosures required under
SFAS No. 123 have been presented (See Note 9). Under APB No. 25, compensation
expense is based on the difference, if any, on the date of the grant, between
the fair value of the Company's stock and the exercise price. Stock issued to
non-employees has been accounted for in accordance with SFAS No. 123 and valued
using the Black-Scholes model.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement prescribes the use of the
liability method whereby deferred tax asset and liability account balances are
calculated at the balance sheet date using current tax laws and rates in
effect. Valuation allowances are established when necessary to reduce deferred
tax assets where it is more likely than not that the deferred tax asset will
not be realized.

F-8
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

Net Loss Per Share

The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares, composed of unvested
restricted common stock and incremental common shares issuable upon the
exercise of stock options and warrants and upon conversion of Series A, Series
B, Series C, and Series D mandatorily redeemable convertible preferred stock,
are included in the diluted net loss per share computation to the extent such
shares are dilutive.

<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1996 1997 1998
------ ------- --------
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Numerator:
Net loss...................................... $ (845) $(2,920) $(11,484)
Accretion of mandatorily redeemable
convertible
preferred stock to redemption value:
Series A..................................... (8) (26) (32)
Series B..................................... -- (250) (499)
Series C..................................... -- -- (317)
Series D..................................... -- -- (42)
------ ------- --------
Net loss attributable to common stockholders.. $(853) $(3,196) $(12,374)
------ ------- --------
Denominator:
Weighted average shares--basic and diluted.... 7,497 7,794 7,850
------ ------- --------
Net loss per share--basic and diluted......... $(0.11) $ (0.41) $ (1.58)
====== ======= ========
</TABLE>

If the Company had reported net income, diluted net income per share would
have included the shares used in the computation of pro forma net loss per
share as well as an additional approximately 83,000 and 1.4 million common
equivalent shares related to the outstanding options and warrants not included
above (determined using the treasury stock method at the estimated fair value)
for the years ended December 31, 1997 and 1998, respectively.

Pro Forma Net Loss Per Share and Unaudited Pro Forma Stockholders' Equity

Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of mandatorily redeemable convertible preferred
stock not included above that will automatically convert upon completion of the
Company's initial public offering (using the if-converted method). If the
offering contemplated by this prospectus is consummated, all of the mandatorily
redeemable convertible preferred stock outstanding as of December 31, 1998 will
automatically be converted into an aggregate of 10,495,291 shares of common
stock, based on the shares of mandatorily redeemable convertible preferred
stock outstanding at December 31, 1998. Unaudited pro forma stockholders'
equity at December 31, 1998, as adjusted for the conversion of mandatorily
redeemable convertible preferred stock, is disclosed on the balance sheet.

F-9
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

Pro forma basic and diluted net loss per share is as follows (in thousands,
except per share amount):

<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net loss................................................ $(11,484)
========
Shares used in computing basic and diluted net loss per
share.................................................. 7,850
Adjusted to reflect the effect of the assumed conversion
of all mandatorily redeemable convertible preferred
stock from the date of issuance........................ 8,819
--------
Weighted average shares used in computing pro forma
basic and diluted net loss per share................... 16,669
========
Pro forma basic and diluted net loss per share.......... $ (0.69)
========
</TABLE>

Business Segments

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly held
companies to report financial and other information about key revenue segments
of the entity for which such information is available and is utilized by the
chief operating decision maker. SFAS No. 131 is effective for fiscal years
commencing December 15, 1997. The Company conducts its business within one
business segment primarily within North America. Revenues from customers
outside of the United States were less than 10% of net revenues for all periods
presented in the accompanying statements of operations. There was one customer
which represented 13.8% of net revenues for the year ended December 31, 1998.

Comprehensive Income

Effective for the fiscal years commencing December 15, 1997, the Company
adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined, includes
all changes in equity during a period from non-owner sources. The Company's
total comprehensive loss was the same as its net loss for the year ended
December 31, 1998.

Recent Accounting Pronouncements

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its financial
statements.

In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP provides guidance on the financial reporting of start-up
costs and organization costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company does not expect that the adoption of SOP No. 98-5 will have a material
impact on its financial statements.

F-10
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

3. Property and Equipment

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Computer equipment and software............................. $ 465 $ 1,236
Office equipment............................................ 31 108
Furniture and fixtures...................................... 178 568
------ -------
674 1,912
Less accumulated depreciation and amortization.............. (199) (750)
------ -------
$ 475 $ 1,162
====== =======
</TABLE>

The cost and accumulated amortization of assets acquired under capital
leases were $76,000 and $67,000, respectively, at December 31, 1998.

4. Revolving Credit Facility

Under a revolving credit facility with a bank, the Company may borrow up to
the lesser of 70% of eligible accounts receivable or $1.3 million. There were
no borrowings under this credit agreement at December 31, 1998. Any borrowings
under this facility would bear interest at prime plus 1.0% (8.75% at December
31, 1998) and would be collaterized by accounts receivable. The credit
agreement requires the Company to comply with certain financial covenants.

5. Notes Payable

Notes payable consists of an equipment loan facility of $1.1 million. The
notes bear interest at an annual rate of 18.4%, mature between 1999 and 2001,
and are collateralized by specific equipment. There are no remaining amounts
available under this facility. The loan facility agreement requires the Company
to comply with certain financial covenants, including restrictions of dividend
payments.

Future minimum principal payments are as follows (in thousands):

<TABLE>
<S> <C>
Year ending December 31,:
1999.................................................................. $ 289
2000.................................................................. 338
2001.................................................................. 316
-----
943
Less current portion.................................................. (289)
-----
$ 654
=====
</TABLE>

6. Commitments

Operating Lease

In August 1997, the Company relocated its corporate headquarters and signed
a new lease agreement for these facilities, which expires in October 2002.

F-11
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

The future minimum lease payments under noncancelable operating leases are
(in thousands).

<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1999................................................................ $ 547
2000................................................................ 561
2001................................................................ 575
2002................................................................ 490
------
$2,173
======
</TABLE>

Facility rent expense for the years ended December 31, 1996, 1997 and 1998,
was $44, $258 and $597, respectively.

Marketing Agreements

In December 1998, the Company entered into an agreement with a global
Internet media company to maintain certain exclusive promotional rights and
linkage with the media company and to provide for certain advertising. As of
December 31, 1998, the agreement required remaining minimum future payments
over the thirteen month term of the agreement of approximately $2.2 million.
The Company expenses all amounts ratably over the term of the agreement.

The Company also has multi-year agreements with other Internet advertisers
and automotive information providers that make available to consumers vehicle
research data over the Internet. Such agreements require that the Company pay
fees to these companies based on the volume of referrals received by the
Company from these services. The Company expenses these amounts as the services
are provided.

Litigation

From time to time, the Company may be involved in litigation arising out of
claims in the normal course of business. Based upon the information presently
available, including discussion with outside legal counsel, management believes
that there are no claims or actions pending or threatened against the Company,
the ultimate resolution of which will have a material adverse effect on the
Company's financial position, liquidity or results of operations.

7. Mandatorily Redeemable Convertible Preferred Stock

At December 31, 1997 and 1998, the amounts of the mandatorily redeemable
convertible preferred stock by series were as follows:

<TABLE>
<CAPTION>
Shares Issued
and Outstanding Net Amount
------------------- --------------
December 31, December 31,
Shares ------------------- --------------
Series Authorized 1997 1998 1997 1998
------ ---------- --------- --------- ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C>
A 2,474,486 3,017,553 2,389,973 $ 390 $ 333
B 2,550,000 2,448,445 2,448,445 4,871 5,370
C 2,369,969 -- 2,369,967 -- 5,282
D 1,255,521 -- 859,859 -- 1,984
Undesignated 5,000,000 -- -- -- --
---------- --------- --------- ------ -------
13,649,976 5,465,998 8,068,244 $5,261 $12,969
========== ========= ========= ====== =======
</TABLE>

Under the Company's Certificate of Incorporation, the Company's preferred
stock is issuable in series and the Company's Board of Directors is authorized
to determine the rights, preferences and privileges of each

F-12
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

series. At December 31, 1998, the terms of the mandatorily redeemable
convertible preferred stock are as follows:

Dividends:

The holders of Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock are entitled to cumulative
dividends of $0.012, $0.204, $0.211, and $0.237 per share, per annum,
respectively, when and if declared by the Board of Directors. Such
dividends will be declared or paid prior and in preference to any
declaration or payment of any dividend on the common stock, other than
a common stock dividend payable solely in shares of common stock. The
holders of the Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock are also entitled to receive
dividends at the same rate as dividends are paid on the common stock
(other than dividends payable in additional shares of common stock).
Each share of mandatorily redeemable convertible preferred stock would
be treated as being equal to the number of shares of common stock into
which each share of mandatorily redeemable convertible preferred stock
is then convertible.

Voting Rights:

Each share of Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock entitles a holder to the number
of votes per share equal to the number of shares of common stock
(including fractions of a share) into which each share of Series A,
Series B, Series C and Series D mandatorily redeemable convertible
preferred stock is then convertible.

Liquidation Preference:

Upon any liquidation, dissolution or winding up of the Company, the
holders of the Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock will be entitled to receive, in
equal preference, before any distribution or payment is made to the
holders of common stock, a sum equal to all accrued and accumulated but
unpaid dividends, in addition to an amount per share of equal to the
following: Series A-$0.12, Series B-$2.04, Series C-$2.11 and Series D-
$2.37.

Redemption:

At any time on or after June 30, 2003 and prior to June 30, 2006,
upon the written election of any holder of the Series A, Series B,
Series C and Series D mandatorily redeemable convertible preferred
stock, the Company must redeem in three annual installments the shares
of Series A, Series B, Series C, and Series D mandatorily redeemable
convertible preferred stock, paying for each share in cash an amount
equal to the price at which the first share of such series of preferred
stock was issued plus, for each such share, an amount equal to all
dividends accumulated thereon, whether declared or not, minus dividends
declared and paid thereon, computed to the redemption date.

Conversion:

Each share of Series A, Series B, Series C and Series D mandatorily
redeemable convertible preferred stock is convertible into the number
of shares of common stock determined by dividing $0.12, $2.04, $2.11
and $2.37, respectively, by the conversion price at the time in effect
for each such share of mandatorily redeemable convertible preferred
stock. The initial conversion price will be $0.12, $1.10, $1.84 and
$2.37 per share for the Series A, Series B, Series C and Series D
mandatorily redeemable convertible preferred stock, respectively.
Conversion can be requested at any time at the option of the holder.

F-13
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

The mandatorily redeemable convertible preferred stock would
mandatorily convert into common stock at the conversion price
relevant at that time, if the Company closes a firm commitment
underwritten public offering of shares of common stock in which the
aggregate price received for such shares by the Company (net of
underwriting discounts, commissions and expenses) was at least $10.0
million and at a price per common share of at least $5.52 (subject to
adjustment for stock splits, stock dividends, recapitalizations and
the like).

Option for Series D Mandatorily Redeemable Convertible Preferred Stock

In December 1998, the Company granted an option to the Chief Executive
Officer to purchase up to 395,661 shares of the Company's Series D mandatorily
redeemable convertible preferred stock at $2.37 per share. Payment for this
stock may be in cash or, to the extent the Company's common stock is publicly
traded, with same day sale proceeds or pursuant to a net exercise of the
option. If the payment is in cash, it shall be in the amount of no less than
$250,000, with the balance, if any, to be financed by an interest free full
recourse promissory note secured by the stock. This note will be due and
payable on the third anniversary of the date of issuance of the stock. The
fair value of the option grant was estimated to be $1.7 million using the
intrinsic value method, and it is included in the stock-based compensation
charge in the year ended December 31, 1998.

8. Common Stock

The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 60,000,000 shares of common stock. Each share of common stock
has the right to one vote. The holders of common stock are also entitled to
receive dividends whenever funds are legally available and when declared by
the Board of Directors, subject to the prior rights of holders of all classes
of stock at the time outstanding having priority rights as to dividends.

At December 31, 1998, the Company had reserved shares of common stock for
future issuance as follows:

<TABLE>
<S> <C>
Conversion of Series A mandatorily redeemable convertible
preferred stock............................................... 2,389,973
Conversion of Series B mandatorily redeemable convertible
preferred stock............................................... 4,530,092
Conversion of Series C mandatorily redeemable convertible
preferred stock............................................... 2,715,367
Conversion of Series D mandatorily redeemable convertible
preferred stock............................................... 859,859
Exercise of options............................................ 2,227,052
Warrants....................................................... 159,938
----------
12,882,281
==========
</TABLE>

Warrants for Common Stock

On June 25, 1997 the Company issued warrants for common stock to a
preferred stockholder for services rendered. The warrants are subject to
adjustment based on the number of shares of common stock issuable to Series B
mandatorily redeemable convertible preferred stock on conversion. The total
shares underlying the warrant are 135,901 and are exercisable at a price equal
to 115% of the Series B mandatorily redeemable convertible preferred stock
conversion price. The fair value of the grant was estimated at $46,000 using
the Black-Scholes model and was charged to operating expenses in 1997.

On June 1, 1998 the Company issued warrants for common stock to a third
party. The total shares underlying the warrant are 24,037 and are exercisable
at a price of $2.08 per share. The fair value of the grant was estimated at
$79,000 using the Black-Scholes model and was charged to operating expenses in
1998.

F-14
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

9. Employee Benefit Plans

401(k) Savings Plan

The Company has a savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 25%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All employees of the Company are eligible
to participate in the Savings Plan. The Company is not required to contribute
to the Savings Plan and has made no contributions since the inception of the
Savings Plan.

1997 Stock Option Plan

In April 1997, the Company's Board of Directors adopted the 1997 Stock
Option Plan ("1997 Plan"). The 1997 Plan provides for the granting of stock
options to employees and consultants of the Company, (including officers and
directors who are also employees).

Options under the 1997 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on
the date of grant as determined by the Board of Directors, provided, however,
that (i) the exercise price of an Incentive Stock Option ("ISO") may not be
less than 100% of the estimated fair value of the shares on the date of grant,
and (ii) the exercise prices of an ISO granted to a 10% stockholder may not be
less than 110% of the estimated fair value of the shares on the date of grant.
Options are exercisable immediately, subject to repurchase rights held by the
Company that lapse over a maximum period of ten years, at such times and under
such conditions as determined by the Board of Directors, generally four years.

The following table summarizes activity under the Plan for the years ended
December 31, 1997 and 1998:

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998
----------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... -- -- 362,505 $0.1770
Granted.............................. 395,000 $0.1748 1,934,580 $0.5000
Exercised............................ (18,000) $0.2000 (205,075) $0.2767
Cancelled............................ (14,495) $0.1009 (260,619) $0.3205
------- ------- --------- -------
Outstanding at end of year........... 362,505 $0.1770 1,831,391 $0.4864
======= ======= ========= =======
Options exercisable at year end
without the right of repurchase by
the Company......................... 0 478,277
======= =========
Weighted average minimum fair value
of options granted during year...... $ 0.04 $ 4.93
======= =========
</TABLE>

F-15
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding at
December 31, 1998
--------------------------------
Weighted
Average Weighted
Number of Remaining Average
Shares Contractual Exercise
Exercise Prices Outstanding Life Price
--------------- ----------- ----------- --------
<S> <C> <C> <C>
$0.007...................................... 20,621 8.25 $0.007
$0.20....................................... 46,385 8.73 $0.200
$0.333...................................... 4,977 8.81 $0.333
$0.50....................................... 1,759,408 9.87 $0.500
---------
1,831,391
=========
</TABLE>

Fair Value Disclosures

The Company calculated the minimum fair value of each option grant on the
date of grant using the minimum value option pricing model as prescribed by
SFAS No. 123 using the following assumptions:

<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997 1998
------ ------
<S> <C> <C>
Risk-free interest rates................................... 6.0% 5.5%
Expected lives............................................. 5 5
Dividend yield............................................. 0 0
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options's vesting period. The
Company's pro forma information follows:

<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1997 1998
------- --------
<S> <C> <C>
Net loss as reported.................................... $(2,920) $(11,484)
Accretion on mandatorily redeemable convertible
preferred stock........................................ (276) (890)
------- --------
Net loss attributable to common stockholders............ $(3,196) $(12,374)
======= ========
Net loss--FAS 123 adjusted.............................. $(3,197) $(12,521)
======= ========
Net loss per share--as reported (Note 2)
Basic and diluted..................................... $ (0.41) $ (1.58)
======= ========
Net loss per share--FAS 123 adjusted
Basic and diluted..................................... $ (0.41) $ (1.60)
======= ========
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. Additional awards in future years are
anticipated.

Unearned Stock-Based Compensation

In connection with certain stock option grants during the year ended
December 31, 1998, the Company recorded unearned stock-based compensation
totalling $11.0 million, which is being amortized over the vesting periods of
the related options which is generally four years. Amortization of this stock-
based compensation recognized during the year ended December 31, 1998 totaled
approximately $5.6 million which reflected accelerated vesting associated with
approximately 1.4 million options of common stock granted to the Chief

F-16
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

Executive Officer and the immediate vesting of the option for 395,661 shares of
Series D mandatorily redeemable convertible preferred stock granted to the
Chief Executive Officer (Note 7). If the stock-based compensation for the year
ended December 31, 1998 were allocated across the relevant functional expense
categories within operating expenses it would be allocated as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Sales and marketing.................................................. $2,973
Product development.................................................. 1,176
General and administrative........................................... 1,452
------
$5,601
======
</TABLE>

11. Income Taxes

The principal items accounting for the difference between income taxes
computed at the U.S. statutory rate and the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
U.S. statutory rate..................................... 34.0% 34.0% 34.0%
Operating losses not benefited.......................... (34.0) (34.0) (34.0)
----- ----- -----
-- -- --
===== ===== =====
</TABLE>

The Company's net deferred tax asset is comprised as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 1,077 $ 2,608
Other...................................................... 108 956
------- -------
1,185 3,564
Valuation allowance........................................ (1,185) (3,564)
------- -------
Net deferred tax asset..................................... $ -- $ --
======= =======
</TABLE>

As of December 31, 1998, the Company had net operating loss carryforwards
available to reduce its future taxable income of approximately $7.0 million for
federal and $4.0 million for state income tax purposes, respectively. The net
operating loss carryforwards expire between 2003 and 2018 for both federal and
state income tax purposes.

For federal and state tax purposes, the Company's net operating loss
carryforwards are subject to certain limitations on annual utilization in the
event of changes in ownership, as defined by federal and state law.

12. Related Party Transactions

At December 31, 1996, the Company owed a total of $110,000, to the founders
and directors. These amounts represented deferred salaries net of expense
advances, and were converted into $110,000 of Series A mandatorily redeemable
convertible preferred stock in May 1997.

At December 31, 1997, the Company had full recourse promissory notes
receivable totaling $100,000 from stockholders who are also related parties.
This amount is included in "prepaid expenses and other current assets." The
notes earn interest at 6.5% per annum and are collateralized by a total of
84,000 shares of Series A mandatorily redeemable convertible preferred stock
owned by the stockholders.

F-17
<PAGE>

AUTOWEB.COM

NOTES TO FINANCIAL STATEMENTS--(Continued)

At December 31, 1998, the Company had full recourse promissory notes
receivable totalling $174,900 from stockholders who are also related parties.
This amount is included in "prepaid expenses and other current assets". The
notes earn interest at rates of 5.59% to 6.5% per annum and are collateralized
by a total of 84,000 shares of Series A mandatorily redeemable convertible
preferred stock and 177,012 shares of common stock.

13. Subsequent Events

In January 1999, the Company filed a Registration Statement with the
Securities and Exchange Commission permitting the Company to sell shares of its
common stock to the public. If the offering is consummated under the terms
presently anticipated, the Series A, Series B, Series C and Series D
mandatorily redeemable convertible preferred stock outstanding at December 31,
1998 will automatically convert to common stock upon the closing of the public
offering in the manner disclosed in Note 7 to Notes to Financial Statements.

In January 1999, the Company's Board of Directors (i) adopted the 1999
Equity Incentive Plan and 1999 Directors Stock Option Plan pursuant to which
2,950,000 additional shares of the Company's common stock have been reserved
for future issuance to selected employees, directors and non-employee directors
and consultants, (ii) authorized the adoption of the 1999 Employee Stock
Purchase Plan pursuant to which 400,000 shares of the Company's common stock
have been reserved for issuance to eligible employees, which number is subject
to automatic increase up to a maximum of 3,000,000 shares. These actions will
be given effect on the effective date of the Company's initial public offering
and will be submitted for approval by the Stockholders in February 1999.

In January and February 1999, the Company granted options to employees for
an additional 514,000 shares of common stock, which the Company expects to
result in an additional $2.2 million of unearned stock-based compensation.

On March 17, 1999 the Company was reincorporated from a California to a
Delaware corporation. The Company effected a three-for-two forward split of its
common and preferred stock. All share data and stock option plan information
have been restated to reflect the Reincorporation and the forward split.

F-18
<PAGE>

A map of North America showing the distribution of Autoweb.com Member
Dealerships

[Artwork]

<PAGE>

[LOGO OF AUTOWEB.COM APPEARS HERE]