AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996

REGISTRATION NO. 333-14313
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STB SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

TEXAS 3670 75-1855896
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

1651 NORTH GLENVILLE DRIVE
RICHARDSON, TEXAS 75081
(972) 234-8750
(Address, including zip code, telephone number,
including area code, of registrant's principal executive office)

WILLIAM E. OGLE
CHIEF EXECUTIVE OFFICER
STB SYSTEMS, INC.
1651 NORTH GLENVILLE DRIVE
RICHARDSON, TEXAS 75081
(972) 234-8750
(Name, address, including zip code, telephone number,
including area code, of agent for service)
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COPIES TO:

HARLAN P. COHEN STEVEN K. COCHRAN
Locke Purnell Rain Harrell Thompson & Knight
(A Professional Corporation) A Professional Corporation
2200 Ross Avenue, Suite 2200 1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201 Dallas, Texas 75201

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1996

PROSPECTUS

1,800,000 SHARES

[LOGO]

COMMON STOCK

Of the 1,800,000 shares of Common Stock offered hereby, 1,500,000 shares are
being sold by the Company and 300,000 shares are being sold by the Selling
Shareholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders. See "Principal and Selling Shareholders."

The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol STBI. On October 15, 1996, the last reported sale price of the Common
Stock was $24.00 per share. See "Price Range of Common Stock and Dividend
Policy."
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS

Per Share............... $ $ $ $
Total (3)............... $ $ $ $

(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company estimated at $ .

(3) The Selling Shareholders have granted to the Underwriters a 30-day option to
purchase up to 270,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Selling Shareholders will
be $ , $ and $ , respectively. See "Underwriting."
----------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about , 1996, at the office of the agent
of Hambrecht & Quist LLC in New York, New York.

HAMBRECHT & QUIST COWEN & COMPANY

, 1996

Photograph of computer monitor with 3D video graphics adapter insert.

STB supplies multimedia subsystems to leading OEMs, including Gateway 2000,
Dell Computer, Compaq Computer and IBM. STB also sells its products in the
commercial and specialized technology product markets.

Picture of award medals from PC World, Multimedia World, Windows Magazine
and Info World.

The quality and performance of STB's products are reflected in the awards
the Company has received from its customers and the PC industry.

Photograph of product offerings, along with STB Logo.

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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, INFORMATION
IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OPTION TO PURCHASE
ADDITIONAL COMMON STOCK TO COVER OVER-ALLOTMENTS, IF ANY. UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE TERM "COMPANY" OR "STB" WHEN USED IN THIS PROSPECTUS
REFERS TO STB SYSTEMS, INC., A TEXAS CORPORATION, AND ITS CONSOLIDATED
SUBSIDIARIES AND PRIOR AFFILIATES. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS.
ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN OR CONTEMPLATED BY THE FORWARD-LOOKING STATEMENTS DUE TO A
NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE
IN THIS PROSPECTUS.

THE COMPANY

STB designs, manufactures and sells graphics adapters and other multimedia
subsystem products for use primarily in desktop personal computers ("PCs"). The
Company's graphics adapters, almost all of which are video graphics adapters
that display full-motion video images on a monitor, enable users to take
advantage of true-color graphics, 3D and video features found in the latest
operating systems, such as Microsoft Windows 95 and Windows NT, and in
multimedia applications. The Company's multimedia subsystem product line
includes a wide selection of video graphics adapters designed for use primarily
in mid-range to high-end PCs and also features several complementary products,
including digital video products and sound cards. The Company's multimedia
subsystem products are sold to original equipment manufacturers ("OEMs") and, to
a lesser extent, through the commercial sales channel to retailers, distributors
and direct-mail companies. The Company's OEM and commercial customers include
Gateway 2000, Dell Computer, Compaq Computer, CompUSA, Best Buy, Tech Data and
Ingram Micro. STB also sells specialized technology products that incorporate
graphics technologies and are usually designed to enable one computer to
simultaneously control the display of multiple monitors. These products are sold
to customers for specialized applications in a number of industries, including
the financial services, hospitality, factory automation, transportation and
emergency response industries. The Company's customers for specialized
technology products include Reuters and Lodgenet.

STB has demonstrated outstanding growth, with revenues increasing from $23.8
million in fiscal 1991 to $129.6 million in fiscal 1995, a compound annual
growth rate of 52.8%. According to International Data Corporation ("IDC"), STB
has increased its market share to become the second largest independent supplier
of graphics adapters (based on units shipped), with an estimated 16.7% worldwide
market share in 1995.

Dataquest estimates that 71.7 million PCs are expected to be shipped
worldwide in 1996, compared to 60.2 million units in 1995 and 47.9 million units
in 1994. A substantial portion of PCs shipped in recent periods incorporate high
performance Intel Pentium and Pentium Pro processors and support multimedia
functionality including CD-ROM storage, higher-resolution graphics, digital
video and audio and, in some systems, hardware 3D and telecommunications. The
evolution of these multimedia-enabled PCs has been driven by the proliferation
of higher performance hardware, operating systems such as Microsoft Windows 95
and Windows NT, the popularity of the Internet and the growth in the number of
consumer and business applications featuring greater use of 3D graphics, video
and sound. The accelerating pace of technological advancement in the PC industry
has made it increasingly difficult for OEMs to devote the resources necessary
for the timely internal development of multimedia subsystems incorporating the
latest innovations. Furthermore, many OEMs are seeking to expand their product
lines in response to consumer demand for a broader range of price and
performance options. As a result, the Company believes OEMs increasingly are
choosing to outsource many of their component and subsystem needs to specialized
subsystem vendors with focused development efforts.

The Company focuses primarily on the sale of its products to OEMs. Sales of
multimedia subsystem products to OEMs represented approximately 81% of the
Company's total net sales in the nine months ended July 31, 1996. The Company
has increased its unit sales volumes in each of the five most recent quarters
primarily as a result of the expansion of relationships with established OEM
customers, such as Gateway 2000,

and the addition of new OEM customers, such as Dell Computer, Compaq Computer
and IBM. STB is striving to expand its position in the OEM market by adding new
high-end video graphics adapters to its product line, such as the Velocity 3D
video graphics adapter. The Company is also broadening its relationships with
OEMs beyond the sale of video graphics adapters through the sale of other
multimedia subsystem products, such as digital video products and sound cards.

STB works closely with component suppliers and OEM customers to develop
innovative products that are responsive to product development trends and
consumer demands. As OEM customers communicate desired features of next
generation products, STB uses its numerous supplier relationships and its
technical and marketing expertise to determine the most appropriate components
to meet required price and performance specifications. The Company designs and
installs STB's proprietary software drivers and utilities to optimize the
performance and compatibility of a new video graphics adapter product. This
strategy has allowed the Company to be a leader in computer graphics technology.

The Company develops new products at its headquarters in Richardson, Texas
and manufactures products at its facility in Juarez, Mexico. By maintaining
direct control over production, the Company can control product quality and
costs and quickly respond to changing customer needs. The Company's
manufacturing facility is located in Mexico to benefit from low labor and
shipping costs, as well as proximity to the Company's headquarters in
Richardson, Texas. The Company believes that the benefits derived from its close
relationships with customers and suppliers, its low-cost manufacturing
operations and its technical expertise position it to compete effectively in its
target markets.

In addition to focusing its efforts on the OEM market, STB sells its
multimedia subsystem products to the commercial market. The Company has invested
substantial marketing efforts to build the STB brand in the commercial sales
channel. STB has experienced strong growth in this sales channel in the first
nine months of fiscal 1996 and now has significant shelf space with retailers
such as CompUSA, Best Buy and Computer City.

STB also serves specialized technology product markets, where it seeks to
capitalize on its technical expertise in targeted industry niches. The Company's
specialized technology products are sold primarily to resellers and corporate
customers for specialized applications in a number of industries, including the
financial services, hospitality, factory automation, transportation and
emergency response industries. STB's efforts in the specialized technology
market increase the Company's awareness of the demands of sophisticated
end-users, and the prices that the Company's products can command in this market
bolster the Company's margins.

The Company's principal offices are located at 1651 North Glenville Drive,
Richardson, Texas 75081, and the Company's telephone number is (972) 234-8750.

The STB logo is a registered trademark of the Company. STB owns common law
trademark rights for STB Vision, Mediator, Powergraph, Lightspeed, Velocity,
Soundrage, Video Rage, MVP and Channel. Windows is a trademark of Microsoft
Corporation. Pentium, Pentium Pro, MMX, AGP and Intercast are trademarks of
Intel Corporation. Destination is a trademark of Gateway 2000, Inc. Dolby
Digital is a trademark of Dolby Labs.

THE OFFERING

Common Stock offered by the Company.................. 1,500,000 shares
Common Stock offered by the Selling Shareholders..... 300,000 shares
Common Stock to be outstanding after the offering.... 6,013,598 shares (1)
Use of proceeds...................................... To reduce bank indebtedness and for
general corporate purposes
Nasdaq National Market symbol........................ STBI

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(1) Excludes (i) 850,000 shares of Common Stock reserved for issuance under the
Company's 1995 Long Term Incentive Plan (the "Incentive Plan"), of which
options to purchase 775,000 shares of Common Stock were outstanding as of
October 31, 1996 with a weighted average exercise price of $15.81 per share,
(ii) 100,000 shares of Common Stock reserved for issuance under the
Company's Stock Option Plan for Non-Employee Directors (the "Directors
Option Plan"), of which options to purchase 25,000 shares of Common Stock
were outstanding as of October 31, 1996 with an exercise price of $12.00 per
share, and (iii) 197,402 shares of Common Stock reserved for issuance under
the Company's 1995 Employee Stock Option Purchase Plan (the "Employee
Plan"). See "Management."

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

NINE MONTHS
FISCAL YEAR ENDED OCTOBER 31, ENDED JULY 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 23,818 $ 27,786 $ 39,236 $ 89,836 $ 129,603 $ 89,771 $ 132,034
Gross profit................................... 6,698 6,885 8,510 16,623 19,474 13,356 24,281
Income from operations......................... 557 97 786 4,109 3,146 1,482 6,868
Net Income (loss).............................. $ 362 $ (100) $ 560 $ 3,521 $ 1,998 $ 1,057 $ 3,947

PRO FORMA DATA:
Pro forma adjustments (1)...................... (315) (315)
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Pro forma net income........................... $ 1,683 $ 742
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Pro forma net income per share (1996 actual)
(2).......................................... $ 0.45 $ 0.20 $ 0.88
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Weighted average shares and equivalents used
for pro forma net income per share (1996
actual) (2).................................. 3,746 3,746 4,504

AS OF JULY 31, 1996
----------------------
AS
ACTUAL ADJUSTED(3)
--------- -----------

CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................................................... $ 23,427 $ 57,107
Total assets............................................................................. 52,606 83,176
Short-term borrowings including current portion of long-term liabilities................. 5,540 2,430
Long-term liabilities, net of current portion............................................ 1,672 1,672
Total shareholders' equity............................................................... 27,360 61,040

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(1) Reflects certain pro forma adjustments assuming (a) the Company's
profit-sharing allocation to employees had been reduced from 25% to 10% of
income before taxes (as calculated prior to profit sharing expenses),
effective November 1, 1994; (b) the portion of indebtedness evidenced by
certain promissory notes (the "Founding Shareholder Notes") issued to the
founding shareholders of the Company (the "Founding Shareholders") relating
to approximately one-half of the amount of undistributed earnings of the
Company as of October 31, 1994 (at which time the Company was treated as an
S corporation for federal and state income tax purposes) (the "Undistributed
S Corporation Earnings"), or $2.04 million, had been outstanding effective
November 1, 1994 and bearing interest at 9% per annum; and (c) the Company
had been treated as a C corporation rather than as an S corporation for
federal and state income tax purposes, effective November 1, 1994 (and
assuming an effective tax rate of approximately 33%). The adjustment in the
Company's profit sharing allocation to employees and the termination of the
Company's S corporation status occurred contemporaneously with the Company's
initial public offering ("IPO") in February 1995. See "Management--Profit
Sharing Plan," "Certain Transactions--S Corporation Distribution" and Note 1
of Notes to October 31, 1995 Consolidated Financial Statements.

(2) Pro forma net income per share is based on the Company's weighted average
number of shares outstanding, plus the common equivalent number of shares
that the Company would have had to issue to distribute to the Founding
Shareholders $2.04 million, which amount equals approximately one-half of
the Undistributed S Corporation Earnings at October 31, 1994. See "Certain
Transactions--S Corporation Distribution" and Note 1 of Notes to October 31,
1995 Consolidated Financial Statements.

(3) Adjusted to reflect the sale of 1,500,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom (assuming a public offering price of $24.00 per share). See "Use
of Proceeds" and "Capitalization."

RISK FACTORS

THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN OR CONTEMPLATED BY THE
FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH
BELOW AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION IN
THIS PROSPECTUS, THE FOLLOWING FACTORS, WHICH MAY AFFECT THE COMPANY'S CURRENT
POSITION AND FUTURE PROSPECTS, SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

POTENTIAL FOR FLUCTUATING OPERATING RESULTS; SEASONALITY. The Company's
historical operating results have fluctuated significantly from period to period
and will likely fluctuate in the future. Fluctuations result from a wide variety
of factors, including the timing and availability of components, changes in
product mix and pricing, the timing of customer orders, new product developments
or introductions, production interruptions, product reviews and other media
coverage, changes in sales channel mix and product returns or price protection
claims from customers. Many of these factors are beyond the control of the
Company. The volume and timing of orders received during a quarter are difficult
to forecast. Customers generally order on an as-needed basis. Consequently, the
Company historically has operated with a relatively small backlog. Moreover, as
sometimes occurs in the PC industry, a disproportionate percentage of the
Company's net sales in any quarter may be generated in the last month of a
quarter. As a result, a shortfall in sales in any quarter as compared to
expectations may not be identifiable until the end of the quarter. The Company's
gross profit margins are impacted by product sales cycles, sales channel mix,
product mix, pricing pressures, the availability and cost of components from the
Company's suppliers and general economic conditions. The Company's markets are
characterized by intense ongoing competition and a trend of declining average
selling prices. Accordingly, the Company's margins may decline in the future
from the levels experienced to date. In addition, the Company's margins may be
adversely affected by shortages in the availability of key components for the
Company's products, as well as by fluctuations in the value of certain foreign
currencies. The Company's quarterly results are also subject to seasonal
fluctuations, with generally weaker fiscal third quarter results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Operating Results and Seasonality."

DEPENDENCE ON SUPPLIERS. Several components used in the Company's products
are obtained from single or limited sources and, in instances in which component
manufacturers do not allocate a sufficient supply of components to meet the
Company's needs, the Company must obtain such components from distributors or on
the spot market at a higher cost. The Company has no guaranteed supply
arrangements with any of its suppliers, and there can be no assurance that
current suppliers will be able to meet its requirements. The Company believes
that with respect to its single and limited source components, it could obtain
similar components from other sources but likely would be required to pay
significantly more for such products, alter product designs to use alternative
components (which would cause significant delays) or reduce its production of
the related graphics adapters. As a result of delays in the delivery of
components or lack of available components, the Company in the past has
experienced difficulty in meeting certain product shipment dates to customers,
which in some instances has resulted in a loss of business. In addition,
software drivers, which are essential to product performance, are included with
some of these single and limited source components. In the past, the Company has
experienced delays in the delivery of its products due to the inadequacy or the
incompatibility of software drivers provided by component suppliers or developed
internally. It is likely that delays in delivery of components, shortages of
components and problems with software drivers will continue to occur in the
future, and such delays or problems would materially adversely affect the
Company and its results of operations. Additionally, in its attempt to counter
actual or perceived component shortages, the Company may overpurchase certain
components, resulting in excess inventory or, in the event of inventory
obsolescence or a decline in the market value of such inventory, causing
inventory write-offs against the Company's operating results.

Significant increases in the prices of components, such as graphics
controller chips or memory chips, occur from time to time, and often the Company
is not able to quickly adjust the price of its products accordingly. Occasional
worldwide shortages of DRAM (dynamic random access memory) and other memory and
controller

chips and international tariff disputes have resulted in substantial component
cost increases in the past that have materially adversely affected the Company
and its results of operations.

The Company relies upon outside suppliers to continue to develop, introduce
and manufacture in sufficient volumes controller chips, memory chips and other
components. Moreover, the technology of these components must compare favorably
in terms of functionality, features and price with the offerings of other
manufacturers, including competitors of the Company that have internally
developed computer chips or manufacturing expertise. The Company's dependence on
single and limited source suppliers, and the risks associated with any delay or
shortfall in supply, are exacerbated by the short life cycles which characterize
multimedia subsystem products. See "Business--Suppliers."

DEPENDENCE ON VIDEO GRAPHICS ADAPTER MARKET; MIGRATION TO MOTHERBOARDS. A
substantial portion of the Company's net sales is derived from the sale of video
graphics adapters. According to Jon Peddie Associates, approximately 59% of all
graphics controller chips manufactured in the 12-month period ended June 30,
1996, were incorporated onto graphics adapters, and approximately 41% were
incorporated onto motherboards. Video graphics adapters generally are used in
higher-end PCs offering the latest technology and performance features. However,
as a given functionality becomes technologically stable and widely accepted by
PC users, it typically migrates to the PC motherboard. The Company anticipates
that such migration could occur with respect to the functionality provided by
certain of its current products. In this regard, Intel Corporation's MMX
instruction set and the expanded operating systems provided by Microsoft
Corporation incorporate several functions that traditionally have been performed
by graphics adapters. In addition, single chip solutions are currently available
that provide 16-bit sound functionality for implementation directly onto PC
motherboards. As a result of this tendency of technology to migrate to the PC
motherboard, the Company's success is largely dependent on its ability to
continue to develop products that incorporate new and rapidly evolving
technologies that manufacturers have not yet fully incorporated onto PC
motherboards. While the Company believes that a market will continue to exist
for add-in subsystems that provide advanced functionalities and offer
flexibility in systems configuration, there can be no assurance that the
incorporation of new functionalities onto PC motherboards will not adversely
affect the market for the Company's products. An increase in the number or
percentage of PCs that incorporate graphics circuitry on the motherboard at the
expense of add-in video graphics adapters, an increase in the number or
percentage of video graphics adapters manufactured internally by OEMs or a
decrease in PC sales volumes would effectively shrink the market for the
Company's products and could materially adversely affect the Company's business.
See "Business--Industry."

TECHNOLOGICAL CHANGE AND NEW PRODUCTS. The market for the Company's
products is characterized by short product life cycles, rapidly changing
technology, evolving industry standards and frequent introductions of new
products. OEMs introduce new system configurations as often as twice a year, and
the life cycles of the Company's video graphics adapters typically range from 6
to 9 months (plus a few additional months of sales of certain of such products
in the commercial market). If the Company does not successfully introduce new
products within a given product cycle, the Company's sales will be adversely
affected for that cycle and possibly for subsequent cycles. Any such failure
could also impair the Company's brand name, reputation and relationships with
its OEM customers. The Company's success depends upon market acceptance of its
existing products, its ability to enhance its existing products and its ability
to continually develop and introduce new products and features to meet changing
customer requirements. Each new product cycle presents new opportunities for
current or prospective competitors of the Company to gain market share. The
Company's competitors include manufacturers of products that directly compete
with the Company's products, as well as competitors that can produce products
that have a similar functionality to the Company's products. For instance, Intel
Corporation is adding new functionalities, such as MMX, to its controller chips
to enhance the power of the central processing unit ("CPU") of a PC to manage
the display features of a PC. Similarly, Microsoft Corporation is introducing
new versions of its operating systems with features, such as Direct 3D, that
increase the capability of its operating systems to control a PC's display
features. Moreover, because of the short product life cycles and the long lead
times for many components used in the Company's products, the Company may not be
able to quickly reduce its production or inventory levels in response to
unexpected shortfalls in sales or, conversely, to

increase production in response to unexpected demand. There can be no assurance
of the continued acceptance of the Company's existing products or that the
Company will be successful in enhancing its existing products or identifying,
developing, manufacturing or marketing new products. Delays in developing new
products or enhancements or the failure of such products or enhancements to gain
market acceptance would materially adversely affect the Company and its results
of operations.

Sales of individual products and product lines are typically characterized
by declines in volumes, pricing and margins toward the end of the product's life
cycle, the precise timing of which may be difficult to predict. As new products
are planned and introduced, the Company attempts to monitor closely the
inventory of older products (and older components) and to phase out their
manufacture in a controlled manner. Nevertheless, the Company could experience
unexpected reductions in sales of older generation products as customers
anticipate new products. These reductions could give rise to additional charges
for obsolete or excess inventory, returns of older generation products by
retailers or commercial distributors or substantial price protection claims. To
the extent that the Company is unsuccessful in managing product transitions, its
business and operating results would be materially adversely affected.

DEPENDENCE ON KEY CUSTOMERS AND DESKTOP PC MARKET. The Company's top three
customers accounted for 55.5% and 63.0% of net sales during fiscal 1995 and the
nine-month period ended July 31, 1996, respectively. In recent years, Gateway
2000 has been the Company's top customer, although STB's other significant
customers have changed from period to period. See "Business--Sales and
Marketing--Sales." The loss or reduction of the business of Gateway 2000 or one
or more of the Company's other major customers would have a material adverse
effect on the Company and its results of operations. In addition, the Company's
future success will depend significantly upon the success of its customers,
particularly its OEM customers. The Company has no long-term commitments or
contracts with its customers. While a number of the Company's OEM customers have
achieved strong PC sales in recent periods, such customers, and the PC industry
in general, are subject to dynamic competitive conditions. In particular, the
loss of sales by the Company's OEM customers to other OEMs or a decrease in the
popularity of desktop PCs that incorporate the Company's products would
adversely affect the Company and its results of operations.

CHANGE IN PRODUCT OR SALES CHANNEL MIX. The Company offers two broad
categories of products: multimedia subsystem products that are sold to OEMs and
the commercial market and specialized technology products that are sold to
resellers and corporate customers in certain industries. Sales of video graphics
adapters to OEMs, which currently account for substantially all of the Company's
OEM multimedia subsystem product sales, are characterized by relatively high
unit volumes and relatively low gross profit margins. The Company began shipping
significant unit volumes of certain new multimedia subsystem products (i.e.,
other than video graphics adapters) to OEM customers in the third quarter of its
1996 fiscal year but is not yet in a position to forecast the effect that the
sale of these new products will have on it results of operations. Sales to the
commercial market are characterized by modest volumes and moderate gross profit
margins. Sales of the Company's specialized technology products are
characterized by relatively low unit volumes and relatively high gross profit
margins. The Company's sales to OEMs, the commercial market and specialized
technology products customers represented approximately 81%, 10% and 6% of the
Company's total net sales during the nine-month period ended July 31, 1996. In
the event the Company experiences a shift in the type of products that it is
able to sell or a shift in the sales channels into which such products are sold,
its results of operations could be materially adversely affected. In particular,
a decrease in sales of multimedia subsystem products to the commercial market or
in sales of specialized technology products could result in a disproportionately
greater decrease in the Company's gross profit. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Products."

ENTRY INTO NEW PRODUCT MARKETS. While the Company's business historically
has focused on the design, manufacture and sale of graphics adapters, in the
third quarter of fiscal 1996 the Company first began shipping significant unit
volumes of new multimedia subsystem products. See "Business--Products." There
are numerous risks inherent in the entry into new product markets, including the
reallocation of limited management,

engineering and capital resources to unproven product ventures, a greater
likelihood for encountering technical problems and a greater likelihood that the
market will not accept the Company's new products or the PCs into which they are
incorporated. The failure of one or more of such products, or any negative
effects upon the Company's core video graphics adapter business, could
materially adversely affect the Company and its results of operations.

PRICE PROTECTION AND STOCK ROTATION RISKS. As is common practice in its
industry, the Company's arrangements with its commercial customers generally
allow customers, in the event of a price decrease, credit equal to the
difference between the price originally paid and the new decreased price on
units in the customers' inventories on the date of the price decrease. In
addition, commercial customers generally have the right to return slow-moving or
excess inventory for product credit up to an agreed upon percentage of shipments
within specified time periods. While the Company establishes reserves to cover
these practices, there can be no assurance that these reserves will be
sufficient or that any future price protection claims or returns will not have a
material adverse effect on the Company and its results of operations,
particularly because results are heavily dependent on products for which the
Company has little or no operating history. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Sales and Marketing--Sales."

COMPETITION. The markets for the Company's products are highly competitive.
The Company has competitors specifically dedicated to the multimedia subsystem
market or specific segments within that market. Companies in related markets
also offer products with functions similar to the Company's products. For
example, the Company's suppliers sell video graphics controller chips directly
to OEMs for use in internally produced video graphics adapters or on
motherboards. Increased sales of competitive products could result in price
reductions by the Company or loss of its market share, which would materially
adversely affect the Company and its results of operations. In addition, the
Company's OEM customers could commence or increase internal production of video
graphics adapters or other multimedia subsystems. Furthermore, the Company's
markets are expected to become increasingly competitive as multimedia functions
continue to converge and companies that previously supplied products providing
distinct functions (for example, companies in the sound board and telephony
markets) emerge as competitors across broader product categories. The Company
also anticipates that as the breadth of its product lines expand, the markets in
which it competes and the number of competitors against which it competes also
will expand. There can be no assurance that the Company will be able to continue
to compete successfully in its markets or that it will be able to compete
successfully against current and new competition as these markets continue to
evolve. Many of the Company's current and potential competitors design and
manufacture some of their own product components. While the Company believes
that its controller chip independence enables it to select from among the most
advanced components available, there may be instances in which these internally
developed components have better features and performance characteristics than
those available from third party vendors. Furthermore, the Company believes that
certain of its current and potential competitors compete largely on the basis of
price, which may result in significant price competition, lower margins for the
Company's products or otherwise affect the market for the Company's products.
Certain of the Company's current and potential competitors also are located in
foreign jurisdictions that may have lower labor costs, impose significantly
lower taxes than the United States or levy duties on product imports. Many of
the Company's current and potential competitors have greater financial,
marketing, manufacturing and technological resources than the Company. There can
be no assurance that the Company will be able to continue to compete
successfully with its existing competitors or with new competitors. See
"Business--Competition."

DEPENDENCE ON KEY PERSONNEL. The Company's success depends upon the
services of its management, sales, marketing and engineering personnel. While
the Company has entered into employment agreements with a number of such
personnel, the loss of the services of one or more of such personnel could have
a material adverse effect on the Company and its results of operations. See
"Management--Employment Agreements." The success of the Company will depend, in
part, on its ability to retain its key management, sales, marketing and
engineering personnel and to attract other personnel to satisfy the Company's
current and future needs.

There is substantial competition for such personnel in the computer industry,
and the inability to retain key personnel or to attract additional personnel to
satisfy the Company's needs could have a material adverse effect on the Company
and its results of operations.

MANAGEMENT OF GROWTH. The Company has experienced rapid growth, and future
growth may require larger quantities of components, additional marketing, sales
and engineering personnel, additional manufacturing equipment and improved
operating, financial and administrative controls, any of which could require
significant additional capital expenditures. The Company may experience
difficulty securing adequate quantities of components or additional
manufacturing equipment, attracting or retaining skilled personnel, improving
infrastructure and information systems or overcoming other difficulties
associated with growth. In addition, gross profit margins derived from initial
orders with new OEM customers are frequently lower than the Company's typical
gross profit margins. There can be no assurance that the Company will be able to
manage any future growth successfully or that difficulties in doing so will not
have a material adverse effect on the Company and its results of operations.

SINGLE MANUFACTURING FACILITY. The Company's primary manufacturing facility
is located in Juarez, Mexico. Since the Company is substantially dependent on
this single manufacturing facility, a disruption of the Company's manufacturing
operations at this facility would have a material adverse effect on the Company
and its results of operations. Such disruption could result from various
factors, including a labor dispute, human error, governmental or political risks
or a natural disaster such as an earthquake, tornado, fire or flood. In
addition, in comparison to those of its competitors that do not maintain their
own manufacturing facilities, the Company incurs higher relative fixed overhead
and labor costs as a result of operating its own manufacturing facility. Any
failure to generate the level of product revenues needed to absorb these
overhead and labor costs would have a material adverse effect on the Company and
its results of operations. See "Business-- Manufacturing."

INTERNATIONAL OPERATIONS. A substantial portion of the Company's
manufacturing operations are carried out in Mexico. The Company's export sales
(which primarily consist of European sales) were approximately 19% of net sales
in the first nine months of fiscal 1996. The Company is subject to the general
risks of conducting business internationally, including unexpected changes in
regulatory requirements, fluctuations in currency exchange rates, delays
resulting from difficulty in obtaining export licenses for certain technology,
state imposed restrictions on the repatriation of funds, tariffs and other
barriers and restrictions and the burdens of complying with a variety of foreign
laws. In addition, the Company is subject to general geopolitical risks, such as
political instability and changes in diplomatic and trade relationships, in
connection with its international operations. Although the Company has not to
date experienced any material adverse effect on its operations as a result of
such factors, there can be no assurance that such factors will not materially
adversely impact the Company and its results of operations in the future or
require the Company to modify its current business practices. The Company
currently sells its products at prices denominated in U.S. dollars, and an
increase in the value of the U.S. dollar relative to foreign currencies could
make the Company's products more expensive and potentially less competitive in
foreign markets. The Company expects to sell a portion of its products in the
future at prices denominated in other currencies and will therefore increase its
currency exposure risk. In addition, a substantial portion of the Company's
manufacturing labor costs are paid in Mexican pesos, so any decrease in the
value of the U.S. dollar relative to the Mexican peso could increase the
Company's manufacturing costs and adversely affect the Company and its results
of operations. See "Business--Manufacturing" and "Business--Sales and
Marketing."

DEPENDENCE ON SALES REPRESENTATIVES AND DISTRIBUTORS. The Company markets
and distributes a significant portion of its products in the United States to
OEM customers and commercial channel customers through independent sales
representatives and distributors. The Company's sales representatives work in
tandem with the Company's sales force and are organized by customer account. The
services of an independent sales representative are important in obtaining and
maintaining a customer relationship. The Company's distributors resell the
Company's products to retailers and other resellers in the commercial market.
The Company's

agreements with its sales representatives and distributors are cancelable upon
30-days' notice. There can be no assurance that future sales by sales
representatives or distributors will continue at present levels. The loss of one
or more sales representatives or distributors, or the decision by one or more
distributors to reduce the number of the Company's products offered or to carry
the product lines of the Company's competitors, could have a material adverse
effect on the Company and its results of operations. See "Business--Sales and
Marketing."

PROPRIETARY TECHNOLOGY. The Company's success partially depends upon its
proprietary technology, consisting of its software drivers and utilities and, to
a lesser extent, its hardware designs. The Company relies upon copyright and
trade secret laws and agreements with its suppliers and customers to protect its
proprietary technology. There can be no assurance that the Company's present
protective measures will be adequate to prevent misappropriation of its
technology or independent third party development of the same or similar
technology. Many foreign jurisdictions offer less protection of intellectual
property rights than the United States, and there can be no assurance that the
protection provided to the Company's proprietary technology by the laws of the
United States or foreign jurisdictions will be sufficient to protect the
Company's technology. See "Business--Intellectual Property."

The Company has and may in the future find it necessary or desirable to
procure licenses from third parties relating to current or future products or
technologies, but there can be no assurance that the Company will continue to be
able to obtain such licenses or other rights or, if it is able to obtain them,
that it will be able to do so on commercially acceptable terms. The Company
could be placed at a disadvantage if its competitors obtain licenses with lower
royalty fee payments or other terms more favorable than those received by the
Company. If the Company or its suppliers were unable to obtain licenses relating
to current or future products or technologies, the Company could be forced to
market products without certain technological features. The Company's inability
to obtain licenses necessary to use certain technology or its inability to
obtain such licenses on competitive terms could have a material adverse effect
on the Company and its results of operations. See "Business--Intellectual
Property."

INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS. It is common in the computer
industry for companies to assert intellectual property infringement claims
against other companies. As a consequence, the Company indemnifies some OEM
customers in certain respects against intellectual property claims relating to
its products. If an intellectual property claim were to be brought against the
Company and the Company were found to be infringing upon the rights of others,
the Company could be required to pay infringement damages, pay licensing fees,
modify its products so that they are not infringing or discontinue offering
products that were found to be infringing, any of which could materially
adversely affect the Company and its results of operations.

If an intellectual property claim were to be brought against one or more of
the Company's suppliers and the supplier were found to be infringing upon the
rights of others, the supplier could be enjoined from further shipments of its
products to the Company, which could materially adversely affect the Company and
its results of operations.

STOCK MARKET VOLATILITY. There has been significant volatility in the
market price of the Company's Common Stock, as well as in the market price of
securities of technology-based companies. Factors such as announcements of new
products by the Company or its competitors, variations in the Company's
quarterly operating results or general economic or stock market conditions
unrelated to the Company's operating performance may have a significant impact
on the market price of the Common Stock. See "Price Range of Common Stock and
Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the offering, the
Company will have outstanding 6,013,598 shares of Common Stock. In addition to
the 2,688,923 shares of Common Stock that are currently freely tradeable, the
shares of Common Stock offered hereby will be freely tradeable after the close
of this offering. The executive officers, directors and Selling Shareholders of
the Company, who in the aggregate will beneficially own 1,524,675 outstanding
shares of Common Stock upon completion of the offering, together with the
Company, have agreed that they will not sell or otherwise dispose of any Common
Stock without the prior

written consent of Hambrecht & Quist LLC for a period of 90 days from the date
of this Prospectus. Upon expiration of these restrictions, the executive
officers and directors of the Company and the Selling Shareholders will be free
to sell the shares beneficially owned by them, subject to compliance with the
Securities Act of 1933, as amended (the "Securities Act"), including Rule 144
promulgated thereunder, and the terms of a Right of First Refusal Agreement, to
which certain of such shares are subject. A substantial portion of the shares
held by such beneficial owners may be sold into the public market effectively
free of any significant restrictions. See "Certain Transactions--Right of First
Refusal" and "Shares Eligible for Future Sale." No prediction can be made as to
the effect, if any, that market sales of the above shares or the availability of
such shares for future sale will have on the market price of shares of Common
Stock prevailing from time to time. Future sales of substantial amounts of
Common Stock by existing shareholders could adversely affect the prevailing
market price of the Common Stock after the offering and the Company's ability to
raise additional capital.

USE OF PROCEEDS

The net proceeds to the Company from the sale of 1,500,000 shares of Common
Stock offered by the Company hereby at an assumed public offering price of
$24.00 per share are estimated to be $33.7 million, after deducting the
estimated underwriting discount and estimated offering expenses payable by the
Company.

The Company anticipates that, of the net proceeds, approximately $7.3
million will be used to partially repay indebtedness outstanding under the
Company's secured revolving credit facility ("Revolving Credit Facility"). Such
amount includes $4.8 million that was outstanding under the Revolving Credit
Facility as of July 31, 1996, which amount and additional indebtedness incurred
subsequent to that date was incurred for general working capital purposes. The
Revolving Credit Facility currently bears interest at the bank's prime rate plus
0.75% (subject to a required minimum monthly interest charge of $25,000) and
matures on November 1, 1999. The Company expects that the remainder of the
proceeds from the offering, approximately $26.4 million, will be used for
general corporate purposes, including working capital, increased engineering and
other staffing expenses, increased promotional expenses, the purchase of
additional manufacturing equipment and the possible purchase of land for
corporate facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Pending
application of the net proceeds as described above, the Company intends to
invest such proceeds in short-term, investment grade, interest-bearing
securities. The Company will not receive any of the proceeds from the sale of
the shares by the Selling Shareholders (including any shares sold in connection
with the Underwriters' exercise of the over-allotment option).

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company effected its initial public offering ("IPO") on February 14,
1995, at a price to the public of $12.00 per share. Since that date, the
Company's Common Stock has traded on the Nasdaq National Market under the symbol
STBI. As of October 15, 1996, there were approximately 36 record holders of
Common Stock, although the Company believes that the number of beneficial owners
of its Common Stock is substantially greater. The table below sets forth for the
fiscal quarters indicated the high and low sale prices for the Common Stock.

HIGH LOW
--------- ---------

FISCAL 1997
First quarter (through November 7, 1996)........................................ $ 22.00 $ 19.63
FISCAL 1996
Fourth quarter.................................................................. $ 25.88 $ 12.25
Third quarter................................................................... 18.50 10.25
Second quarter.................................................................. 11.25 8.13
First quarter................................................................... 12.25 7.38
FISCAL 1995
Fourth quarter.................................................................. 13.38 7.75
Third quarter................................................................... 11.75 6.75
Second quarter (from February 14, 1995)......................................... 15.50 10.50

On October 15, 1996, the last reported sale price for the Company's Common
Stock on the Nasdaq National Market was $24.00 per share.

The Company intends to retain any future earnings for use in its business
and does not intend to pay cash dividends in the foreseeable future. The payment
of future dividends, if any, will be at the discretion of the Company's Board of
Directors and will depend, among other factors, upon future earnings,
operations, capital requirements, restrictions in future financing agreements,
the general financial condition of the Company and general business conditions.
The Company's Revolving Credit Facility permits the payment of dividends of up
to 25% of the Company's annual net income. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

CAPITALIZATION

The following table sets forth the capitalization and short term borrowings
of the Company (i) as of July 31, 1996, and (ii) as adjusted to give effect to
the receipt by the Company of the net proceeds from the sale of 1,500,000 shares
of Common Stock offered hereby at an assumed offering price of $24.00 per share.
See "Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

JULY 31, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)

Short-term borrowings including current portion of long-term liabilities (1).............. $ 5,540 $ 2,430
--------- -----------
--------- -----------
Long-term liabilities, net of current portion (1)......................................... $ 1,672 $ 1,672
--------- -----------
Shareholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized;
no shares outstanding........................................................... -- --
Common Stock, $.01 par value, 20,000,000 shares authorized; 4,504,387 shares
outstanding (actual); 6,004,387 shares outstanding (as adjusted) (2)............ 45 60
Treasury Stock, 35 shares, at cost................................................ (245) (245)
Additional paid-in capital........................................................ 22,213 55,878
Retained earnings................................................................. 5,347 5,347
--------- -----------
Total shareholders' equity.................................................... 27,360 61,040
--------- -----------
Total capitalization.................................................. $ 29,032 $ 62,712
--------- -----------
--------- -----------

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

(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" for a description of the
Company's credit facilities.

(2) Excludes (i) 850,000 shares of Common Stock reserved for issuance under the
Incentive Plan, of which options to purchase 775,000 shares of Common Stock
were outstanding as of October 31, 1996 with a weighted average exercise
price of $15.81 per share, (ii) 100,000 shares of Common Stock reserved for
issuance under the Directors Option Plan, of which options to purchase
25,000 shares of Common Stock were outstanding as of October 31, 1996 with
an exercise price of $12.00 per share, and (iii) 197,402 shares of Common
Stock reserved for issuance under the Employee Plan. See "Management."

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the
Company. The selected consolidated statement of operations and consolidated
balance sheet data of the Company for the fiscal years ended October 31, 1991,
1992, 1993, 1994 and 1995 are derived from the Company's Consolidated Financial
Statements that were audited by Price Waterhouse LLP, independent accountants,
whose report thereon for the fiscal years ended October 31, 1994 and 1995 is
included elsewhere in this Prospectus. The selected consolidated statement of
operations and consolidated balance sheet data of the Company for the nine
months ended July 31, 1995 and July 31, 1996 are derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus, and are
unaudited. The pro forma consolidated statement of operations data for the year
ended October 31, 1995, and the nine months ended July 31, 1995 and 1996 set
forth below, are unaudited.

The Selected Consolidated Financial Data set forth below should be read in
conjunction with, and are qualified in their entirety by, the Consolidated
Financial Statements and related Notes and other financial information included
elsewhere in this Prospectus.

CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................ $ 23,818 $ 27,786 $ 39,236 $ 89,836 $ 129,603 $ 89,771 $ 132,034
Cost of sales........................ 17,120 20,901 30,726 73,213 110,129 76,415 107,753
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 6,698 6,885 8,510 16,623 19,474 13,356 24,281
--------- --------- --------- --------- --------- --------- ---------
Operating expenses
Research and development......... 985 914 1,079 1,795 2,719 2,051 2,975
Sales and marketing.............. 2,708 3,139 3,835 5,529 7,437 5,300 7,847
General and administrative....... 2,448 2,735 2,810 5,190 6,172 4,523 6,591
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses..... 6,141 6,788 7,724 12,514 16,328 11,874 17,413
--------- --------- --------- --------- --------- --------- ---------
Income from operations............... 557 97 786 4,109 3,146 1,482 6,868
Interest expense..................... 195 197 226 588 818 556 869
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income tax...... 362 (100) 560 3,521 2,328 926 5,999
Provision (benefit) for income tax
(1)................................ -- -- -- -- 330 (131) 2,052
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ 362 $ (100) $ 560 $ 3,521 $ 1,998 $ 1,057 $ 3,947
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA DATA:
Pro forma adjustments (2)............ $ (315) $ (315)
--------- ---------
Pro forma net income................. $ 1,683 $ 742
--------- ---------
Pro forma net income per share
(1996 actual) (3).................. $ 0.45 $ 0.20 $ 0.88
--------- --------- ---------
--------- --------- ---------
Weighted average shares and
equivalents used for pro forma net
income per share (1996 actual)
(3)................................ 3,746 3,746 4,504

AS OF OCTOBER 31, AS OF JULY 31, 1996
----------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 ACTUAL AS ADJUSTED (4)
--------- --------- --------- --------- --------- --------- ---------------
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Working capital........................... $ 1,388 $ 1,423 $ 1,480 $ 4,373 $ 21,449 $ 23,427 $ 57,107
Total assets.............................. 7,005 8,039 14,777 23,651 57,539 52,606 83,176
Short-term borrowings including current
portion of long-term liabilities........ 1,925 1,614 3,679 6,793 12,138 5,540 2,430
Long-term liabilities, net of current
portion................................. 29 37 38 2,164 1,982 1,672 1,672
Total shareholders' equity................ 1,877 1,829 2,088 4,196 23,362 27,360 61,040

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

(1) The Company operated as an S corporation from November 1, 1986 until
February 21, 1995, at which time the Company became fully subject to federal
and state income taxes.

(2) Reflects certain pro forma adjustments assuming (a) the Company's
profit-sharing allocation to employees had been reduced from 25% to 10% of
income before taxes (as calculated prior to profit sharing expenses),
effective November 1, 1994; (b) the portion of indebtedness evidenced by the
Founding Shareholder Notes issued to the Founding Shareholders relating to
approximately one-half of the Undistributed S Corporation Earnings, or $2.04
million, had been outstanding effective November 1, 1994 and bearing
interest at 9% per annum; and (c) the Company had been treated as a C
corporation rather than as an S corporation for federal and state income tax
purposes, effective November 1, 1994 (and assuming an effective tax rate of
approximately 33%). The adjustment in the Company's profit sharing
allocation to employees and the termination of the Company's S corporation
status occurred contemporaneously with the IPO in February 1995. See
"Management--Profit Sharing Plan," "Certain Transactions--S Corporation
Distribution" and Note 1 of Notes to October 31, 1995 Consolidated Financial
Statements.

(3) Pro forma net income per share is based on the Company's weighted average
number of shares outstanding, plus the common equivalent number of shares
that the Company would have had to issue to distribute to the Founding
Shareholders $2.04 million, which amount equals approximately one-half of
the Undistributed S Corporation Earnings at October 31, 1994. See "Certain
Transactions-- S Corporation Distribution" and Note 1 of Notes to October
31, 1995 Consolidated Financial Statements.

(4) Adjusted to reflect the sale of 1,500,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom (assuming a public offering price of $24.00 per share). See "Use
of Proceeds" and "Capitalization."

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

OVERVIEW

STB currently sells two broad categories of products, which the Company
refers to as multimedia subsystem products and specialized technology products.
The Company's multimedia subsystem product line includes a wide selection of
graphics adapters designed for use in mid-range to high-end PCs and also
features several complementary products, including digital video products and
sound cards. STB's specialized technology products incorporate graphics
technologies and are usually designed to enable one computer to simultaneously
control the display of multiple monitors.

The Company sells its products to OEMs, the commercial market and the
specialized technology market. Multimedia subsystem products are sold both to
OEMs as subsystems for their PC products and to the commercial market. Sales of
video graphics adapters to OEMs, which currently account for substantially all
of the Company's OEM multimedia subsystem product sales, are characterized by
higher unit volumes and lower gross profit margins. Sales of multimedia products
to the commercial market are characterized by modest unit volumes and higher
gross profit margins than the sale of similar products to OEMs. Although sales
volumes of specialized technology products are relatively low, the Company
realizes higher gross profit margins from the sale of these products than from
the sale of multimedia subsystem products. The Company began shipping
significant unit volumes of certain new multimedia subsystem products (products
other than video graphics adapters) to OEM customers in the third quarter of
fiscal 1996. The Company is not yet in a position to forecast the effect that
the sale of these new products will have upon the Company's results of
operations.

For the nine months ended July 31, 1996, sales of the Company's products to
the OEM, commercial and specialized technology product markets constituted
approximately 81% (approximately 2% of which is comprised of sales of new
multimedia subsystem products), 10% and 6% of net sales, respectively. The
Company has experienced substantial growth in each of its sales channels in
recent periods. The balance of total net sales was derived primarily from the
provision of third party assembly services, which constituted approximately 3%
of total net sales for the nine months ended July 31, 1996. Export sales of the
Company's products, which are made through all of the Company's sales channels,
have grown more moderately in recent periods, and as a result declined as a
percentage of net sales to 19% for the nine months ended July 31, 1996.

The Company recognizes revenue upon shipment of its products. For products
sold through the commercial channel, the Company generally allows returns in the
form of stock rotations and price protection in the form of credits. The
Company's current stock rotation policies typically permit a commercial channel
customer to return to the Company approximately 10% of products purchased within
the previous 90 days if it places an order for other Company products of equal
or greater value. The Company usually is able to resell returned products. STB
typically provides price protection to commercial channel customers in the form
of credits for price reductions on products remaining in customer inventories.
The Company maintains reserves to cover these practices, which it believes are
adequate.

The Company has no guaranteed supply arrangements with any of its suppliers.
The Company obtains most of the primary components included in its products,
consisting mainly of controller chips and memory chips, directly from the
component manufacturers. The prices of such components can change significantly
from time to time. The Company has in the past experienced, and may in the
future experience, increases in its unit component costs without being able to
increase the price of the related products, with the result that gross profit
margins and the Company's results of operations would be adversely affected. In
particular, occasional worldwide shortages of DRAM and other memory and
controller chips and international tariff disputes have in the past resulted in
substantial unit component cost increases that have materially adversely
affected the Company and its results of operations. In recent periods, a decline
in the price of memory chips, together with the Company's inventory management
practices and other factors, has contributed to improved gross profit margins.
Although it is not possible to accurately forecast the prices of memory chips or
other components, the

Company believes that memory chip prices recently have stabilized and in certain
instances increased. See "Risk Factors--Dependence on Suppliers."

The Company's total gross profit margins and gross profits will likely
fluctuate from period to period as a result of the factors identified above,
among others. In particular, the Company's total gross profit margin and gross
profits will be substantially affected by the Company's product mix, sales
channel mix, component costs and competitive pricing pressures on the Company's
products. See "Risk Factors--Potential for Fluctuating Operating Results;
Seasonality."

STB operated as an S corporation from November 1, 1986, until February 21,
1995, at which time the Company became fully subject to federal and state income
taxes. See Note 10 of Notes to October 31, 1995 Consolidated Financial
Statements.

All statements other than statements of historical fact contained in this
Prospectus, including statements in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" concerning the Company's
financial position and liquidity, results of operations, prospects for continued
growth, component and other costs, ability to maintain or improve unit volumes,
net sales or profit margins and other matters are forward-looking statements.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable, no assurance can be given that such
expectations will prove correct. Factors that could cause the Company's results
to differ materially from the results discussed in or contemplated by such
forward-looking statements include the risks described under "Risk Factors,"
such as the risks associated with the potential for fluctuating operating
results, dependence on suppliers and the video graphics adapter market, rapid
technological change and short product life cycles, dependence on key customers
and the PC market, changes in product or sales channel mix, entry into new
product markets, price protection and stock rotation policies, intense
competition, dependence on key personnel, difficulties in managing growth,
reliance on a single manufacturing facility, international operations and
dependence on sales representatives and distributors. All forward-looking
statements in this Prospectus are expressly qualified in their entirety by the
cautionary statements in this paragraph, in "Risk Factors" and elsewhere in this
Prospectus.

RESULTS OF OPERATIONS

The following discussion of the Company's results of operations for the
fiscal years ended October 31, 1993, 1994 and 1995 and for the nine-months ended
July 31, 1995 and 1996 is based upon data derived from the statements of
operations contained in the Company's selected consolidated financial statements
appearing elsewhere in the Prospectus. The following table sets forth this data
as a percentage of net sales.

PERCENTAGE OF NET SALES
----------------------------------------------------------
NINE MONTHS
FISCAL YEAR ENDED OCTOBER 31, ENDED JULY 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------

Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................... 78.3 81.5 85.0 85.1 81.6
---------- ---------- ---------- ---------- ----------
Gross profit............................................ 21.7 18.5 15.0 14.9 18.4
Operating expenses:
Research and development.............................. 2.7 2.0 2.1 2.3 2.3
Sales and marketing................................... 9.8 6.2 5.7 5.9 5.9
General and administrative............................ 7.2 5.8 4.8 5.0 5.0
---------- ---------- ---------- ---------- ----------
Total operating expenses.......................... 19.7 14.0 12.6 13.2 13.2
Income from operations.................................. 2.0 4.5 2.4 1.7 5.2
Interest expense........................................ 0.6 0.7 0.6 0.6 0.7
---------- ---------- ---------- ---------- ----------
Income before income taxes.............................. 1.4 3.8 1.8 1.1 4.5
Provision (benefit) for income taxes (1)................ 0.0 0.0 0.3 (0.1) 1.5
---------- ---------- ---------- ---------- ----------
Net income.............................................. 1.4% 3.8% 1.5% 1.2% 3.0%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma adjustments (2)............................... (0.2)% (0.4)%
---------- ----------
Pro forma net income (3)................................ 1.3% 0.8%
---------- ----------
---------- ----------

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

(1) The Company operated as an S corporation from November 1, 1986 until
February 21, 1995, at which time the Company became fully subject to federal
and state income taxes.

(3) Pro forma net income per share is based on the Company's weighted average
number of shares outstanding, plus the common equivalent number of shares
that the Company would have had to issue to distribute to the Founding
Shareholders $2.04 million, which amount equals approximately one-half of
the Undistributed S Corporation Earnings at October 31, 1994. See "Certain
Transactions--S Corporation Distribution" and Note 1 of Notes to October 31,
1995 Consolidated Financial Statements.

NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995

NET SALES. Net sales increased by $42.3 million, or 47.1%, to $132.0
million in the first nine months of fiscal 1996, as compared to the same period
in fiscal 1995. This increase resulted primarily from continuing growth in sales
of the Company's products to established OEM customers, as well as new OEM
customers. North American shipments to OEMs remained strong during the first
nine months of fiscal 1996, offsetting continued weak demand in Europe during
this period. The Company also experienced continued growth in the Company's
other sales channels. Net sales for the nine months ended July 31, 1995 were
negatively affected by the inability of one of the Company's suppliers to
deliver controller chips pursuant to confirmed purchase orders and the
subsequent receipt by STB of incompatible software drivers from the replacement
supplier.

GROSS PROFIT. Gross profit increased by $10.9 million, or 81.8%, to $24.3
million in the first nine months of fiscal 1996, as compared to the same period
in fiscal 1995. For the periods, gross profit margin increased from 14.9% to
18.4%. The increase in gross profit resulted primarily from significant
increases in sales volumes of the Company's products. The increase in gross
profit margin resulted primarily from the economies of scale resulting from
higher production volumes and lower memory chip prices.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $0.9 million, or 45.1%, to $3.0 million in the first nine months of
fiscal 1996, as compared to the same period in fiscal 1995. This increase
resulted from heightened staffing and equipment requirements associated with the
development of new products and the continuing enhancement and support of the
Company's products. For the periods, research and development expenses as a
percentage of net sales remained steady at 2.3%.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased by
$2.5 million, or 48.1%, to $7.8 million in the first nine months of fiscal 1996,
as compared to the same period in fiscal 1995. This increase resulted primarily
from additions to the Company's sales staff, increased commissions paid as a
result of higher sales and increased advertising and trade show expenses. For
the periods, sales and marketing expenses as a percentage of net sales remained
steady at 5.9%.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $2.1 million, or 45.7%, to $6.6 million in the first nine months of
fiscal 1996, as compared to the same period in fiscal 1995, due primarily to
expenses associated with the Company's growth, including increased personnel
expenses and other expenses, such as insurance premiums, legal expenses and
facilities costs. For the periods, general and administrative expenses as a
percentage of net sales remained steady at 5.0%.

NET INCOME. As a result of the foregoing factors, net income increased by
$2.9 million, or 273.4%, to $3.9 million in the first nine months of fiscal
1996, as compared to the same period in fiscal 1995.

FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1994

NET SALES. Net sales increased by $39.8 million, or 44.3%, to $129.6
million in fiscal 1995, as compared to fiscal 1994. This increase resulted
primarily from continued growth in sales of the Company's products to OEMs and
from growth in sales of the Company's products in the commercial channel. Net
sales for the second and third quarters of fiscal 1995 were negatively impacted
by the inability of one of the Company's suppliers to deliver controller chips
pursuant to confirmed purchase orders and the subsequent receipt by STB of
incompatible software drivers from the replacement supplier. In addition, sales
of the Company's specialized technology products during these quarters were
adversely affected by delays in the development by PC system and motherboard
suppliers of certain BIOS bridge support.

GROSS PROFIT. Gross profit increased by $2.9 million, or 17.2%, to $19.5
million in fiscal 1995, as compared to fiscal 1994. For the period, gross profit
margin declined from 18.5% to 15.0%. The decline in gross profit margin resulted
primarily from decreasing margins on sales of multimedia subsystem products to
OEMs due to higher memory and other chip prices, lower sales of higher margin
specialized technology products and pricing

pressures from certain of the Company's competitors. The Company's gross profits
in fiscal 1995 were negatively impacted by the factors listed in the above
paragraph affecting net sales.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $0.9 million, or 51.5%, to $2.7 million in fiscal 1995, as compared
to fiscal 1994. This increase resulted from additional staffing and equipment
requirements associated with the development of new products and the continuing
enhancement and support of the Company's existing products. For the periods,
research and development expenses as a percentage of net sales increased from
2.0% to 2.1%.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased by
$1.9 million, or 34.5%, to $7.4 million in fiscal 1995, as compared to fiscal
1994. The increase resulted from additions to the Company's sales staff,
increased advertising expenses and higher trade show and travel expenses. For
the periods, sales and marketing expenses as a percentage of net sales decreased
from 6.2% to 5.7%.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $1.0 million, or 18.9%, to $6.2 million in fiscal 1995, as compared
to fiscal 1994. For the periods, general and administrative expenses as a
percentage of net sales declined from 5.8% to 4.8%. General and administrative
expenses, excluding profit sharing expenses, increased by $1.7 million, or
41.8%, to $5.7 million in fiscal 1995, as compared to fiscal 1994 due primarily
to expenses associated with the Company's growth, including increased personnel
expenses and increased facility, equipment and insurance expenses. The Company's
profit sharing allocation to employees, which amounted to 25% of income before
taxes (as calculated prior to profit sharing expenses) in fiscal 1994, was
reduced to 10% of income before taxes following the first quarter of fiscal 1995
in connection with the completion of the IPO.

NET INCOME. As a result primarily of the factors discussed in the
paragraphs above that address net sales and gross profit, net income decreased
by $1.5 million, or 43.3%, to $2.0 million in fiscal 1995 as compared to fiscal
1994.

FISCAL YEAR ENDED OCTOBER 31, 1994 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1993

NET SALES. Net sales increased by $50.6 million, or 129.1%, to $89.8
million in fiscal 1994, as compared to fiscal 1993. This increase was the result
of higher shipment volumes of the Company's products in all sales channels,
particularly to OEMs.

GROSS PROFIT. Gross profit increased by $8.1 million, or 95.3%, to $16.6
million in fiscal 1994, as compared to fiscal 1993. For the periods, gross
profit margin declined from 21.7% to 18.5%. The increase in gross profit
resulted from significant increases in sales volume in all three of the
Company's sales channels. The decrease in gross profit margin resulted from a
proportionately greater increase in sales of the Company's multimedia subsystem
products to OEMs at lower margins, as well as from general pricing pressures
resulting from increased competition in the PC industry.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $0.7 million, or 66.4%, to $1.8 million in fiscal 1994, as compared
to fiscal 1993. This increase resulted from added staffing and equipment
requirements associated with the continued enhancement and support of the
Company's existing products and the development of new products. Although
research and development expenses increased significantly, these expenses as a
percentage of net sales declined from 2.7% to 2.0%.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased by
$1.7 million, or 44.2%, to $5.5 million in fiscal 1994, as compared to fiscal
1993. The increase in sales and marketing expenses resulted from heightened
promotional efforts aimed at supporting the continued growth in the Company's
higher margin multimedia subsystem products sold through the commercial channel
and specialized technology products, additions to the Company's sales staff and
increased commission payments due to higher sales levels. Marketing expenses
incurred in connection with sales to OEMs tend to be relatively constant due to
the limited number of OEMs in the market and the Company's reliance upon
developing direct relationships with OEM contacts. For

the periods, marketing expenses as a percentage of net sales declined from 9.8%
in fiscal 1993 to 6.2% in fiscal 1994 as a result of the substantial increase in
sales volume during fiscal 1994.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $2.4 million, or 84.7%, to $5.2 million in fiscal 1994, as compared
to fiscal 1993 due primarily to expenses associated with the Company's growth,
including increased personnel expenses, increased profit sharing expenses and
increased facility and equipment expenses. General and administrative expenses,
excluding profit sharing expenses, increased by $1.4 million, or 53.8%, to $4.0
million in fiscal 1994, as compared to fiscal 1993. For the periods, general and
administrative expenses as a percentage of net sales declined from 7.2% in
fiscal 1993 to 5.8% in fiscal 1994.

NET INCOME. As a result of the foregoing factors, net income increased by
$3.0 million, or 528.8%, to $3.5 million in fiscal 1994 as compared to fiscal
1993.

SELECTED QUARTERLY OPERATING RESULTS AND SEASONALITY

The Company's quarterly operating results vary significantly depending on
factors such as the timing of large customer orders, timing of new product
introductions, adequacy of component supply, changes in component costs,
variations in the Company's product or sales channel mix, seasonal promotions by
the Company and its customers and competitive pricing pressures. Because the
timing of these factors may vary, the results of any particular quarter may not
be indicative of results for the full year or any future period. In addition,
the PC market generally experiences weaker sales during the summer months.
Although the Company has experienced sales growth for each year since fiscal
1990, there can be no assurance that this growth will continue on a quarterly or
annual basis. See "Risk Factors--Potential for Fluctuating Operating Results;
Seasonality."

The following table sets forth certain unaudited quarterly financial
information for the periods indicated, which in the opinion of management
includes all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the information set forth therein:

QUARTER ENDED
--------------------------------------------------------------------------
FISCAL
1994 FISCAL 1995 FISCAL 1996
----------- ------------------------------------------------ -----------
OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31,
1994 1995 1995 1995 1995 1996
----------- ----------- ----------- --------- ----------- -----------

(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales........................................ $ 24,523 $ 30,738 $ 33,370 $ 25,663 $ 39,832 $ 44,905
Cost of sales.................................... 20,416 25,643 28,658 22,114 33,715 37,643
----------- ----------- ----------- --------- ----------- -----------
Gross profit..................................... 4,107 5,095 4,712 3,549 6,117 7,262
Operating expenses............................... 3,245 3,796 3,945 4,134 4,454 5,083
----------- ----------- ----------- --------- ----------- -----------
Income (loss) from operations.................... 862 1,299 767 (585) 1,663 2,179
Interest expense................................. 181 242 144 170 261 333
Provision (benefit) for certain income taxes
(1)............................................. 3 -- 127 (258) 461 632
----------- ----------- ----------- --------- ----------- -----------
Net income (loss)................................ $ 678 $ 1,057 $ 496 $ (497) $ 941 $ 1,214
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
PRO FORMA DATA...................................
Pro forma adjustments (2)........................ (229) (86) -- -- --
Pro forma net income (loss) (July 31, 1995
through July 31, 1996 reflects actual).......... $ 828 $ 410 $ (497) $ 941 $ 1,214
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
Pro forma net income (loss)(July 31, 1995 through
July 31, 1996 reflects actual) per share (3).... $ 0.31 $ 0.10 $ (0.11) $ 0.21 $ 0.27
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------

APR. 30, JUL. 31,
1996 1996
----------- ---------

Net sales........................................ $ 44,592 $ 42,537
Cost of sales.................................... 36,189 33,921
----------- ---------
Gross profit..................................... 8,403 8,616
Operating expenses............................... 6,075 6,243
----------- ---------
Income (loss) from operations.................... 2,328 2,373
Interest expense................................. 278 271
Provision (benefit) for certain income taxes
(1)............................................. 699 722
----------- ---------
Net income (loss)................................ $ 1,351 $ 1,380
----------- ---------
----------- ---------
PRO FORMA DATA...................................
Pro forma adjustments (2)........................ -- --
Pro forma net income (loss) (July 31, 1995
through July 31, 1996 reflects actual).......... $ 1,351 $ 1,380
----------- ---------
----------- ---------
Pro forma net income (loss)(July 31, 1995 through
July 31, 1996 reflects actual) per share (3).... $ 0.30 $ 0.30
----------- ---------
----------- ---------

PERCENTAGE OF TOTAL NET SALES
QUARTER ENDED
----------------------------------------------------------------------------
OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31,
1994 1995 1995 1995 1995 1996
----------- ----------- ----------- ----------- ----------- -----------

Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 83.3 83.4 85.9 86.2 84.6 83.8
----- ----------- ----------- ----------- ----- -----
Gross profit...................................... 16.7 16.6 14.1 13.8 15.4 16.2
Operating expenses................................ 13.2 12.4 11.8 16.1 11.2 11.3
----- ----------- ----------- ----------- ----- -----
Income from operations............................ 3.5 4.2 2.3 (2.3) 4.2 4.9
Interest expense.................................. 0.7 0.8 0.4 0.6 0.7 0.7
Provision (benefit) for certain income taxes
(1).............................................. -- -- 0.6 (1.0) 1.1 1.4
Net income........................................ 2.8% 3.4% 1.3% (1.9)% 2.4% 2.8%
----- ----------- ----------- ----------- ----- -----
----- ----------- ----------- ----------- ----- -----
Pro forma adjustments (2)......................... (0.7)% (0.2)%
Pro forma net income (loss)....................... 2.7% 1.1%
----------- -----------
----------- -----------

APR. 30, JUL. 31,
1996 1996
----------- -----------

Net sales......................................... 100.0% 100.0%
Cost of sales..................................... 81.2 79.7
----- -----
Gross profit...................................... 18.8 20.3
Operating expenses................................ 13.6 14.7
----- -----
Income from operations............................ 5.2 5.6
Interest expense.................................. 0.6 0.6
Provision (benefit) for certain income taxes
(1).............................................. 1.6 1.7
Net income........................................ 3.0% 3.3%
----- -----
----- -----
Pro forma adjustments (2).........................
Pro forma net income (loss).......................

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

(1) The Company operated as an S corporation from November 1, 1986 until
February 21, 1995, at which time the Company became fully subject to federal
and state income taxes. See Note 2 of Notes to October 31, 1995 Consolidated
Financial Statements.

(2) Reflects certain pro forma adjustments assuming (a) the Company's
profit-sharing allocation to employees had been reduced from 25% to 10% of
income before taxes (as calculated prior to profit sharing expenses),
effective November 1, 1994; (b) the portion of indebtedness evidenced by the
Founding Shareholder Notes issued to the Founding Shareholders relating to
approximately one-half of the Undistributed S Corporation Earnings, or $2.04
million, had been outstanding effective November 1, 1994, and bearing
interest at 9% per annum; and (c) the Company had been treated as a C
corporation rather than as an S corporation for federal and state income tax
purposes, effective November 1, 1994 (and assuming an effective tax rate of
approximately 33%). The adjustment in the Company's profit sharing
allocation to employees and the termination of the Company's S corporation
status occurred contemporaneously with the IPO in February 1995. See
"Management--Profit Sharing Plan," "Certain Transactions--S Corporation
Distribution" and Note 1 of Notes to October 31, 1995 Consolidated Financial
Statements.

(3) Pro forma net income per share is based on the Company's weighted average
number of shares outstanding, plus the common equivalent number of shares
that the Company would have had to issue to distribute to the Founding
Shareholders $2.04 million, which amount equals approximately one-half of
the Undistributed S Corporation Earnings at October 31, 1994. See "Certain
Transactions--S Corporation Distribution" and Note 1 of Notes to October 31,
1995 Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital and liquidity needs are for financing
inventory and accounts receivable and, to a lesser degree, purchasing
manufacturing and other equipment. The Company has financed these requirements,
and its operations generally, through a combination of cash generated from
operations, bank borrowings and proceeds from the IPO. As a result of the
Company's rapid growth in recent years, its capital requirements have increased
substantially. The Company anticipates that future growth will require
additional capital, particularly to support increased working capital needs,
engineering and other staffing expenses, promotional expenses, manufacturing
facilities and equipment requirements, and possibly for the purchase of land for
corporate facilities. The Company believes that its various sources of available
financing will be adequate to meet its capital requirements through fiscal 1997.

The Company generated cash from operations of $9.7 million in the nine-month
period ended July 31, 1996, compared with $7.8 million in the comparable period
of fiscal 1995. This increase resulted primarily from increased net income and a
reduction in inventory costs, offset by increased accounts receivable and a
reduction in accounts payable. The Company's working capital was $23.4 million
at July 31, 1996, compared to $21.6 million at October 31, 1995, and cash was
$4.1 million at July 31, 1996, compared to $4.2 million at October 31, 1995.

The Company's expenditures for equipment totalled $1.9 million during the
nine-month period ended July 31, 1996, compared with net purchases of equipment
of $2.0 million during the comparable period in fiscal 1995. The Company's
investment in equipment is primarily attributable to manufacturing equipment
additions and upgrades of existing equipment to support the increased demand for
the Company's products. In addition, subsequent to the end of its fiscal 1996
third quarter, the Company installed four new surface-mount technology assembly
lines at its manufacturing facility in Juarez, Mexico, at an approximate cost of
$4.2 million. The Company financed this equipment purchase through traditional
equipment lease financing arrangements. The Company expects that additional
capital expenditures for similar types of equipment may be necessary to support
the Company's future production requirements.

The Company currently has a line of credit of up to $25.0 million under the
Revolving Credit Facility, which includes a $2.0 million term loan (the
"Mezzanine Facility" and, together with the Revolving Credit Facility, the
"Facilities"). During fiscal 1996, the Company increased the size of its
Revolving Credit Facility by $10.0 million to its current level. As of July 31,
1996, the Company had outstanding $4.8 million and $1.6 million under the
Revolving Credit Facility and the Mezzanine Facility, respectively. Principal
amounts outstanding under the Revolving Credit Facility bear interest at the
rate of prime plus 0.75%, and the interest rate applicable to principal amounts
outstanding under the Mezzanine Facility was reduced during the first quarter of
fiscal 1996 from prime plus 3.0% to prime plus 0.75%. The Revolving Credit
Facility agreement provides for a minimum monthly interest charge of $25,000,
which can be satisfied through the accrual of interest under both the Revolving
Credit Facility and the Mezzanine Facility. Availability under the Revolving
Credit Facility is based on formulas derived from accounts receivable and
inventory. All indebtedness under the Facilities matures on November 1, 1999.
Commencing December 1, 1995, the Company was required to make the first of 48
successive monthly installments of principal in the amount of $41,667 each,
together with accrued interest.

In accordance with the provisions of a contingent payment agreement executed
in connection with the Facilities, the Company was obligated to pay the lender a
one-time fee equal to one percent (1.0%) of the product of six times the
Company's earnings before income taxes, interest, depreciation and amortization
for the fiscal year preceding the fiscal year in which the payment is made. The
Company paid this fee, in the amount of $250,234, in September 1996.

BUSINESS

INTRODUCTION

STB designs, manufactures and sells graphics adapters and other multimedia
subsystem products for use primarily in desktop PCs. The Company's graphics
adapters, almost all of which are video graphics adapters that display
full-motion video images on a monitor, enable users to take advantage of
true-color graphics, 3D and video features found in the latest PC operating
systems, such as Microsoft Windows 95 and Windows NT, and in multimedia
applications. The Company's multimedia subsystem product line includes a wide
selection of video graphics adapters designed for use primarily in mid-range to
high-end PCs and also features several complementary products, including digital
video products and sound cards. The Company's multimedia subsystem products are
sold to OEMs and, to a lesser extent, through the commercial sales channel to
retailers, distributors and direct-mail companies. The Company's OEM and
commercial customers include Gateway 2000, Dell Computer, Compaq Computer,
CompUSA, Best Buy, Tech Data and Ingram Micro.

STB also sells specialized technology products that incorporate graphics
technologies and are usually designed to enable one computer to simultaneously
control the display of multiple monitors. These products are sold to customers
for specialized applications in a number of industries, including the financial
services, hospitality, factory automation, transportation and emergency response
industries. The Company's customers for specialized technology products include
Reuters and Lodgenet.

STB has demonstrated outstanding growth, with revenues increasing from $23.8
million in fiscal 1991 to $129.6 million in fiscal 1995, a compound annual
growth rate of 52.8%. According to IDC, STB has increased its market share to
become the second largest independent supplier of graphics adapters (based on
units shipped), with an estimated 16.7% worldwide market share in 1995.

INDUSTRY

According to Dataquest, an estimated 71.7 million PCs are expected to be
shipped worldwide in 1996, compared to 60.2 million units in 1995 and 47.9
million units in 1994. A substantial portion of the PCs shipped in recent
periods incorporate high performance Intel Pentium and Pentium Pro processors
and support multimedia functionality, including CD-ROM storage,
higher-resolution graphics, digital video and audio and, in some systems,
hardware 3D and telecommunications. The evolution of these multimedia-enabled
PCs has been driven by the proliferation of higher performance hardware,
operating systems like Microsoft Windows 95 and Windows NT, the popularity of
the Internet and the growth in the number of consumer and business applications
featuring greater use of 3D graphics, video and sound.

Multimedia applications typically place significantly higher processing
demands on a PC's CPU, which can substantially degrade system performance. The
processing burden on the CPU can be reduced by off-loading the
multimedia-intensive processing functions to specialized video graphics and
other multimedia subsystems. This allows for significant improvements in a PC's
performance and can be achieved either through the placement of subsystems on
the motherboard or the use of add-in subsystems. Motherboard implementations
typically cost less but generally provide lower levels of functionality and
performance. While add-in subsystems cost slightly more, they generally can
support higher levels of functionality and provide a higher degree of
flexibility in PC configuration, which allow PC manufacturers to more rapidly
integrate new technologies into their product lines and to meet a range of price
and performance requirements.

The market continually demands more sophisticated multimedia products as new
technologies evolve and enter the mainstream. Intel's incorporation of the MMX
extended instruction set in its microprocessors, as well as efforts to develop
specifications for an accelerated graphics port ("AGP"), demonstrate the demand
for higher CPU functionality and better integration between the CPU and the PC
graphics subsystem. The incorporation of these architectural enhancements, in
addition to evolving standards such as MPEG-2 decompression, Dolby Digital audio
and DVD storage, are laying the foundation for using the PC as an enabling
platform for digital television, video teleconferencing and other emerging
multimedia capabilities.

The accelerating pace of technological advancement in the PC industry has
made it increasingly difficult for OEMs to devote the resources necessary for
the timely internal development of multimedia subsystems incorporating the
latest innovations. Furthermore, many OEMs are seeking to expand their product
lines in response to consumer demand for a broader range of price and
performance options. As a result, the Company believes OEMs increasingly are
choosing to outsource many of their component and subsystem needs to specialized
subsystem vendors with focused development efforts.

STRATEGY

The Company's goal is to become the leading supplier of video graphics
adapters and certain other multimedia subsystems for PCs. The Company's focus on
the design, manufacture and sale of video graphics adapters has earned it a
reputation for providing advanced graphics display solutions. With its size and
reputation, the Company has built relationships with chip suppliers that allow
it to obtain advance information about new developments in video controller chip
technology. Additionally, close relationships with many of its OEM customers
better enable the Company to determine what future performance features are most
desired. The Company believes that the strength of these relationships also
places it in a strong position to be the provider of choice to OEMs for a number
of other multimedia subsystem products. STB believes that it is positioned to
compete effectively by using its knowledge of technological advances and
customer desires, together with its own value-added development of software
drivers and utilities, to provide high-quality video graphics adapters and other
multimedia subsystems to the PC marketplace on a timely, cost-effective basis.

The major elements of the Company's strategic plan are as follows:

FOCUS ON GRAPHICS ADAPTER MARKET AND EMERGING MULTIMEDIA SUBSYSTEM
OPPORTUNITIES. The Company intends to continue focusing its efforts on the
graphics adapter market, where it has consistently demonstrated an ability to
introduce innovative graphics adapters designed to satisfy rapidly evolving and
increasingly demanding performance standards. Furthermore, the Company believes
that it can leverage its strong OEM relationships and technological and
manufacturing expertise to be the provider of choice to OEMs for other
multimedia subsystem products.

CONTINUED FOCUS ON OEM SALES CHANNEL. The Company has continued to focus on
the OEM sales channel, as evidenced by a significant increase in sales within
this channel during the first nine months of fiscal 1996 and the fact that
approximately 81% of the Company's revenues during such period were derived from
sales to OEMs. The expansion of the Company's business with several established
OEM customers, such as Gateway 2000, as well as the recent addition of several
new OEM customers, including Dell Computer, Compaq Computer and IBM, demonstrate
the success of the Company's commitment to meeting the needs of OEMs.
Historically, the Company provided OEMs with mid-range video graphics adapters.
The Company recently has commenced delivery of high-end video graphics adapters
and other multimedia subsystem products in an effort to expand its product
offerings to the OEM market.

CONTROL OF MANUFACTURING. The Company believes that it is the only major
independent supplier of video graphics adapters that manufactures its own
products rather than outsourcing its manufacturing operations. The Company
believes that having its own manufacturing facility in Juarez, Mexico enables it
to maintain lower manufacturing costs, meet expedited customer delivery
schedules, quickly adjust to changes in product orders, achieve shorter
production cycles and accommodate modified or unusual design specifications,
while at the same time ensuring product quality and reliability.

CONTROLLER CHIP INDEPENDENCE. Unlike some of its competitors, the Company
designs its products after evaluating controller chips produced by a number of
leading suppliers. The selection of a controller chip is based on competitive
factors including cost, performance, compatibility and reliability of supply.
The Company believes that purchasing rather than internally developing
controller chips allows it to consistently develop products incorporating the
latest technological advances. Moreover, the Company is able to leverage the

substantial expenditures made by developers of controller chips, achieve
component flexibility and decrease the time and expense required to develop new
products. See "Risk Factors--Dependence on Suppliers."

MINIMIZE DESIGN-TO-MARKET CYCLES. By capitalizing on the foregoing elements
of its strategy, STB is able to design, manufacture, test and ship new products
in relatively short amounts of time, which is particularly important for
obtaining, maintaining and strengthening relationships with its OEM customers,
who also must operate under short design-to-market cycles.

SELECTIVELY PURSUE OTHER SALES CHANNELS. In addition to focusing on the OEM
sales channel, the Company intends to continue its efforts to further penetrate
the commercial market. The Company believes that the high quality, low cost
standards that it must meet for its OEM customers better position it to provide
competitive products in the commercial market. The Company believes that
increasing awareness of the STB brand, created in part by its penetration in the
OEM sales channel, has strengthened its position in the commercial market. This
strength is demonstrated by the Company's substantial increase in commercial
channel sales during the first nine months of fiscal 1996 and by the addition of
significant retailers such as Best Buy to its customer base. The Company also
seeks to take advantage of its expertise gained in developing multimedia
subsystem products to develop its specialized technology products. The Company
believes it is one of the largest suppliers of specialized technology products
in the world and intends to continue marketing these products to current
customers, as well as to new customers in the same and other targeted
industries.

BRING NEW TECHNOLOGIES TO THE MARKETPLACE. The Company's experienced
software and hardware engineers provide STB with industry-leading expertise. The
Company intends to continue applying this expertise to respond quickly to
customer requirements, anticipate trends and advances in its industry and expand
its product line to take advantage of new technology applications. In
particular, the Company believes that its video graphics expertise places it in
a strong position to develop competitive products employing the most advanced
digital video and audio technologies, including TV tuner cards, DVS products and
DVD adapters.

PRODUCTS

The Company divides its products into two categories: multimedia subsystem
products and specialized technology products. From its entry-level to its most
sophisticated products, the Company offers customers products that enhance the
video and audio capabilities for an increasingly broad range of PC
configurations and applications.

MULTIMEDIA SUBSYSTEM PRODUCTS

The Company's multimedia subsystem products include a full range of video
graphics adapters at various price points, as well as other multimedia subsystem
products. The Company's current major products include the following:

PRODUCT NAME DESCRIPTION STATUS

- --------------------------------------------------------------------------------------------
VIDEO GRAPHICS ADAPTERS
Powergraph64 Video Entry-level 2D video graphics adapter using Mature
either 1MB or 2MB of EDO DRAM
Powergraph 3D Consumer 3D video graphics adapter using 2MB of Shipping
EDO DRAM
Lightspeed 128 High performance 2D video graphics adapter using Shipping
either 2MB or 2.25MB of MDRAM (Multi-bank DRAM)
Velocity 3D Workstation 3D graphics adapter using 4MB of EDO Newly Introduced
VRAM, upgradable to 8MB using 4MB of EDO DRAM

- -------------------------------------------------------------------------------------------
OTHER MULTIMEDIA SUBSYSTEM PRODUCTS
Soundrage 32 Plug and play wavetable sound card with 32 voice Shipping
synthesis
Soundrage 32 3D Soundrage 32 with special audio effects, such as Shipping
3D sound
TV Tuner Card TV tuner product allowing TV playback, video Newly Introduced
capture, video conferencing and Intercast
support on the multimedia PC system
DVS MPEG-2 video/audio decoder for displaying Newly Introduced
compressed television programming from
satellite or cable signal
DVD Adapter MPEG-2 video and Dolby Digital audio decoder for Under
playback of DVD format multimedia applications Development
Video Enhanced video graphics adapter with camera Under
Teleconferencing interface, compression/decompression capability Development
and user interface software

The Company anticipates that its multimedia subsystem product line will
continue to evolve based upon its assessment of strategic multimedia
opportunities and the continuing demand for new generations of video and audio
solutions from OEMs and end-users. The Company's multimedia subsystem products
tend to have relatively short life cycles, reflecting the dynamic nature of
technological development within the PC industry. OEMs introduce new system
configurations as often as twice a year, and the Company must introduce its new
products to comply with OEMs' schedules. The life cycle for a video graphics
adapter typically is 6 to 9 months (plus a few additional months of sales of
certain of such products in the commercial market).

VIDEO GRAPHICS ADAPTERS. Almost all of the Company's graphics adapters are
video graphics adapters that display full-motion video images on a monitor. A
video graphics adapter consists of a printed circuit board configured with a
video controller chip, memory chips and software drivers and utilities. The
Company believes that optimal graphics enhancement and video display require
custom software and hardware design that maximize the performance and features
of a PC system. The Company distinguishes its products from those of its
competitors through its innovative proprietary software drivers and utilities
and through the hardware design of its video graphics adapters. The Company
incorporates its proprietary STB Vision software on all of its video graphics
adapter products. STB Vision software supports various chip sets, with a
consistent interface that supports multiple languages, including German,
English, French, Dutch, Polish, Japanese, Italian and Spanish, and enhances the
performance of a video graphics adapter.

The Company's video graphics adapter product line is comprised of products
with varying degrees of performance based on display speed, resolution, color
depth and 2D/3D capability. The display speed of a video graphics adapter is
determined primarily by the controller chip and software drivers, while display
resolution and color depth are determined primarily by the amount of display
memory. The Company offers a large family of video graphics adapters that are
compatible with the bus architectures prevalent in today's market.

By offering a complete line of video graphics adapters, the Company can
better establish and build relationships with OEMs. The Company currently offers
a high-end video graphics adapter that has 3D capability and 4 megabytes of EDO
(extended data out) VRAM (video random access memory) and 4 megabytes of EDO
DRAM. The Company offers a number of mid-range products, including products with
2D and 3D capability, which generally contain from 1 to 2 megabytes of EDO DRAM
memory or 2 to 2.5 megabytes of MDRAM memory. The Company's entry-level video
graphics adapters generally perform at slower speeds but produce industry
standard display resolution and color depth. Although entry-level products
generate only a small portion of the Company's overall revenue and profit, they
allow the Company to offer a complete line of video graphics adapters.

OTHER MULTIMEDIA SUBSYSTEM PRODUCTS. In addition to video graphics
adapters, the Company also offers complementary multimedia subsystem products
that incorporate emerging technologies.

- SOUND CARDS. A sound card, or "audio adapter," converts digital audio
information into high-fidelity, stereo-quality sound. A sound card
incorporates an audio controller chip, memory chips and software drivers
and utilities in configurations designed to produce high quality sound.
The Company began shipping sound card products in July 1996 in response to
OEM customer demand for this additional product offering. The Company
believes that its sound cards are an important complement to its video
display products. The sale of sound cards accounted for 6.1% of net sales
in the three-month period ended July 31, 1996.

- TV TUNER CARDS. The Company's TV tuner cards are capable of receiving
analog television broadcasts or cable transmissions and producing a
full-motion television display on a PC monitor. One important feature of
these products is their ability to take advantage of Intel Intercast,
which broadcasts information similar to a web page within an analog
transmission signal. These products are sold through the OEM channel, and
are available through retailers such as CompUSA and Best Buy. The
Company's Video Rage TV tuner/video graphics subsystem is used in Gateway
2000's Destination PC/TV product line.

- DVS PRODUCTS. The Company's DVS products are capable of receiving MPEG-2
encoded data from a satellite source or other medium and displaying the
data on a PC or TV monitor to produce full-screen,

full-motion video images. The Company's DVS products are intended to be
used in conjunction with products of satellite entertainment providers,
such as Direct TV and Echostar. The Company began limited production of
DVS products in the fourth quarter of fiscal 1996.

In addition to the multimedia subsystem products that the Company currently
offers, it is currently developing the following products:

- DVD ADAPTERS. DVD adapters are capable of producing broadcast quality
video and audio playback of the digital information stored on DVD disks.
DVD disks are capable of storing seven or more times more data than a
CD-ROM disk of the same physical size. It is therefore anticipated that
DVD will become the medium of choice for various entertainment and
multimedia products that require increasing amounts of data storage
capacity. The Company believes that its knowledge of MPEG-2 video and
Dolby Digital audio standards gained in developing its DVS products
provides it with much of the expertise needed to produce DVD adapters. The
Company has not received any orders for these products to date.

- VIDEO TELECONFERENCING PRODUCTS. The Company is developing products that
are capable of capturing, compressing and transmitting full-motion video
images, while simultaneously receiving, decompressing and displaying
full-motion video images. These products are intended for the consumer and
corporate markets and will provide fully synchronized video and audio
teleconferencing capabilities for PC systems. The Company has not received
any orders for these products to date.

The Company's multimedia subsystem products (other than graphics adapters
and sound cards) are still in the early, limited production stage or are in
development. There can be no assurance that such products can be produced in
profitable quantities, if at all. The Company anticipates that it will continue
to expend efforts to develop these and other potential products. See "Risk
Factors--Entry Into New Product Markets."

SPECIALIZED TECHNOLOGY PRODUCTS

The Company's specialized technology products are characterized by their
incorporation of complex technologies, relatively low unit sales volumes and
relatively high unit prices and gross profit margins. The Company's specialized
technology products are sold primarily to resellers and corporate customers for
specialized applications in a number of industries, including the financial
services, hospitality, factory automation, transportation and emergency response
industries. Most specialized technology products are designed to enable a single
computer to control the display of more than one monitor. The use of the
Company's multi-monitor products in certain configurations can allow one
computer to control up to 32 monitors. The Company believes it is one of the
largest suppliers of multi-monitor products in the world.

The Company offers two families of multi-monitor video graphics adapter
products distinguished by the resolution of the monitors with which they are
designed to be used. The MVP family of products is used with high-resolution
monitors, and the Channel family is used with low-resolution, television-type
monitors. An important component that the Company incorporates into the MVP is
its "virtual screen" software driver and Mediator utility. This software driver
allows multiple monitors to act as a single screen, displaying numerous
"windows" of information through only one computer. The Mediator utility allows
the user to control the placement of applications on the available displays.
Many financial institutions employ this capability in their trading rooms, where
large amounts of information must be continuously available to traders. The
Company has made technological advances to its existing MVP product line,
including the introduction of new products, such as full motion digital video
scalers and live video/TV tuner input ports, which are based on the PCI bus
standard and new video graphics drivers and utilities. Channel products are used
in applications, such as airport arrival and departure displays, where lower
cost and larger display size are more important than clarity of display. Channel
products are also used to facilitate the selection of on-demand programming for
hotel room televisions.

The Company also is developing several specialized technology products that
incorporate digital video features that meet the MPEG-2 decompression standard
and may or may not incorporate a video graphics adapter. These products, some of
which have multi-monitor control capability, may be used for applications such
as video-on-demand, storing video data for viewing at a later time and receiving
MPEG-2 encoded material over

direct broadcast satellite or advanced technology cable. There can be no
assurance that such products can be produced in profitable quantities, if at
all. See "Risk Factors--Entry Into New Product Markets."

Listed below are the principal industries and applications for the Company's
specialized technology products:

INDUSTRY APPLICATION
- ------------------- ---------------------------------------------------------------

Financial services Support of simultaneous display of multiple data sources on
multiple monitors from a single PC for use by financial
traders

Hospitality Control of display on hotel room televisions to allow guests to
view movie choices, review bill prior to checking out and
obtain other information

Factory automation Dual-monitor graphical man-machine interface for factory
machinery

Transportation Flight arrival and departure information

Emergency response 911 emergency call center displays to allow the operator to
follow multiple calls simultaneously, plus view a map of the
emergency location on a separate monitor

DESIGN AND DEVELOPMENT

The timely development and introduction of new products is essential to
meeting the performance requirements of OEM customers as well as reinforcing the
Company's competitive position in STB's other sales channels. The Company works
closely with its OEM customers and suppliers to develop new products that
satisfy specific OEM product requirements, such as performance and display
features. The Company's software and hardware engineers design, develop and test
the new product prototype, selecting the most appropriate controller chip,
memory chips and other components for the product.

Operating compatibility of the Company's products is critical for customer
acceptance. STB's compatibility lab personnel ensure that the new product can
function properly in a variety of PC system configurations and with most popular
commercial application software and operating systems. The compatibility lab
also compares the test performance of the Company's products against that of
competitors' products. In addition, STB sends product prototypes to OEM
customers for performance and compatibility testing and to the Federal
Communications Commission (the "FCC") and to the Cenelec branch of the European
Economic Community ("EEC") for "CE Certification." See "--Government
Regulations." After any necessary modifications are made to a product, it is
released for production.

The Company's design and development personnel have enabled STB to
repeatedly deliver the latest technologies to the OEM market. The Company also
has won numerous top awards from recognized industry magazines, including PC
Magazine, PC World, Windows Magazine, PC Professional, Multimedia World,
InfoWorld and New Media Magazine.

The Company believes that the strength of its engineering resources is
critical to its competitiveness. The Company has substantially increased its
engineering and technical resources, so that as of July 31, 1996 it had a total
engineering staff of 64, including 31 engineers. In particular, the Company
added 10 software engineers during the twelve months ended July 31, 1996,
bringing the total number of software engineers to 22 as of July 31, 1996. The
Company has also established software engineering centers in Houston, Texas and
Eugene, Oregon. The Company's engineering resources are critical to its strength
in responding quickly to customer requirements, anticipating trends and advances
in its industry and expanding its product line to take advantage of new
technology applications. See "--Products." The Company anticipates that it will
continue to increase its engineering resources in the future.

SUPPLIERS

The Company believes that its close relationships with its component
suppliers are essential to producing low-cost, innovative products and
maintaining short design-to-market cycles. The Company's primary products,

video graphics adapters, are printed circuit boards that contain a number of
components, including a video controller chip, memory chips, logic chips,
capacitors and resistors. The video controller chip, which regulates the
information that is displayed on the PC monitor, and the memory chip, which
stores graphics information for display, are the most important components in
determining the functions and manufacturing cost of a video graphics adapter.
The Company's other multimedia subsystem products generally contain components
similar to those found on an STB video graphics adapter but with different types
of controller chips.

The Company purchases memory chips from a number of manufacturers, including
Hyundai, Mosel/ Vitelic, NEC, Toshiba, Siemens, Samsung, IBM and Mitsubishi.
Memory chips generally are less expensive if purchased directly from the
manufacturer, but manufacturers sometimes do not produce sufficient quantities
of memory chips to satisfy market demand. In times of restricted supply of
memory chips, manufacturers may allocate the sale of their memory chips to
customers based, among other factors, upon purchase volumes and the customer's
creditworthiness. The Company's ability to purchase from distributors, and
possibly on the spot market, provides an alternative, but more costly, source of
supply if the Company cannot obtain necessary supplies from memory chip
manufacturers. See "Risk Factors--Dependence on Suppliers."

The Company purchases controller chips directly from a number of suppliers,
including S3, Cirrus Logic, Tseng Labs, Brooktree, SGS Thompson, Advanced Micro
Devices and Zoran. These controller chips typically include related software
drivers, which the Company's software engineers often enhance for use in STB
products. In addition to controller chips and the related software drivers,
several other components that are used in the Company's products are obtained
from single or limited sources. The Company has no guaranteed supply
arrangements with any of its suppliers, and there can be no assurance that
current suppliers will be able to meet its requirements. While the Company
believes that with respect to its single and limited source components it could
obtain similar products from other sources, it likely would be required to pay
significantly more for such products, alter product designs to use alternative
products or reduce or delay its production of the related products. As a result
of delays in the delivery of components, lack of available components or the
lack of compatible software drivers from component vendors, the Company has in
the past experienced difficulty in meeting its own scheduled shipment dates to
customers, and such difficulties could recur. See "Risk Factors-- Dependence on
Suppliers."

The Company's unit component costs tend to be volatile, and a significant
increase or decrease in unit component costs may have a significant effect on
the Company's results of operations. The Company may experience component cost
increases in the future, which could have a negative effect upon gross profit
margins and gross profits. See "Risk Factors--Dependence on Suppliers" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."

MANUFACTURING

STB considers its ability to manufacture high quality products at a low cost
to be critical to its competitiveness. STB began manufacturing at its facility
in Juarez, Mexico in 1988 and presently conducts substantially all of its
manufacturing operations at this ISO 9002 certified facility. STB believes that
by operating its own manufacturing facility the Company has a competitive
advantage in terms of its ability to respond quickly to changing customer needs
and to control product quality. The Company's manufacturing facility is located
in Juarez, Mexico to benefit from low labor and shipping costs, as well as
proximity to the Company's headquarters in Richardson, Texas. The Company has
increased its monthly manufacturing capacity in Mexico from approximately
120,000 boards at the beginning of fiscal 1995 to approximately 400,000 boards
by the end of fiscal 1996, depending on product mix. This increase in
manufacturing capacity has been achieved primarily through the addition of new
high-volume surface-mount technology ("SMT") equipment, as well as through
upgrading existing equipment. The Company believes that the addition of this
equipment has increased not only its manufacturing capacity but also the speed
and efficiency of its manufacturing operations. With this additional equipment,
the Company believes its manufacturing capacity is sufficient for its current
level of operations. Nevertheless, the Company recently entered into a lease for
a larger facility near its present manufacturing facility, which should enable
the Company to significantly increase its manufacturing capacity. See

"--Properties."

The Company emphasizes a comprehensive quality control program at each step
in the manufacturing process. The manufacturing process involves both automated
and manual placement and soldering of components on the circuit board. After
final assembly is completed, each product unit undergoes an elevated temperature
burn-in, a process simulating a PC environment in which the product is placed in
an oven and connected to an electrical source for several hours. After each
product has been burned-in, it is placed through a series of diagnostic tests to
detect defects. The Company believes its comprehensive testing procedures
significantly contribute to its ability to satisfy its customers' stringent
product performance and reliability requirements. The Company offers a limited
warranty ranging from 15 to 39 months for products sold to OEMs, a two-year
limited warranty on its specialized technology products and a limited lifetime
warranty on products sold to commercial customers.

While the Company conducts substantially all of its manufacturing operations
at its facility in Juarez, Mexico, it maintains a smaller facility at its
Richardson, Texas headquarters for the development and testing of prototypes and
the first-run testing of new products. The Company also maintains a separate
facility in Richardson, Texas for technical support and product repair. In
addition, the Company burns-in and functionally tests a small portion of its
products assembled in Mexico at its Richardson, Texas facilities.

STB provides contract assembly services for third parties, providing
incremental gross profit and contributing to the absorption of overhead by
increasing utilization of manufacturing capacity. Revenues from these assembly
services constituted approximately 3% of the Company's net sales for the
nine-month period ended July 31, 1996.

SALES AND MARKETING

SALES. The Company presently sells its products in North America, most
countries in Europe and certain countries in the Pacific Rim. United States
sales accounted for approximately 81% of the Company's net sales in the
nine-month period ended July 31, 1996.

The Company organizes its Richardson, Texas-based North American sales force
on the basis of its three sales channels. The OEM sales force coordinates the
efforts of the Company's independent sales representatives and provides direct
sales coverage of selected OEMs. The commercial market sales force focuses on
marketing and sales to retailers, distributors and direct mail companies. The
specialized technology sales force coordinates its efforts with the Company's
engineering staff to create interest among prospects and customers and to
determine product features.

The Company's North American sales force generally operates in tandem with
the Company's independent sales representative network. These sales
representatives typically are retained based on relationships they have with
potential customers. The Company believes that the services of independent sales
representatives are important to obtaining and maintaining relationships with
certain OEM and commercial customers. The Company's independent sales
representatives generally do not sell products competitive with those products
that they handle for the Company. The Company generally does not utilize
independent sales representatives for its specialized technology products.

The Company's European sales force, which is headquartered in London, is
responsible for OEM, commercial and specialized technology product sales in the
region. The European sales force has more direct sales coverage responsibility
than the North American sales force because STB employs fewer European
independent sales representatives. The Company's marketing and sales efforts for
countries outside of North America and Europe are coordinated from STB's
Richardson, Texas offices.

The Company's net sales to OEMs, the commercial market and specialized
technology customers represented approximately 81%, 10% and 6% of the Company's
total net sales in the nine-month period ended July 31, 1996. The Company's top
three customers accounted for 63.0% of net sales during the nine-month period
ended July 31, 1996, and net sales to Gateway 2000 accounted for 49% of the
Company's net sales for such period. Although sales volumes to Gateway 2000
increased during the three-month period ended July 31, 1996, as compared to the
same period in fiscal 1995, the percentage of the Company's net sales
attributable to Gateway 2000 decreased to 43% for the three-month period ended
July 31, 1996, due primarily to the addition of

new OEM customers and increased sales in the commercial market. The Company
recently has increased its marketing efforts in the commercial market. The
Company believes that its recent increase in commercial channel sales is
attributable to these increased efforts. The Company sells products to the
commercial market through specialty retailers, such as CompUSA, Computer City
and Best Buy, and to commercial distributors, such as Tech Data, Ingram Micro
and Merisel. The Company sells its specialized technology products primarily to
resellers and corporate customers in the financial services, hospitality,
factory automation, transportation and emergency response industries, which
include customers such as Reuters and Lodgenet.

The Company generally allows returns in the form of stock rotations only of
products sold through the commercial channel. The Company's current stock
rotation policies typically permit a commercial channel customer to return
approximately 10% of products purchased from STB within the previous 90 days if
it places an order for other STB products of equal or greater value. The Company
usually is able to resell returned products. In addition, the Company typically
provides price protection to commercial channel customers in the form of credits
for price reductions on products remaining in customer inventories. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Risk Factors-- Stock Rotation and Price Protection
Risks."

The Company currently sells all its products at prices denominated in U.S.
dollars, but expects to sell its products in other currencies in the future,
thereby increasing its currency exposure risk. Additionally, a substantial
portion of the Company's manufacturing labor costs are incurred in Mexican
pesos. See "Risk Factors--International Operations."

MARKETING. STB promotes its products to OEM customers and specialized
technology customers primarily through the efforts of the Company's sales force
and sales representatives. The Company believes such direct promotion enables it
to develop products that are more in line with customers' needs and market
trends. The Company supplements these efforts through the promotion of its
products at industry trade shows. The Company's commercial channel marketing
efforts include advertising in recognized industry trade magazines and
cooperative promotional efforts with retailers and commercial distributors.

TECHNICAL SUPPORT

The Company believes that providing technical support to its customers is
essential to its ongoing competitiveness. The Company maintains a toll-free
telephone line in the United States for technical support of its specialized
technology products and for its video graphics adapter products and other
multimedia subsystem products sold in the commercial market. The Company also
maintains electronic bulletin board systems in Richardson, Texas and London,
England to provide customers with new software drivers and utilities that update
the capabilities of the Company's products. The Company's technical support
group provides the software on disk at a nominal charge to customers who are
unable to obtain updates through the electronic bulletin board system. The
Company's policy of providing updates allows products to maintain compatibility
with new versions of software and increases the useful life of these products.
The Company also devotes significant efforts to the preparation of user manuals
and other product documentation that are informative and easy to understand.

COMPETITION

The market for the Company's products is highly competitive. The Company
competes with independent manufacturers of brand name multimedia subsystem
products, as well as contract manufacturers and certain OEM manufacturing
operations that produce multimedia subsystem products. See "--Industry." The
Company's major competitors in the multimedia subsystem product market include
Diamond Multimedia, ATI Technologies, Number Nine Visual Technology, Matrox,
Miro, Elsa, Creative Labs, Ensoniq, CEI, Hauppauge and Aztec. In the specialized
technology product market, the Company's major competitors include
ColorGraphics, Datapath and Miro.

In addition to its major competitors, certain of the Company's suppliers
sell controller chips directly to OEMs for use in internally produced video
graphics adapters, other multimedia subsystems or on motherboards. If one or
more of the Company's significant OEM customers were to commence or increase

internal production of video graphics adapters or other multimedia subsystems,
the Company's results of operations could be negatively impacted. Furthermore, a
number of significant OEMs currently integrate video controller chips on the
motherboard of their PCs. If one or more of the Company's significant OEM
customers begins to incorporate video controller chips or other controller chips
onto motherboards rather than using the Company's products, the Company's
results of operations could be negatively impacted. See "Risk Factors--
Dependence on Video Graphics Adapter Market; Migration to Motherboard."

The Company competes in its markets on the basis of a number of factors,
including the compatibility, reliability, price and performance of its products,
its ability to reach the market quickly with new products, its ability to meet
customer delivery and reliability requirements, the quality of its technical
support and its ability to develop and maintain relationships with customers and
suppliers. Many of the Company's competitors and potential competitors have
greater financial, marketing, manufacturing and technical resources than the
Company. In addition, some of the Company's competitors manufacture their own
controller chips, which in certain circumstances may provide these competitors
with an advantage over the Company. Furthermore, while the Company believes it
is the only supplier of brand name video graphics adapters that produces its own
products, some of STB's competitors internally manufacture other multimedia
subsystem products, such as sound cards and TV tuner cards. The rapid pace of
change in the Company's industry places a premium on factors that include the
knowledge and experience of a company's management, engineers and other
personnel and their ability to develop and improve products. The Company has
substantially increased its engineering resources over the last year and
believes that its ability to continue adding new engineers to its staff in the
future will affect its competitiveness. See "Risk Factors--Dependence on Key
Personnel."

INTELLECTUAL PROPERTY

The Company's success depends in part upon its proprietary technology,
consisting of both its software drivers and utilities and its hardware designs.
The Company relies upon copyright, trademark and trade secret laws to protect
its proprietary technology. The Company generally also enters into nondisclosure
agreements with persons to whom it reveals its proprietary information, such as
OEMs that the Company works with concerning future products. There can be no
assurance that the Company's present protective measures will be adequate to
prevent misappropriation of its technology or independent third party
development of the same or similar technology. Many foreign jurisdictions offer
less protection of intellectual property rights than the United States, and
there can be no assurance that the protection provided to the Company's
proprietary technology by the laws of the United States or foreign jurisdictions
will be sufficient to protect the Company's technology. See "Risk
Factors--Proprietary Technology." While the Company's competitive position may
be affected by its ability to protect its proprietary information, the Company
believes that the rapid pace of technological change in the video graphics
adapter industry will cause other factors to be more significant in maintaining
the Company's competitive position. These factors include the technical
expertise, knowledge and innovative skill of the Company's management and
technical personnel, name recognition, the timeliness and quality of support
services provided by the Company and its ability to rapidly develop, produce,
enhance and market innovative products.

STB generally enters into nondisclosure agreements with suppliers of
components for its products in connection with discussions regarding forthcoming
features of those components. The Company also commonly enters into licensing
agreements with suppliers of components that the Company desires to incorporate
into its products.

The Company has filed one United States patent application and a
corresponding international patent application under the Patent Cooperation
Treaty for an invention associated with the Company's MPEG-2 related products.
The Company also has a United States trademark registration for the STB logo,
and owns common law trademark rights with respect to certain other trademarks.

It is common in the computer industry for companies to assert intellectual
property infringement claims against other companies. As a consequence, the
Company indemnifies some OEM customers in certain respects against intellectual
property claims relating to STB's products. The Company presently is unaware of
any material intellectual property claims pending against it. If an intellectual
property claim were brought against

the Company and one of the Company's products were found to be infringing upon
the rights of others, the Company could be required to pay infringement damages,
pay licensing fees, modify its products so that they are not infringing or
discontinue offering products that were found to be infringing, any of which
could materially adversely affect the Company and its results of operations. In
addition, the assertion of such claims against one or more of the Company's
vendors could adversely affect the availability from those vendors of components
used by the Company. "See Risk Factors--Intellectual Property Infringement
Claims."

LEGAL PROCEEDINGS

The Company is a party from time to time to certain legal proceedings
arising in the ordinary course of its business. Although the amount of any
liability that could arise with respect to these proceedings cannot be predicted
accurately, in the opinion of the Company any liability that might result from
such claims will not have a material adverse effect on the financial position of
the Company.

A plaintiff class action denoted TEICH V. STB SYSTEMS, INC., ET. AL.,
(Citation No. 95-9681-G) was filed on September 6, 1995 in the Texas State
District Court of Dallas County against the Company and certain of its officers
and directors. The complaint alleged that the Registration Statement for the
IPO, which was declared effective on February 14, 1995, contained false and
misleading statements of material facts and omitted to state material facts. The
complaint asserted claims under Section 11 and 12(2) of the Securities Act of
1933 and Section 581-33 of the Texas Securities Act on behalf of a purported
class of persons who purchased or otherwise acquired the Company's Common Stock
during the period February 14, 1995 through May 25, 1995. The complaint sought
unspecified damages. The defendants deny the allegations in the complaint and
have defended this action vigorously. In August 1996, the trial court dismissed
the complaint for want of prosecution. The deadline for the plaintiffs to file a
motion with the trial court to reinstate the complaint has passed. The
plaintiffs have an additional period within which to appeal this dismissal.

GOVERNMENT REGULATIONS

The Company's business is regulated by federal, state, local and foreign
authorities. The products produced by the Company are subject to approval by the
FCC and the EEC to assure that they do not interfere with the frequencies of
other consumer electronics products. The Company installs certain filter
circuitry on its products to prevent them from disturbing other frequencies in
compliance with FCC and EEC regulations. To date, regulations applicable to the
Company's business have had no material effect on the Company's capital
expenditures, earnings or competitive position. Although historically the
Company has not experienced material delays in obtaining FCC or EEC approval of
any of its products, relatively recent government budget constraints have caused
delays in obtaining approval of certain of the Company's products. The Company
believes that any delay in obtaining approvals could, in turn, result in delays
in making certain shipments on a timely basis.

The Company's relationships with its employees at its Mexican manufacturing
facility are regulated by the Mexican Federal Labor Law, which contains detailed
provisions regarding minimum employment conditions and specifies rights that
must be provided to all employees in Mexico. Other Mexican federal laws require
employers to make contributions to the Mexican Social Security System and to
establish and make regular contributions, in specified amounts, to individual
retirement savings and housing accounts at a commercial bank for all employees.
In addition, Mexican federal law requires the payment of substantial severance
amounts in the event of the termination of a Mexican employee. Although Mexican
laws governing employment relationships are extensive, aggregate labor costs at
the Company's Mexican facility are nevertheless significantly less than labor
costs would be at a similar facility in the United States. There can be no
assurance, however, that these laws will not be amended or supplemented in the
future to increase the compensation required to be paid to Mexican employees or
the costs of compliance with such laws or that any such change would not have a
material adverse effect on the Company and its results of operations.

The Company's Mexican manufacturing operations are subject to regulation by
various Mexican environmental agencies. In order to ensure compliance, the
Company regularly monitors changes in Mexican environmental laws, and
representatives of environmental agencies periodically inspect the Company's
Mexican facility.

The Company anticipates that it will spend approximately $36,500 in order to
comply with Mexican environmental regulations in each of fiscal 1996 and 1997.

BACKLOG

As of October 31, 1996, the Company's backlog was approximately $26.0
million, as compared to approximately $25.2 million at October 31, 1995. The
Company includes in its backlog accepted purchase orders with respect to which a
delivery schedule has been specified for product shipment within 60 days. The
Company's business is characterized by short-term order and shipment schedules,
and backlog tends to fluctuate substantially from month to month. Generally,
orders constituting backlog are subject to changes in delivery schedule or to
cancellation at the option of the purchaser. The Company's agreements with its
customers typically specify penalties for cancellation of orders within 60 days
prior to shipment. Other factors, including the Company's inability to obtain
components in sufficient quantities, may result in delays in shipment or
cancellation of orders included in backlog. See "Risk Factors--Dependence on
Suppliers." Therefore, although backlog is useful for scheduling production,
backlog as of any particular date should not be considered a reliable measure of
sales for the current or any future period.

EMPLOYEES

As of July 31, 1996, the Company employed 1,322 individuals, of whom 1,096
were employed in operations, 64 in engineering, 57 in sales and marketing and
105 in administration and finance. Included in the foregoing figures are 1,101
employees in Mexico. Competition for personnel in the PC industry is intense.
The Company believes that its future success will depend in part on its ability
to continue to attract and retain highly skilled technical, marketing and
management personnel. None of the Company's employees is represented by a labor
union or is subject to a collective bargaining agreement. The Company believes
that its relations with its employees are good. See "--Government Regulations."

PROPERTIES

The Company leases a 56,100 square foot facility in Richardson, Texas
(16,200 square feet of which are subleased to the Company pursuant to a sublease
that commences November 1, 1996 and expires October 31, 1998) that serves as its
headquarters and as a site for product development and testing. The Company also
leases an additional approximately 11,700 square foot facility that is near its
headquarters in Richardson, Texas and is used for technical support and product
repair. The foregoing leases both expire in December 1998. The Company currently
leases a 79,100 square foot manufacturing facility in Juarez, Mexico, and
recently entered into a lease for an approximately 125,000 square foot
manufacturing facility on an adjacent site that would provide increased space
and improved layout for manufacturing operations, as well as options to acquire
additional space. The term of the new lease is ten years from the date that the
new facility is available for the Company's occupancy (plus four optional
renewal periods of five years each). The Company has negotiated an extension of
its current lease covering the 79,100 square foot Juarez facility to cover the
period through the occupancy date of its new facility. See "--Manufacturing."

Additionally, the Company leases 6,900 square feet of storage space in El
Paso, Texas, under a lease expiring in December 1997, a software development
office in Houston, Texas under a lease expiring in May 1999, a software
development office in Eugene, Oregon under a lease on a month-to-month basis,
and sales offices in London and Paris under leases expiring in October 1998 and
December 2004, respectively. The Company also maintains a Munich sales office
under a lease on a month-to-month basis. The Company also maintains product
inventories in Austin, Texas and Shannon, Ireland under bonded warehouse
arrangements in order to permit the timely delivery of certain products to
nearby customers. The Company believes that its existing facilities are well
maintained and in good operating condition and are adequate for its present and
anticipated levels of operations.

MANAGEMENT

Set forth below is information concerning the directors, executive officers
and other key employees of the Company:

NAME AGE POSITION
- ------------------------- --- -----------------------------------------------------------------------

William E. Ogle 49 Chief Executive Officer and Chairman of the Board of Directors

Randall D. Eisenbach 45 Executive Vice President, Chief Operating Officer, Assistant Secretary
and Director

James L. Hopkins 50 Chief Financial Officer, Vice President of Strategic Marketing and
Director

J. Shane Long 29 Vice President of Sales and Marketing and Director

Bryan F. Keyes 48 Director of Legal and Finance, Secretary and Treasurer

William R. Milford 34 Chief Engineer

James J. Byrne 59 Director

Lawrence E. Wesneski 48 Director

WILLIAM E. OGLE is a co-founder of the Company and has served as Chief
Executive Officer since 1981 and Chairman of the Board since 1985. Prior to
founding the Company, Mr. Ogle co-founded Sundance Sales, Inc., a manufacturer's
sales representative organization selling a broad variety of electronic
components and served as President of that company from 1978 to 1983.

RANDALL D. EISENBACH has served as a director since December 1994, as
Executive Vice President and Chief Operating Officer of the Company since
December 1993 and as Assistant Secretary since December 1994. From August 1990
to December 1993, Mr. Eisenbach served as Director of Operations of the Company.
From November 1985 to December 1993, Mr. Eisenbach served as Director of
Manufacturing for the Company.

JAMES L. HOPKINS has served as a director and as Chief Financial Officer and
Vice President of Strategic Marketing of the Company since December 1994. Mr.
Hopkins' present responsibilities include directing European sales and
marketing, managing specialized technology products and planning financial
strategy. From 1987 through December 1994, Mr. Hopkins was active as a general
partner of H&H Management Systems, a consulting firm owned by Mr. Hopkins and
his wife. H&H Management Systems, through Mr. Hopkins, provided a broad spectrum
of consulting services to the Company from March 1990 through December 1994. Mr.
Hopkins' responsibilities to the Company pursuant to STB's arrangement with H&H
Management Systems were substantially identical to Mr. Hopkins' current
responsibilities as an officer of the Company. See "Certain Transactions--H&H
Consulting Relationship." Mr. Hopkins also served as an advisory director for
the Company from 1992 until his election as a director in December 1994.

J. SHANE LONG has served as Vice President of Sales and Marketing of the
Company since November 1994. Mr. Long served as National Sales Manager of the
Company from November 1992 to October 1994 and as Western Area Sales Manager
from July 1992 to October 1992. From January 1991 to July 1992, Mr. Long served
as a field sales employee for Quad State Sales, a manufacturer's representative
company specializing in the sale of high-technology products. Mr. Long was
elected a director of the Company following the completion of the IPO.

BRYAN F. KEYES has served as Director of Legal and Finance of the Company
since April 1993 and as Secretary and Treasurer since December 1994. Mr. Keyes
is responsible for all legal matters, vendor and customer financial relations,
inventory and cash flow management. From November 1992 to April 1993, Mr. Keyes
was self-employed as a financial consultant. From January 1988 to November 1992,
Mr. Keyes served as Vice President of Finance and Administration for Trammell
Crow Distribution Corporation, a national warehousing and logistics company.
From 1972 to 1987, Mr. Keyes was employed by the public accounting firm of

Coopers & Lybrand, where he was a partner from 1980 to 1987. Mr. Keyes is a
member of the American Institute of Certified Public Accountants, the Texas
Society of CPAs and the State Bar of Texas.

WILLIAM R. MILFORD has served as Chief Engineer of the Company since July
1996. Mr. Milford served as Senior Hardware Engineer of the Company from
November 1992 to June 1996. Prior to joining the Company, Mr. Milford served as
an Electronic Systems Engineer at E-Systems, Garland Division, a major defense
contractor, from January 1986 to November 1992.

JAMES J. BYRNE has been a director of the Company since February 1995. Mr.
Byrne has served as Managing Partner of Byrne Technology Partners, Ltd. since
January 1996. The firm provides professional services for strategic alliances
and mergers within the computer industry and offers technology consulting
services for corporate re-engineering. From April 1990 to its sale in March
1995, Mr. Byrne served as President of Harris Adacom Corporation, a company
formed from the merger of the data communications division of Harris Corp. and
Adacom Inc., which was engaged in network systems and services. From December
1986 to April 1990, Mr. Byrne was the Vice President and General Manager of the
data communications division of Harris Corp. Mr. Byrne serves on the board of
directors of Lennox International, Inc., a manufacturer of heating, ventilation
and air conditioning systems and is also a member of the national board of
directors of the American Electronics Association (AEA). He is also a member of
the Advisory Council of the University of Texas School of Engineering and
Computer Science.

LAWRENCE E. WESNESKI has been a director of the Company since February 1995.
He has served as President and Chief Executive Officer of Hoak Breedlove
Wesneski & Co. ("HBW") (the successor to BW Securities, Inc. ("BWS")), an
investment banking firm, since August 1996. Prior to that time, Mr. Wesneski was
President of BWS, which provided certain financial advisory services to the
Company. See "--Compensation and Other Committee Interlocks and Insider
Participation" and "Underwriting." From January 1987 to August 1996, Mr.
Wesneski was President and Managing Director of Breedlove Wesneski & Co., a
private merchant banking firm. From 1987 to 1995, Mr. Wesneski served as an
advisory director for the Company. Mr. Wesneski serves on the board of directors
of TPG Holdings, Inc., a defense products manufacturing company, and TelServe
Communication, Inc., an independent operator of private pay telephones.

Directors of the Company are elected annually by the shareholders and hold
office until their respective successors are elected and qualified. All
executive officers are elected annually by the Board of Directors to serve until
the next annual meeting of the Board of Directors and until their respective
successors are chosen and qualified.

COMMITTEES OF BOARD OF DIRECTORS

The Board of Directors has an Audit Committee, a Compensation Committee, and
a Stock Option Committee, the members of each of which are Lawrence E. Wesneski
and James J. Byrne, the Company's non-employee directors. Mr. Ogle also serves
on the Compensation Committee.

AUDIT COMMITTEE. The Audit Committee recommends annually to the Board of
Directors an accounting firm to serve as the Company's independent public
accountants, consults with the Company's independent auditors and with personnel
from the internal audit and financial staffs with respect to corporate
accounting, reporting, and internal control practices and reviews and approves
transactions with parties affiliated with the Company.

COMPENSATION COMMITTEE. The Compensation Committee approves annual salary,
bonus and sales commission levels for executive officers, oversees
administration of the Company's employment agreements, and administers the
Company's Profit Sharing Incentive Plan.

STOCK OPTION COMMITTEE. The Stock Option Committee administers the
Company's 1995 Long Term Incentive Plan and 1995 Employee Stock Option Purchase
Plan.

EXECUTIVE COMPENSATION

The following information summarizes annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended October 31,
1996, 1995 and 1994, of the Chief Executive Officer and the other four most
highly compensated executive officers of the Company:

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ ---------------------
BONUS SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) (2)(3)(4) OPTIONS (#) COMPENSATION (5)
- --------------------------------------- --------- ------------ ---------- --------------------- -----------------

William E. Ogle........................ 1996 $ 200,000 $ 96,147 40,000 $ 1,974
Chairman and Chief Executive 1995 175,000 79,814 54,000 2,685
Officer 1994 152,882 196,650 -- 4,000
J. Shane Long (6)...................... 1996 211,684 55,219 40,000 1,150
Vice President of Sales and 1995 153,349 20,393 31,000 975
Marketing 1994 149,502 32,189 -- --
Randall D. Eisenbach................... 1996 177,770 82,674 40,000 1,746
Executive Vice President and 1995 150,000 28,275 42,000 8,148
Chief Operating Officer 1994 115,000 61,696 -- 4,000
James L. Hopkins (7)................... 1996 160,400 60,017 40,000 1,250
Chief Financial Officer and Vice 1995 108,199 7,701 31,000 1,917
President of Strategic Marketing
Bryan F. Keyes......................... 1996 97,767 27,873 8,000 712
Director of Legal and Finance, 1995 91,267 18,678 8,000 400
Secretary and Treasurer 1994 80,208 42,538 -- --

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

(1) The salaries of Messrs. Ogle, Long, Eisenbach and Hopkins have been
increased for fiscal 1997, in accordance with the terms of their employment
agreements. Messrs. Long and Hopkins are entitled to receive sales
commissions under their employment agreements. See "--Employment
Agreements." Mr. Keyes' salary also has increased for fiscal 1997.

(2) All amounts reported as bonus for fiscal 1994 were paid pursuant to the
Company's former Profit Sharing Plan, which, except for the percentage of
pretax income allocated to the Plan, the categories of participants and the
relative amounts allocated among participants, was substantially identical
to the Company's current Profit Sharing Plan. The Company's current Profit
Sharing Plan became effective upon the consummation of the IPO, and amounts
reported as bonus for fiscal 1995 include certain payments that were made
pursuant to the former Profit Sharing Plan prior to such consummation. See
"--Profit Sharing Plan."

(3) None of the named executive officers received any perquisites or other
personal benefits in fiscal 1994, fiscal 1995 or fiscal 1996 that in the
aggregate exceeded the lesser of $50,000 or 10% of such named executive
officer's salary and bonus for such year.

(4) All bonus awards reflect bonuses awarded with respect to the first through
third quarters of fiscal 1996. The amounts do not include bonuses from the
fourth quarter, if any. See "--Profit Sharing Plan."

(5) Reflects for fiscal 1996 matching contributions made by the Company pursuant
to its 401(k) Savings Plan to Messrs. Ogle, Long, Eisenbach, Hopkins and
Keyes in the amounts of $1,974, $1,150, $1,746, $1,250 and $712,
respectively.

(6) Salary amount includes for fiscal 1994 $60,000 paid as base salary and
$89,502 paid as sales commissions, for fiscal 1995 $97,500 paid as base
salary and $55,849 paid as sales commissions and for fiscal 1996 $115,000
paid as base salary and $96,684 paid as sales commissions.

(7) Salary amount includes for fiscal 1995 (beginning January 1, 1995, when Mr.
Hopkins was first compensated as an officer of the Company) $91,667 paid as
base salary and $16,532 paid as sales commissions and for fiscal 1996
$125,000 paid as base salary and $35,400 paid as sales commissions. In
fiscal 1994 and a

portion of fiscal 1995, the Company paid certain consulting fees to H&H
Management Systems, a company owned by Mr. Hopkins and his wife. See
"Certain Transactions--H&H Consulting Relationship."

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information regarding options granted during
fiscal 1996 to the named executive officers:

INDIVIDUAL GRANTS
--------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES PERCENT OF RATES OF STOCK PRICE
UNDERLYING TOTAL OPTIONS EXERCISE APPRECIATION FOR OPTION
OPTIONS GRANTED TO OR BASE TERM (3)
GRANTED EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME (#)(1) 1996 (SHARE)(2) DATE 5% ($) 10% ($)
- ------------------------------------ ----------- ------------- ----------- ----------- ---------- ------------

William E. Ogle..................... 40,000 9.8% $ 22.00 10/11/06 $ 553,427 $ 1,402,493
J. Shane Long....................... 40,000 9.8 22.00 10/11/06 553,427 1,402,493
Randall D. Eisenbach................ 40,000 9.8 22.00 10/11/06 553,427 1,402,493
James L. Hopkins.................... 40,000 9.8 22.00 10/11/06 553,427 1,402,493
Bryan F. Keyes...................... 3,000 0.7 10.38 2/22/06 19,584 49,629
5,000 1.2 22.00 10/11/06 69,178 175,312

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

(1) All options awarded to Messrs. Ogle, Long, Eisenbach and Hopkins were
granted on October 11, 1996 and vest at the rate of 20% per year on each of
the first five anniversaries of the date of grant. Of the 8,000 options
awarded to Mr. Keyes, 3,000 were granted on February 22, 1996 and 5,000 were
granted on October 11, 1996 and all options vest at the rate of 20% per year
on each of the first five anniversaries of the dates of grant. The 1995 Long
Term Incentive Plan allows for the payment of the exercise price of an
option with shares of Common Stock, upon the approval of the Company's Stock
Option Committee. In addition, the 1995 Long Term Incentive Plan permits an
optionee under certain circumstances to cause the Company to withhold shares
issued upon the exercise of an option granted under that plan in payment of
the taxes due upon the exercise of such option.

(2) The exercise price per share of all of the options granted to Messrs. Ogle,
Long, Eisenbach and Hopkins is $22.00. The exercise price per share of 3,000
of the options granted to Mr. Keyes is $10.38, and the exercise price per
share of 5,000 of the options granted to Mr. Keyes is $22.00.

(3) Calculated based on the market price per share of the Common Stock on the
date of grant, which in each case equaled the exercise price. The amounts
represent only certain assumed rates of appreciation. Actual gains, if any,
on stock option exercises and Company Common Stock holdings cannot be
predicted, and there can be no assurance that the gains set forth in the
table will be achieved.

AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table shows information concerning the number of unexercised
options held by the named executive officers at fiscal 1996 year-end. No options
were exercised by such persons during fiscal 1996:

NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT OCTOBER 31, IN-THE-MONEY OPTIONS AT
1996 OCTOBER 31, 1996 (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------- ----------- ------------- ----------- -------------

William E. Ogle............................................ 10,800 83,200 $ 88,605 $ 354,418
J. Shane Long.............................................. 6,200 64,800 56,606 226,424
Randall D. Eisenbach....................................... 8,400 73,600 76,692 306,768
James L. Hopkins........................................... 6,200 64,800 56,606 226,424
Bryan F. Keyes............................................. 1,600 14,400 14,608 90,682

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

(1) The last sale price of the Common Stock as reported by the Nasdaq National
Market on October 31, 1996 was $21.13 and the exercise prices of the options
in this table ranged from $12.00 to $22.00 per share.

1995 LONG TERM INCENTIVE PLAN

SCOPE. The Board of Directors and shareholders of the Company have approved
the STB Systems, Inc. 1995 Long Term Incentive Plan (the "Incentive Plan"). The
Incentive Plan authorizes the granting of incentive stock options and
nonqualified stock options to purchase Common Stock, stock appreciation rights,
restricted stock and performance units to key executives and other key employees
of the Company, including officers of the Company and its subsidiaries. The
purpose of the Incentive Plan is to attract and retain key employees, to
motivate key employees to achieve long-range goals and to further identify the
interests of key employees with those of the other shareholders of the Company.

The Incentive Plan authorizes the award of 850,000 shares of Common Stock to
be used for stock options, stock appreciation rights or restricted stock. If an
award made under the Incentive Plan expires, terminates or is forfeited,
cancelled or settled in cash, without issuance of shares of Common Stock covered
by the award, those shares will be available for future awards under the
Incentive Plan. The Incentive Plan will terminate on December 31, 2004.

ADMINISTRATION. The Incentive Plan may be administered by the Board of
Directors or, if directed by the Board of Directors, the Stock Option Committee
or any successor thereto of the Board of Directors of the Company (the Board of
Directors or, if applicable, the Stock Option Committee is referred to herein as
the "Stock Option Committee"). Subject to the provisions of the Incentive Plan,
the Stock Option Committee will have authority to select employees to receive
awards, to determine the time or times of receipt, to determine the types of
awards and the number of shares covered by the awards, to establish the terms,
conditions and provisions of such awards, to determine the value of performance
units and to cancel or suspend awards. In making such award determinations, the
Stock Option Committee may take into account the nature of services rendered by
the employee, his or her present and potential contribution to the Company's
growth and success and such other factors as the Stock Option Committee deems
relevant. The Stock Option Committee is authorized to interpret the Incentive
Plan, to establish, amend, and rescind any rules and regulations relating to the
Incentive Plan, to determine the terms and provisions of any agreements made
pursuant to the Incentive Plan and to make all other determinations that may be
necessary or advisable for the administration of the Incentive Plan.

ELIGIBILITY. Executives and other key full-time employees of the Company
and its subsidiaries may be selected by the Stock Option Committee to receive
awards under the Incentive Plan. The Incentive Plan provides that no more than
250,000 shares of Common Stock may be subject to awards granted per year to any
one employee participating in the Incentive Plan. In the discretion of the Stock
Option Committee, an eligible

employee may receive an award in the form of a stock option, stock appreciation
right, restricted stock award or performance unit or any combination thereof,
and more than one award may be granted to an eligible employee.

STOCK OPTIONS. The Incentive Plan authorizes the award of both incentive
stock options ("ISOs") and nonqualified stock options. Under the Incentive Plan,
an option may be exercised at any time during the exercise period established by
the Stock Option Committee, except that: (i) no option may be exercised prior to
the expiration of six months from the date of grant; (ii) no option may be
exercised more than 90 days after employment with the Company and its
subsidiaries terminates by reason other than death, disability or authorized
leave of absence for military or government service; and (iii) no option may be
exercised more than 12 months after employment with the Company and its
subsidiaries terminates by reason of death or disability. The aggregate fair
market value (determined at the time of the award) of the Common Stock with
respect to which ISOs are exercisable for the first time by any employee during
any calendar year may not exceed $100,000. The term of each option is determined
by the Stock Option Committee, but in no event may such term exceed 10 years
from the date of grant. The exercise price of options is determined by the Stock
Option Committee, but the exercise price of ISOs cannot be less than the fair
market value of the Common Stock on the date of the grant. The exercise price of
options may be paid in cash or, with the Stock Option Committee's approval, in
shares of Common Stock. Grants of options do not entitle any optionee to any
rights as a shareholder, and such rights will accrue only as to shares actually
purchased through the exercise of an option.

STOCK APPRECIATION RIGHTS. The Incentive Plan authorizes the grant of both
primary stock appreciation rights ("SARs") and additional SARs. Primary SARs may
be granted either separately or in tandem with options. Primary SARs entitle the
holder to receive an amount equal to the difference between the fair market
value of a share of Common Stock at the time of exercise of the SAR and the
option price (or deemed option price in the event of an SAR that is not granted
in tandem with an option), multiplied by the number of shares of Common Stock
subject to the option or deemed option as to which the SAR is being exercised
(subject to the terms and conditions of the option or deemed option). An SAR may
be exercised at any time when the option to which it relates may be exercised
and will terminate no later than the date on which the right to exercise the
tandem option (or deemed option) terminates (or is deemed to terminate). The
participating employee has the discretion to determine whether the exercise of
an SAR will be settled in cash, in Common Stock (valued at its fair market value
at the time of exercise) or in a combination of the two, subject to the approval
of the Stock Option Committee in certain circumstances. The exercise of an SAR
requires the surrender of the tandem option, if any, and the exercise of a stock
option requires the surrender of the tandem SAR, if any.

Additional SARs may be granted only in tandem with stock options and entitle
the holder to receive an amount equal to the difference between the fair market
value of a share of Common Stock on the date of exercise of the related option
and the option price, multiplied by the number of shares of Common Stock subject
to the option as to which the SAR is being exercised (subject to the terms and
conditions of the option), multiplied by a percentage factor ranging from 10% to
100% (as determined either by the Stock Option Committee at the date of grant or
by the formula established by the Stock Option Committee at the date of grant).

If an SAR, or the corresponding option with which the SAR was awarded, is
not exercised prior the date that it ceases to be exercisable, then such SAR
generally shall be deemed exercised as of such date and shall be paid to the
employee in cash. No SAR may be exercised more than 90 days after employment
with the Company and its subsidiaries terminates by reason other than death,
disability or authorized leave of absence for military or government service. No
SAR may be exercised more than 12 months after the holder's employment with the
Company and its subsidiaries terminates by reason of death or disability.

RESTRICTED STOCK. Restricted stock awards are grants of Common Stock made
to employees subject to a required period of employment following the award (the
"Restricted Period") and any other conditions established by the Stock Option
Committee. An employee will become the holder of shares of restricted stock free
of all restrictions if he or she completes the Restricted Period and satisfies
any other conditions; otherwise, the shares will be forfeited. Under the
Incentive Plan, the Restricted Period may not be more than ten years. The
employee will have the right to vote the shares of restricted stock and, unless
the Stock Option Committee

determines otherwise, will have the right to receive dividends on the shares
during the Restricted Period. The employee may not sell, pledge or otherwise
encumber or dispose of restricted stock until the conditions imposed by the
Stock Option Committee have been satisfied. The Stock Option Committee may
accelerate the termination of the Restricted Period or waive any other
conditions with respect to any restricted stock.

PERFORMANCE UNITS. Performance units are awards that entitle the holders to
receive a specified value for the units at the end of a performance period
established by the Stock Option Committee if performance measures established by
the Stock Option Committee at the beginning of the performance period are met.
Although the performance measures and performance period will be determined by
the Stock Option Committee at the time of the award of performance units, they
may be subject to such later revision as the Stock Option Committee deems
appropriate to reflect significant events or changes. If the employment of a
holder of a performance unit with the Company or a subsidiary terminates by
reason of death, disability or retirement, then the Company will pay the
employee or his or her beneficiary or estate the amount of the performance unit
earned as of the date of termination. If the employment of a holder of a
performance unit with the Company or a subsidiary terminates for any other
reason, then the performance units held by such holder will automatically be
forfeited.

ADJUSTMENTS. In the event of any change in the outstanding shares of Common
Stock by reason of any stock dividend, split, spinoff, recapitalization, merger,
consolidation, combination, exchange of shares or other similar change, the
aggregate number of shares with respect to which awards may be made under the
Incentive Plan, and the terms and the number of shares of any outstanding
option, SAR, performance unit or restricted stock, may be equitably adjusted by
the Stock Option Committee in its sole discretion.

BUSINESS COMBINATIONS. Unless provision is otherwise made in the terms of
the award granted by the Stock Option Committee, or by the terms of the
agreement with respect to the business combination, in the event of a change in
control of the Company (as defined), all outstanding stock options, stock
appreciation rights, restricted stock and performance units shall terminate,
provided that the holders of any options or SARs may exercise such awards to the
extent then vested immediately prior to any such event and the holders of any
performance units shall be entitled to the then vested values of such units as
of such date.

TERMINATION AND AMENDMENT. The Incentive Plan may be suspended, terminated
or amended by the Board of Directors, provided that, in the absence of
shareholder approval, no amendment of the Incentive Plan or action of the Board
of Directors may materially increase the total number of shares of Common Stock
with respect to which awards may be made under the Incentive Plan (except as
discussed in "--Adjustments" above), change the exercise price of a stock option
or the base price of an SAR, materially modify the requirements as to
eligibility for participation in the Incentive Plan or materially increase the
benefits accruing to participants under the Incentive Plan. No amendment,
suspension or termination of the Incentive Plan may alter or impair any option,
SAR, share of restricted stock or performance unit previously awarded under the
Incentive Plan without the consent of the holder thereof.

The Company's Board of Directors intends to adopt an Amended and Restated
Incentive Plan (the "Restated Incentive Plan"), effective November 1, 1996,
subject to approval of the Company's shareholders at its next annual meeting.
The purpose of the Restated Incentive Plan will be to reflect changes in new
Rule 16b-3, issued by the Securities and Exchange Commission on May 31, 1996. In
addition, the Restated Incentive Plan will (i) authorize the Committee to
accelerate or extend the exercisability of outstanding awards; (ii) permit an
option agreement to provide for its exercisability prior to the expiration of
six (6) months from the date of the award; and (iii) permit the award of
nonqualified options under the Incentive Plan with limited transferability
features.

RECENT GRANTS. On October 11, 1996, the Company granted stock options under
the Incentive Plan for a total of 272,000 shares of Common Stock. All such
options had an exercise price of $22.00 per share, the fair market value per
share of the Common Stock on the date of grant. Of such options, options for
40,000 shares were granted to Mr. Ogle, 40,000 shares to Mr. Long, 40,000 shares
to Mr. Eisenbach, 40,000 shares to

Mr. Hopkins and 5,000 shares to Mr. Keyes. In addition, the Company granted to
Mr. Keyes incentive stock options to purchase 3,000 shares of Common Stock at
the then current fair market value of $10.38 per share on February 22, 1996.
During the period from October 12, 1996 through October 31, 1996, the Company
granted stock options under the Incentive Plan in the amount of 10,000 shares at
exercise prices ranging from $22.88 to $23.38 per share.

1995 EMPLOYEE STOCK OPTION PURCHASE PLAN

SCOPE. The 1995 Employee Stock Option Purchase Plan (the "Employee Plan")
provides a method for eligible employees of the Company to acquire a proprietary
interest in the Company through the regular and systematic purchase of shares of
the Company's Common Stock by means of voluntary payroll deductions. The purpose
of the Employee Plan is to provide additional incentives for employees.

The right of a participating employee to purchase shares of Common Stock
under the Employee Plan is referred to as an "option." The Employee Plan
authorizes the grant of 200,000 shares of Common Stock to be used for such
options. If an option granted under the Employee Plan expires, terminates or is
forfeited without issuance of shares of Common Stock covered by the award, those
shares may be available for future awards under the Employee Plan. The Employee
Plan will terminate on December 31, 2004.

ELIGIBILITY. The employees eligible to participate in the Employee Plan
include all employees of the Company (and of such of its subsidiaries as the
Stock Option Committee designates) who have completed six months of employment
and who are not holders of 5% or more of the Common Stock of the Company (or of
its subsidiaries) ("Eligible Employees").

ADMINISTRATION. The Employee Plan is administered by the Stock Option
Committee, which has the exclusive right to grant options under the Employee
Plan and to delegate power and authority under the Employee Plan as it deems
appropriate. The Stock Option Committee also has full power and authority to
construe, interpret and administer the Employee Plan and to establish the terms
of each offering under the Employee Plan. No member of the Stock Option
Committee is eligible for participation in the Employee Plan while a member of
the Stock Option Committee. The expenses of the administration of the Employee
Plan, including interest paid on payroll deduction accounts, is borne by the
Company.

OFFERINGS UNDER THE EMPLOYEE PLAN. Each year the Company offers Eligible
Employees the option to purchase Common Stock through voluntary payroll
deductions of up to ten percent (10%) of their compensation. The purchase price
for a share of Common Stock under the Employee Plan is determined by the Stock
Option Committee, but such price may not be less than eighty-five percent (85%)
of the fair market value of Common Stock on the date the option is granted, or
in the alternative, such price may not be less than eighty-five percent (85%) of
the fair market value of the Common Stock on the date the option is exercised.
Eligible Employees may purchase up to that number of full shares that can be
purchased at the option price with an amount equal to ten percent (10%) of their
compensation. No employee may purchase shares under the Employee Plan at a rate
that exceeds $25,000 in fair market value (determined at the time an option is
granted) for each calendar year. Eligible Employees who wish to participate in
the Employee Plan must elect to do so by the end of a two-month offering period.

Payroll deductions are made over a twelve-month period. Such deductions are
posted to an employee's payroll deduction account. At any time during the
twelve-month deduction period an employee can withdraw the funds credited to his
or her payroll deduction account, but employees may not increase or reduce
payroll deductions during the payroll deduction period.

At the end of the payroll deduction period, employees will have a subsequent
twelve-month period (the "Exercise Period") during which they may either
exercise their options in whole or part, or withdraw the funds credited to their
payroll deduction account, with interest credited at a rate determined by the
Stock Option Committee. All options not exercised or withdrawn by the last day
of the Exercise Period are automatically exercised in full, if on that day the
fair market value of the Common Stock equals or exceeds the price at which

the option may be exercised. If not so automatically exercised because the fair
market value of the Common Stock is less than the price at which the option may
be exercised, the amount in an employee's payroll deduction account is returned
to the employee with interest. All shares purchased under the Employee Plan are
paid for in full at the time the option is exercised by transfer of the purchase
price from the employee's payroll deduction account.

ADJUSTMENTS, TERMINATION AND AMENDMENT. In the event of any change in the
Company's capitalization, including any merger, consolidation, acquisition,
stock split or stock dividend, appropriate adjustments will be made to the
number of shares available under the Employee Plan. The Employee Plan may be
suspended, terminated, altered or amended in any way by the Board of Directors,
provided that, in the absence of shareholder approval, no amendment of the
Employee Plan or action of the Board of Directors may increase the total number
of shares of Common Stock with respect to which options may be granted under the
Employee Plan (except for adjustments in the event of changes in
capitalization). No suspension, termination, alteration or amendment of the
Employee Plan may alter or impair the rights of any participant under options
previously granted.

The Company's Board of Directors intends to adopt a Restated Employee Stock
Option Purchase Plan (the "Restated Employee Plan"), effective November 1, 1996,
subject to approval of the Company's shareholders at its next annual meeting.
The purpose of the Restated Employee Plan will be to reflect changes in new Rule
16b-3, issued by the Securities and Exchange Commission on May 31, 1996.

STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

The purpose of the Stock Option Plan for Non-Employee Directors (the
"Non-Employee Director Plan") is to provide present and prospective non-employee
Directors of the Company with the opportunity to obtain equity ownership
interests in the Company through the exercise of stock options and thereby
secure for the Company's shareholders the benefits associated with stock
ownership by those who will oversee the Company's future growth and success.

ELIGIBILITY. Each member of the Board of Directors of the Company who is
not an employee of the Company or any subsidiary or affiliate of the Company
("Non-Employee Directors") will be eligible to receive a grant of stock options
under the Non-Employee Directors Plan. The Company currently has two Non-
Employee Directors, both of whom are eligible to receive awards under the
Non-Employee Director Plan. The eligible status of a Non-Employee Director will
terminate as to future stock option grants at the time the individual ceases to
be a director or the individual becomes an employee of the Company, or any
subsidiary or affiliate of the Company.

ADMINISTRATION. The Non-Employee Director Plan is administered by the Board
of Directors of the Company. The Board of Directors has full power to administer
and interpret the Non-Employee Director Plan to carry out its purpose. It is
expected that the Board of Directors will designate from time to time Company
personnel to assist it in carrying out its responsibilities under the
Non-Employee Director Plan.

OPTIONS; EXERCISE PRICE; VESTING. Options to purchase 10,000 and 15,000
shares of Common Stock were granted to Messrs. Byrne and Wesneski, respectively,
upon their election as directors immediately following completion of the IPO.
These options are exercisable at $12.00 per share and have been and will
continue to vest equally over the five year period from the date of grant. In
the future, each Non-Employee Director will automatically receive options to
purchase 2,000 shares of Common Stock annually immediately following his or her
election or re-election to the Board at an annual meeting of shareholders,
exercisable at the fair market value of the Common Stock at the close of
business on the date immediately preceding the date of grant. However, Messrs.
Byrne and Wesneski will not be eligible for such grants until their initial
options have fully vested. Such annual options will vest at the conclusion of
the Non-Employee Director's annual term. In addition, all options become
immediately exercisable in the event of a "Business Combination" as described in
the Non-Employee

Director Plan. The maximum number of shares available for grant and issuance
under the Non-Employee Director Plan is 100,000.

In the case of events such as stock dividends, stock splits,
recapitalizations or other changes in the Company's capitalization, an automatic
adjustment will be made to the number of unexercised options, the purchase price
of unexercised options, and the aggregate number of shares which are available
for option grants under the Non-Employee Director Plan. The automatic adjustment
is designed to ensure that the Non-Employee Directors maintain the same
proportionate position after the particular event as before the event.

An option granted under the Non-Employee Director Plan may be evidenced by a
written instrument describing the terms and conditions of the grant. Options
granted under the Non-Employee Director Plan are not assignable or transferable
by the Non-Employee Director, other than by will or the laws of descent and
distribution. During the Non-Employee Director's lifetime, an option is
exercisable only by the Non-Employee Director, or, in the case of incapacity, by
a person properly appointed to act on the Non-Employee Director's behalf.
Options may be exercised by the delivery of cash or shares of Common Stock or
any combination of such forms of payment.

TERM OF PLAN AND OPTION. Unless terminated earlier by the Board of
Directors, the Non-Employee Director Plan will terminate on December 31, 2004.
Options granted prior to such termination date continue to be exercisable in
accordance with the terms of the Non-Employee Director Plan. Each option granted
under the Non-Employee Director Plan will automatically expire on the earlier of
ten years from the date the option is granted or six months after the
Non-Employee Director ceases to be a director of the Company.

AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors may amend,
terminate, or modify the Non-Employee Director Plan at any time without
shareholder approval, including amendments necessary to conform with Rule 16b-3
of the Securities Exchange Act of 1934 (the "Exchange Act"), unless the
particular amendment or modification requires shareholder approval under the
Internal Revenue Code, under the rules and regulations of the exchange or system
on which the Common Stock is listed or reported, or pursuant to other applicable
laws, rules or regulations.

The Company's Board of Directors intends to adopt a Restated Stock Option
Plan for Non-Employee Directors (the "Restated Non-Employee Director Plan"),
effective November 1, 1996, subject to approval of the Company's shareholders at
its next annual meeting. The purpose of the Restated Non-Employee Director Plan
will be to reflect changes in new Rule 16b-3, issued by the Securities and
Exchange Commission on May 31, 1996. In addition, the Restated Non-Employee
Director Plan will (i) delete the provision setting forth a maximum number of
shares of Common Stock that may be issued thereunder (such a provision is no
longer required by Rule 16b-3); and (ii) permit the award of nonqualified
options under the Non-Employee Director Plan with limited transferability
features.

PROFIT SHARING PLAN

The Board of Directors of the Company has approved a cash bonus program
administered by the Company's Compensation Committee, called the Profit Sharing
Incentive Plan (the "Profit Sharing Plan"). Under the Profit Sharing Plan, the
Company reserves each fiscal quarter an amount equal to 7% of its income before
income taxes (as calculated prior to profit sharing expense) (the "Reserve") for
the payment of cash bonuses to certain of the Company's employees. Of the total
amount of the Reserve, approximately 43% is allocated to the Management
Incentive Program, and the remaining 57% is allocated to the Employees Incentive
Program. Each participant in the Management Incentive Program receives an award
based on the ratio that his base salary bears to the total base salaries of all
designated participants. Most of the Company's executive officers currently
share in the Management Incentive Program, with the balance participating in
other compensation programs.

401(K) SAVINGS PLAN

The Company sponsors a qualified defined contribution retirement plan,
called the STB Systems, Inc. 401(k) Savings Plan ("401(k) Savings Plan"). The
trustee for the 401(k) Savings Plan is Southwest Guaranty Trust Company. The
401(k) Savings Plan permits employees to direct investment of their accounts in
the 401(k) Savings Plan among a selection of five mutual funds, or to purchase
Common Stock with all or part of their accounts. Employees are permitted to
direct transfers or changes in their investments in the Common Stock on a
monthly basis.

EMPLOYMENT AGREEMENTS

The Company is a party to employment agreements with each of Messrs. Ogle,
Eisenbach, Hopkins and Long. Each agreement has a term extending through October
31, 1997 and automatically renews for an additional year on each subsequent
October 31, subject to the right of the Company or the employee to terminate the
agreement with a 30-day notice prior to the date of renewal. Under the
agreements, Messrs. Ogle, Eisenbach, Hopkins and Long will receive base annual
salaries in fiscal 1997 of $260,000, $212,000, $180,000 and $160,000,
respectively, and each is eligible to receive incentive compensation under the
Company's Profit Sharing Plan. The agreements with Messrs. Hopkins and Long also
provide for the payment of sales commissions, the amount of which is subject to
annual adjustment by the Compensation Committee. Each agreement provides for a
severance payment if the agreement is terminated under certain circumstances
(including termination of an agreement during the period immediately preceding a
renewal date). The amounts of the severance payments are as follows: Mr. Ogle
would receive two times the sum of his base annual salary and annualized
incentive compensation; Mr. Eisenbach would receive the sum of his base annual
salary and annualized incentive compensation; each of Mr. Hopkins and Mr. Long
would receive the sum of his base annual salary, annualized incentive
compensation and annualized sales commissions. If an agreement is terminated
under certain circumstances within 12 months after a change in control of the
Company, such agreement also provides for a parachute payment in an amount that
is two times the severance payment. For purposes of calculating severance and
parachute payments, the employee's base annual salary is equal to the employee's
then current base annual salary; the annualized incentive compensation is four
times the average of the amount earned in the eight full quarters preceding the
termination; and the annualized sales commissions is 12 times the average of the
amount earned in the 24 full months preceding the termination. Except in the
event of a termination that requires payment of a parachute payment, Messrs.
Ogle, Eisenbach, Hopkins and Long also agree not to participate, in any manner,
during the term of their respective agreements and for two years thereafter, in
the development, manufacture or sale of graphics adapters for desktop PCs or in
any other business in which the Company may be engaged at the time of
termination of employment.

DIRECTOR COMPENSATION

Prior to its IPO, the Company paid each director a fee of $1,000 per meeting
and paid advisory director fees of $1,000 per meeting to Messrs. Eisenbach,
Hopkins and Wesneski. See "--Compensation and Other Committee Interlocks and
Insider Participation." Beginning in the second quarter of fiscal 1995, the
Company stopped paying directors fees for their services as directors, although
the Company continues to reimburse directors for all expenses incurred in
connection with their activities as directors. As described above, Non-Employee
Directors of the Company automatically receive certain stock option awards under
the Non-Employee Director Plan. See "--Stock Option Plan for Non-Employee
Directors."

COMPENSATION AND OTHER COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Before the IPO, decisions concerning compensation, including decisions
concerning compensation for fiscal 1995, were made by the Company's Board of
Directors. At the time such decisions were made concerning compensation for
fiscal 1995, the Board of Directors consisted of Mr. Ogle, Mr. Mark S. Sims and
Mr. William D. Balthaser, Jr. (the "Founding Shareholders"). Mr. Eisenbach also
participated in deliberations concerning such compensation. Each of Messrs.
Ogle, Eisenbach, Balthaser and Sims served as officers of the Company during

fiscal 1995. In March, 1995, the Company's Board of Directors appointed a
Compensation Committee comprised of Messrs. Ogle, Byrne and Wesneski and a Stock
Option Committee comprised of Messrs. Byrne and Wesneski, the Company's
independent directors.

Lawrence E. Wesneski, a director of the Company, serves as President and
Chief Executive Officer of Hoak Breedlove Wesneski & Co. ("HBW"), the successor
pursuant to an acquisition of BW Securities, Inc. ("BWS"), and owns a portion of
the equity securities of HBW. Mr. Wesneski served as President of Breedlove
Wesneski & Company ("BWC") and its affiliate, BWS, and before the acquisition of
BWS, owned a portion of the equity of BWC and BWS. The Company paid BWC and its
affiliates $138,662 and $57,922 in fiscal years 1994 and 1996, respectively, for
the performance of certain services relating to the arrangement of credit
facilities for the Company. It is expected that HBW will participate as a member
of the underwriting syndicate in connection with the offering contemplated
hereby. See "Underwriting."

In April 1994, BWS agreed to provide to the Company certain advisory
services, including services relating to the Company's IPO. In return for these
services, the Company paid BWS a flat fee of $150,000, of which $17,450 and
$132,550 was paid in fiscal years 1994 and 1995, respectively.

Mr. Wesneski served as an advisory director for the Company from 1987 until
he became a director of the Company. In connection with these services, Mr.
Wesneski received fees of $4,000 and $1,000 in fiscal years 1994 and 1995,
respectively.

CERTAIN TRANSACTIONS

REORGANIZATION

The Company was incorporated under the laws of the State of Texas in 1981.
Prior to the consummation of the IPO, the Company issued one share of Common
Stock of the Company to each of the Founding Shareholders in exchange for all of
the shares of common stock of STB Assembly, Inc. ("STB Assembly") (the
"Reorganization"). The Reorganization was approved by the Company's Board of
Directors in December 1994. As a result of the Reorganization, STB Assembly is
now a wholly-owned subsidiary of the Company, and STB de Mexico, S.A. (formerly
known as Industrias Fronterizas de Chihuahua, S.A. de C.V.) ("IFC"), a Mexican
corporation in which STB Assembly owns more than 99% of the outstanding capital
stock, is subject to the control of the Company. IFC operates the Company's
Mexican operations pursuant to a manufacturing services agreement with STB
Systems, Inc.

RIGHT OF FIRST REFUSAL

The Company and Messrs. Ogle, Sims and Balthaser have entered into a Right
of First Refusal Agreement providing that if Mr. Ogle, Mr. Sims or Mr. Balthaser
proposes to sell any shares of Common Stock registered in his name as of the
date of the closing of the IPO, then the Company will have a right of first
refusal to purchase such shares on terms similar to those proposed. If the
Company does not exercise its right to purchase all of the shares of Common
Stock proposed to be sold by either Mr. Sims or Mr. Balthaser, then Mr. Ogle
will have a right of first refusal to purchase those shares of Common Stock that
the Company does not wish to purchase. Mr. Ogle will not participate in any
decision by the Company to exercise its right of first refusal to purchase
shares proposed to be sold by Mr. Ogle, Mr. Sims or Mr. Balthaser. If the
foregoing rights of first refusal are not independently or collectively fully
exercised, then the shares not purchased may be sold in accordance with the
proposed terms of sale. Notwithstanding the foregoing, the Right of First
Refusal Agreement does not restrict the ability of Messrs. Ogle, Sims or
Balthaser to sell shares of Common Stock in the public market pursuant to Rule
144 promulgated under the Securities Act.

After consummation of the offering, Messrs. Sims and Balthaser may no longer
be deemed to be affiliates of the Company within the meaning of Rule 144, and
therefore will be able to sell all shares owned by them (766,666 shares in the
aggregate) without restriction pursuant to paragraph (k) of Rule 144. Such sales
would not be subject to the provisions of the Right of First Refusal Agreement.
Sales by Mr. Ogle, who will remain an

affiliate of the Company, will be subject to the restrictions contained in Rule
144, including the volume limitation. See "Shares Eligible for Future Sale."

The Company and Mr. Ogle have waived their rights under the Right of First
Refusal Agreement with respect to the shares of Common Stock to be sold by the
Selling Shareholders in the offering pursuant to Waiver Letters executed by each
of the Company and Mr. Ogle dated October 15, 1996.

CERTAIN PRODUCT SALES

Paul A. Ogle, the father of William E. Ogle, was a Company employee and
sales agent for certain products. Paul Ogle retired effective October 15, 1996.
Paul Ogle paid to the Company $261,917, $155,537 and $110,580 in fiscal years
1994, 1995 and 1996, respectively, in connection with the purchase of products
from the Company that he resold to certain customers. The Company sold the
products to Mr. Ogle on terms roughly comparable to those provided to other
distributors. In addition, the Company paid compensation to Paul Ogle in the
amount of $15,072, $14,400 and $14,410 in fiscal years 1994, 1995 and 1996
respectively.

H & H CONSULTING RELATIONSHIP

H&H Management Systems, a company owned by Mr. Hopkins and his wife,
provided a broad spectrum of consulting services to the Company beginning in
March 1990. The Company's relationship with H&H Management Systems was
terminated in December 1994 when Mr. Hopkins was elected Chief Financial Officer
and Vice President of Strategic Marketing of the Company. The Company paid H&H
Management Systems $104,450 and $53,702 for such consulting services in fiscal
years 1994 and 1995, respectively. See "Management."

TAX AGREEMENT

As of December 16, 1994, the Company, on the one hand, and the Founding
Shareholders, on the other (the "parties"), entered into a Tax Allocation and
Indemnification Agreement (the "Tax Agreement") relating to their respective
income tax liabilities. Since the Company became fully subject to corporate
income taxation as a C corporation after its status as an S corporation
terminated immediately prior to the IPO, the reallocation of income and
deductions between the period during which the Company was treated as an S
corporation and a period during which the Company was or will be subject to
corporate income taxation as a C corporation may increase the taxable income of
one party in one period while decreasing that of another party in another
period. The Tax Agreement generally provides that the Founding Shareholders will
be indemnified by the Company with respect to income taxes (plus interest and
penalties) arising due to taxable income shifted from a C corporation taxable
year to a taxable year in which the Company was an S corporation, and that the
Company will be indemnified by the Founding Shareholders with respect to income
taxes (plus interest and penalties) arising due to taxable income shifted from
an S corporation taxable year to a C corporation taxable year; provided,
however, that only in the case of the Founding Shareholders' obligation to
indemnify the Company, such obligation shall be reduced by an amount equal to
the federal or state tax benefit (if any) derived by the Company due to the
shift of taxable income from a taxable year in which the Company was an S
corporation to a C corporation taxable year and shall not exceed the amount, if
any, by which (i) the amount of the reduction in the liability for taxes and
interest thereon of a Founding Shareholder that results from the shifting of S
corporation taxable income to a C corporation taxable year of the Company
exceeds (ii) all reasonable costs incurred by the Founding Shareholder
reasonably attributable to securing such reduction in liability for taxes. The
Company will also be indemnified by the Founding Shareholders for any federal or
state taxes that arise because the Company's status as an S corporation was
ineffective, revoked or terminated prior to the termination of the Company's S
corporation status. Any payment made by the Company to the Founding Shareholders
pursuant to the Tax Agreement may be considered by the Internal Revenue Service
or the state taxing authorities to be nondeductible by the Company for income
tax purposes.

S CORPORATION DISTRIBUTION

Prior to the IPO, the Company declared a dividend (the "S Corporation
Distribution") in an amount equal to its undistributed S corporation earnings
through the date immediately prior to the completion of the IPO, or
approximately $4.2 million (the "Undistributed S Corporation Earnings"),
approximately one-half of which was paid in cash to the Founding Shareholders
out of the proceeds of the Company's IPO. The remaining half of the S
Corporation Distribution was distributed to the Founding Shareholders in the
form of promissory notes providing for 12 equal monthly payments of both
principal and interest and bearing interest at 9%, the prime rate in effect on
the date of issuance (the "Founding Shareholder Notes"). The Company paid
$1,427,208 and $700,422 in fiscal 1995 and fiscal 1996, respectively, from cash
generated from operations in connection with its obligations under the Founding
Shareholder Notes. The final payment on the remaining outstanding balance under
the Founding Shareholder Notes was made in February 1996.

INDEMNIFICATION OF SELLING SHAREHOLDERS

The Company has agreed to indemnify each of the Selling Shareholders for any
indemnification obligations that they may owe to the Underwriters pursuant to
the terms of the Underwriting Agreement by and among the Company, the Selling
Shareholders and the Underwriters. See "Underwriting."

FUTURE TRANSACTIONS

The Company has adopted a policy that all transactions between the Company
and related parties are subject to approval by a majority of all disinterested
directors and must be on terms no less favorable than those that could be
obtained from unrelated third parties.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of October 16, 1996, and after
completion of the offering, by (i) each person known by the Company to
beneficially own more than 5% of the outstanding shares of the Common Stock,
(ii) each of the executive officers of the Company named in the Summary
Compensation Table, (iii) each director of the Company, (iv) all directors and
executive officers of the Company as a group and (v) each Selling Shareholder.

SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING (1) NUMBER OF OFFERING (1)
--------------------- SHARES -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------------- --------- ---------- ----------- --------- ------------

William E. Ogle (2)(3)(4)(5)(6)........................ 859,469 19.0% 100,000 759,469 12.6%
William D. Balthaser, Jr. (2)(5)(6).................... 483,333 10.7 100,000 383,333 6.4
Mark S. Sims (2)(5)(6)................................. 483,333 10.7 100,000 383,333 6.4
Mitchell Hutchins Asset Management, Inc. (7)........... 254,800 5.6 -- 254,800 4.2
Randall D. Eisenbach (3)(4)............................ 10,240 * -- 10,240 *
James L. Hopkins (3)................................... 7,200 * -- 7,200 *
J. Shane Long (3)...................................... 6,200 * -- 6,200 *
Bryan F. Keyes (3)..................................... 2,100 * -- 2,100 *
James J. Byrne (3)..................................... 3,000 * -- 3,000 *
Lawrence E. Wesneski (3)(8)............................ 8,000 * -- 8,000 *
Directors and executive officers as a group (7 persons)
(3).................................................. 896,209 19.7 796,209 13.2

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

* Less than 1%

(1) Unless otherwise indicated, to the knowledge of the Company, all shares are
owned directly and the owner has sole voting and investment power.

(2) Messrs. Ogle, Balthaser and Sims have granted the Underwriters an
over-allotment option, exercisable not later than 30 days after the date of
this Prospectus, to purchase an aggregate of 270,000 shares of Common Stock
at the public offering price set forth on the cover page of this Prospectus,
less the underwriting discount. See "Underwriting." If the Underwriters
exercise the option in full, Mr. Ogle will sell an additional 90,000 shares,
resulting in his ownership of 669,469 shares (11.1%), Mr. Balthaser will
sell an additional 90,000 shares, resulting in his ownership of 293,333
shares (4.9%), Mr. Sims will sell an additional 90,000 shares, resulting in
his ownership of 293,333 shares (4.9%), and all directors and executive
officers as a group will own 706,209 shares (11.7%) after the closing of the
offering.

(3) Includes options to purchase 10,800, 8,400, 6,200, 6,200, 1,600, 2,000,
3,000 and 38,200 shares of Common Stock granted to Messrs. Ogle, Eisenbach,
Hopkins, Long, Keyes, Byrne, Wesneski and all directors and executive
officers as a group, respectively, that are exercisable within 60 days of
October 16, 1996. Does not include options to purchase 83,200, 73,600,
64,800, 64,800, 14,400, 8,000, 12,000 and 320,800 shares of Common Stock
granted to Messrs. Ogle, Eisenbach, Hopkins, Long, Keyes, Byrne, Wesneski
and all directors and executive officers as a group, respectively, that are
not exercisable within 60 days of October 16, 1996.

(4) Includes for William E. Ogle 3,000 shares owned by his spouse, 1,500 shares
owned by a trust benefiting his children, 5,500 shares held by him pursuant
to an Individual Retirement Account and 2,335 shares held by him pursuant to
the Company's 401(k) Savings Plan. Includes for Randall D. Eisenbach 840
shares held by him pursuant to the Company's 401(k) Savings Plan.

(5) Messrs. Ogle, Balthaser and Sims are parties to a Right of First Refusal
Agreement pursuant to which either the Company or Mr. Ogle has the right to
purchase the shares of Messrs. Ogle, Balthaser or Sims under certain
circumstances. See "Certain Transactions--Right of First Refusal."

(6) The address of each of Messrs. Ogle, Balthaser and Sims is 1651 North
Glenville Drive, Richardson, Texas 75081.

(7) The address of Mitchell Hutchins Asset Management, Inc. ("MHAM") is 1285
Avenue of the Americas, New York, NY 10019. MHAM disclaims direct beneficial
ownership of all Common Stock held by it. Information with respect to the
beneficial ownership of MHAM was obtained from that shareholder's Schedule
13G dated February 13, 1996.

(8) Includes 5,000 shares held by Twin Lakes Partners, L.P. ("Twin Lakes"). Mr.
Wesneski is the sole general partner of Twin Lakes.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED SHARES

The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.01 par value per share ("Common Stock"), and 2,000,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), issuable in
series.

COMMON STOCK

The holders of shares of Common Stock have no preemptive rights to maintain
their respective percentage ownership interests in the Company or other
subscription or conversion rights for other securities of the Company. Shares of
Common Stock are not redeemable or subject to further calls or assessments. The
shares of Common Stock to be outstanding after completion of the offering,
including the shares of Common Stock offered by this Prospectus, when paid for
and issued, will be fully paid and nonassessable. Each holder of Common Stock is
entitled to one vote per share of Common Stock which that person holds. The
Company's Amended and Restated Articles of Incorporation prohibit cumulative
voting. Holders of Common Stock are entitled to receive such dividends, if any,
as may be declared by the Board of Directors of the Company out of funds legally
available therefor and are entitled to share ratably in the net assets available
for distribution to such holders upon liquidation, dissolution and winding up of
the Company.

PREFERRED STOCK

The Board of Directors of the Company may issue Preferred Stock in one or
more series and may designate the dividend rate, voting rights and other rights,
preferences and restrictions of each series. Immediately following completion of
the offering, no Preferred Stock will be outstanding, and the Company currently
has no plans to issue any Preferred Stock.

It is not possible to state the actual effect of the issuance of Preferred
Stock upon the rights of holders of the Common Stock until the Board of
Directors of the Company determines the specific rights of the holders of such
Preferred Stock. However, among other effects, the issuance of Preferred Stock
might restrict dividends on the Common Stock, dilute the voting power of the
Common Stock, impair the liquidation rights of the Common Stock and delay or
prevent a change in control of the Company without further action by the
Company's shareholders.

LIMITATIONS ON DIRECTOR LIABILITY

The Amended and Restated Articles of Incorporation of the Company provide
that directors of the Company will not be liable to the Company or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except for (i) a breach of the directors' duty of
loyalty to the Company or the Company's shareholders, (ii) an act or omission
not in good faith that constitutes a breach of a duty of the director to the
Company or an act or omission that involves intentional misconduct or a knowing
violation of the law, (iii) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, or (iv) an act or omission for which
the liability of a director is expressly provided by an applicable statute.

TRADING MARKET, TRANSFER AGENT AND REGISTRAR

The Common Stock is listed on the Nasdaq National Market under the symbol
STBI. The Transfer Agent and Registrar for the Common Stock is Chemical Mellon
Shareholder Services L.L.C.

ANTI-TAKEOVER MEASURES

The Right of First Refusal Agreement to which the Company and the Founding
Shareholders are parties imposes restrictions on the transferability of the
shares held by the Founding Shareholders. These restrictions

could make the acquisition of control of the Company more difficult, and could
therefore be deemed to have an anti-takeover effect. See "Certain
Transactions--Right of First Refusal." The Employment Agreements to which the
Company is a party with each of Messrs. Ogle, Eisenbach, Hopkins and Long impose
certain parachute payment obligations on the Company in the event the employment
of any such executive officer is terminated within a certain time period
following a change in control of the Company. These restrictions could also be
deemed to have an anti-takeover effect. See "Management--Employment Agreements."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have outstanding 6,013,598
shares of Common Stock (assuming no further option exercises). In addition to
the 2,688,923 shares of Common Stock that are currently freely tradeable, the
shares of Common Stock offered hereby will be freely tradeable after the close
of this offering, except to the extent such shares are purchased by "affiliates"
of the Company, as that term is defined under the Securities Act. After
consummation of the offering, Messrs. Sims and Balthaser may no longer be deemed
to be affiliates of the Company within the meaning of Rule 144, and therefore
will be able to sell all shares owned by them (766,666 shares in the aggregate)
without restriction pursuant to paragraph (k) of Rule 144. Sales by Mr. Ogle,
who will remain an affiliate of the Company, will be subject to the restrictions
contained in Rule 144, including the volume limitation.

The Company, the Company's executive officers and directors and the Selling
Shareholders have agreed not to issue or sell, offer or contract to sell,
pledge, make gifts of or otherwise transfer any shares of Common Stock for a
period of 90 days after the date of this Prospectus without the prior written
consent of Hambrecht & Quist LLC, except for the shares of Common Stock offered
in connection with the offering and, with respect to the Company, pursuant to
stock option or purchase plans described in this Prospectus. Upon expiration of
these restrictions, the Company's executive officers and directors and the
Selling Shareholders will be free to sell the shares beneficially owned by them,
subject to compliance with the Securities Act, including Rule 144 promulgated
thereunder, and the terms of the Right of First Refusal Agreement, to which
certain of such shares are subject.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company who has
beneficially owned "restricted securities" for at least two years is entitled to
sell in any three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock or (ii) the
average weekly trading volume of the Common Stock on the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Commission pursuant to Rule 144 (or, if no such
notice is required, the date of receipt of the order to execute the transaction
by the broker or the date of execution of the transaction directly with a market
maker). Sales pursuant to Rule 144 also are subject to certain other
requirements relating to manner of sale, notice of sale and availability of
current public information about the Company. A person (or persons whose shares
are aggregated) who is not and has not been an affiliate of the Company at any
time during the three months immediately preceding the sale of the Common Stock
is entitled to sell "restricted securities" pursuant to Rule 144(k) without
regard to the limitations described above, provided that three years have
elapsed since the later of the date on which such restricted shares were
acquired from the Company or the date they were acquired from an affiliate of
the Company.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below (the "Underwriters"), for whom Hambrecht & Quist
LLC and Cowen & Company are acting as representatives (the "Representatives"),
has agreed severally to purchase from the Company and the Selling Shareholders,
the following respective numbers of shares of Common Stock:

NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ----------

Hambrecht & Quist LLC.............................................................
Cowen & Company...................................................................

----------
Total........................................................................... 1,800,000
----------
----------

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and the
Company's independent auditors. The nature of the Underwriters' obligation is
such that they are committed to purchase all shares of Common Stock offered
hereby if any of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, to members of the NASD a concession not in excess of $ per share to
certain other dealers. After the offering contemplated hereby, the offering
price and other selling terms may be changed by the Representatives.

The Selling Shareholders have granted to the Underwriters an option,
exercisable no later than 30 days after the date of this Prospectus, to purchase
up to 270,000 additional shares of Common Stock at the public offering price,
less the underwriting discount, set forth on the cover page of this Prospectus.
To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased by
it shown in the above table bears to the total number of shares of Common Stock
offered hereby. The Selling Shareholders will be obligated, pursuant to the
option, to sell such shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and certain related persons against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments the
Underwriters may be required to make in respect thereof. The Company has agreed
to indemnify the Selling Shareholders for any indemnification obligations that
they may owe to the Underwriters, as aforesaid. See "Certain
Transactions--Indemnification of Selling Shareholders."

The executive officers, directors and Selling Shareholders of the Company
have agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for or any rights to purchase or acquire Common Stock during the 90-day period
following the commencement of the offering to which this Prospectus relates. The
Company has also agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, issue, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise dispose
of any shares of Common Stock or any securities convertible into or exchangeable
or exercisable for or any rights to purchase or acquire Common Stock during such
90-day period (except pursuant to employee and director stock plans).

In general, the rules of the Commission prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.

Lawrence E. Wesneski, a director of the Company, is President and Chief
Executive Officer of HBW, an NASD member firm that is expected to participate as
a member of the underwriting syndicate in connection with the offering
contemplated hereby. The offering will be conducted in accordance with the rules
of the NASD relating to the participation by member firms in offerings of
securities of affiliated entitles. HBW will not directly participate in the
determination of the offering price.

BWS, a predecessor of HBW, has provided certain financial advisory services
to STB. See "Management-- Compensation and Other Committee Interlocks and
Insider Participation." During fiscal 1996, Mr. Wesneski, individually, has not
received any compensation from the Company in excess of that paid to the
Company's other Non-Employee Director. Neither HBW nor Mr. Wesneski or any other
affiliate of Mr. Wesneski has received or will receive any special compensation
from the Company in connection with the offering.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Locke Purnell Rain Harrell (A
Professional Corporation), Dallas, Texas. Thompson & Knight, A Professional
Corporation, Dallas, Texas will pass upon certain legal matters for the
Underwriters.

EXPERTS

The financial statements as of October 31, 1994 and 1995 and for each of the
three years in the period ended October 31, 1995 included in this Prospectus and
the financial statement schedules included in the registration statement have
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

AVAILABLE INFORMATION

The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Commission in Washington, D.C., under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the shares offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any agreement,
contract or other document referred to herein or therein are not necessarily
complete but contain a summary of the material terms of such agreements,
contracts or other documents, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Reports, registration statements,
proxy statements and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities of the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following regional offices of the Commission: Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60621 and 7 World Trade
Center, Suite 1300, New York, New York 10048, upon payment of the charges
prescribed therefor by the Commission. These reports, registration statements,
proxy statements and other information may be obtained from the web site that
the Commission maintains at www.sec.gov.

STB SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
---------

CONSOLIDATED ANNUAL FINANCIAL STATEMENTS:

Report of Independent Accountants.......................................................................... F-2

Consolidated Balance Sheets as of October 31, 1994 and 1995................................................ F-3

Consolidated Statement of Operations for the Years Ended October 31, 1993, 1994 and 1995................... F-4

Consolidated Statement of Changes in Shareholders' Equity for the Years Ended October 31, 1993,
1994 and 1995............................................................................................ F-5

Consolidated Statement of Cash Flows for the Years Ended October 31, 1993, 1994 and 1995................... F-6

Notes to Consolidated Financial Statements................................................................. F-7

CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED):

Consolidated Balance Sheet as of July 31, 1996............................................................. F-16

Consolidated Statement of Operations for the Nine Months Ended July 31, 1995 and 1996...................... F-17

Consolidated Statement of Cash Flows for the Nine Months Ended July 31, 1995 and 1996...................... F-18

Notes to Consolidated Financial Statements................................................................. F-19

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
STB Systems, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the consolidated financial
position of STB Systems, Inc. and subsidiaries at October 31, 1994 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1995, 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 audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Dallas, Texas
December 11, 1995

F-2

STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)

ASSETS

1994 1995
--------- ---------

Current Assets:
Cash and cash equivalents................................................................. $ 277 $ 4,162
Accounts receivable--trade, net of allowance for doubtful accounts of
$363 and $449........................................................................... 11,092 20,634
Inventories, net.......................................................................... 9,952 27,875
Other current assets...................................................................... 67 869
--------- ---------
Total current assets.................................................................... 21,388 53,540
Property and equipment, net................................................................. 1,660 3,397
Other assets................................................................................ 603 602
--------- ---------
Total assets.............................................................................. $ 23,651 $ 57,539
--------- ---------
--------- ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................................................................... $ 6,683 $ 11,411
Notes payable to related parties.......................................................... -- 700
Accounts payable--trade................................................................... 8,710 17,731
Accrued wages, commissions and bonuses.................................................... 741 559
Accrued dividends payable................................................................. 433 --
Other accrued liabilities................................................................. 338 791
Current portion of long-term liabilities.................................................. 110 727
--------- ---------
Total current liabilities............................................................... 17,015 31,919
--------- ---------
Long-term liabilities:
Long-term notes payable................................................................... 2,010 1,500
Obligations under capital leases and other long-term liabilities.......................... 430 758
--------- ---------
Total long-term liabilities............................................................. 2,440 2,258
--------- ---------
Commitments and contingencies (Note 7)...................................................... -- --
Shareholders' equity:
Preferred stock, 2,000,000 shares authorized, none issued or outstanding.................. -- --
Common stock, $.01 par value, 20,000,000 shares authorized, 2,500,000 and 4,500,000 shares
issued and outstanding.................................................................. 25 45
Additional paid-in capital................................................................ 502 22,160
Retained earnings......................................................................... 3,914 1,402
--------- ---------
4,441 23,607
Treasury stock, 35 shares, at cost........................................................ (245) (245)
--------- ---------
Total shareholders' equity................................................................ 4,196 23,362
--------- ---------
Total liabilities and shareholders' equity.............................................. $ 23,651 $ 57,539
--------- ---------
--------- ---------

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

F-3

STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEARS ENDED OCTOBER 31, 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

1993 1994 1995
--------- --------- ----------

Net sales....................................................................... $ 39,236 $ 89,836 $ 129,603
Cost of sales................................................................... 30,726 73,213 110,129
--------- --------- ----------
Gross profit.................................................................... 8,510 16,623 19,474
--------- --------- ----------
Operating expenses:
Research and development...................................................... 1,079 1,795 2,719
Sales and marketing........................................................... 3,835 5,529 7,437
General and administrative.................................................... 2,810 5,190 6,172
--------- --------- ----------
Total operating expenses........................................................ 7,724 12,514 16,328
--------- --------- ----------
Income from operations.......................................................... 786 4,109 3,146
Interest expense, net........................................................... 226 588 818
--------- --------- ----------
Income before income taxes...................................................... 560 3,521 2,328
Provision for income taxes...................................................... -- -- 330
--------- --------- ----------
Net income...................................................................... $ 560 $ 3,521 $ 1,998
--------- --------- ----------
--------- --------- ----------
Pro forma data (unaudited):
Net income.................................................................... $ 1,998
Pro forma adjustment to general and administrative expenses................... 220
Pro forma adjustment to reflect interest on Founding Shareholder Notes........ (52)
Pro forma adjustment to reflect federal income taxes.......................... (483)
----------
Pro forma net income.......................................................... $ 1,683
----------
----------
Pro forma net income per share................................................ $ 0.45
----------
----------
Weighted average shares outstanding used in the pro forma net income per share
calculation................................................................. 3,746,395
----------
----------
Supplemental pro forma net income per share................................... $ 0.42
----------
----------
Weighted average shares used in the supplemental pro forma net income per
share calculation........................................................... 3,983,014
----------
----------

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

F-4

STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)

COMMON STOCK ADDITIONAL TREASURY STOCK
----------------------- PAID-IN RETAINED ------------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ----------- ----------- ----------- ----------- -----------

Balance, October 31, 1992...................... 2,500,000 $ 25 $ 502 $ 1,547 35 $ (245)

Dividends declared............................. (302)

Net Income..................................... 560
-- -
---------- ----------- ----------- -----

Balance, October 31, 1993...................... 2,500,000 25 502 1,805 35 (245)

Dividends declared............................. (1,413)

Cumulative translation gain.................... 1

Net Income..................................... 3,521
-- -
---------- ----------- ----------- -----

Balance, October 31, 1994...................... 2,500,000 25 502 3,914 35 (245)

Dividends declared............................. (851)

Establishment of deferred tax asset............ 455

Distribution of S Corporation earnings......... (4,122)

Net proceeds from initial public offering...... 2,000,000 20 21,658

Cumulative translation gain.................... 8

Net Income..................................... 1,998
-- -
---------- ----------- ----------- -----

Balance, October 31, 1995...................... 4,500,000 $ 45 $ 22,160 $ 1,402 35 $ (245)
-- -
-- -
---------- ----------- ----------- -----
---------- ----------- ----------- -----

TOTAL
---------

Balance, October 31, 1992...................... $ 1,829
Dividends declared............................. (302)
Net Income..................................... 560

---------
Balance, October 31, 1993...................... 2,087
Dividends declared............................. (1,413)
Cumulative translation gain.................... 1
Net Income..................................... 3,521

---------
Balance, October 31, 1994...................... 4,196
Dividends declared............................. (851)
Establishment of deferred tax asset............ 455
Distribution of S Corporation earnings......... (4,122)
Net proceeds from initial public offering...... 21,678
Cumulative translation gain.................... 8
Net Income..................................... 1,998

---------
Balance, October 31, 1995...................... $ 23,362

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

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

F-5

STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED OCTOBER 31, 1993, 1994 AND 1995
(DOLLARS IN THOUSANDS)

1993 1994 1995
--------- --------- ---------

Cash flows from operating activities:

Net income...................................................................... $ 560 $ 3,521 $ 1,998
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................................. 247 395 733
Gain(loss) on sale of assets.................................................. (10) (45) --
Changes in assets and liabilities:
Accounts receivable--trade.................................................. (2,756) (4,132) (9,542)
Inventories................................................................. (3,567) (3,294) (17,923)
Other current assets........................................................ 28 31 (347)
Other assets................................................................ 9 (304) 2
Accounts payable--trade..................................................... 4,408 264 9,029
Accrued wages, commissions, and bonuses..................................... 81 514 (182)
Other accrued liabilities................................................... (70) 49 453
--------- --------- ---------
Net cash used in operating activities..................................... (1,070) (3,001) (15,779)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............................................. (441) (1,434) (2,470)
Sale of property and equipment.................................................. 42 48 --
--------- --------- ---------
Net cash used in investing activities..................................... (399) (1,386) (2,470)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on short-term debt................................................... 2,070 3,042 4,727
Payments on Founding Shareholder Notes.......................................... -- -- (1,340)
Borrowings on long-term debt.................................................... 45 2,278 436
Payments against long-term debt................................................. (48) (81) --
Issuance of common stock, net of issue costs.................................... -- -- 21,678
Distribution of S Corporation earnings.......................................... -- -- (2,082)
Payment of dividends............................................................ (308) (990) (1,285)
--------- --------- ---------
Net cash provided by financing activities................................. 1,759 4,249 22,134
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 290 (138) 3,885
Cash and cash equivalents at beginning of period.................................. 125 415 277
--------- --------- ---------
Cash and cash equivalents at end of period........................................ $ 415 $ 277 $ 4,162
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
--Cash paid for interest in 1993, 1994 and 1995 was $214, $553 and $1,023, respectively.
--Accrued and unpaid dividends at October 31, 1993 and 1994 were $10 and $433
--At October 31, 1994, amounts relating to the Contingent Payment (see Note 5) include $276 in other assets and
long-term liabilities. At October 31, 1995, other assets include $220 and long term liabilities include $276
related to the Contingent Payment.
--Other assets at October 31, 1995 include $455 relating to the establishment of a deferred tax asset arising
from the effects of the conversion from S Corporation to C Corporation status.
--Amounts due related parties at October 31, 1995 represent the remaining balances on the Founding Shareholder
Notes, originally issued in the amount of $2,040 which resulted from the conversion of undistributed S
Corporation earnings to notes payable.

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

F-6

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 1993, 1994 AND 1995

NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

STB Systems, Inc. designs, manufactures and sells graphics adapters and
other multimedia subsystem products for use primarily in desktop personal
computers ("PCs"). STB Assembly, Inc. is a wholly-owned subsidiary and provides
manufacturing services to STB Systems, Inc.

PRINCIPLES OF CONSOLIDATION--In conjunction with the Stock Offering (see
Note 2), STB Assembly, Inc. became a wholly owned subsidiary of STB Systems,
Inc. Consequently, the accompanying financial statements, which include the
historical accounts of STB Systems, Inc. and STB Assembly, Inc. (collectively
referred to as the "Company"; see also Note 2) have been combined for fiscal
years 1993 and 1994, and consolidated for fiscal 1995. STB Assembly, Inc. has
two majority owned subsidiaries, STB de Mexico and Maquilados Continentales de
Chihuahua ("MCC"). STB de Mexico is a Mexican corporation operated as a
maquiladora and performs assembly services for STB Systems, Inc. MCC entered
into an agreement in January 1990 to provide subcontract manufacturing services
for STB Systems, Inc. As of December 1992, MCC became an inactive entity. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Minority interests in the subsidiaries are insignificant for
financial reporting purposes.

CASH AND CASH EQUIVALENTS--Cash equivalents are short-term, highly liquid
investments that are both readily convertible to known amounts of cash and so
near to their maturity that they present insignificant risk of changes in value
because of changes in interest rates. Investments with initial maturities of
three months or less qualify under this definition.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE--The Company recognizes revenue
from product sales upon shipment. Sales to original equipment manufacturers
("OEMs") account for a significant portion of the Company's sales. The Company
offers its OEM customers a limited warranty for a period of typically 15 to 39
months. Costs associated with the warranty program are accrued when revenue is
recognized and are determined on the basis of estimated future costs to fulfill
the warranty commitment.

Stock rotation returns, under specified conditions, are allowed to certain
retail customers for recently purchased products, provided an equivalent dollar
amount of other products is purchased at the time of the return. Also, under the
terms of some of the agreements, in the event the Company reduces its selling
prices, the retail customers receive price protection credit for the difference
between the original purchase price of product remaining in specified levels of
their inventories and the Company's reduced price for such products. Sales
adjustments resulting from stock rotation returns and price protection policies
are made as determined by management and have historically been minor.
Management's estimates are based on the Company's historical experience with
such arrangements and its evaluation of current exposure resulting from these
policies. The Company's sales are presented net of stock rotation returns and
price adjustments.

The Company participates in cooperative advertising programs with certain
distributors. These programs are used by the Company to reimburse distributors
for certain forms of advertising. In general, the programs allow distributors
credits up to a specified percentage of net purchases. The Company's costs
associated with these programs are accrued at the time of sale and are included
in sales and marketing expenses.

INVENTORIES--Inventories are valued at the lower of cost or market. Cost is
determined on a first-in, first-out basis using a moving weighted average
methodology.

PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is computed for financial statement purposes using an accelerated
method over the estimated useful lives of the assets, which range from three to
five years. Amortization of assets recorded under capital leases is included in
depreciation

F-7

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expense. Depreciation expense for each of the years ended October 31, 1993, 1994
and 1995 was $247,000, $395,000 and $733,000, respectively.

RESEARCH AND DEVELOPMENT--Research and development costs are charged to
expense as incurred.

INCOME TAXES--Effective February 21, 1995 and in connection with the
Company's initial public offering ("Stock Offering"), the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109) on a prospective basis (see Note 2). Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities measured using estimated tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be
recovered or settled.

Prior to the Stock Offering (see Note 2), the Company had been treated for
federal and certain state income tax purposes as an S Corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result, the
income of the Company for federal and certain state income tax purposes was
included in the income tax returns of the individual shareholders ("Founding
Shareholders"). Accordingly, prior to February 21, 1995, no recognition of
federal and certain state income taxes has been given in the accompanying
financial statements. Prior to the conversion to C Corporation status, in
connection with the Stock Offering, the Company paid dividends to its
shareholders in an amount equal to the taxable earnings of the Company
multiplied by the current personal income tax rate.

ACCOUNTING FOR STOCK-BASED COMPENSATION--In October 1995, Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation"
(SFAS 123), was issued. This statement requires the fair value of stock options
and other stock-based compensation issued to employees to either be included as
compensation expense in the statement of operations, or the pro forma effect on
net income and earnings per share of such compensation expense to be disclosed
in the footnotes to the Company's financial statements commencing with the
Company's 1997 fiscal year. This Company expects to adopt SFAS 123 on a
disclosure basis only. As such, implementation of SFAS 123 is not expected to
impact the Company's consolidated balance sheet or statement of operations.

FINANCIAL INSTRUMENTS--As of October 31, 1994 and 1995 the fair values of
the Company's revolving credit balance and the fair values of the Company's
fixed-rate debt approximate the related carrying values.

PRO FORMA NET INCOME AND NET INCOME PER SHARE (UNAUDITED)--Pro forma net
income and net income per share have been determined assuming that (1) the
Company had adopted the revised profit sharing plan effective November 1, 1994
(see Note 9), (2) the Founding Shareholder Notes in the aggregate amount of
$2,040,000 had been outstanding since November 1, 1994 bearing interest at 7.75%
per annum (see Note 2), and (3) the Company had been taxed as a C corporation
for federal and certain state income tax purposes since November 1, 1994 (see
Note 10).

Pro forma net income per share has been computed using the weighted average
number of common shares outstanding after giving retroactive effect to the stock
split (see Note 2). Common equivalent shares are also increased to reflect the
number of shares which would have been necessary to fund the $2.04 million
distribution paid to the Founding Shareholders from the proceeds of the Stock
Offering of the Company's common stock (see Note 2).

F-8

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE (UNAUDITED)--Supplemental pro
forma net income per share is based on the weighted number of shares of common
stock used in the calculation of pro forma net income per share plus the number
of shares that the Company would need to issue to repay $5,500,000 of bank
indebtedness outstanding under the Company's Revolving Credit Facility.

NOTE 2--STOCK SPLIT, REORGANIZATION AND STOCK OFFERING

Effective December 20, 1994, the Company consummated a common stock split at
a ratio of 8,333 to one which resulted in common stock with $.01 par value,
20,000,000 shares authorized, 2,500,000 shares issued and outstanding prior to
the Stock Offering (see below). The stock split, which was effected in the form
of a stock dividend, has been given retroactive effect in the accompanying
financial statements.

STB Systems, Inc. entered into a Share Exchange Agreement on December 16,
1994 with the shareholders of STB Assembly, Inc., providing for the issuance of
STB Systems, Inc. common stock in exchange for the outstanding common stock of
STB Assembly, Inc. on a one-for-333 basis immediately prior to consummation of
the Stock Offering. For purposes of these consolidated financial statements,
these shares are treated as outstanding for all periods presented. As STB
Systems, Inc. and STB Assembly, Inc. were under common control, there was no
change in basis for financial reporting purposes as a result of the Share
Exchange Agreement. As a result of the reorganization, STB Assembly, Inc. became
a wholly-owned subsidiary of STB Systems, Inc. Effective February 20, 1995, STB
Systems, Inc. terminated its S Corporation status and became a C Corporation and
as a result, the Company became subject to all federal and state taxes pursuant
to the C Corporation rules of the Internal Revenue Code.

On December 16, 1994, the Board of Directors of the Company authorized an
initial public offering of the Company's common stock ("Stock Offering").
Accordingly, the Company filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission for the sale of common stock. On February 14,
1995, 2,000,000 shares of common stock were offered to the public at a price of
$12.00 per share. Proceeds from the Company's Stock Offering totalled
$24,000,000, net of $2,322,000 of Stock Offering expenses. The Company's stock
is listed on the Nasdaq National Market under the symbol STBI.

NOTE 3--INVENTORIES

Inventories at October 31 consist of the following:

1994 1995
--------- ---------
(IN THOUSANDS)

Raw materials.......................................................... $ 4,146 $ 15,599
Work-in-process........................................................ 4,459 8,156
Finished goods......................................................... 1,347 4,120
--------- ---------
$ 9,952 $ 27,875
--------- ---------
--------- ---------

F-9

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 4--PROPERTY AND EQUIPMENT

Property and equipment at October 31 consist of the following:

1994 1995
--------- ---------
(IN THOUSANDS)

Furniture and equipment................................................ $ 3,598 $ 5,822
Leasehold improvements................................................. 310 419
--------- ---------
3,908 6,241
Less: accumulated depreciation......................................... (2,248) (2,844)
--------- ---------
Net property and equipment............................................. $ 1,660 $ 3,397
--------- ---------
--------- ---------

NOTE 5--SHORT TERM DEBT AND NOTES PAYABLE TO RELATED PARTIES

At October 31, 1995, the Company had $11,411,000 outstanding under a
$13,000,000 revolving credit facility ("Revolving Credit Facility") with a bank,
payable upon demand, with interest at prime rate plus .75% (9.5% at October 31,
1995). All indebtedness under the Revolving Credit Facility matures on November
1, 1999. At October 31, 1994, $6,683,000 was outstanding under this credit
facility.

Availability under the Revolving Credit Facility is subject to limitations
determined by the Company's borrowing base, which is calculated based on
eligible accounts receivable and inventory as defined in the Revolving Credit
Facility agreement.

On February 20, 1995 the Company issued notes payable aggregating $2,040,000
to the Founding Shareholders to be repaid within 12 months of the date of issue
with interest at 9%. As of October 31, 1995 $700,000 was outstanding on the
notes.

NOTE 6--LONG-TERM LIABILITIES

Long-term liabilities at October 31 consist of the following:

1994 1995
--------- ---------
(IN THOUSANDS)

Mezzanine Facility, interest at prime plus 3%, payable in monthly
installments of interest only through November 1, 1995 and principal
and interest from December 1, 1995 through November 1, 1999,
collateralized by certain assets of the Company....................... $ 2,000 $ 2,000
Contingent Payment (see below).......................................... 276 276
Other loans, interest rates between 9.5% and 9.8%, payable in monthly
installments of principal and interest through July 1997,
collateralized by certain assets of the Company....................... 14 9
Obligations under capital leases........................................ 260 700
--------- ---------
2,550 2,985
Less: current portion................................................... (110) (727)
--------- ---------
Long-term liabilities................................................... $ 2,440 $ 2,258
--------- ---------
--------- ---------

F-10

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 6--LONG-TERM LIABILITIES (CONTINUED)
In accordance with the provisions of a contingent payment agreement
("Contingent Payment") executed in connection with the Revolving Credit and
Mezzanine Facilities, the Company is obligated to pay the lender a one-time fee
equal to one percent (1%) of the product of six (6) times the Company's earnings
before income taxes, interest, depreciation and amortization for the fiscal year
immediately preceding the year in which the payment is made. The Company has the
option to pay this fee on any date following the successful completion of an
initial public offering, and must pay the fee on any date after October 17,
1996, upon demand from the lender. The Company recorded a liability and related
asset of $276,000 at October 31, 1994. Based on fiscal 1995 earnings, the
resulting Contingent Payment at November 1, 1995 did not vary materially from
the amount recorded at October 31, 1994. The asset is being amortized to
interest expense over the term of the related debt as a yield adjustment.

The combined aggregate amount of maturities for all long-term borrowings,
excluding obligations under capital leases and the Contingent Payment, for each
of the five years following October 31, 1995 are:

(IN
YEARS ENDING OCTOBER 31, THOUSANDS)
- -----------------------------------------------------------------------------------------

1996............................................................................... $ 505
1997............................................................................... 504
1998............................................................................... 500
1999............................................................................... 500
2000 and thereafter................................................................ --
------
$ 2,009
------
------

The Company leases certain equipment under capital leases. Future minimum
lease payments under capital leases and the present value of the minimum lease
payments at October 31, 1995 are:

(IN
YEARS ENDING OCTOBER 31, THOUSANDS)
- -----------------------------------------------------------------------------------------

1996............................................................................... $ 290
1997............................................................................... 244
1998............................................................................... 153
1999............................................................................... 95
2000............................................................................... 64
------
846
Less: amount representing interest....................................................... (146)
------
Present value of minimum payments........................................................ $ 700
------
------

NOTE 7--COMMITMENTS AND CONTINGENCIES

The Company leases office space and equipment under various noncancelable
operating lease agreements extending through 1999. Rental expense for each of
the years ended October 31, 1993, 1994 and 1995 was $444,000, $660,000 and
$773,000, respectively.

F-11

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 7--COMMITMENTS AND CONTINGENCIES (CONTINUED)
At October 31, 1995, future minimum lease payments for such operating leases
are:

(IN
YEARS ENDING OCTOBER 31, THOUSANDS)
- -----------------------------------------------------------------------------------------

1996............................................................................... $ 765
1997............................................................................... 506
1998............................................................................... 330
1999............................................................................... 45
2000............................................................................... --
------
Total.............................................................................. $ 1,646
------
------

In September 1995, a class action lawsuit was filed against the Company
alleging the prospectus and Registration Statement for the Stock Offering
contained false and materially misleading facts, and omitted to state material
facts. The members of the class seek unspecified damages. The company denies the
allegations. No formal discovery has yet been undertaken, and the Company
intends to vigorously defend its position. In the opinion of management, this
lawsuit is not likely to result in any loss that would have a material adverse
effect on the Company's operating results or financial condition.

NOTE 8--MAJOR CUSTOMERS

Sales to major customers, as a percentage of net sales, were as follows for
each of the years ended October 31:

CUSTOMER 1993 1994 1995
- ------------------------------------------------------------------ --------- --------- ---------

A................................................................. 26% 8% 2%
B................................................................. 10% 3% 2%
C................................................................. 5% 40% 42%
D................................................................. -- 6% 10%

Net sales to customers within the United States and to customers in foreign
countries were as follows for each of the years ended October 31:

1993 1994 1995
--------- --------- ----------
(IN THOUSANDS)

United States......................................... $ 30,110 $ 76,560 $ 98,742
Europe................................................ 8,181 12,445 30,000
Other................................................. 945 831 861
--------- --------- ----------
$ 39,236 $ 89,836 $ 129,603
--------- --------- ----------
--------- --------- ----------

NOTE 9--EMPLOYEE BENEFIT PLAN AND PROFIT SHARING PLAN

The Company has a 401(K) plan for all full-time employees. The plan provides
for the Company to make contributions of up to 25% of the amount of an
employee's contribution, but not more than 1% of an employee's total cash
compensation. The Company incurred expense of $22,000, $28,000 and $34,000 in
the years ended October 31, 1993, 1994 and 1995, respectively, for its
contributions to this plan.

F-12

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 9--EMPLOYEE BENEFIT PLAN AND PROFIT SHARING PLAN (CONTINUED)
The Company's profit sharing plan provides for a portion of the Company's
income before taxes to be paid as additional compensation to participants in
this plan. Concurrent with the Stock Offering, the profit sharing percentage was
reduced from 25% to 10%. Employees meeting eligibility requirements participate
in the plan. The Company incurred compensation expense of $183,000, $1,195,000
and $503,000 in the years ended October 31, 1993, 1994 and 1995, respectively,
as a result of the Company's obligations under the profit sharing plan.

NOTE 10--CHANGE IN S CORPORATION STATUS AND INCOME TAXES

Immediately preceeding the Stock Offering (see Note 2), STB Systems, Inc.
terminated its S Corporation status, and accordingly, the Company is subject to
federal and state income taxes.

The Company paid cash distributions to its Founding Shareholders in the
aggregate amounts of $308,000, $990,000 and $1,285,000 for fiscal years 1993,
1994 and 1995, respectively. Following the Stock Offering, the Company made
final distributions of the Company's undistributed S Corporation earnings to its
Founding Shareholders. Such undistributed S Corporation earnings aggregated $4.1
million. The Company paid approximately one-half of the undistributed S
Corporation earnings from the proceeds of the Stock Offering, and the remainder
in the form of Founding Shareholder Notes, of which approximately $700,000
remains outstanding at October 31, 1995.

As a result of the termination of STB Systems, Inc.'s S Corporation status,
the Company is required to provide deferred income taxes for cumulative
temporary differences between income for financial and income tax reporting
purposes at the date of termination. A deferred tax asset of $455,000 was
recorded at the date of change in tax status resulting primarily due to the
differing methods of recognizing inventory reserves and bad debt allowances for
financial and income income tax reporting purposes. The deferred tax asset at
October 31, 1995 in the amount of $628,000 is comprised of the following and
included in other current assets in the consolidated balance sheet:

(IN THOUSANDS)

Bad debt reserves.............................................................. $ 153
Inventory reserves............................................................. 340
Depreciation................................................................... 55
Various expense accruals....................................................... 80
---
Deferred tax asset............................................................. $ 628
---
---

F-13

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 10--CHANGE IN S CORPORATION STATUS AND INCOME TAXES (CONTINUED)
Provision for Income Taxes--The components of the income tax provision for
the C Corporation period for the year ended October 31, 1995 are as follows:

(IN THOUSANDS)

Current provision
Federal...................................................................... $ 485
State........................................................................ 18
-----
503
-----
Deferred provision (benefit)
Federal...................................................................... (173)
State........................................................................ --
-----
(173)
-----
Provision for income taxes..................................................... $ 330

A reconciliation of taxes based on the federal statutory rate of 34% and the
provision for income taxes is summarized as follows for the year ended October
31, 1995:

Income taxes at the federal statutory rate..................... 34.0%
S Corporation earnings......................................... (17.5)%
State income taxes, net of federal benefit..................... 0.5%
Other, net..................................................... (2.8)%
-----
Provision for income taxes..................................... 14.2%
-----
-----

NOTE 11--RELATED PARTY TRANSACTIONS

In July 1993, the Company entered into an agreement with a financial
consulting firm to provide advisory services and arrange certain credit
facilities for the Company. The president of this firm, who is also an equity
holder in this firm, serves as a member to the Company's board of directors. The
Company incurred costs of $36,000 and $138,000 for each of the years ended
October 31, 1993 and 1994, respectively, related to these services.

In April 1994, this financial consulting firm agreed to provide certain
advisory services, including services relating to the Stock Offering. A flat fee
of $150,000 was paid to the firm in connection with the Stock Offering. The
Company recognized costs of $17,000 and $133,000 with respect to these services
in the years ended October 31, 1994 and 1995, respectively.

A business consulting firm has provided consulting services to the Company
since March 1990, for which the Company incurred fees of $88,000, $125,000 and
$25,000 in the years ended October 31, 1993, 1994 and 1995, respectively. A
general partner in this consulting firm is an officer of the Company and a
member of the Company's board of directors.

F-14

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OCTOBER 31, 1993, 1994 AND 1995

NOTE 12--STOCK PLANS

The Company's 1995 Long Term Incentive Plan provides for the granting of
incentive stock options and non-qualified stock options to purchase common
stock, stock appreciation rights, restricted stock and performance units to key
executives and other key employees of the Company. The plan authorizes 850,000
shares of common stock to be used for stock options, stock appreciation rights,
or restricted stock. All options were granted between February 14, 1995 and
April 7, 1995 and vest at the rate of 20% per year on each of the first five
anniversaries of the date of grant. The plan will terminate on December 31,
2004. Stock option activity during fiscal 1995 is as follows:

NUMBER OF OPTION PRICE
SHARES RANGE PER SHARE
----------- ---------------

Balance at October 31, 1994.................................... -- --
Granted...................................................... 478,000 $12.00-$13.88
Terminated................................................... (56,500) $12.00-$13.75
Exercised.................................................... -- --
-----------
Balance at October 31, 1995.................................... 421,500 $12.00-$13.88
-----------
-----------

EMPLOYEE STOCK OPTION PURCHASE PLAN--The 1995 Employee Stock Option Purchase
Plan provides a method whereby eligible employees may purchase common stock
through voluntary payroll deductions, not to exceed 10% of the employee's base
salary. Payroll deductions are made over a twelve month period. At the end of
the deduction period, employees will have a subsequent twelve month period
during which they may either exercise their options in whole or in part, or
withdraw their funds with interest at a rate determined by the Stock Option
Committee. The purchase price under the plan will be determined by the Stock
Option Committee, however, the option price will not be less than 85% of the
fair market value of the common stock on the date the option is granted or, such
price will not be less than 85% of the fair market value of the Common Stock on
the date the option is exercised. No stock or stock options have been issued
under this plan as of October 31, 1995.

NOTE 13--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED
--------------------------------------------------------------------------------------
31-JAN 30-APR 31-JUL 31-OCT 31-JAN 31-APR 31-JUL 31-OCT
1994 1994 1994 1994 1995 1995 1995 1995
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)

Net sales.............................. $ 18,076 $ 23,786 $ 23,450 $ 24,523 $ 30,738 $ 33,370 $ 25,663 $ 39,832
Gross profit........................... 3,122 4,765 4,629 4,107 5,095 4,712 3,550 6,117
Net income (loss)...................... (497) 941
Net income (loss) per share............ $ (0.11) $ 0.21
Pro forma net income................... 387 999 829 534 828 410
Pro forma net income per share......... $ 0.15 $ 0.38 $ 0.31 $ 0.20 $ 0.31 $ 0.10

F-15

STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(UNAUDITED)
(DOLLARS IN THOUSANDS)

ASSETS

JULY 31,
1996
---------

Current Assets:
Cash and cash equivalents............................................................................ $ 4,132
Accounts receivable--trade, net of allowance for doubtful accounts of
$449 and $465...................................................................................... 22,075
Inventories, net..................................................................................... 20,465
Other current assets................................................................................. 329
---------
Total current assets............................................................................... 47,001
Property and equipment, net.......................................................................... 4,506
Other assets......................................................................................... 1,099
---------
Total assets....................................................................................... $ 52,606
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt...................................................................................... $ 4,818
Accounts payable--trade.............................................................................. 15,925
Notes payable to related parties..................................................................... --
Accrued wages, commissions and bonuses............................................................... 962
Other accrued liabilities............................................................................ 1,147
Current portion of long-term liabilities............................................................. 722
---------
Total current liabilities.......................................................................... 23,574
---------
Long-term liabilities:
Long-term notes payable.............................................................................. 1,125
Obligations under capital leases and other long-term liabilities..................................... 547
---------
Total long-term liabilities........................................................................ 1,672
---------
Shareholders' equity:
Preferred stock, 2,000,000 shares authorized, none issued or outstanding............................. --
Common stock, $.01 par value, 20,000,000 shares authorized, 4,500,000 and 4,504,387 shares issued and
outstanding, respectively.......................................................................... 45
Additional paid-in capital........................................................................... 22,213
Retained earnings.................................................................................... 5,347
---------
27,605
Treasury stock, 35 shares, at cost..................................................................... (245)
---------
Total shareholders' equity............................................................................. 27,360
---------
Total liabilities and shareholders' equity......................................................... $ 52,606
---------
---------

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

F-16

STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

NINE MONTHS ENDED JULY
31,
----------------------
1995 1996
---------- ----------

Net sales................................................................................ $ 89,771 $ 132,034
Cost of sales............................................................................ 76,415 107,753
---------- ----------
Gross profit............................................................................. 13,356 24,281
---------- ----------
Operating expenses:
Research and development............................................................... 2,051 2,975
Sales and marketing.................................................................... 5,300 7,847
General and administrative............................................................. 4,523 6,591
---------- ----------
Total operating expenses................................................................. 11,874 17,413
---------- ----------
Income from operations................................................................... 1,482 6,868
Interest expense, net.................................................................... 556 869
---------- ----------
Income before income taxes............................................................... 926 5,999
Provision (benefit) for income taxes..................................................... (131) 2,052
---------- ----------
Net income............................................................................... $ 1,057 $ 3,947
---------- ----------
---------- ----------
Net income per share................................................................... $ 0.88
----------
----------
Weighted average shares outstanding.................................................... 4,504,239
----------
----------
Pro forma data:
Net income............................................................................. $ 1,057
Pro forma adjustment to general and administrative expenses............................ 220
Pro forma adjustment to reflect interest on Founding Shareholder Notes................. (52)
Pro forma adjustment to reflect federal income taxes................................... (483)
----------
Pro forma net income................................................................... $ 742
----------
----------
Pro forma net income per share......................................................... $ 0.20
----------
----------
Weighted average shares outstanding used in the pro forma net income per share
calculation.......................................................................... 3,746,395
----------
----------
Supplemental pro forma net income per share............................................ $ 0.19
----------
----------
Weighted average shares used in the supplemental pro forma net income per share
calculation.......................................................................... 3,983,014
----------
----------

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

F-17

STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)
(DOLLARS IN THOUSANDS)

NINE MONTHS ENDED
JULY 31,
--------------------
1995 1996
--------- ---------

Cash flows from operating activities:
Net income................................................................................ $ 1,057 $ 3,947
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization........................................................... 517 831
Deferred tax asset...................................................................... 455 --
Translation gain(loss).................................................................. 5 (1)
Changes in assets and liabilities:
Accounts receivable--trade............................................................ (424) (1,441)
Inventories........................................................................... (10,964) 7,410
Other current assets.................................................................. (168) 540
Other assets.......................................................................... (426) (497)
Accounts payable--trade............................................................... 2,773 (1,806)
Accrued wages, commissions, and bonuses............................................... (410) 403
Other accrued liabilities............................................................. (214) 356
--------- ---------
Net cash provided by (used in) operating activities................................. (7,799) 9,742
--------- ---------
Cash flows from investing activities --
Purchases of property and equipment....................................................... (2,008) (1,940)
--------- ---------
Cash flows from financing activities:
Borrowings (payments) on short-term debt.................................................. 410 (7,293)
Borrowings (payments) on long-term debt................................................... 329 (592)
Issuance of common stock, net of issue costs.............................................. 19,638 53
Payment of dividends...................................................................... (3,367) --
--------- ---------
Net cash provided by (used in) financing activities................................... 17,010 (7,832)
--------- ---------
Net increase (decrease) in cash and cash equivalents........................................ 7,203 (30)
Cash and cash equivalents at beginning of period............................................ 277 4,162
--------- ---------
Cash and cash equivalents at end of period.................................................. $ 7,480 $ 4,132
--------- ---------
--------- ---------

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

F-18

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

The accompanying financial statements include the consolidated accounts of
STB Systems, Inc. and STB Assembly, Inc. (collectively referred to as the
"Company"). STB Assembly, Inc. has two majority owned subsidiaries, STB de
Mexico S.A. de C.V. ("STB de Mexico") and Maquilados Continentales de Ciudad
Juarez, S.A. de C.V. ("MCC"). STB de Mexico is a Mexican corporation operated as
a maquiladora and performs assembly services for STB Systems, Inc. MCC entered
into an agreement in January 1990 to provide subcontract manufacturing services
for STB Systems, Inc. As of December 1992, MCC became an inactive entity. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Minority interests in the subsidiaries are insignificant for
financial reporting purposes.

The financial information presented herein should be read in conjunction
with the Company's annual consolidated financial statements for the year ended
October 31, 1995. The foregoing unaudited interim consolidated financial
statements reflect all adjustments (all of which are of a normal recurring
nature) which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods. The results for interim
periods are not necessarily indicative of results to be expected for the year.

NOTE 2--COMPLETION OF REORGANIZATION AND INITIAL PUBLIC OFFERING

STB Systems, Inc. entered into a Share Exchange Agreement on December 16,
1994 with the shareholders of STB Assembly, Inc. providing for the issuance of
STB Systems, Inc. common stock in exchange for the outstanding common stock of
STB Assembly, Inc. on a 1-for-333 basis immediately prior to consummation of an
initial public offering (the "Offering"). For purposes of these consolidated
financial statements, these shares are treated as outstanding for all periods
presented. As STB Systems, Inc. and STB Assembly, Inc. are under common control,
no change in basis resulted for financial reporting purposes as a result of the
Share Exchange Agreement.

On February 21, 1995, STB Systems, Inc. terminated its S Corporation status,
and on February 22, 1995, the Company completed its initial public offering of
2.0 million shares of Common Stock. Net proceeds from the Offering totaled $21.7
million, net of underwriters' discounts and other offering expenses totaling
$2.3 million.

NOTE 3--PRO FORMA NET INCOME AND NET INCOME PER SHARE

Prior to the Offering, STB Systems, Inc. had been treated for federal and
certain state income tax purposes as an S Corporation under Subchapter S of the
Internal Revenue Code of 1986, as amended. As a result, the income of STB
Systems, Inc. for federal and certain state income tax purposes was included in
the income tax returns of the individual shareholders ("Founding Shareholders").
Accordingly, prior to February 21, 1995, no recognition of federal and certain
state income taxes has been given in the accompanying financial statements.
Prior to the conversion to C Corporation status, in connection with the
Offering, STB Systems, Inc. paid dividends to its shareholders in an amount
equal to the taxable earnings of STB Systems, Inc. multiplied by the current
personal income tax rate.

Pro forma net income and net income per share have been determined assuming
that (1) the Company had adopted the revised profit sharing plan effective
November 1, 1994, (2) the Founding Shareholder Notes in the aggregate amount of
$2,040,000 had been outstanding since November 1, 1994 bearing interest at 7.75%
per

F-19

STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 3--PRO FORMA NET INCOME AND NET INCOME PER SHARE (CONTINUED)
annum, and (3) the Company had been taxed as a C corporation for federal and
certain state income tax purposes since November 1, 1994.

Pro forma net income per share has been computed using the weighted average
number of common shares outstanding after giving retroactive effect to the stock
split of 8,333 for one effective December 20, 1994. The common equivalent shares
are also increased to reflect the number of shares which would have been
necessary to fund the $2,040,000 distribution paid to the Founding Shareholders
from the proceeds of the Offering of the Company's common stock.

Supplemental pro forma net income per share is based on the weighted average
number of shares of common stock used in the calculation of pro forma net income
per share, plus the common equivalent shares which were necessary to repay the
$5,500,000 of bank indebtedness outstanding under the Company's Revolving Credit
Facility from the proceeds of the Offering.

NOTE 4--INVENTORIES

Inventories at July 31, 1996 consist of the following:

JULY 31, 1996
-------------
(IN
THOUSANDS)

Raw materials............................................................... $ 10,127
Work-in-process............................................................. 7,695
Finished goods.............................................................. 2,643
-------------
$ 20,465
-------------

NOTE 5--SHORT TERM DEBT

On January 5, 1996, the Company increased its existing revolving credit
facility ("Revolving Credit Facility") from $13,000,000 to $23,000,000. At July
31, 1996, $4,818,000 was outstanding under this credit facility. All
indebtedness under the Revolving Credit Facility matures on November 1, 1999.

F-20

QUALITY ENGINEERING AND MANUFACTURING

Photograph of the STB manufacturing facility in Juarez, Mexico.

Photograph of surface-mount technology manufacturing equipment.

A leader in multimedia technologies, STB has extensive software and hardware
engineering expertise and operates a high-technology manufacturing facility in
Juarez, Mexico.

Photograph of design engineer seated at computer terminal.

STB Logo -- "Simply the Best"

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
-----

Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 14
Price Range of Common Stock and Dividend
Policy........................................ 14
Capitalization................................. 15
Selected Consolidated Financial Data........... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 26
Management..................................... 39
Certain Transactions........................... 50
Principal and Selling Shareholders............. 53
Description of Capital Stock................... 54
Shares Eligible for Future Sale................ 55
Underwriting................................... 56
Legal Matters.................................. 57
Experts........................................ 57
Available Information.......................... 58
Index to Consolidated Financial
Statements.................................... F-1

1,800,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS
--------------

HAMBRECHT & QUIST
COWEN & COMPANY
, 1996

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

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table indicates the expenses expected to be incurred in
connection with the offering described in this Registration Statement, all of
which will be paid by the Company:

SEC Registration Fee.............................................. $ 13,524
NASD Filing Fee................................................... 4,963
Nasdaq National Market Additional Listing Fee..................... 17,500
Transfer Agent and Registrar Fees................................. 3,000
Blue Sky Fees (including counsel fees)............................ 10,000
Accountants' Services and Expenses................................ 50,000
Legal Services and Expenses....................................... 100,000
Printing and Engraving Fees....................................... 75,000
Miscellaneous..................................................... 46,013
---------
TOTAL......................................................... $ 320,000
---------
---------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article 2.02-1 of the Texas Business Corporation Act permits a corporation
to indemnify certain persons, including officers and directors and former
officers and directors, and to purchase insurance with respect to liability
arising out of their capacity or status as officers and directors. Such law
provides further that the indemnification permitted thereunder will not be
deemed exclusive of any other rights to which officers and directors may be
entitled under the corporation's articles of incorporation, bylaws, any
agreement or otherwise.

Article Eleven of the Company's Amended and Restated Articles of
Incorporation provides as follows:

The corporation shall indemnify any person who was, is, or is threatened
to be made a named defendant or respondent in a proceeding (as hereinafter
defined) because the person (a) is or was a director or officer of the
corporation or (b) while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise to the
fullest extent that a corporation may grant indemnification to a person
serving in such capacity under the Texas Business Corporation Act, as the
same exists or may hereafter be amended.

Such right shall be a contract right and shall include the right to be
paid by the corporation for all expenses incurred in defending any such
proceeding in advance of its final disposition to the maximum extent
permitted under the Texas Business Corporation Act, as the same exists or
may hereafter be amended. If a claim for indemnification or advancement of
expenses under the corporation's articles of incorporation is not paid in
full by the corporation within 90 days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall be entitled to be paid
also the expenses of prosecuting such claim. It shall be a defense to any
such action that such indemnification or advancement of costs of defense is
not permitted under the Texas Business Corporation Act, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors or any committee thereof,
special legal counsel, or shareholders) to have made its determination prior
to the commencement of such action that indemnification of, or advancement
of costs of defense to, the claimant is permissible in the circumstances nor
an actual determination by the corporation (including its Board of Directors
or any committee thereof, special legal counsel, or shareholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is
not permissible.

II-1

The corporation additionally may indemnify any person covered by the
grant of mandatory indemnification contained above to such further extent as
is permitted by law and may indemnify any other person to the fullest extent
permitted by law.

As used herein, the term "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in such an action,
suit or proceeding and any inquiry or investigation that could lead to such
an action, suit or proceeding.

In addition, Article IX of the Company's Amended and Restated Bylaws
provides for such indemnification of officers and directors within the limits
set forth in the Articles of Incorporation and applicable provisions of Texas
law.

Article Twelve of the Company's Amended and Restated Articles of
Incorporation further includes a provision eliminating the monetary liability of
a director to the Company or its shareholders for an act or omission in the
director's capacity as a director to the fullest extent permitted by Texas law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following information relates to all securities issued or sold by the
Company within the past three years and not registered under the Securities Act.

On December 20, 1994, the Company effected a stock split in the form of a
stock dividend pursuant to which the Company issued to each of the holders of
its Common Stock 8,332 shares of its Common Stock for each share owned by that
person. Each certificate issued in connection with such stock split contains an
appropriate restrictive legend. This stock split was not subject to the
registration provisions of the Securities Act because it did not involve an
offer or sale of securities. All of the information regarding sales of the
Company's securities set forth herein has been adjusted to give effect to the
stock split.

The Company entered into a Share Exchange Agreement with the shareholders of
STB Assembly, Inc. in connection with the Reorganization described under
"Certain Transactions--Reorganization." The issuance of shares of Common Stock
to the shareholders of STB Assembly, Inc. was conducted in reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act and
the rules and regulations promulgated thereunder. Each of the certificates
representing the Company's securities issued in connection with such transaction
contains a restrictive legend. Each person acquiring such securities from the
Company furnished investment representations to the Company. No underwriters
participated in such transaction.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- ---------------------------------------------------------------------------------------------------

1.1* -- Form of Underwriting Agreement by and among the Company, the Selling Shareholders and the
Underwriters.

2 -- Share Exchange Agreement dated December 16, 1994 by and among the Company and the shareholders of
STB Assembly, Inc. (incorporated by reference to Exhibit 2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-8762)).

3.1 -- Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

3.2 -- Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

II-2

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- ---------------------------------------------------------------------------------------------------

4.1 -- Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

4.2 -- Amended and Restated Articles of Incorporation and Bylaws of the Company (see Exhibits 3.1 and 3.2)
(incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

4.3 -- Right of First Refusal Agreement dated December 16, 1994 by and among the Company and Messrs. Ogle,
Balthaser and Sims (incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-8762)).

5.1+ -- Opinion of Locke Purnell Rain Harrell (A Professional Corporation) as to the legality of the Common
Stock being issued.

10.1 -- Lease Agreement dated December 6, 1988 by and between STB de Mexico S.A. de C.V. (formerly known as
Industrias Fronterizas de Chihuahua, S.A. de C.V.) (subsidiary of the Company, as lessee) and
Complejo Industrial Fuentes, S.A. de C.V. (as lessor), including an Agreement for Modification
dated February 25, 1994 by and between the same parties (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.2 -- Lease Agreement, as amended, dated July 8, 1986 by and between the Company (as lessee) and Central
Park Associates, Ltd. (as lessor) (incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.4 -- Loan and Security Agreement dated December 21, 1993 by and between Sanwa Business Credit
Corporation and STB Systems, Inc. (incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.5 -- First Amendment to Loan and Security Agreement dated October 14, 1994 by and between Sanwa Business
Credit Corporation and the Company (incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.6 -- Second Amendment to Loan and Security Agreement dated December 9, 1994 by and between Sanwa
Business Credit Corporation and the Company. (incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.7 -- Amended and Restated Support Agreements dated October 14, 1994 from each of Messrs. Ogle, Balthaser
and Sims to Sanwa Business Credit Corporation (incorporated by reference to Exhibit10.7 to the
Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.8 -- Depository Account Agreement dated December 21, 1993 by and among Sanwa Business Credit
Corporation, Bank One, Texas, N.A. and the Company (incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.9 -- Trademark Security Agreement dated December 21, 1993 by and between Sanwa Business Credit
Corporation and the Company (incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.10 -- Contingent Payment Agreement dated October 17, 1994 by and between Sanwa Business Credit
Corporation and the Company (incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

II-3

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- ---------------------------------------------------------------------------------------------------

10.11 -- Collateral Agency Agreement dated November 30, 1994 by and among STB de Mexico S.A. de C.V.
(formerly known as Industrias Fronterizas de Chihuahua, S.A. de C.V.), Sanwa Business Credit
Corporation and the Company (incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.12 -- Company's Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.12
to the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.13 -- Company's 1995 Long Term Incentive Plan (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.14 -- Company's Profit Sharing Incentive Plan (incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.15 -- Tax Allocation and Indemnification Agreement dated December 16, 1994 by and among the Company and
Messrs. Ogle, Balthaser and Sims (incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.16 -- Founding Shareholder Note by and between the Company and William E. Ogle (incorporated by reference
to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1995).

10.17 -- Agreements by and between Breedlove Wesneski & Co. (and one of its affiliates) and the Company
dated July 16, 1993, April 6, 1994 and October 18, 1994 (incorporated by reference to Exhibit
10.17 to the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.21 -- Agreement dated September 9, 1994, by and between the Company and Gateway 2000, Inc. (incorporated
by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 (Registration
No. 33-8762)).

10.22 -- Third Amendment to Loan and Security Agreement dated February 8, 1995 by and between Sanwa Business
Credit Corporation and the Company (incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.23 -- Indemnification Agreement dated February 8, 1995 by and between William E. Ogle and the Company
(incorporated by reference to Exhibit 10.23 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.24 -- Indemnification Agreement dated February 8, 1995 by and between Randall D. Eisenbach and the
Company (incorporated by reference to Exhibit 10.24 to the Company's Registration Statement on
Form S-1 (Registration No. 33-8762)).

10.25 -- Indemnification Agreement dated February 8, 1995 by and between James L. Hopkins and the Company
(incorporated by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.26 -- Indemnification Agreement dated February 8, 1995 by and between Mark S. Sims and the Company
(incorporated by reference to Exhibit 10.26 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.27 -- Indemnification Agreement dated February 8, 1995 by and between William D. Balthaser Jr. and the
Company (incorporated by reference to Exhibit 10.27 to the Company's Registration Statement on
Form S-1 (Registration No. 33-8762)).

II-4

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- ---------------------------------------------------------------------------------------------------

10.28 -- Indemnification Agreement dated February 8, 1995 by and between James J. Byrne and the Company
(incorporated by reference to Exhibit 10.28 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.29 -- Indemnification Agreement dated February 8, 1995 by and between Lawrence E. Wesneski and the
Company (incorporated by reference to Exhibit 10.29 to the Company's Registration Statement on
Form S-1 (Registration No. 33-8762)).

10.30 -- Indemnification Agreement dated February 8, 1995 by and between J. Shane Long and the Company
(incorporated by reference to Exhibit 10.30 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.31 -- Underwriting Agreement by and among the Company, Messrs. Balthaser and Sims (the selling
shareholders) and Rauscher Pierce Refsnes, Inc. and Sutro & Co. Incorporated (incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995).

10.32 -- Lease Agreement dated June, 1995, by and between the Company (as lessee) and Springcreek Place,
Ltd. (as lessor) (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1995).

10.33 -- Lease Agreement dated December 19, 1994, by and between the Company (as lessee) and 50 Walter Jones
Blvd., Inc. (as lessor) (incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1995).

10.34 -- Fourth Amendment to Loan and Security Agreement dated January 5, 1996, by and between Sanwa
Business Credit Corporation and the Company (incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995).

10.35 -- Founding Shareholder Note by and between the Company and William D. Balthaser, Jr. (incorporated by
reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995).

10.36 -- Founding Shareholder Note by and between the Company and Mark S. Sims (incorporated by reference to
Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1995).

10.37 -- Addendum to Lease Agreement dated March 7, 1996 by and between the Company (as lessee) and
Springcreek Place, Ltd. (as lessor) (incorporated by reference to Exhibit 10.37 to the Company's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1996).

10.38 -- STB Systems, Inc. 1995 Employee Stock Option Purchase Plan (as amended) (incorporated by reference
to Exhibit 10.38 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31,
1996).

10.39 -- Lease Agreement dated April 18, 1996 by and between the Company (as lessee) and I Cypresswood
Building (as lessor) (incorporated by reference to Exhibit 10.39 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1996).

10.40+ -- Sublease Agreement dated August 1996 by and between ADC Telecommunications, Inc. (as sublessor) and
the Company (as sublessee).

10.41* -- Lease Contract dated October 4, 1996 by and between STB de Mexico, S.A. de C.V. (as lessee) and
Complejo Industrial Fuentes, S.A. de C.V. (as lessor).

10.42+ -- Employment Agreement dated November 1, 1996 by and between the Company and William E. Ogle.

II-5

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- ---------------------------------------------------------------------------------------------------

10.43+ -- Employment Agreement dated November 1, 1996 by and between the Company and Randall D. Eisenbach.

10.44+ -- Employment Agreement dated November 1, 1996 by and between the Company and James L. Hopkins.

10.45+ -- Employment Agreement dated November 1, 1996 by and between the Company and J. Shane Long.

10.46* -- Modification Agreement dated October 4, 1996 by and between STB de Mexico, S.A. de C.V. and
Complejo Industrial Fuentes, S.A. de C.V. (relating to the Lease Agreement filed as Exhibit 10.1
hereto).

10.47+ -- Amended and Restated Profit Sharing Incentive Plan.

10.48* -- Lease Agreement by and between the Company and Banc One Leasing Corporation dated October 30, 1996,
together with related attachments.

10.49* -- Form of Selling Shareholder Indemnification Agreement between the Company and each of Messrs. Ogle,
Balthaser and Sims.

11.1 -- Computation of Earnings Per Common Share and Common Equivalent Share (incorporated by reference to
Exhibit 11.1 to the Company's Annual Report on Form 10-K for the year ended October 31, 1995 and
the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996).

21 -- Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1995).

23.1* -- Consent of Price Waterhouse LLP.

23.2+ -- Consent of Locke Purnell Rain Harrell (A Professional Corporation) (included in Exhibit 5.1).

24+ -- Powers of Attorney (included on signature page)

27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to the Company's Quarterly Report
on Form 10-Q for the quarter ended July 31, 1996).

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

*Filed herewith.

+Previously filed.

(b) Financial Statement Schedules.

The information required by Schedule II for the three years ended October
31, 1995 is incorporated herein by reference to the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the fiscal year
ended October 31, 1995.

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions, are not applicable or the
information has been provided in the Financial Statements or the notes thereto.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company, the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the

II-6

Company in the successful defense of any action, suit or proceeding) is asserted
by any director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The Company hereby undertakes that:

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

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Richardson, State of Texas, on this 11th day of November, 1996.

STB SYSTEMS, INC.

By: /s/ WILLIAM E. OGLE
---------------------------------------

William E. Ogle
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF
EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

Chairman of the Board of
/s/ WILLIAM E. OGLE Directors and Chief
- ------------------------------ Executive Officer November 11, 1996
William E. Ogle (Principal Executive
Officer)
Executive Vice President,
/s/ RANDALL D. EISENBACH Chief Operating Officer,
- ------------------------------ Assistant Secretary and November 11, 1996
Randall D. Eisenbach Director
Chief Financial Officer,
/s/ JAMES L. HOPKINS Vice President of
- ------------------------------ Strategic Marketing and November 11, 1996
James L. Hopkins Director
Director of Legal and
/s/ BRYAN F. KEYES Finance, Secretary and
- ------------------------------ Treasurer (Principal November 11, 1996
Bryan F. Keyes Financial and Accounting
Officer)
/s/ J. SHANE LONG Vice President of Sales
- ------------------------------ and Marketing and November 11, 1996
J. Shane Long Director
/s/ JAMES J. BYRNE*
- ------------------------------ Director November 11, 1996
James J. Byrne
/s/ LAWRENCE E. WESNESKI*
- ------------------------------ Director November 11, 1996
Lawrence E. Wesneski

*By: /s/ BRYAN F. KEYES

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

Bryan F. Keyes
ATTORNEY-IN-FACT

II-8

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- ------------------------------------------------------------------------------------

1.1* -- Form of Underwriting Agreement by and among the Company, the Selling Shareholders
and the Underwriters.

2 -- Share Exchange Agreement dated December 16, 1994 by and among the Company and the
shareholders of STB Assembly, Inc. (incorporated by reference to Exhibit 2 to the
Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

3.1 -- Amended and Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

3.2 -- Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

4.1 -- Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

4.2 -- Amended and Restated Articles of Incorporation and Bylaws of the Company (see
Exhibits 3.1 and 3.2) (incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

4.3 -- Right of First Refusal Agreement dated December 16, 1994 by and among the Company
and Messrs. Ogle, Balthaser and Sims (incorporated by reference to Exhibit 4.3 to
the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

5.1+ -- Opinion of Locke Purnell Rain Harrell (A Professional Corporation) as to the
legality of the Common Stock being issued.

10.1 -- Lease Agreement dated December 6, 1988 by and between STB de Mexico S.A. de C.V.
(formerly known as Industrias Fronterizas de Chihuahua, S.A. de C.V.) (subsidiary
of the Company, as lessee) and Complejo Industrial Fuentes, S.A. de C.V. (as
lessor), including an Agreement for Modification dated February 25, 1994 by and
between the same parties (incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.2 -- Lease Agreement, as amended, dated July 8, 1986 by and between the Company (as
lessee) and Central Park Associates, Ltd. (as lessor) (incorporated by reference
to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (Registration
No. 33-8762)).

10.4 -- Loan and Security Agreement dated December 21, 1993 by and between Sanwa Business
Credit Corporation and STB Systems, Inc. (incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-1 (Registration No.
33-8762)).

10.5 -- First Amendment to Loan and Security Agreement dated October 14, 1994 by and between
Sanwa Business Credit Corporation and the Company (incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-1 (Registration No.
33-8762)).

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- --------- ------------------------------------------------------------------------------------

10.6 -- Second Amendment to Loan and Security Agreement dated December 9, 1994 by and
between Sanwa Business Credit Corporation and the Company. (incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.7 -- Amended and Restated Support Agreements dated October 14, 1994 from each of Messrs.
Ogle, Balthaser and Sims to Sanwa Business Credit Corporation (incorporated by
reference to Exhibit10.7 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.8 -- Depository Account Agreement dated December 21, 1993 by and among Sanwa Business
Credit Corporation, Bank One, Texas, N.A. and the Company (incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.9 -- Trademark Security Agreement dated December 21, 1993 by and between Sanwa Business
Credit Corporation and the Company (incorporated by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.10 -- Contingent Payment Agreement dated October 17, 1994 by and between Sanwa Business
Credit Corporation and the Company (incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.11 -- Collateral Agency Agreement dated November 30, 1994 by and among STB de Mexico S.A.
de C.V. (formerly known as Industrias Fronterizas de Chihuahua, S.A. de C.V.),
Sanwa Business Credit Corporation and the Company (incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on Form S-1 (Registration
No. 33-8762)).

10.12 -- Company's Stock Option Plan for Non-Employee Directors (incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on Form S-1 (Registration
No. 33-8762)).

10.13 -- Company's 1995 Long Term Incentive Plan (incorporated by reference to Exhibit 10.13
to the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.14 -- Company's Profit Sharing Incentive Plan (incorporated by reference to Exhibit 10.14
to the Company's Registration Statement on Form S-1 (Registration No. 33-8762)).

10.15 -- Tax Allocation and Indemnification Agreement dated December 16, 1994 by and among
the Company and Messrs. Ogle, Balthaser and Sims (incorporated by reference to
Exhibit 10.15 to the Company's Registration Statement on Form S-1 (Registration
No. 33-8762)).

10.16 -- Founding Shareholder Note by and between the Company and William E. Ogle
(incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1995).

10.17 -- Agreements by and between Breedlove Wesneski & Co. (and one of its affiliates) and
the Company dated July 16, 1993, April 6, 1994 and October 18, 1994 (incorporated
by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1
(Registration No. 33-8762)).

10.21 -- Agreement dated September 9, 1994, by and between the Company and Gateway 2000, Inc.
(incorporated by reference to Exhibit 10.21 to the Company's Registration
Statement on Form S-1 (Registration No. 33-8762)).

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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10.22 -- Third Amendment to Loan and Security Agreement dated February 8, 1995 by and between
Sanwa Business Credit Corporation and the Company (incorporated by reference to
Exhibit 10.22 to the Company's Registration Statement on Form S-1 (Registration
No. 33-8762)).

10.23 -- Indemnification Agreement dated February 8, 1995 by and between William E. Ogle and
the Company (incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.24 -- Indemnification Agreement dated February 8, 1995 by and between Randall D. Eisenbach
and the Company (incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.25 -- Indemnification Agreement dated February 8, 1995 by and between James L. Hopkins and
the Company (incorporated by reference to Exhibit 10.25 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.26 -- Indemnification Agreement dated February 8, 1995 by and between Mark S. Sims and the
Company (incorporated by reference to Exhibit 10.26 to the Company's Registration
Statement on Form S-1 (Registration No. 33-8762)).

10.27 -- Indemnification Agreement dated February 8, 1995 by and between William D. Balthaser
Jr. and the Company (incorporated by reference to Exhibit 10.27 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.28 -- Indemnification Agreement dated February 8, 1995 by and between James J. Byrne and
the Company (incorporated by reference to Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.29 -- Indemnification Agreement dated February 8, 1995 by and between Lawrence E. Wesneski
and the Company (incorporated by reference to Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.30 -- Indemnification Agreement dated February 8, 1995 by and between J. Shane Long and
the Company (incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement on Form S-1 (Registration No. 33-8762)).

10.31 -- Underwriting Agreement by and among the Company, Messrs. Balthaser and Sims (the
selling shareholders) and Rauscher Pierce Refsnes, Inc. and Sutro & Co.
Incorporated (incorporated by reference to Exhibit 10.31 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1995).

10.32 -- Lease Agreement dated June, 1995, by and between the Company (as lessee) and
Springcreek Place, Ltd. (as lessor) (incorporated by reference to Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1995).

10.33 -- Lease Agreement dated December 19, 1994, by and between the Company (as lessee) and
50 Walter Jones Blvd., Inc. (as lessor) (incorporated by reference to Exhibit
10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995).

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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10.34 -- Fourth Amendment to Loan and Security Agreement dated January 5, 1996, by and
between Sanwa Business Credit Corporation and the Company (incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995).

10.35 -- Founding Shareholder Note by and between the Company and William D. Balthaser, Jr.
(incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1995).

10.36 -- Founding Shareholder Note by and between the Company and Mark S. Sims (incorporated
by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995).

10.37 -- Addendum to Lease Agreement dated March 7, 1996 by and between the Company (as
lessee) and Springcreek Place, Ltd. (as lessor) (incorporated by reference to
Exhibit 10.37 to the Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1996).

10.38 -- STB Systems, Inc. 1995 Employee Stock Option Purchase Plan (as amended)
(incorporated by reference to Exhibit 10.38 to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1996).

10.39 -- Lease Agreement dated April 18, 1996 by and between the Company (as lessee) and I
Cypresswood Building (as lessor) (incorporated by reference to Exhibit 10.39 to
the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1996).

10.40+ -- Sublease Agreement dated August 1996 by and between ADC Telecommunications, Inc. (as
sublessor) and the Company (as sublessee).

10.41* -- Lease Contract dated October 4, 1996 by and between STB de Mexico, S.A. de C.V. (as
lessee) and Complejo Industrial Fuentes, S.A. de C.V. (as lessor).

10.42+ -- Employment Agreement dated November 1, 1996 by and between the Company and William
E. Ogle.

10.43+ -- Employment Agreement dated November 1, 1996 by and between the Company and Randall
D. Eisenbach.

10.44+ -- Employment Agreement dated November 1, 1996 by and between the Company and James L.
Hopkins.

10.45+ -- Employment Agreement dated November 1, 1996 by and between the Company and J. Shane
Long.

10.46* -- Modification Agreement dated October 4, 1996 by and between STB de Mexico, S.A. de
C.V. and Complejo Industrial Fuentes, S.A. de C.V. (relating to the Lease
Agreement filed as Exhibit 10.1 hereto).

10.47+ -- Amended and Restated Profit Sharing Incentive Plan.

10.48* -- Lease Agreement by and between the Company and Banc One Leasing Corporation dated
October 30, 1996, together with related attachments.

10.49* -- Form of Selling Shareholder Indemnification Agreement between the Company and each
of Messrs. Ogle, Balthaser and Sims.

11.1 -- Computation of Earnings Per Common Share and Common Equivalent Share (incorporated
by reference to Exhibit 11.1 to the Company's Annual Report on Form 10-K for the
year ended October 31, 1995 and the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1996).

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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21 -- Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the
Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1995).

23.1* -- Consent of Price Waterhouse LLP.

23.2+ -- Consent of Locke Purnell Rain Harrell (A Professional Corporation) (included in
Exhibit 5.1).

24+ -- Powers of Attorney (included on signature page)

27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1996).

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

*Filed herewith.

+Previously filed.