STB SYSTEMS INC, 424B4, 1998-03-20

STB SYSTEMS INC
424B4, 1998-03-20
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<PAGE>

Filed Pursuant

to Rule 424(b)(4)

File No. 333-46847

3,000,000 SHARES

[LOGO]

COMMON STOCK
--------------

Of the 3,000,000 shares of Common Stock offered hereby, 2,775,000 shares are
being sold by STB Systems, Inc. ("STB" or the "Company") and 225,000 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 March 19, 1998, the last reported sale price for the Company's
Common Stock on the Nasdaq National Market was $22.00 per share. See "Price
Range of Common Stock and Dividend Policy."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
-------------------

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.

<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNTS (1) COMPANY (2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share............................. $22.00 $1.18 $20.82 $20.82
Total (3)............................. $66,000,000 $3,540,000 $57,775,500 $4,684,500
</TABLE>

(1) See "Underwriting," for information concerning indemnification of the
Underwriters and other information.

(2) Before deducting expenses of this offering payable by the Company estimated
at $450,000.

(3) The Company and certain Selling Shareholders have granted options to the
Underwriters, exercisable within 30 days of the date hereof, to purchase up
to an aggregate of 450,000 additional shares of Common Stock for the purpose
of covering
over-allotments, if any. If the Underwriters exercise such over-allotment
options in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will
be $75,900,000, $4,071,000, $62,460,000 and $9,369,000, respectively. See
"Underwriting."

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

The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares will be made against payment on or about March 25, 1998, at the office of
CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, World Financial Center, New
York, New York 10281.

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

CIBC OPPENHEIMER

HAMBRECHT & QUIST

HOAK BREEDLOVE WESNESKI & CO.

THE BUCKINGHAM RESEARCH GROUP, INCORPORATED

The date of this Prospectus is March 20, 1998.

<PAGE>
[GRAPHICS]

[Inside Front Cover Graphics: Pictured is a PC monitor with colorful
graphics and a multimedia accelerator subsystem overlaid over a background of
the Company's manufacturing operations. Included in the graphics are references
to a number of STB's product functionalities, including "Performance
Acceleration," "3D Acceleration," "2D Acceleration," "Professional
Acceleration," "Multimedia Acceleration" and "Convergence Technologies." Set
forth below the foregoing is a representative set of logos of a number of
product awards won by the Company from various industry publications, followed
by the Company's logo.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. SEE "UNDERWRITING."

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 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
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 AND INCORPORATED BY REFERENCE HEREIN.
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERM "THE COMPANY" OR "STB" WHEN USED IN THIS PROSPECTUS REFERS TO
STB SYSTEMS, INC., A TEXAS CORPORATION, AND ITS CONSOLIDATED SUBSIDIARIES AND
PRIOR AFFILIATES. ALL REFERENCES IN THIS PROSPECTUS TO THE COMMON STOCK OF THE
COMPANY GIVE EFFECT TO A THREE-FOR-TWO STOCK SPLIT OF THE SHARES OF COMMON STOCK
EFFECTED IN THE FORM OF A STOCK DIVIDEND ON FEBRUARY 20, 1998. PROSPECTIVE
INVESTORS ARE URGED TO REVIEW CAREFULLY THE INFORMATION SET FORTH UNDER THE
CAPTION "RISK FACTORS" IN THIS PROSPECTUS IN EVALUATING AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM
"PROSPECTUS" WHEN USED IN THIS DOCUMENT INCLUDES THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN.

THE COMPANY

STB designs, manufactures and sells multimedia subsystems and specialized
technology products, primarily for use in desktop PCs. These products supplement
a PC's central processing unit to enhance multimedia performance and accelerate
the computationally intensive operations and processing requirements necessary
to perform advanced multimedia applications. The Company focuses primarily on
the sale of its products to major OEMs, and works closely with its component
suppliers and OEM customers to develop products that are responsive to
technological trends and consumer demand. STB manufactures substantially all of
its products at its ISO 9002 certified facility in Juarez, Mexico, which the
Company believes enables it to respond more quickly to changing customer needs,
maintain product quality and achieve economies of scale.

The Company's multimedia subsystem product line includes a wide selection of
multimedia accelerator subsystems (also referred to as "graphics add-in cards")
designed primarily for use in mid to high-end PCs. STB's multimedia accelerator
subsystems enable users to take advantage of true-color graphics, 3D and other
video features found in the latest PC operating systems (such as Microsoft
Windows 95 and Windows NT) and in multimedia applications. The Company sells its
multimedia subsystem products to major OEMs and, to a lesser extent, to
commercial customers, such as retailers, distributors and direct-mail companies.
The Company is broadening its relationships with OEMs beyond the sale of
multimedia accelerator subsystems to include the sale of other complementary
multimedia subsystems, such as DVD decoder subsystems, PC/TV convergence
subsystems and sound cards, and is evaluating the production of motherboards
that incorporate multimedia capabilities. Sales of multimedia subsystems to OEMs
represented approximately 85% and 79% of the Company's total net sales for the
1998 first fiscal quarter and the fiscal year ended October 31, 1997,
respectively. STB's OEM and commercial customers include Gateway 2000, Dell,
Compaq, IBM, Best Buy, CompUSA, Tech Data Corporation, Ingram Micro, Inc. and
Merisel, Inc.

STB's specialized technology products include products designed to enable a
single computer to control the display of up to 32 monitors and a recently
introduced line of flat panel display products. These products apply proprietary
software and hardware designs to industry standard components to deliver
solutions tailored to customers' needs. STB sells its specialized technology
products primarily to resellers, the workstation groups of OEMs and corporate
customers for specialized applications in the financial services, hospitality,
factory automation, transportation and emergency response industries. Customers
for STB's specialized technology products include Reuters Limited, Compaq and
LodgeNet Entertainment Corporation.

STB increased unit sales volumes in each year from fiscal 1993 through
fiscal 1997 and revenues from $39.2 million in fiscal 1993 to $199.5 million in
fiscal 1997. The Company has reported nine consecutive quarters of record net
income. STB believes it is currently one of the world's largest independent
suppliers of multimedia accelerator subsystems and multi-monitor products.

The Company's principal offices are located at 1651 North Glenville Drive,
Richardson, Texas 75081 and its telephone number is (972) 234-8750. The
Company's World Wide Web home page is located at "http:\\www.stb.com".
Information contained in the Company's website does not constitute, and shall
not be deemed to constitute, part of this Prospectus.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company....................... 2,775,000 shares

Common Stock offered by the Selling Shareholders.......... 225,000 shares

Common Stock to be outstanding after
the offering............................................. 13,239,862 shares(1)

Use of proceeds........................................... To reduce indebtedness and for
general
corporate purposes

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

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

(1) Based on the number of shares outstanding as of January 31, 1998. Excludes
(i) 2,014,500 shares of Common Stock reserved for issuance under the
Company's 1995 Long Term Incentive Plan (the "Incentive Plan"), of which
options to purchase 1,881,977 shares of Common Stock were outstanding with a
weighted average exercise price of $8.85 per share, (ii) 225,000 shares of
Common Stock reserved for issuance under the Company's Stock Option Plan for
Non-Employee Directors (the "Director Plan"), of which options to purchase
56,250 shares of Common Stock were outstanding with a weighted average
exercise price of $5.33 per share, and (iii) 410,570 shares of Common Stock
reserved for issuance under the Company's 1995 Employee Stock Option
Purchase Plan (the "Employee Plan"). The Board of Directors of the Company
proposes to submit for shareholder approval at the next annual meeting of
shareholders a proposal to increase the number of shares of Common Stock to
be reserved for issuance under the Incentive Plan. See "Management--1995
Long Term Incentive Plan."

The STB logo is a registered trademark of the Company. STB owns common law
trademark rights for Channel, Glyder, Lightspeed, Mediator, MVP, Nitro,
Powergraph, Soundrage, STB Vision, Velocity, Video Rage and Wave Up. This
Prospectus also includes trademarks, service marks and tradenames of companies
other than the Company, which are the property of their respective owners.

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

THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, THE WORDS "ANTICIPATES," "BELIEVES," "ESTIMATES," "INTENDS,"
"PLANS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF FACTORS
SET FORTH HEREIN AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. SUCH
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE CAUTIONARY STATEMENTS SET FORTH
UNDER THE CAPTIONS "RISK FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" HEREIN AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON
THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS.

4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
-------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales................................. $ 39,236 $ 89,836 $ 129,603 $ 180,155 $ 199,485 $ 48,092 $ 78,758
Gross profit.............................. 8,510 16,623 19,474 35,276 50,046 10,633 16,216
Income from operations.................... 786 4,109 3,146 10,376 17,900 3,726 6,219
Net income(1)............................. $ 560 $ 3,521 $ 1,998 $ 6,077 $ 10,770 $ 2,252 $ 3,805
Net income per share (1)(2)(3):
Basic................................... $ 0.10 $ 0.63 $ 0.23 $ 0.60 $ 1.05 $ 0.22 $ 0.36
Diluted................................. $ 0.10 $ 0.63 $ 0.23 $ 0.59 $ 0.97 $ 0.21 $ 0.33
Weighted average shares outstanding
(1)(2)(3):
Basic................................... 5,625 5,625 8,818 10,159 10,298 10,159 10,462
Diluted................................. 5,625 5,625 8,851 10,309 11,147 10,731 11,389
</TABLE>

<TABLE>
<CAPTION>
AS OF
JANUARY 31,
1998
-----------
ACTUAL
-----------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................................................ $ 35,801
Total assets............................................................................................... 115,767
Short-term borrowings, including current portion of long-term liabilities.................................. 23,589
Long-term liabilities, net of current portion.............................................................. 2,538
Total shareholders' equity................................................................................. 47,363

ADJUSTED(4)

-----------

<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................................................................ $ 93,127

Total assets............................................................................................... 150,093

Short-term borrowings, including current portion of long-term liabilities.................................. 589

Long-term liabilities, net of current portion.............................................................. 2,538

Total shareholders' equity................................................................................. 104,689

</TABLE>

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

(1) Prior to the Company's initial public offering in February 1995, the Company
had been treated for federal and certain state income tax purposes as an S
corporation. 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
Company's shareholders (the "Founding Shareholders"). Accordingly, prior to
February 21, 1995, no recognition of federal and certain state income taxes
was included in the Company's net income and net income per share.
Therefore, net income and net income per share for fiscal years 1993 through
1995 are not comparable to net income and net income per share for fiscal
years 1996 and 1997 or the three months ended January 31, 1997 and 1998. See
Note 1 of Notes to Consolidated Financial Statements.

(2) See Notes 1 and 11 of Notes to Consolidated Financial Statements and Notes 1
and 5 of Notes to Consolidated Interim Financial Statements for information
concerning the calculation of basic and diluted net income per share. Such
calculations reflect the adoption by the Company of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), for the
fiscal year ended October 31, 1998, which requires the restatement of all
periods presented in the Company's Consolidated Financial Statements
included in this Prospectus and incorporated by reference herein. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recently Issued Accounting Standards."

(3) Adjusted to reflect a three-for-two stock split effected in the form of a
stock dividend on February 20, 1998. Share and per share amounts have been
retroactively adjusted to reflect the stock split. See Note 1 of Notes to
Consolidated Financial Statements.

(4) Adjusted to reflect the sale of 2,775,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

5
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE IN NATURE
AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN, THE FOLLOWING FACTORS WHICH MAY AFFECT THE COMPANY'S CURRENT POSITION
AND FUTURE PROSPECTS, SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES. THE USE OF THE WORDS "ANTICIPATES," "BELIEVES,"
"ESTIMATES," "INTENDS," "PLANS" AND SIMILAR EXPRESSIONS HEREIN AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF FACTORS SET FORTH HEREIN AND IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THE CAUTIONARY STATEMENTS
SET FORTH BELOW AND UNDER THE CAPTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" HEREIN AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN.

POTENTIAL FOR FLUCTUATING OPERATING RESULTS; SEASONALITY

The Company's results of operations have fluctuated significantly in the
past and are expected to continue to fluctuate in the future as a result of a
number of factors, many of which are beyond the Company's control. These factors
include, but are not limited to: the timely introduction by the Company of new
or enhanced products and the market acceptance of these products; the Company's
ability to introduce and market products in accordance with its OEM customers'
design requirements and design cycles; changes in demand for functionality of
the Company's products and the products of its OEM customers; the gain or loss
of significant OEM customers; the volume and timing of significant customer
orders received during the period; the availability, pricing and timeliness of
component delivery for the Company's products; increased competition from
existing competitors and new entrants to the market; the timing of new product
announcements or product introductions by the Company's competitors; product
obsolescence, management of product transitions and unanticipated delays or
problems in the introduction or production of products by the Company, its OEM
customers or its competitors; product reviews and other media coverage;
anticipated and unanticipated decreases in average selling prices of the
Company's products; changes in the mix of products sold by its OEM and other
customers; changes in the pricing policies of the Company, its suppliers and
customers; management of inventory by the Company and its customers; changes in
the Company's sales channel mix or in the sourcing strategies of its OEM
customers; and product returns or price protection charges by customers. Because
a significant portion of the Company's business has been and is expected to
continue to be derived from orders placed by a limited number of larger OEM
customers, any gain or loss or variations in the timing of such orders can cause
significant fluctuations in the Company's operating results. Anticipated orders
from customers may fail to materialize and delivery schedules may be deferred or
canceled for a number of reasons, including changes in specific customer
requirements. 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 operates with a relatively small backlog. Moreover, as
is common in the PC industry, a disproportionate percentage of the Company's net
sales in any quarter have historically been, and are expected in the future to
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 near
the end of the quarter.

The Company's gross profit margins are affected by a number of factors,
including sales channel mix, product mix, pricing pressures, the availability
and cost of components from the Company's suppliers, level of absorption of
fixed manufacturing costs, product cycles and general economic conditions.
Moreover, the Company operates its own manufacturing facility. As a result, the
Company incurs relatively high fixed overhead and labor costs compared with
those of its competitors that outsource their manufacturing requirements. Any
failure to generate the level of product revenues needed to absorb such fixed
overhead and labor costs will have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has experienced in the past and may experience in the

6
<PAGE>
future excess demand for its products from its OEM customers and has elected in
the past and may elect in the future to pay its employees overtime and purchase
components on the spot market at prices higher than would have been available if
the Company had purchased such components in advance in order to meet its
production requirements. Such activities have resulted in the past and may
result in the future in lower gross margins for the additional products being
manufactured. The Company's markets are characterized by intense competition and
its products typically have a limited life cycle (usually six to nine months)
and declining average unit selling prices over time. Accordingly, the Company's
margins may decline from current levels with respect to its existing product
lines. In addition, the Company's margins may be materially 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 expenditures for research and development, selling and
marketing, and general and administrative functions are based in part on future
revenue projections. The Company may be unable to adjust spending in a timely
manner in response to any unanticipated declines in revenues. Any failure to
adjust spending in a timely manner may have a material adverse effect on the
Company's business, financial condition and results of operations.

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."

As a result of the factors listed above and other factors, the Company
believes that period-to-period comparisons of its operating results must not be
relied upon as an indication of future performance. In particular, the Company
has recently experienced consistent growth in its annual unit sales volumes and
annual revenues and has reported nine consecutive quarters of record net income.
There can be no assurance that the Company's recent growth in unit sales
volumes, revenues or net income will be sustainable or will not decline. It is
likely that in some future period the Company's operating results or business
outlook will be below the expectations of securities analysts or investors,
which would likely result in a significant reduction in the market price for the
Company's Common Stock.

DEPENDENCE ON SUPPLIERS

The Company has in the past obtained and expects in the future to obtain
several of the components used in its products from single or limited sources
and, in instances in which component manufacturers have not or do not allocate a
sufficient supply of components to meet the Company's needs, the Company has
obtained in the past and may obtain in the future 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 the Company's current or
future component requirements. From time to time, the Company has relied, and in
the future expects to rely, substantially upon a limited number of sole source
suppliers for multimedia controller chips, which can, in large part, determine
the performance of a multimedia subsystem. In the event that the Company
experiences difficulty obtaining a particular multimedia controller chip, the
Company could be forced to pay higher prices for comparable multimedia
controller chips, alter product designs to use alternative and potentially
inferior components, reduce its production of the related product, or delay
product shipment schedules. The Company believes that with respect to its
current single and limited source components, it generally 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 and could require product recertification
from the Company's OEM customers) or reduce its production of the related
products; however, no assurance can be given with respect to the availability of
alternative sources for single and limited source components in future products.
The Company has from time to time experienced difficulty meeting certain product
shipment dates to customers as a result of various causes, including component
delivery delays, component availability shortages, system compatability
difficulties and supplier product quality deficiencies, which in some

7
<PAGE>
instances has resulted in impaired margins, reduced production volumes, strained
customer relations and a loss of business. In addition, software drivers, which
are essential to the performance of substantially all of the Company's products,
are included with some of these single and limited source components. The
Company has from time to time experienced product delivery delays due to the
inadequacy or the incompatibility of software drivers provided by component
suppliers or developed internally by the Company. The Company expects that
component delivery delays, component shortages, system compatability
difficulties, supplier product quality deficiencies and software driver problems
will continue to occur in the future, and such delays or problems could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, in an effort to counter actual or perceived
component shortages, the Company may overpurchase certain components. Excess
inventory resulting from such overpurchases, obsolescence or a decline in the
market value of such inventory, could result in inventory write-offs, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.

Significant increases in the prices of components, such as controller chips
or memory chips, have occurred from time to time, and the Company has not always
been able to increase its products' prices accordingly. Worldwide shortages of
controller chips or memory chips and international tariff disputes have resulted
from time to time in substantial component cost increases that have had a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such price increases will
not take place in the future, or that such price increases will not have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company relies upon its suppliers to continue to develop, introduce and
manufacture controller chips, memory chips and other components in sufficient
volumes to satisfy the Company's requirements. These components must compare
favorably in terms of functionality, performance and price with competitive
offerings from other manufacturers, including competitors of the Company that
have internally developed computer chips or manufacturing expertise. Any failure
by the Company to continue to obtain components from its suppliers that are
competitive in terms of functionality, performance and price with the components
that are available to its competitors would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Suppliers."

CUSTOMER CONCENTRATION; DEPENDENCE ON PC MARKET

The Company's three largest OEM customers accounted for approximately 76% of
net sales during the 1998 first fiscal quarter, with Gateway 2000, Inc.
("Gateway 2000"), Dell Computer Corporation ("Dell") and Compaq Computer
Corporation ("Compaq") accounting for approximately 40%, 32% and 4%,
respectively, of the Company's net sales for such period. The Company's three
largest OEM customers accounted for approximately 66% of net sales in fiscal
year 1997, with Gateway 2000, Dell and Compaq accounting for approximately 35%,
20% and 11%, respectively, of the Company's net sales for such period.
Historically, Gateway 2000 has been the Company's largest customer, while Dell
and Compaq have become more significant customers in recent periods. The
Company's other significant customers have changed from period to period. See
"Business--Sales and Marketing--Sales."

The Company has no long-term commitments or contracts with any of its
customers. Any reduction of business from Gateway 2000, Dell or Compaq or the
loss of Gateway 2000, Dell or Compaq as a major customer would have a material
adverse effect on the Company's business, financial condition and results of
operations. Due to their purchasing power, the Company's OEM customers are able
to exert significant pressure on the prices of the Company's products, which
could impair the Company's gross profit margins and have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company believes that its future prospects will largely depend
from time to time upon the success of a limited number of key component
suppliers (currently, its graphics controller chip suppliers) and a few major
OEM customers (currently, Gateway 2000, Dell and Compaq). Because a limited
number of major OEMs currently ship the majority of the PCs produced, the number
of potential

8
<PAGE>
customers that the Company can target is currently limited. There can be no
assurance that the Company will be successful in maintaining its existing
relationships with its major OEM customers or in securing additional major OEM
customers and there can be no assurance that the Company will be able to retain
or increase the volume or profitability of products currently manufactured by
the Company for such customers. Any failure by the Company to retain its
existing OEM customers, or establish profitable relationships with additional
major OEM customers, or to maintain and increase the volume and profitability of
the products manufactured for such customers would have a material adverse
effect on the Company's business, financial condition and results of operations.

Substantially all of the Company's revenues are currently derived from
products sold for use in PCs, and the Company expects to continue to derive
substantially all of its revenues from the sale of products for use in PCs. The
PC market is characterized by rapidly changing technology, evolving industry
standards, frequent new product introductions and fierce price competition, all
of which contribute to short product life cycles and regular reductions of
average selling prices over the life of a specific product. Although the PC
market has grown substantially in recent years and continued growth is currently
forecasted, there can be no assurance that such growth will continue. A
reduction in sales of PCs, or a reduction in growth rate of such sales, would
likely reduce demand for the Company's products. Moreover, such changes in
demand could be large and sudden. Since PC manufacturers often build inventories
during periods of anticipated growth, they may be left with excess inventories
if growth slows or if they incorrectly forecasted product transitions. In such
cases, PC manufacturers may abruptly suspend substantially all purchases of
additional products from suppliers such as the Company until the excess
inventory has been absorbed. Any reduction in demand for PCs generally, or for
particular products that incorporate the Company's multimedia subsystem or
specialized technology products, would have a material adverse effect on the
Company's business, financial condition and results of operations.

DEPENDENCE ON MULTIMEDIA ACCELERATOR SUBSYSTEM MARKET; MIGRATION TO MOTHERBOARDS

A substantial majority of the Company's net sales are derived from the sale
of multimedia accelerator subsystems. According to Jon Peddie Associates, an
independent industry research firm, approximately 69% of all graphics controller
chips manufactured in the twelve month period ended September 30, 1997 were
incorporated onto multimedia accelerator subsystems, and approximately 31% were
incorporated onto motherboards. Generally, multimedia accelerator subsystems 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
expects this trend to continue with respect to the functionality provided by
many of its current products, notably, in the near term, with respect to its
low-end multimedia accelerator subsystems. In this regard, the MMX instruction
set from Intel Corporation ("Intel") and the expanded capabilities provided by
the Direct X Applications Programming Interfaces ("APIs") from Microsoft
Corporation ("Microsoft") have increased the capability of its operating systems
to control display features that have traditionally been performed by multimedia
accelerator subsystems. In addition, single chip solutions currently are
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 prospects are 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 and to develop PC motherboard products that incorporate multimedia
accelerator subsystems and other features demanded by the PC motherboard market.
In response to this trend of migration, the Company is now actively seeking
orders from OEMs for PC motherboards that incorporate STB's graphics circuitry,
but there can be no assurance that the Company will secure any such orders or
that, if it secures any such orders, it could produce such PC motherboards in
profitable quantities, if at all. The Company has no prior experience designing,
developing or marketing PC motherboards, and there can be no assurance that the
Company will be successful in developing this business. While the Company
believes that a market will continue to exist in the near term for add-in
subsystems that provide advanced functionalities and offer flexible systems

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configuration, there can be no assurance that the incorporation of multimedia
functions onto PC motherboards will not have a material adverse effect on the
market for the Company's add-in subsystems. In addition, OEMs may choose to
develop multimedia accelerator subsystems internally rather than purchase such
products from external suppliers. An increase in the number or percentage of PCs
that incorporate graphics circuitry on the motherboard at the expense of add-in
multimedia accelerator subsystems, an increase in the number or percentage of
multimedia accelerator subsystems manufactured internally by OEMs, or a decrease
in PC sales volumes could effectively shrink the market for the Company's
current products, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Industry."

LIMITED PRODUCT LIFE CYCLE; RAPID TECHNOLOGICAL CHANGE; MANAGEMENT OF PRODUCT
TRANSITIONS

The market for the Company's products is characterized by short product life
cycles, evolving industry standards and frequent introductions of new products.
The Company's major OEM customers typically introduce new system configurations
as often as twice per year, and the life cycles of the Company's multimedia
accelerator subsystems typically range from six to nine months. The Company's
failure to successfully introduce new products within a given product cycle
could have a material adverse effect on the Company's business, financial
condition and results of operations 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 and have a longer term material adverse
effect on the Company's business, financial condition and results of operations.
The Company submits most of its products for compatibility and performance
testing to the Microsoft Windows Hardware Quality Lab ("WHQL"). WHQL
certification typically requires up to several weeks to complete and entitles
the Company to claim that a particular product is "Designed for Microsoft
Windows". The Company's OEM customers typically require the Company's products
to be Designed for Microsoft Windows prior to making volume purchases. There can
be no assurance that the Company will receive WHQL certification for any
particular future product in a timely fashion, and any failure to receive WHQL
certification could have a material adverse effect on the Company's business,
financial condition and results of operations.

The PC industry in general, and the market for the Company's multimedia
subsystem products in particular, is characterized by rapidly changing
technologies, evolving industry standards, rapid changes in customer
requirements and fierce price competition. The Company's prospects depend 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 has added new functionalities, such as the MMX instruction
set, to its controller chips to enhance the power of the central processing unit
(the "CPU") to manage the display features of a PC. Similarly, Microsoft is
introducing new versions of its operating systems with features, such as the
Direct 3D API, that increase the capability of its operating systems to control
a PC's display features. Moreover, Intel's recently completed acquisition of
Chips and Technologies, Inc. as well as Intel's introduction of the i740
graphics controller chip could accelerate migration of graphics functionality to
the motherboard or onto the CPU. The introduction of products embodying new
technologies and the emergence of new industry standards and practices can
significantly impair the average selling prices of the Company's multimedia
subsystem and other products, or render such products unmarketable or obsolete.
In the event that the Company's products are unable to support or interface with
these new products, standards and technologies in a timely manner, demand for
the Company's products could be reduced significantly, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.

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

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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, such as PC motherboards and the
recently introduced flat panel display products. Delays in developing new
products or product enhancements or the failure of such products or product
enhancements to gain market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations.

Sales of individual products and product lines are typically characterized
by declines in unit volumes, pricing and margins towards 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 has
experienced from time to time in the past, and expects to experience from time
to time in the future, unexpected reductions in sales of older products as
customers anticipate new products. These reductions have in the past and may in
the future give rise to additional charges for obsolete or excess inventory,
returns of older products by retailers or commercial distributors or substantial
price protection claims. The Company's failure to successfully manage product
transitions could have a material adverse effect on its business, financial
condition and results of operations.

COMPETITION

The market for the Company's products is intensely competitive and the
Company expects competition to increase. 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. The Company's major competitors in the multimedia subsystems
market include Diamond Multimedia Systems, Inc., ATI Technologies, Inc., Matrox
Graphics, Inc., ELSA AG, AccelGraphics, Inc., Creative Labs, Inc., CEI, Inc.,
Number Nine Visual Technology Corporation, and Hauppauge ComputerWorks, Inc. In
the specialized technology product market, the Company's major competitors
include Colorgraphic Communication Corporation, Datapath Ltd. and Appian
Graphics Corp.

In addition to its major competitors, certain of the Company's suppliers
sell graphics controller chips directly to OEMs for use in internally produced
multimedia accelerator subsystems, 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 multimedia accelerator subsystems or
other multimedia subsystems, the Company's business, financial condition and
results of operations could be materially adversely affected. Furthermore,
several major OEMs currently integrate graphics controller chips on the
motherboard of their PCs. If one or more of the Company's major OEM customers
begin to incorporate graphics controller chips or other controller chips onto
motherboards rather than incorporating the Company's products, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "--Dependence on Multimedia Accelerator Subsystem
Market; Migration to Motherboards."

The Company expects Intel to continue to invest heavily in research and
development and new manufacturing facilities in order to maintain its position
as one of the largest manufacturers of motherboards, and to promote its product
offerings through extensive advertising campaigns designed to increase brand
loyalty by PC users. Intel may, in the future, develop multimedia subsystems or
multimedia-enabled motherboards using its i740 3D graphics processor, or other
graphics controllers, which could directly compete with products that the
Company may develop. In addition, Intel exerts significant influence over the 3D
graphics industry due to the widespread acceptance of its microprocessor
architecture and its development of new interface architectures such as the
Accelerated Graphics Port ("AGP") bus. Any significant modifications by Intel to
the AGP or future graphics interface architectures could render the Company's
products obsolete, incompatible or less competitive. Any broad-scale

11
<PAGE>

introduction of multimedia subsystems or multimedia-enabled motherboards or
significant modifications to the graphics interface bus by Intel which the
Company is unable to access, and which consequently renders the Company's
products less competitive or reduces their potential market, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company competes in its markets on the basis of a number of factors,
including the functionality, performance, price, reliability and compatibility
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, technical, manufacturing, marketing,
distribution and other resources, greater name recognition and market presence,
and lower cost structures and larger customer bases than the Company. As a
result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements. In addition, some of the Company's
competitors manufacture their own controller chips, which provide these
competitors with a significant advantage over the Company when their internally
produced controller chips cost less or maintain higher price/performance levels
than the controller chips available to the Company from independent suppliers.
Furthermore, while the Company believes it is the only supplier of brand name
multimedia accelerator subsystems that manufactures its own products, some of
the Company's competitors internally manufacture other multimedia subsystems,
such as sound cards and PC/TV cards. The rapid pace of change in the industry
and in the markets in which the Company competes places a premium on the
knowledge and experience of a company's management, engineers and other
personnel, and their ability to continuously develop, enhance and transition new
products. The Company believes that increasing its hardware and software
engineering staff is an important factor to its future competitiveness. See
"Business--Competition."

PRODUCT CONCENTRATION

Historically, a substantial majority of the Company's net sales have been
derived from sales of multimedia accelerator subsystems and, from time to time,
a substantial majority of the Company's net sales in a given fiscal quarter have
been derived from the sale of a single or a limited number of multimedia
accelerator subsystems. Factors that increase the probability of a single or a
limited number of products accounting for a substantial majority of sales during
a given fiscal quarter may include one or more of the following factors: the
development and timely introduction of new or enhanced products by the Company
that meet OEM design requirements and design cycles and achieve wide market
acceptance; the selection of key components (such as multimedia controller
chips) at the design stage that provide the Company's products with distinct
advantages compared with the key components available to its competitors; the
availability of key components (such as multimedia controller chips) in
sufficient quantities to meet production schedules once the Company commences
manufacturing its products; favorable product reviews and other media coverage;
the volume and timing of significant customer orders received during the period;
and product obsolescence, maturation, or mismanagement of product transitions by
the Company's competitors. However, because the market for the Company's
products is characterized by short product life cycles, evolving industry
standards and frequent introductions of new products, the Company's product
offerings may change significantly from quarter to quarter. There can be no
assurance that a product which was an industry leader and a major source of
revenue and gross profit in one fiscal quarter will not be rendered less
competitive or obsolete in a subsequent fiscal quarter. Moreover, in any given
quarter, one or more of the Company's competitors may introduce an industry
dominating product for one or more of the same factors noted above. Accordingly,
the Company's future prospects largely depend upon its ability to continuously
develop and introduce new products that generate sufficient net sales to replace
net sales from existing products as they mature. Any inability to develop and
introduce new products that compete favorably in the marketplace and meet
customer demand in future fiscal periods would have a material adverse effect on
the Company's business, financial condition and results of operations.

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<PAGE>
SINGLE MANUFACTURING FACILITY

The Company's sole manufacturing facility is located in Juarez, Mexico. The
Company recently relocated a portion of its manufacturing operations to an
adjacent, larger building, thus expanding the overall facility square footage,
and transitioned to new or reconfigured manufacturing equipment. Since the
Company is substantially dependent on this single manufacturing facility, any
disruption of the Company's manufacturing operations at this facility would have
a material adverse effect on the Company's business, financial condition and
results of operations. Such disruption could result from various factors,
including difficulties in attracting and retaining qualified manufacturing
employees, difficulties associated with the transition to new, reconfigured or
upgraded manufacturing equipment, 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's business, financial condition and results of operations. See
"Business--Manufacturing."

MANAGEMENT OF GROWTH

The Company has recently experienced rapid growth and consequently has
increased its expenditures in a number of areas and made certain long-term
commitments (such as the expansion of production lines at its Juarez
manufacturing facility and the forthcoming relocation of its corporate
headquarters to a larger facility in Richardson, Texas), a number of which would
be difficult to reduce quickly in the event of a reduction in the rate of growth
or a decrease in the Company's business. In the event that the Company
experiences further growth, such growth will place additional strain on the
Company's management and operations, including its sales, customer support,
research and development, and finance and administrative operations and require
larger quantities of components, additional personnel and 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 management 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, which could reduce the Company's overall
gross profit margin. There can be no assurance that the Company will be able to
manage future changes in the size of its business successfully or that
difficulties in doing so will not have a material adverse effect on the
Company's business, financial condition and results of operations.

CHANGE IN PRODUCT OR SALES CHANNEL MIX

The Company offers two broad categories of products: multimedia subsystems
that are primarily sold to major OEMs and, to a lesser degree, to commercial
customers, and specialized technology products that are primarily sold to
resellers, the workstation groups of OEMs and corporate customers in certain
industries. Sales of multimedia accelerator subsystems to OEMs, which currently
account for a substantial majority of the Company's net sales of OEM multimedia
subsystems, are characterized by relatively high unit volumes and relatively low
gross profit margins. Sales of the Company's multimedia subsystems to the
commercial market are characterized by relatively 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 net sales to OEMs, the commercial market and specialized
technology customers represented approximately 85%, 9% and 5% of the Company's
total net sales in the 1998 first fiscal quarter, and approximately 79%, 12% and
8% of the Company's total net sales in fiscal year 1997. Shifts in the mix of
products sold or in the sales channels into which such products are sold could
have a material adverse effect on the Company's business, financial condition
and results of

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<PAGE>
operations. In particular, a decrease in sales of multimedia subsystems to the
commercial market or in sales of specialized technology products could result in
a disproportionately greater decrease in the Company's gross profit margin
because sales of multimedia subsystems in the commercial market and sales of
specialized technology products currently have higher gross profit margins than
sales of multimedia subsystem products to the Company's OEM customers. On the
other hand, any decrease in the volume of multimedia subsystems sold to the
Company's OEM customers would significantly reduce total net sales, which would
also have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Products" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

ENTRY INTO NEW PRODUCT MARKETS

While the Company's business historically has focused primarily on the
design, manufacture and sale of multimedia accelerator subsystems, the Company
commenced commercial shipments of its DVD decoder subsystems in the 1997 third
fiscal quarter and its flat panel display products in the 1998 first fiscal
quarter. Further, as a substantial number of PCs incorporate graphics circuitry
on the motherboard (particularly in lower cost PCs), the Company is now actively
soliciting orders for such motherboards from OEMs and, in the event that the
Company secures any orders, the Company plans to undertake the design,
manufacture and sale of motherboards incorporating the Company's multimedia
accelerator subsystem capabilities. 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 of encountering technical problems and a greater
likelihood that the Company's new products (or the PCs into which they are
incorporated) will not gain market acceptance. In addition, a new product line,
like the Company's line of flat panel display products, requires significant
investment in long-lead time inventories as well as certain manufacturing
equipment. The failure of one or more of such products, or any adverse effect
such new products may have upon the Company's reputation in its core multimedia
accelerator subsystem business as a result of such failure, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

PROPRIETARY TECHNOLOGY; INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS

The Company has in the past and may in the future find it necessary or
desirable to procure licenses from third parties relating to current or future
products or technologies; however, 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 or customers 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's business, financial
condition and results of operations.

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<PAGE>
It is common in the PC 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. Several OEM customers recently sent
the Company notices of potential indemnity claims based upon a notice of
infringement such OEM customers had received from a patent owner relating to the
asserted infringement of his patent. Subsequently, the patent owner filed patent
infringement lawsuits in the U.S. and elsewhere against several of such OEM
customers and a number of other major PC systems manufacturers. The Company
provides multimedia subsystems to its OEM customers for use in such OEM
customers' products that are alleged to infringe on the patent owner's rights.
Based upon the Company's preliminary evaluation of the patent, it does not
believe the infringement claims are meritorious as to its products sold to its
customers. However, pursuant to such indemnity agreements or in the event the
Company is directly sued, the Company may be required to dedicate significant
management time and expense to defending itself or assisting its OEM customers
in their defense of this or other infringement claims, whether meritorious or
not, which could have a material adverse effect on the Company's business,
financial condition and results of operations. If this or another intellectual
property claim were to be brought against the Company, or one or more of its OEM
customers, and the Company, or one or more of its OEM customers, 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 have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Intellectual Property."

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 have a material adverse effect on the
Company's business, financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL

The Company's prospects depend largely upon the services of its management,
sales, marketing and engineering personnel. While the Company has entered into
employment agreements with a number of its officers and key personnel, the loss
of the services of one or more of such personnel could have a material adverse
effect on the Company's business, financial condition and results of operations.
The prospects of the Company also depend 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 skilled personnel in the PC industry (and, in
particular, multimedia hardware and software engineers), and the failure to
retain key personnel or to attract additional personnel to satisfy the Company's
needs could have a material adverse effect on the Company's business, financial
condition and results of operations.

POTENTIAL FUTURE ACQUISITIONS

The Company has in the past pursued, and may in the future pursue,
acquisitions of product lines, technologies or businesses. Future acquisitions
by the Company may result in the use of significant amounts of cash, potentially
dilutive issuances of equity securities, incurrence of debt and amortization
expenses related to goodwill and other intangible assets, each of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies and
products acquired, the diversion of management's attention from other business
concerns, the risks of entering markets in which the Company has limited or no
prior experience, and the potential loss of key employees. There are currently
no negotiations, commitments or agreements with respect to any acquisition. In
the event that an acquisition does occur, such acquisition may have a material
adverse effect on the Company's business, financial condition and results of
operations.

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INTERNATIONAL OPERATIONS

Substantially all of the Company's manufacturing operations are carried out
in Juarez, Mexico. The Company's export sales (which primarily consist of
European sales) were approximately 26% and 27% of net sales in the 1998 first
fiscal quarter and fiscal year 1997, respectively. 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 the restrictions and 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 to date the Company
has not experienced any material adverse effects on its business, financial
condition or results of operations as a result of such factors, there can be no
assurance that such factors will not have such effects in the future, or require
the Company to modify its 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. Any decrease in the value of the U.S. dollar relative to
the Mexican peso would increase the Company's manufacturing costs, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing" and "--Sales and
Marketing."

PRICE PROTECTION AND STOCK ROTATION RISKS

As is common practice in its industry, the Company's arrangements with its
commercial customers generally allow such 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 equal 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's business,
financial condition and results of operations. See "Business-- Sales and
Marketing--Sales" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."

ENVIRONMENTAL REGULATIONS

The Company is subject to a variety of local, state, federal and foreign
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. The failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes or
cessation of operations and have a material adverse effect on the Company's
business, financial condition and results of operations.

POTENTIAL LIABILITY CLAIMS

The Company's purchase agreements with its major OEM customers typically
contain provisions that require the Company to indemnify the OEM customer and
any end-users for potential product liability claims. Although the Company has
not experienced product liability claims to date, there can be no assurance that
the Company will not become subject to such claims in the future. A successful
product liability claim against the Company could have a material adverse effect
on its business, financial condition and results of operations.

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HEADQUARTERS RELOCATION

The Company recently commenced construction of a new 210,000 square foot
headquarters facility near its current location in Richardson, Texas and it is
anticipated that this facility will be completed by December 1998. In connection
with the transition to its new headquarters, the Company may experience
interruptions in certain aspects of its operations, including but not limited
to, those relating to its various engineering, sales and administrative
functions. There can be no assurance that any such interruptions, or other
consequences arising out of the Company's transition to its new headquarters,
will not have a material adverse effect on the Company's business, financial
condition or results of operations. In addition, pursuant to the terms of its
new headquarters lease, the Company will incur additional occupancy expense. The
amount of this additional occupancy expense will be dependent on prevailing
interest rates. Moreover, the Company will bear the economic risk upon the sale
of such facility. If this facility is sold for less than the amount of the
underlying debt on the facility then outstanding, the Company would be required
to cover any shortfall, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Properties."

YEAR 2000 COMPLIANCE

The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
financial business systems and various administration functions, and also
includes software programs in its products. To the extent that these software
applications contain code that is unable to appropriately interpret the upcoming
calendar year 2000, some level of modification or possible replacement of such
source code or applications will be necessary. The Company is still analyzing
its software applications and, to the extent they are not fully year 2000
compliant, the costs necessary to update software or potential systems
interruptions may have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, there can be no
assurance that the Company's customers and suppliers are or will be year 2000
compliant. The failure of the Company's customers and suppliers to achieve year
2000 compliance could have a material adverse effect on the Company's business,
financial condition and results of operations.

NO INTENTION TO PAY DIVIDENDS

Since the Company's initial public offering in February 1995, it has not
declared or paid any cash dividends on its Common Stock or other securities, and
does not anticipate paying any cash dividends in the foreseeable future. The
Company intends to retain any earnings for use in its business. The decision to
pay dividends in the future will be at the discretion of the Board of Directors
and will depend, among other things, upon future earnings, operations, capital
requirements, restrictions in financing agreements, the general financial
condition of the Company and general business conditions. The Company's existing
Revolving Credit Facility (as defined below) prohibits the Company from paying
cash dividends. See "Price Range of Common Stock and Dividend Policy."

NEED FOR ADDITIONAL CAPITAL

The Company requires substantial working capital to fund its business,
particularly to finance its inventory and accounts receivable and for capital
expenditures. The Company believes that the net proceeds from this offering,
together with its existing capital resources and anticipated funds from
operations, will be sufficient to meet the Company's capital requirements
through at least the next twelve months, although the Company could be required,
or could elect, to raise additional capital during such period. The Company's
future capital requirements will depend on many factors, including the rate of
revenue growth, if any; the Company's financial condition; any need to expand
the Company's manufacturing capacity; the timing and extent of spending to
support research and development programs; the expansion of selling and
marketing and administrative activities; the timing of new product

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introductions and product enhancements; and the level of market acceptance of
the Company's products. The Company expects that it may need to raise additional
equity or debt financing in the future, although it is not currently negotiating
for additional financing and does not have any plans to obtain additional
financing following this offering. There can be no assurance that additional
equity or debt financing, if required, will be available on acceptable terms or
at all. If the Company is unable to obtain such additional capital, the Company
may be required to reduce the scope of its planned product development,
manufacturing expansion or selling and marketing activities, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. In the event that the Company does raise additional
equity financing, the investors in this offering and the Company's existing
shareholders could experience substantial dilution. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

ANTI-TAKEOVER MEASURES

The Company is a Texas corporation and is therefore subject to the
provisions of the Texas Business Corporation Act, including the terms of the
Texas Business Combination Law ("TBCL") that became effective on September 1,
1997. In general, the TBCL prohibits a Texas "issuing public corporation" (such
as the Company) from engaging in a "business combination" with any shareholder
who is a beneficial owner of 20% or more of the corporation's outstanding stock
for a period of three years after such shareholder's acquisition of a 20%
ownership interest, unless: (i) the board of directors of the corporation
approves the transaction or the shareholder's acquisition of shares prior to the
acquisition or (ii) two-thirds of the unaffiliated shareholders of the
corporation approve the transaction at a shareholders' meeting. The TBCL may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company. The Company is subject to the terms of the
TBCL, unless its shareholders or directors take action electing not to be
governed by its terms (which action is not currently contemplated). The Company
is also a party to certain agreements that could be deemed to have an
anti-takeover effect. See "Description of Capital Stock--Anti-Takeover Matters."

The Company's Board of Directors has the authority to issue up to 2,000,000
shares of preferred stock in one or more series and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the Company's shareholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any shares of preferred stock which may be issued in the future. While the
Company has no present intention to issue shares of preferred stock, such
issuance, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, such preferred stock may have other rights,
including economic rights senior to the Common Stock, and as a result, the
issuance thereof could have a material adverse effect on the market value of the
Common Stock. See "Description of Capital Stock--Anti-Takeover Matters."

STOCK PRICE VOLATILITY

The trading price of the Company's Common Stock has in the past and may in
the future be subject to wide fluctuations in response to factors such as actual
or anticipated variations in the Company's operating results; announcements of
technological innovations by the Company or its competitors; new products,
contracts or OEM design wins by the Company or its competitors; developments
with respect to patents, copyrights or proprietary rights; changes in
recommendations or financial estimates by securities analysts; conditions and
trends in the PC and technology industries; adoption of new accounting standards
affecting the Company's industry; general market conditions and other factors.
Further, the stock market has experienced in recent months and may continue in
the future to experience extreme price and volume fluctuations that particularly
affect the market prices of equity securities of high technology companies and
that often are unrelated or disproportionate to the operating performance of
such companies. The trading

18
<PAGE>

prices of many high technology companies' stocks (including that of the Company)
have recently been at or near historical highs and reflect price to earnings
ratios that are substantially above historical levels. There can be no assurance
that these trading prices and price to earnings ratios will be sustained. These
broad market fluctuations, as well as general economic, political and market
conditions, may adversely affect the market price of the Company's Common Stock.
In the past, following periods of volatility in the market price of a company's
stock, securities class action litigation has often been instituted against the
issuing company. There can be no assurance that such litigation will not occur
in the future with respect to the Company. Such litigation could result in
substantial costs and would at a minimum divert management's attention and
resources, which could have a material adverse effect on the Company's business,
financial condition and results of operations. Any adverse determination in such
litigation could also subject the Company to significant liabilities. See "Price
Range of Common Stock and Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of shares by existing shareholders and option holders could
adversely affect the prevailing market price of the Common Stock. Upon
completion of this offering, the Company will have outstanding an aggregate of
13,239,862 shares of Common Stock, assuming no exercise of stock options after
January 31, 1998. In addition to the 2,775,000 shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option) there
will be 10,464,862 shares of Common Stock outstanding, substantially all of
which will be freely tradeable. The executive officers and directors of the
Company and the Selling Shareholders will, upon completion of this offering, own
a total of (i) 2,713,034 shares, or 20.5% of the Common Stock outstanding
(assuming no exercise of the Underwriters' over-allotment option) or (ii)
2,488,034 shares, or 18.5% of the Common Stock outstanding (assuming the
Underwriters' over-allotment option is exercised in full). The Company, the
Company's executive officers and directors and the Selling Shareholders have
agreed that they will not, for a period of 90 days after the date of the
Prospectus, offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock now owned or
hereafter acquired directly by such person or with respect to which such person
has or hereafter acquires the power of disposition without the prior written
consent of CIBC Oppenheimer Corp., except for the shares of Common Stock offered
in connection with this 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 of 1933, as amended (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. 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."

19
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,775,000 shares of
Common Stock offered by the Company hereby are estimated to be $57.3 million
($62.0 million if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discount and estimated offering expenses.

Of the net proceeds, approximately $28.0 million will be used to repay
indebtedness outstanding under the Company's secured revolving credit facility
(the "Revolving Credit Facility"). At January 31, 1998, approximately $23.0
million was outstanding under the Revolving Credit Facility, which amount and
additional indebtedness incurred subsequent to that date was incurred for
general working capital purposes. The Revolving Credit Facility bears interest
at LIBOR plus 175 basis points (7.348% at January 31, 1998) and matures on
November 21, 1999. The Company expects that the balance of the proceeds from
this offering, approximately $29.3 million, will be used for general corporate
purposes. 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 proceeds from the
sale of the shares by the Selling Shareholders (including any shares sold by the
Selling Shareholders in connection with the exercise of the Underwriters'
over-allotment option.)

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "STBI" since February 14, 1995, the date of its initial public
offering. The table below sets forth, for the fiscal quarters indicated, the
high and low sale prices for the Common Stock, as reported by the Nasdaq
National Market. The prices have been adjusted to reflect the three-for-two
stock split of the Common Stock effected in the form of a stock dividend on
February 20, 1998.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal Year Ended October 31, 1996
First quarter...................................................................... $ 5.44 $ 3.28
Second quarter..................................................................... $ 5.00 $ 3.61
Third quarter...................................................................... $ 8.22 $ 4.56
Fourth quarter..................................................................... $ 11.50 $ 5.44

Fiscal Year Ended October 31, 1997
First quarter...................................................................... $ 15.94 $ 8.44
Second quarter..................................................................... $ 16.11 $ 9.67
Third quarter...................................................................... $ 19.92 $ 11.39
Fourth quarter..................................................................... $ 30.50 $ 18.00

Fiscal Year Ended October 31, 1998
First quarter...................................................................... $ 22.67 $ 13.33
Second quarter (through March 19, 1998)............................................ $ 26.33 $ 18.33
</TABLE>

On March 19, 1998, the last reported sale price for the Company's Common
Stock on the Nasdaq National Market was $22.00 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 things, 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 prohibits the Company from paying cash
dividends.

20
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization and short-term borrowings
of the Company (i) as of January 31, 1998, and (ii) as adjusted to give effect
to the receipt by the Company of the estimated net proceeds from the sale of the
2,775,000 shares of Common Stock offered by the Company hereby. 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.

<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Short-term borrowings including current portion of long-term liabilities.................. $ 23,589 $ 589
--------- -----------
--------- -----------
Long-term liabilities, net of current portion............................................. $ 2,538 $ 2,538
--------- -----------
Shareholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized; no shares outstanding..... -- --
Common Stock, $.01 par value, 25,000,000 shares authorized; 10,464,897 shares issued
(actual); 13,239,897 shares issued (as adjusted)(1)(2)................................ 105 132
Treasury Stock, at cost................................................................. (245) (245)
Additional paid-in capital.............................................................. 25,453 82,752
Retained earnings....................................................................... 22,050 22,050
--------- -----------
Total shareholders' equity............................................................ 47,363 104,689
--------- -----------
Total capitalization................................................................ $ 49,901 $ 107,227
--------- -----------
--------- -----------
</TABLE>

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

(1) Assumes that the three-for-two stock split of the Company's Common Stock
effected in the form of a stock dividend on February 20, 1998 had occurred
on January 31, 1998. Excludes (i) 2,014,500 shares of Common Stock reserved
for issuance under the Incentive Plan, of which options to purchase
1,881,977 shares of Common Stock were outstanding as of January 31, 1998
with a weighted average exercise price of $8.85 per share, (ii) 225,000
shares of Common Stock reserved for issuance under the Director Plan, of
which options to purchase 56,250 shares of Common Stock were outstanding as
of January 31, 1998 with a weighted average exercise price of $5.33 per
share, and (iii) 410,570 shares of Common Stock reserved for issuance under
the Employee Plan. The Board of Directors of the Company proposes to submit
for shareholder approval at the next annual meeting of shareholders a
proposal to increase the number of shares of Common Stock to be reserved for
issuance under the Incentive Plan. See "Management--1995 Long Term Incentive
Plan."

(2) Common Stock share numbers are inclusive of shares of treasury stock.

21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statements of operations data for each
of the three years in the period ended October 31, 1997 and consolidated balance
sheet data at October 31, 1996 and 1997 are derived from the Company's
Consolidated Financial Statements that were audited by Price Waterhouse LLP,
independent accountants, whose report thereon is included elsewhere in this
Prospectus and is incorporated by reference herein. The selected consolidated
statements of operations data for the years ended October 31, 1993 and 1994 and
the consolidated balance sheet data at October 31, 1993, 1994 and 1995 have been
derived from audited financial statements not included or incorporated by
reference herein. The consolidated balance sheet data as of January 31, 1998 and
the consolidated statements of operations data for the three months ended
January 31, 1997 and 1998 are derived from unaudited consolidated interim
financial statements included elsewhere in this Prospectus. The unaudited
consolidated interim financial statements have been prepared by the Company on a
basis consistent with the audited financial statements and, in the opinion of
management, contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations for such periods. Historical results are not
necessarily indicative of results to be expected in any future period.

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, including the Notes thereto, "Managements Discussion and
Analysis of Financial Condition and Results of Operations", and the other
financial information included or incorporated by reference herein.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED JANUARY
FISCAL YEAR ENDED OCTOBER 31, 31,
---------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales....................................... $39,236 $89,836 $129,603 $180,155 $199,485 $48,092 $78,758
Cost of sales................................... 30,726 73,213 110,129 144,879 149,439 37,459 62,542
------- ------- -------- -------- -------- ------- -------
Gross profit.................................... 8,510 16,623 19,474 35,276 50,046 10,633 16,216
------- ------- -------- -------- -------- ------- -------
Operating expenses:
Research and development...................... 1,079 1,795 2,719 4,428 6,740 1,238 2,338
Sales and marketing........................... 3,835 5,529 7,437 10,986 14,788 3,286 4,424
General and administrative.................... 2,810 5,190 6,172 9,486 10,618 2,383 3,235
------- ------- -------- -------- -------- ------- -------
Total operating expenses.......................... 7,724 12,514 16,328 24,900 32,146 6,907 9,997
------- ------- -------- -------- -------- ------- -------
Income from operations.......................... 786 4,109 3,146 10,376 17,900 3,726 6,219
Interest expense, net........................... 226 588 818 1,113 1,649 376 518
------- ------- -------- -------- -------- ------- -------
Income before income taxes...................... 560 3,521 2,328 9,263 16,251 3,350 5,701
Provision for income taxes(1)................... -- -- 330 3,186 5,481 1,098 1,896
------- ------- -------- -------- -------- ------- -------
Net income(1)................................... $ 560 $ 3,521 $ 1,998 $ 6,077 $ 10,770 $ 2,252 $ 3,805
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Net income per share(1)(2)(3):
Basic......................................... $ 0.10 $ 0.63 $ 0.23 $ 0.60 $ 1.05 $ 0.22 $ 0.36
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Diluted....................................... $ 0.10 $ 0.63 $ 0.23 $ 0.59 $ 0.97 $ 0.21 $ 0.33
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Weighted average shares outstanding(1)(2)(3):
Basic......................................... 5,625 5,625 8,818 10,159 10,298 10,159 10,462
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
Diluted....................................... 5,625 5,625 8,851 10,309 11,147 10,731 11,389
------- ------- -------- -------- -------- ------- -------
------- ------- -------- -------- -------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
AS OF
AS OF OCTOBER 31, JANUARY 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $ 1,480 $ 4,373 $ 21,621 $ 25,192 $ 31,361 $ 35,801
Total assets................................................ 14,777 23,651 57,539 65,629 109,554 115,767
Short-term borrowings, including current portion of
long-term liabilities..................................... 3,679 6,793 12,138 12,465 22,687 23,589
Long-term liabilities, net of current portion............... 38 2,440 2,258 1,276 3,111 2,538
Total shareholders' equity.................................. 2,088 4,196 23,362 29,597 43,462 47,363
</TABLE>

(SEE FOOTNOTES ON FOLLOWING PAGE)

22
<PAGE>
- ------------------------------
(1) Prior to the Company's initial public offering in February 1995, the Company
had been treated for federal and certain state income tax purposes as an S
corporation. 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
Founding Shareholders. Accordingly, prior to February 21, 1995, no
recognition of federal and certain state income taxes was included in the
Company's net income and net income per share. Therefore, net income and net
income per share for fiscal years 1993 through 1995 are not comparable to
net income and net income per share for fiscal years 1996 and 1997 or the
three months ended January 31, 1997 and 1998. See Note 1 of Notes to
Consolidated Financial Statements.

(2) See Notes 1 and 11 of Notes to Consolidated Financial Statements and Notes 1
and 5 of Notes to Consolidated Interim Financial Statements for information
concerning the calculation of basic and diluted net income per share. Such
calculations reflect the adoption by the Company of Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (FAS 128), for the fiscal
year ended October 31, 1998, which requires the restatement of all periods
presented in the Company's Consolidated Financial Statements included in
this Prospectus and incorporated by reference herein. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Recently Issued Accounting Standards."

23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. THE USE OF THE WORDS "ANTICIPATES,"
"BELIEVES," "ESTIMATES," "INTENDS," "PLANS" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF FACTORS SET FORTH HEREIN AND IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO,
THE CAUTIONARY STATEMENTS SET FORTH BELOW AND UNDER THE CAPTIONS "RISK FACTORS"
AND "BUSINESS" HEREIN AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN.

OVERVIEW

STB designs, manufactures and sells multimedia subsystem and specialized
technology products, primarily for use in desktop PCs. These products supplement
a PC's CPU to enhance multimedia performance and accelerate the computationally
intensive operations and processing requirements necessary to perform advanced
multimedia applications. The Company focuses primarily on the sale of its
products to major OEMs and works closely with its component suppliers and OEM
customers to develop products that are responsive to technological trends and
consumer demand. STB manufactures substantially all of its products at its ISO
9002 certified facility in Juarez, Mexico, which the Company believes enables it
to respond more quickly to changing customer needs, maintain product quality and
achieve economies of scale.

The Company currently sells multimedia subsystems and specialized technology
products. The Company's multimedia subsystem product line includes a wide
selection of multimedia accelerator subsystems (also referred to as "graphics
add-in cards") designed primarily for use in mid to high-end PCs as well as
several complementary products, including DVD decoder subsystems, PC/TV
convergence subsystems and sound cards. STB's specialized technology products
include products designed to enable a single computer to control the display of
up to 32 monitors and a recently introduced line of flat panel display products.

The Company sells its products to OEM customers, the commercial market and
the specialized technology market. The Company sells its multimedia subsystems
primarily to major OEMs and, to a lesser extent, the commercial market. The
Company's OEM customers accounted for approximately 85%, 79% and 81% of total
net sales for the 1998 first fiscal quarter, fiscal year 1997 and fiscal year
1996, respectively. The Company's three largest OEM customers accounted in the
aggregate for approximately 76%, 66% and 59% of the Company's total net sales
for the 1998 first fiscal quarter, fiscal year 1997 and fiscal year 1996,
respectively. Sales of multimedia subsystems to the commercial market accounted
for approximately 9%, 12% and 11% of total net sales for the 1998 first fiscal
quarter, fiscal year 1997 and fiscal year 1996, respectively, and sales of
specialized technology products accounted for approximately 5%, 8% and 6% of
total net sales for the 1998 first fiscal quarter, fiscal year 1997 and fiscal
year 1996, respectively. The balance of total net sales was derived primarily
from third party contract assembly services, which comprised approximately 1%,
1% and 2% of total net sales for the 1998 first fiscal quarter, fiscal year 1997
and fiscal year 1996, respectively. Export sales of the Company's products,
which are made through all of the Company's sales channels, were 26% of net
sales in the 1998 first fiscal quarter as compared to 27% in fiscal year 1997
and 20% in fiscal year 1996. The Company has no long-term commitments or
contracts with any of its customers and the loss of any of the Company's key
customers could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors-- Customer
Concentration; Dependence on PC Market."

Sales of multimedia accelerator subsystems and other multimedia subsystems
to OEMs have typically been characterized by relatively high unit volumes and
relatively low gross profit margins. Sales of multimedia subsystem products to
the commercial market are characterized by relatively modest unit 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. Shifts in the mix of

24
<PAGE>

products sold or in the sales channels into which such products are sold could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors-- Change in Product or Sales
Channel Mix." In addition, a substantial majority of the Company's net sales
have been derived from sales of multimedia accelerator subsystems and, from time
to time, a substantial majority of the Company's net sales in a given fiscal
quarter have been derived from the sale of a single or a limited number of
multimedia accelerator subsystems. See "Risk Factors--Product Concentration."
The markets for the Company's products in general, and its multimedia
accelerator subsystems in particular, are characterized by short product life
cycles, evolving industry standards and frequent introductions of new products.
See "Risk Factors--Limited Product Life Cycle; Rapid Technological Change;
Management of Product Introductions."

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 rotation and price protection in the form of credits. The
Company's current stock rotation policies permit a commercial channel customer
to return approximately 10% of products purchased within the previous 90 days if
it concurrently places an order for other Company products of equal or greater
value. The Company also provides price protection to commercial channel
customers in the form of credits for price reductions on products remaining in
customer inventories at the time of the price reduction. The Company maintains
reserves related to these sales programs, which it believes are adequate. See
"Risk Factors--Price Protection and Stock Rotations."

The Company has no guaranteed supply arrangements with any of its suppliers.
The Company obtains most of the primary components for its current 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. In the past, the Company has experienced, and may in the
future experience, increases in its unit component costs without being able to
increase the price of the products incorporating such components. Such an
increase in component costs could impair the Company's gross profit margins and
results of operations. In particular, occasional worldwide shortages of memory
and controller chips and international tariff disputes have in the past resulted
in substantial component cost increases that have had a material adverse effect
on the Company's gross profit margins and its results of operations. In recent
periods, a decline in the price of memory chips, together with improved
inventory management practices and other factors, has contributed to improved
gross profit margins. The Company's total gross profits and gross profit margins
will likely continue to fluctuate from period to period as a result of the
Company's product mix, sales channel mix, component costs and competitive
pricing pressures on the Company's products. See "Risk Factors--Dependence on
Suppliers" and "--Change in Product or Sales Channel Mix."

In recent periods, the Company's business has been strongly influenced by
the following trends: the growth of the PC market in general; the ability of
several major PC manufacturers to expand their respective market shares of the
PC market in general; the Company's ability to establish and expand OEM
relationships with several of these major PC manufacturers; the expansion of the
market for multimedia subsystems and, in particular, the market for multimedia
accelerator subsystems; the ability of the Company to identify and source key
components, such as graphics controller chips, that enable the Company's
products to compete effectively with its competitors; and the Company's ability
to design, develop and manufacture successive generations of multimedia
accelerator subsystems that secure design wins with major OEM customers and
achieve wide market acceptance. Although the Company is currently attempting to
diversify its product offerings, expand its existing OEM customer relationships,
establish new OEM customer relationships and expand sales into the commercial
market, there can be no assurance that the Company will be successful with
respect to any of these efforts. The failure by the Company to further diversify
its product offerings and to expand its distribution channels could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Customer Concentration; Dependence on
PC Market," "--Dependence on Multimedia Accelerator Subsystem

25
<PAGE>
Market; Migration to Motherboards," "--Dependence on Suppliers" and "--Limited
Product Life Cycle; Rapid Technological Change; Management of Product
Transitions."

During the fiscal quarter ended April 30, 1997, the Company acquired all of
the outstanding shares of Symmetric Simulation Systems, Inc. ("Symmetric"), a
designer and builder of high-end 3D graphics acceleration subsystems used in
applications such as computer-aided design, product visualization, architectural
walk-throughs and multimedia authoring. The Company believes that the Symmetric
product line complements the Company's existing products and enables the Company
to market products to the high-end 3D market. See Note 3 of Notes to
Consolidated Financial Statements.

RESULTS OF OPERATIONS

The following table sets forth certain items from the Company's Consolidated
Statements of Operations as a percentage of net sales:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31, JANUARY 31,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 85.0 80.4 74.9 77.9 79.4
----- ----- ----- ----- -----
Gross profit...................................... 15.0 19.6 25.1 22.1 20.6
----- ----- ----- ----- -----
Operating expenses:
Research and development........................ 2.1 2.4 3.4 2.6 3.0
Sales and marketing............................. 5.7 6.1 7.4 6.8 5.6
General and administrative...................... 4.8 5.3 5.3 5.0 4.1
----- ----- ----- ----- -----
Total operating expenses.......................... 12.6 13.8 16.1 14.4 12.7
----- ----- ----- ----- -----
Income from operations............................ 2.4 5.8 9.0 7.7 7.9
Interest expense, net............................. 0.6 0.6 0.8 0.7 0.7
----- ----- ----- ----- -----
Income before income taxes........................ 1.8 5.2 8.2 7.0 7.2
Provision for income taxes(1)..................... 0.3 1.8 2.8 2.3 2.4
----- ----- ----- ----- -----
Net income........................................ 1.5% 3.4% 5.4% 4.7% 4.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

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

(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 1 of Notes to Consolidated Financial
Statements.

THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997

NET SALES. Net sales increased to $78.8 million in the 1998 first fiscal
quarter from $48.1 million in the 1997 first fiscal quarter, representing an
increase of 63.8%. Unit volume for the 1998 first fiscal quarter increased by
64.6% over the 1997 first fiscal quarter, while the Company's average unit
selling prices remained essentially unchanged. OEM channel sales increased to
approximately $66.2 million in the 1998 first fiscal quarter from $34.7 million
in the 1997 first fiscal quarter, representing an increase of 90.9%. Sales
growth in the OEM channel was primarily the result of increased demand for the
Company's Velocity 128 multimedia accelerator. See "Risk Factors--Product
Concentration." Commercial channel sales decreased to $7.4 million in the 1998
first fiscal quarter from $9.4 million in the 1997 first fiscal quarter, a
decrease of 21.5%, primarily due to limited controller chip availability for the
Velocity 128 multimedia accelerator resulting from unexpected OEM product demand
increases. Sales in the specialized technology market increased to $4.1 million
in the 1998 first fiscal quarter from $2.7 million in the 1997 first fiscal
quarter, or 53.3%, which was primarily a result of increased sales to OEM
customers for financial services workstations.

26
<PAGE>
GROSS PROFIT. Gross profit consists of net sales less cost of sales. Cost
of sales primarily consists of the cost of materials and manufacturing costs
associated with the production of the Company's products. Gross profit increased
to $16.2 million in the 1998 first quarter from $10.6 million in the 1997 first
quarter, representing an increase of 52.5%. During the period, gross profit as a
percentage of net sales decreased to 20.6% in the 1998 first fiscal quarter from
22.1% in the 1997 first fiscal quarter. The increase in the amount of gross
profit resulted primarily from increases in sales volumes of the Company's
products (and, in particular, the Company's Velocity 128 multimedia
accelerator), partially offset by decreasing unit prices. The decrease in gross
profit as a percentage of net sales resulted primarily from (i) an increase in
the percentage of sales to the OEM market, which typically is characterized by
lower gross profit margins, and (ii) increased component costs due to a
temporary shortage in memory component supply resulting from higher product
demand and (iii) increased overtime labor costs caused by the higher rates of
production necessary to meet increased product demand. These increases were
partially offset by the economies of scale resulting from higher production
volumes and increased operating efficiencies. Gross margins are expected to
continue to fluctuate as a result of sales channel, product mix and other
factors. See "Risk Factors--Potential for Fluctuating Operating Results;
Seasonality" and "--Dependence on Suppliers."

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
primarily consist of compensation and associated expenses relating to
engineering personnel, development tool expenses, prototyping expenses and
product enhancement expenses. Research and development expenses increased to
$2.3 million in the 1998 first fiscal quarter from $1.2 million in the 1997
first fiscal quarter, representing an increase of 88.9%. Research and
development expenses as a percentage of net sales increased to 3.0% in the 1998
first fiscal quarter from 2.6% in the 1997 first fiscal quarter. The increase in
research and development expenses on a dollar and percentage basis resulted from
increased staffing at the Company's corporate headquarters and at each of the
design centers in Houston, Texas; Eugene, Oregon; and the recently established
design center in Belfast, Northern Ireland. Other expenses associated with the
development of new products, increased expenses associated with software and
driver development also contributed to the increase in research and development
expenses.

SALES AND MARKETING EXPENSES. Sales and marketing expenses primarily
consist of personnel and related overhead expenses for sales, marketing and
customer support activities, promotional and advertising expenses, and
commissions paid to independent sales representatives. Sales and marketing
expenses increased to $4.4 million in the 1998 first fiscal quarter from $3.3
million in the 1997 first fiscal quarter, representing an increase of 34.6%.
Sales and marketing expenses as a percentage of net sales decreased to 5.6% in
the 1998 first fiscal quarter from 6.8% in the 1997 first fiscal quarter,
primarily due to increases in net sales at a rate faster than that of sales and
marketing expenses. The increase in sales and marketing expenses resulted
primarily from additional staffing and commissions paid as a result of higher
sales, partially offset by decreases in commissions paid to independent sales
representatives. Increased expenses for advertising and promotional programs in
the commercial channel, the specialized technology channel and the international
market also contributed to the increased expenses.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
primarily consist of personnel and related overhead expenses for management,
finance, management information systems activities, legal and human resources,
as well as expenses associated with occupancy and other general operating
expenses. General and administrative expenses increased to $3.2 million in the
1998 first fiscal quarter from $2.4 million in the 1997 first fiscal quarter,
representing an increase of 35.8%. General and administrative expenses as a
percentage of net sales decreased to 4.1% in the 1998 first fiscal quarter from
5.0% in the 1997 first fiscal quarter. The increase in the amount of general and
administrative expenses was primarily due to increased expenses associated with
the Company's growth, including increased staffing, occupancy and other general
operating expenses. Increased employee profit sharing, as a result of higher
earnings, also contributed to the increase in general and administrative
expenses. The Company recently commenced construction of a new headquarters
facility that it plans to occupy in the 1999 first

27
<PAGE>
fiscal quarter. The terms of the lease relating to the new headquarters facility
provide for increased occupancy expense from current levels and are subject to
adjustment based on prevailing interest rates. See "--Liquidity and Capital
Resources."

INTEREST EXPENSE, NET. Interest expense, net primarily consists of the
interest expense associated with the Company's Revolving Credit Facility,
Mezzanine Facility (as defined below) and capital leases, offset partially by
the interest income earned on the Company's cash and cash equivalents. Interest
expense, net increased to approximately $518,000 in the 1998 first fiscal
quarter from approximately $376,000 in the 1997 first fiscal quarter,
representing an increase of 37.8%. The increase in the amount of interest
expense, net was primarily related to an increase in the average total debt and
obligations under capital leases outstanding during the 1998 first fiscal
quarter compared to the 1997 first fiscal quarter.

FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1996

NET SALES. Net sales increased to $199.5 million in fiscal year 1997 from
$180.2 million in fiscal year 1996, representing an increase of 10.7%. Unit
volume for fiscal year 1997 increased by 27.4% over fiscal year 1996, while the
Company's average unit selling prices continued to decline primarily as a result
of declines in component costs. OEM channel sales increased to $153.5 million in
fiscal year 1997 from approximately $145.5 million in fiscal year 1996,
representing an increase of 5.5%. Sales growth in the OEM channel was primarily
the result of increased sales to existing customers. Commercial channel sales
increased to $23.9 million in fiscal year 1997 from $19.8 million in fiscal year
1996, representing an increase of 20.8%. This moderate increase in sales to the
commercial channel primarily resulted from increased sales to existing
customers. Sales in the specialized technology market increased to $15.2 million
in fiscal year 1997 from $10.9 million in fiscal year 1996, representing an
increase of 38.9%. This increase was primarily due to increased sales to
existing customers, as well as recent sales of products to the workstation
groups of certain OEM customers.

GROSS PROFIT. Gross profit increased to $50.0 million in fiscal year 1997
from $35.3 million in fiscal year 1996, representing an increase of 41.9%. For
the period, gross profit as a percentage of net sales increased to 25.1% in
fiscal year 1997 from 19.6% in fiscal year 1996. The increase in the amount of
gross profit primarily resulted from increases in sales volumes of the Company's
products, partially offset by declining average selling prices. The increase in
gross profit margin resulted primarily from increased sales of higher margin
specialized technology products and, to a lesser degree, increased sales to the
commercial channel. In addition, declines in component costs, economies of scale
resulting from higher production volumes and greater manufacturing efficiencies
with respect to the manufacture and sale of the Company's multimedia accelerator
subsystems, partially offset by decreasing unit prices, also contributed to the
increase in gross profit margin.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $6.7 million in fiscal year 1997 from $4.4 million in fiscal year
1996, representing an increase of 52.2%. This increase primarily resulted from
additional engineering staffing at the Company's headquarters in Richardson,
Texas, as well as its design centers in Houston, Texas and Eugene, Oregon.
During 1997, the Company expanded its research and development efforts by
establishing and staffing a design center in Belfast, Northern Ireland. Expenses
associated with new product development, software development and continued
enhancement and support of the Company's existing products also contributed to
the increase. Research and development expenses as a percentage of net sales
increased to 3.4% in fiscal year 1997 from 2.4% in fiscal year 1996.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$14.8 million in fiscal year 1997 from $11.0 million in fiscal year 1996,
representing an increase of 34.6%. Sales and marketing expenses as a percentage
of net sales increased to 7.4% in fiscal year 1997 from 6.1% in fiscal year
1996. Sales and marketing expenses increased primarily due to additional
staffing and commissions paid as a result of the Company's growth and higher
sales levels, and increased travel and operating costs. Increased

28
<PAGE>
trade show expenses, and increased advertising and promotional expenses in the
commercial channel, the specialized technology market and the international
market also contributed to the overall increase in sales and marketing expenses.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $10.6 million in fiscal year 1997 from $9.5 million in fiscal year
1996, representing an increase of 11.9%. For fiscal year 1997 and fiscal year
1996, general and administrative expenses as a percentage of net sales remained
unchanged at 5.3%. The absolute dollar increase in general and administrative
expenses was primarily due to increased expenses associated with the Company's
growth, including increased staffing and related expenses and data processing
costs, partially offset by an increase in the allocation of certain costs
related to the Juarez manufacturing operation to cost of goods sold. Facility
expansion at the Company's headquarters and related occupancy costs, including
rent and insurance, also contributed to the overall absolute increase in general
and administrative expenses. As a result of the increase in operating income,
the expenses associated with the Company's profit sharing plan also increased.

INTEREST EXPENSE, NET. Interest expense, net increased to $1.6 million in
fiscal year 1997 from $1.1 million in fiscal year 1996, representing an increase
of 48.2%. This increase was primarily a result of higher average total debt
outstanding during fiscal 1997 compared to fiscal 1996.

FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995

NET SALES. Net sales increased to $180.2 million in fiscal year 1996 from
$129.6 million in fiscal year 1995, representing an increase of 39.0%. This
increase in revenues was achieved primarily as a result of a 58.0% increase in
unit volume shipments, and despite a significant decrease in the average unit
sales price of the Company's products. This increase also resulted from
continuing growth in sales of the Company's products to established OEM
customers, as well as to new OEM customers. The Company also experienced
continued growth in the commercial channel from sales of the Company's products
to new commercial customers and increased sales to established customers. Sales
in the specialized technology market experienced moderate growth, primarily as a
result of increased sales to existing customers.

GROSS PROFIT. Gross profit increased to $35.3 million in fiscal year 1996
from $19.5 million in fiscal year 1995, representing an increase of 81.1%. Gross
profit margin increased to 19.6% in fiscal year 1996 from 15.0% in fiscal year
1995. The increase in the amount of gross profit primarily resulted from
increases in sales volumes of the Company's products, partially offset by
declining average selling prices. The increase in gross profit margin primarily
resulted from economies of scale resulting from higher production volumes, as
well as from lower memory chip prices. Increased sales of higher margin products
sold in the commercial channel and increased specialized technology product
sales also contributed to the increase in gross profit margin.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $4.4 million in fiscal year 1996 from $2.7 million in fiscal year
1995, representing an increase of 62.9%. Research and development expenses as a
percentage of net sales increased to 2.4% in fiscal year 1996 from 2.1% in
fiscal year 1995. The dollar increase in research and development expenses
primarily resulted from additional staffing and related expenses associated with
new product development, software development and continued enhancement and
support of the Company's existing products.

SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$11.0 million in fiscal year 1996 from $7.4 million in fiscal year 1995,
representing an increase of 47.7%. Sales and marketing expenses as a percentage
of net sales increased to 6.1% in fiscal year 1996 from 5.7% in fiscal year
1995. The dollar increase in sales and marketing expenses largely resulted from
additions to the Company's domestic and international sales forces and increased
commissions paid for higher sales levels. Increased trade show expenses,
advertising and promotional efforts to support the higher sales levels in the
commercial and specialized technology product sales also contributed to the
increase.

29
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $9.5 million in fiscal year 1996 from $6.2 million in fiscal year
1995, representing an increase of 53.7%. General and administrative expenses as
a percentage of net sales increased to 5.3% in fiscal year 1996 from 4.8% in
fiscal year 1995. The dollar and percentage increases in general and
administrative expenses were largely due to increased occupancy costs, insurance
expenses, and personnel, legal and data processing expenses associated with the
Company's growth.

INTEREST EXPENSE, NET. Interest expense, net increased to $1.1 million in
fiscal year 1996 from approximately $818,000 in fiscal year 1995, representing
an increase of 36.1%. This increase was primarily a result of higher average
total debt outstanding during fiscal year 1996 compared to fiscal year 1995.

30
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS AND SEASONALITY

The following tables set forth certain unaudited statements of operations
data for each of the eight quarters in the two year period ended January 31,
1998, as well as the percentage of the Company's net sales represented by each
item. The unaudited financial information has been prepared on the same basis as
the audited financial statements contained or incorporated by reference herein
and includes all adjustments (consisting only of normal recurring adjustments)
that the Company considers necessary for a fair presentation of such
information. The following information should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The Company believes that quarter-to-quarter
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
--------------------------------- --------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31,
1996 1996 1996 1997 1997 1997 1997
----------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $ 44,592 $ 42,537 $ 48,122 $ 48,092 $ 48,700 $ 42,019 $ 60,674
Cost of sales............................. 36,189 33,921 37,126 37,459 36,922 29,594 45,463
----------- --------- --------- --------- ----------- --------- ---------
Gross profit.............................. 8,403 8,616 10,996 10,633 11,778 12,425 15,211
Operating expenses........................ 6,075 6,243 7,487 6,907 7,601 8,267 9,371
----------- --------- --------- --------- ----------- --------- ---------
Income from operations.................... 2,328 2,373 3,509 3,726 4,177 4,158 5,840
Interest expense, net..................... 278 271 244 376 383 426 465
Provision for income taxes................ 699 722 1,134 1,098 1,376 1,263 1,745
----------- --------- --------- --------- ----------- --------- ---------
Net income................................ $ 1,351 $ 1,380 $ 2,131 $ 2,252 $ 2,418 $ 2,469 $ 3,630
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Net income per share(1)(2):
Basic................................... $ 0.13 $ 0.14 $ 0.21 $ 0.22 $ 0.24 $ 0.24 $ 0.35
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Diluted................................. $ 0.13 $ 0.13 $ 0.20 $ 0.21 $ 0.22 $ 0.22 $ 0.31
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Weighted average shares outstanding(1)(2):
Basic................................... 10,125 10,130 10,144 10,159 10,249 10,353 10,429
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
Diluted................................. 10,125 10,331 10,540 10,731 11,051 11,230 11,571
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------

FISCAL
1998
---------
JAN. 31,
1998
---------

<S> <C>
Net sales................................. $ 78,758
Cost of sales............................. 62,542
---------
Gross profit.............................. 16,216
Operating expenses........................ 9,997
---------
Income from operations.................... 6,219
Interest expense, net..................... 518
Provision for income taxes................ 1,896
---------
Net income................................ $ 3,805
---------
---------
Net income per share(1)(2):
Basic................................... $ 0.36
---------
---------
Diluted................................. $ 0.33
---------
---------
Weighted average shares outstanding(1)(2):
Basic................................... 10,462
---------
---------
Diluted................................. 11,389
---------
---------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
QUARTER ENDED
--------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31,
1996 1996 1996 1997 1997 1997
------------ ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 81.2 79.7 77.1 77.9 75.8 70.4
----- ----- ----- ----- ----- -----
Gross profit............................... 18.8 20.3 22.9 22.1 24.2 29.6
Operating expenses......................... 13.6 14.7 15.6 14.4 15.6 19.7
----- ----- ----- ----- ----- -----
Income from operations..................... 5.2 5.6 7.3 7.7 8.6 9.9
Interest expense, net...................... 0.6 0.6 0.5 0.7 0.8 1.0
Provision for income taxes................. 1.6 1.7 2.4 2.3 2.8 3.0
----- ----- ----- ----- ----- -----
Net income................................. 3.0% 3.3% 4.4% 4.7% 5.0% 5.9%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----

OCT. 31, JAN. 31,
1997 1998
------------ ------------
<S> <C> <C>
Net sales.................................. 100.0% 100.0%
Cost of sales.............................. 74.9 79.4
----- -----
Gross profit............................... 25.1 20.6
Operating expenses......................... 15.4 12.7
----- -----
Income from operations..................... 9.7 7.9
Interest expense, net...................... 0.8 0.7
Provision for income taxes................. 2.9 2.4
----- -----
Net income................................. 6.0% 4.8%
----- -----
----- -----
</TABLE>

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

(1) See Notes 1 and 11 of Notes to Consolidated Financial Statements and Notes 1
and 5 of Notes to Consolidated Interim Financial Statements for information
concerning the calculation of basic and diluted net income per share. Such
calculations reflect the adoption by the Company of FAS 128, for the fiscal
year ended October 31, 1998, which requires the restatement of all periods
presented in the Company's Consolidated Financial Statements included in
this Prospectus and incorporated by reference herein. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Recently Issued Accounting Standards."

(2) Adjusted to reflect a three-for-two stock split effected in the form of a
stock dividend on February 20, 1998. Share and per share amounts have been
retroactively adjusted to reflect the stock split. See Note 1 of Notes to
Consolidated Financial Statements.

31
<PAGE>

The Company's quarterly operating results vary significantly depending on a
number of factors, including, but not limited to: the timely introduction by the
Company of new or enhanced products and the market's acceptance of these
products; the Company's ability to introduce and market products in accordance
with its OEM customers' design requirements and design cycles; changes in demand
for functionality of the Company's products and the products of its OEM
customers; the gain or loss of significant OEM customers; the volume and timing
of significant customer orders received during the period; the availability,
pricing and timeliness of component delivery for the Company's products;
increased competition from existing competitors and new entrants to the market;
the timing of new product announcements or product introductions by the
Company's competitors; product obsolescence, management of product transitions
and unanticipated delays or problems in the introduction or production of
products by the Company, its OEM customers or its competitors; product reviews
and other media coverage; anticipated and unanticipated decreases in average
selling prices of the Company's products; changes in the mix of products sold by
the Company's OEM and other customers; changes in the pricing policies of the
Company, its suppliers and customers; management of inventory by the Company and
its customers; changes in the Company's sales channel mix or in the sourcing
strategies of its OEM customers; and product returns or price protection charges
by the Company's customers. 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 year 1990, there can be no assurance
that this growth will continue on a quarterly or annual basis. It is likely that
in some future period the Company's operating results or business outlook will
be below the expectations of securities analysts or investors, which would
likely result in a significant reduction in the market price of the Company's
Common Stock. See "Risk Factors--Potential for Fluctuating Operating Results;
Seasonality" and "--Stock Price Volatility."

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital and liquidity needs are for financing
inventory and accounts receivable and for manufacturing and other equipment
expenditures. The Company has generally financed these capital and liquidity
needs and its operations through a combination of cash generated from
operations, trade credit from vendors, bank borrowings and the net proceeds from
its initial public offering. As a result of the Company's rapid growth in recent
years, its capital requirements have increased substantially. Future growth, if
any, will require additional capital, particularly to support increased working
capital needs, staffing requirements, promotional expenses, and manufacturing
facilities and equipment requirements.

Cash used in operating activities of $3.9 million in fiscal year 1997 was
primarily attributable to increases in inventory and accounts receivable as a
result of higher sales, partially offset by increases in net income and accounts
payable. Cash used in operating activities was approximately $462,000 in the
1998 first fiscal quarter, which resulted largely from increases in inventory
and accounts receivable as a result of higher sales, partially offset by
increases in net income and accounts payable. At October 31, 1997, the Company's
working capital was $31.4 million, compared to $35.8 million at January 31,
1998. Cash and cash equivalents was $3.9 million and $3.4 million at October 31,
1997 and January 31, 1998, respectively.

The Company invested $9.6 million in capital equipment in fiscal year 1997,
and an additional $442,000 during the 1998 first fiscal quarter. The Company's
investment in equipment is primarily attributable to manufacturing equipment
additions and upgrades of existing equipment to support the increased demand for
and complexity of the Company's products. During the 1998 first fiscal quarter,
the Company completed a move to a new 137,000 square foot manufacturing facility
in Juarez, Mexico, immediately adjacent to its previous facility. The Company
has retained one-half of its previous facility for expansion, with an option to
occupy, vacate or sublease the remaining half. During the 1997 fourth fiscal
quarter, the Company installed two new high-speed surface-mount technology
("SMT") assembly lines at

32
<PAGE>
its new facility, at a total cost of approximately $6.3 million. This equipment
was financed by two separate operating leases. During the 1996 fourth fiscal
quarter, the Company installed four additional SMT assembly lines, at an
approximate total cost of $4.2 million. This equipment was also financed through
operating lease financing arrangements. The Company's aggregate obligations
under all such equipment lease financing arrangements totaled approximately $9.5
million at October 31, 1997 and approximately $9.1 million at January 31, 1998.
The Company expects that additional capital expenditures for similar types of
equipment may be necessary to support additional future customer demand and
production requirements, although there can be no assurance in this regard.

The Company has a $40.0 million Revolving Credit Facility, as well as a $3.0
million term loan (the "Mezzanine Facility"). As of January 31, 1998, the
Company had $23.0 million and $2.9 million outstanding under the Revolving
Credit Facility and the Mezzanine Facility, respectively. The principal amount
outstanding under the Revolving Credit Facility bears interest at LIBOR plus 175
basis points (7.348% at January 31, 1998). The principal amount outstanding
under the Mezzanine Facility bears interest at LIBOR plus 250 basis points
(8.098% at January 31, 1998) and is payable in 60 monthly installments of
principal and interest, which began on November 1, 1997. Availability under the
Revolving Credit Facility is calculated using formulas based on eligible
accounts receivable as defined by the Revolving Credit Facility Agreement. The
indebtedness under the Revolving Credit Facility matures on November 21, 1999
and the indebtedness under the Mezzanine Facility matures on November 1, 2002.

In December 1997, the Company entered into a five year agreement to
construct and lease a new corporate headquarters in Richardson, Texas.
Construction on the 210,000 square foot facility began in December 1997, and the
total cost is estimated to be approximately $22.8 million (including land). The
lessor has agreed to fund the cost of the land and construction of the building
(subject to reductions based on certain conditions in the lease agreement). The
Company plans to occupy the facility during the 1999 first fiscal quarter with
rental payments commencing upon occupancy. The Company estimates that its
monthly rent for this facility will be approximately $225,000 for the four year
period following completion of the facility. This amount is in excess of the
current facilities expense, as local rental rates have increased and the Company
is increasing the square footage of its corporate headquarters. The lease
agreement also provides that the amount of lease payments are subject to
adjustment based upon prevailing interest rates. As a consequence, an increase
in prevailing interest rates will increase the Company's facilities expense. The
Company is currently exploring strategies to hedge this interest rate exposure.
The Company also is seeking opportunities to sublease that portion of its new
headquarters facility which the Company does not expect to utilize immediately
following its occupancy of the new facility. The monthly rent currently paid for
the Company's headquarters facility will be eliminated with the move to the new
facility. At the end of the lease for the new facility, the Company may elect to
either renew the lease, pay off the underlying debt on the facility or cause the
building to be sold. In the event of a sale, the proceeds will be used to retire
the underlying debt with any excess to be paid to the Company. The Company is
responsible for any outstanding balance due on the underlying obligation after
the sale of the facility. See "Risk Factors-- Headquarters Relocation."

From time to time, the Company evaluates acquisitions of businesses,
products or technologies that complement the Company's business. Any such
transactions, if consummated, may use a portion of the Company's working capital
or require the issuance of securities, which may result in further dilution to
the Company's shareholders. See "Risk Factors--Potential Future Acquisitions."

The Company believes that the net proceeds from the sale of the Common Stock
offered by the Company hereby, together with existing capital resources and
anticipated funds from operations, will satisfy the Company's anticipated
capital requirements for at least the next twelve months. After such period,
depending on its financial condition and results of operations, the Company may
require additional equity or debt financing to meet its capital requirements.
There can be no assurance that additional financing will be available when
required, or, if available, that such financing can be obtained on terms
satisfactory to the Company.

33
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair market value of the
Company's stock at the date of the grant over the amount the employee must pay
to acquire such stock.

In February 1997, FAS 128 was issued. FAS 128 specifies the computation,
presentation and disclosure requirements for earnings per share ("EPS") for
entities with publicly held common stock or potential common stock. FAS 128
simplifies the standards for computing EPS previously found in Accounting
Principles Board Opinion No. 15, "Earnings per Share" ("APB 15"), and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the statement of operations for all
entities with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. FAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. FAS 128 requires restatement of
all prior-period EPS data presented. The Company adopted FAS 128 as of and for
the year ending October 31, 1998.

In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"), was issued. FAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. It mandates that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. FAS 130 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt FAS 130 in the year ending October 31,
1999. Reclassification of financial statements for earlier periods provided for
comparative purposes is required upon adoption.

In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("FAS
131"), was issued. FAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. FAS 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company will adopt FAS 131 in the year
ending October 31, 1999.

34
<PAGE>
BUSINESS

INTRODUCTION

The Company's multimedia subsystem product line includes a wide selection of
multimedia accelerator subsystems (also referred to as "graphics add-in cards")
designed primarily for use in mid to high-end PCs. STB's multimedia accelerator
subsystems enable users to take advantage of true-color graphics, 3D and other
video features found in the latest PC operating systems (such as Microsoft
Windows 95 and Windows NT) and in multimedia applications. The Company sells its
multimedia subsystem products to major OEMs and, to a lesser extent, to
commercial customers, such as retailers, distributors and direct-mail companies.
The Company is broadening its relationships with OEMs beyond the sale of
multimedia accelerator subsystems to include the sale of other complementary
multimedia subsystems, such as DVD decoder subsystems, PC/TV convergence
subsystems and sound cards, and is evaluating the production of motherboards
that incorporate multimedia capabilities. Sales of multimedia subsystems to OEMs
represented approximately 85% and 79% of the Company's total net sales for the
1998 first fiscal quarter and the fiscal year ended October 31, 1997,
respectively. STB's OEM and commercial customers include Gateway 2000, Dell,
Compaq, International Business Machines Corporation ("IBM"), Best Buy Co., Inc.
("Best Buy"), CompUSA Inc. ("CompUSA"), Tech Data Corporation, Ingram Micro,
Inc. and Merisel, Inc.

INDUSTRY

According to Dataquest, an estimated 97.3 million PCs will be shipped
worldwide in 1998, compared to 83.1 million units in 1997 and 70.9 million units
in 1996. A substantial portion of the PCs shipped in recent periods incorporate
high performance Intel Pentium, Pentium Pro and Pentium II processors and
support multimedia functionality, including CD-ROM storage and playback,
high-resolution graphics, digital video and audio and, in most systems, hardware
3D acceleration and telecommunications. The evolution of these
multimedia-enabled PCs has been driven by the proliferation of high 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 graphics, video and sound.

The PC 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 its recent
introduction and support of the Accelerated Graphics Port ("AGP"),

35
<PAGE>
reflect the demand for higher CPU multimedia functionality and better
integration between the CPU and the multimedia subsystem. These architectural
enhancements, in combination with evolving digital standards such as MPEG-2
decompression, Dolby Digital audio and DVD storage, are establishing the PC as
the enabling platform for digital television, video teleconferencing and other
emerging multimedia capabilities.

Multimedia applications typically place substantial processing demands on a
PC's CPU, often degrading system performance. The processing burden on the CPU
can be reduced by offloading the computationally intensive multimedia processing
functions to specialized graphics and other multimedia subsystems. This allows
the PC's CPU to address other functions and improves the PC's overall
performance. Offloading multimedia processing functions can be achieved either
through the placement of subsystems on the motherboard or the use of add-in
subsystems. Motherboard implementations are typically less expensive, but
currently most motherboards provide lower levels of functionality and
performance than multimedia subsystems. Currently, add-in subsystems are more
expensive, but generally support higher levels of functionality and provide a
higher degree of flexibility in PC configuration because PC manufacturers can
stabilize their motherboard configurations and add multimedia subsystems that
suit end-user demands. Consequently, using add-in subsystems, PC manufacturers
can more rapidly integrate new technologies into their product lines and meet a
range of price and performance requirements.

Historically, PC manufacturers continuously have introduced more powerful
PCs while maintaining relatively constant prices. Recently, PC manufacturers
introduced PCs at lower price points, in particular below $1,000. OEMs are able
to meet some of the cost requirements for the lower cost PC market by reducing
the complexity of their products. To this end, OEMs have begun to integrate
functionality previously provided by separate subsystems, including multimedia
subsystems, onto the motherboard.

The accelerating pace of technological advancement and the demand by
consumers for more functionality have required OEMs to deliver technological
innovation to the market more quickly. Consequently, PC manufacturers must
introduce new PC models to the market more frequently. Accelerating
time-to-market demands have made it more difficult for OEMs to devote the
resources necessary for the timely internal development of multimedia subsystems
incorporating the latest innovations. Furthermore, many OEMs are expanding their
product lines in response to consumer demand for a broader range of price and
performance options. As a result, many OEMs have recently expanded their product
lines by outsourcing their multimedia subsystem development needs to those
suppliers able to meet their time-to-market and performance requirements with
high quality, cost-effective solutions.

SOLUTION

STB delivers to its customers innovative multimedia subsystems and
specialized technology products designed to meet increasing performance
requirements at cost-effective prices and on a timely basis. By working closely
with component suppliers and OEM customers, the Company is able to develop
innovative products that are responsive to product development trends and
consumer demands. As OEM customers communicate desired features for next
generation products, STB uses its close supplier relationships and its technical
and marketing expertise to determine the most appropriate components to meet
required price and performance specifications. By maintaining direct control
over production, the Company believes it can respond more quickly to changing
customer needs and better control quality and costs. The Company believes that
the combination of its strong relationships with leading-edge graphics
controller chip suppliers and its OEM customers, coupled with software and
hardware design expertise and in-house manufacturing capabilities, enables the
Company to deliver to its customers a time-to-market advantage over competing
solutions.

36
<PAGE>
STRATEGY

The Company's goal is to become the leading supplier of multimedia
accelerator subsystems and certain other multimedia subsystems for PCs. The
major elements of the Company's strategy are as follows:

- CONTINUED FOCUS ON OEM CUSTOMERS AND OEM SALES CHANNEL. The Company
focuses on its OEM customers, and, in particular, several of the largest
OEMs, as evidenced by significant increases in net sales within this
channel and the proportion of net sales within this channel during the
past several years. During fiscal year 1997, approximately 79% of the
Company's net sales were realized through its OEM channel, with Gateway
2000, Dell and Compaq accounting for 35%, 20% and 11% of net sales,
respectively. The Company believes that by developing and maintaining
close relationships with leading PC OEMs, it is better able to anticipate
the demands of its OEM customers, understand market trends and accelerate
product development to address the requirements of its customers.

- CONTINUED FOCUS ON MULTIMEDIA ACCELERATOR SUBSYSTEM MARKET AND OTHER
EMERGING MULTIMEDIA OPPORTUNITIES. The Company intends to continue to
focus its efforts on the multimedia accelerator subsystem market, where it
has consistently demonstrated its ability to introduce multimedia
accelerator subsystems designed to satisfy rapidly evolving and
increasingly demanding performance standards. Furthermore, the Company
intends to leverage its strong relationships with leading-edge graphics
controller chip suppliers and its OEM customers, its software and hardware
expertise, and its in-house manufacturing capabilities to become the
provider of choice to OEMs for other multimedia subsystem products such as
DVD decoder subsystems, PC/TV convergence products and sound cards. In
addition, the Company is actively soliciting orders for motherboards that
incorporate graphics circuitry. In the event that the Company secures an
order, the Company will undertake to design, develop and manufacture
motherboards that deliver multimedia capabilities.

- VALUE-ADDED ENGINEERING EXPERTISE. The Company's experienced software and
hardware engineers provide STB with industry-leading design expertise. The
Company intends to apply its engineering expertise to respond more quickly
to customer requirements, anticipate trends and advances in its industry
and expand its product line to take advantage of new technology
applications. During the past several years, the Company's products have
won industry awards from numerous publications including PC MAGAZINE, PC
WORLD, WINDOWS MAGAZINE, PC PROFESSIONAL and PC COMPUTING.

- CONTROL OF MANUFACTURING. The Company believes that it is the only major
independent supplier of multimedia accelerator subsystems that
manufactures all of its own products rather than outsourcing its
manufacturing operations. The Company believes that having its own
manufacturing facility incorporating automated SMT in Juarez, Mexico
enables it to maintain lower manufacturing costs, meet expedited customer
delivery schedules, adjust quickly 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. The Company is in the process of expanding its Juarez plant
to increase its production capacity.

- SELECTIVE PURSUIT OF ADDITIONAL SALES CHANNELS. In addition to expanding
its OEM sales channel, the Company intends to continue its efforts to
further penetrate the commercial market. The Company believes that its
experience in meeting the standards that its OEM customers demand better
positions the Company to provide competitive products in the commercial
market. The Company believes that increasing awareness of the STB brand
name, due in part to its penetration into the OEM sales channel, has
strengthened its position in the commercial market. The Company also seeks
to leverage its expertise acquired by developing and manufacturing
multimedia subsystem products in order to develop and manufacture its
specialized technology products. The Company believes it is one of the
world's largest suppliers of specialized technology products and intends
to

37
<PAGE>
continue marketing these products to current customers, as well as to new
customers in the same and other targeted industries.

- CONTROLLER CHIP INDEPENDENCE. Unlike some of its competitors, the Company
designs its products after evaluating controller chips produced or under
development by a number of leading suppliers. The selection of a
controller chip is based on competitive factors including performance,
cost, compatibility and reliability of supply. The Company believes that
outsourcing rather than internally designing, developing and manufacturing
controller chips allows it to consistently develop products incorporating
the latest technological advances. Moreover, similar to some of the
reasons driving the Company's OEM customers to purchase subsystems from
the Company, STB 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.

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 its customers products that enhance
the graphics, 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
multimedia accelerator subsystems at various price points, as well as other
multimedia subsystem products.

MULTIMEDIA ACCELERATOR SUBSYSTEMS. Substantially all of the Company's
multimedia accelerator subsystems are capable of displaying full-motion video
images on a PC. A typical multimedia accelerator subsystem consists of a printed
circuit board configured with a graphics 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 proprietary software
drivers and utilities and through the hardware design of its multimedia
accelerator subsystems. The Company incorporates its proprietary STB Vision
software utility on many of its multimedia accelerator subsystem products. STB
Vision supports various chipsets, with a consistent interface that supports
multiple languages, including English, German, French, Dutch, Polish, Japanese,
Italian and Spanish, and enhances the performance of a multimedia accelerator
subsystem.

The Company's multimedia accelerator subsystem 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 multimedia accelerator
subsystem is determined primarily by the graphics controller chip and software
drivers, while display resolution and color depth are determined primarily by
the amount of display memory. The Company offers a wide array of multimedia
accelerator subsystems that are compatible with the bus architectures prevalent
in today's market.

By offering a complete line of multimedia accelerator subsystems, the
Company can better establish and build relationships with OEMs. The Company
currently offers a high-end professional multimedia accelerator subsystem
product line that features a choice of several types of rasterization engines
(devices that generate a 2D image from a 3D geometrical model) from 3Dlabs Inc.,
Ltd. ("3Dlabs"), memory ranging from 8MB to 40MB and separate geometry
co-processors. This product line is optimized to support the Windows NT
operating system and OpenGL 3D graphics and is targeted at customers with the
most demanding 3D requirements, such as simulation, 3D modeling and animation
development.

The Company also offers multimedia accelerator subsystem products targeted
at mainstream customers. The top of STB's mainstream product line is the
Velocity 128, which has 4MB of Synchronous

38
<PAGE>
Graphics RAM ("SGRAM") and incorporates the NVIDIA Corporation ("NVIDIA") RIVA
128 graphics controller chip. The Company offers a number of mid-range products,
including products with 2D and 3D graphics capability, which generally contain
from 1MB to 4MB of EDO or Synchronous DRAM ("SDRAM") memory. For fiscal year
1997, approximately 63% of the multimedia accelerator subsystems shipped by the
Company had hardware-assisted 3D capability and in the 1998 first fiscal quarter
approximately 89% of the multimedia accelerator subsystems shipped by the
Company had hardware-assisted 3D capability.

OTHER MULTIMEDIA SUBSYSTEM PRODUCTS. In addition to multimedia accelerator
subsystems, the Company offers complementary multimedia subsystem products that
incorporate various emerging technologies.

- DVD DECODER SUBSYSTEMS. During the 1997 third fiscal quarter, STB began
shipping to OEMs products designed to enable the use of DVD drives in PCs.
The DVD is a 5 1/4-inch diameter disk that looks almost identical to the
CD-ROM. However, due to advances in recording technology, the capacity for
the DVD is greater than 4,770 megabytes, as compared to 680 megabytes on
the CD-ROM. Full motion video and audio data that is recorded on the DVD
is compressed using the MPEG-2 standard, and the audio data is digital
data using Dolby Digital processing. This video and audio data must be
processed as it goes from the DVD drive to the PC memory. STB provides the
DVD decoder subsystem that is required to process this data. At least one
of STB's first two DVD decoder subsystem products, DVD Theater or Impact
DVD, is used by Gateway 2000, Dell and Compaq. Since the drive mechanism
for the DVD is very similar to current CD-ROM drives, the cost of these
high-capacity drives likely will approach that of the CD-ROM drives during
late 1998. Since DVD drives can read current CD-ROMs, industry analyst
International Data Corporation ("IDC") predicts that the DVD will begin
replacing the CD-ROM during 1998 and will gain market share relative to
the CD-ROM over the coming years. According to IDC, approximately 2.3
million DVD drives were sold into the PC market in 1997 and approximately
83.8 million units will be sold into the PC market in the year 2000.

- PC/TV CONVERGENCE SUBSYSTEMS. The Company's PC/TV convergence subsystems
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 that they allow users
to access Intel Intercast, which broadcasts within an analog television
transmission signal and provides Internet-like information to supplement
television programs. These products are sold through the Company's OEM
channel and through commercial retailers such as Best Buy and CompUSA. The
Company's Video Rage II television tuner/multimedia accelerator subsystem
is used in Gateway 2000's Destination PC/TV product line.

- SOUND CARDS. A sound card, or "audio adapter add-in board," 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 complement its multimedia
accelerator subsystem products.

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. Historically, OEMs have
introduced new system configurations as often as twice a year, and the Company
must design, develop, manufacture and deliver its new products to comply with
OEMs' schedules. The life cycle for a multimedia accelerator subsystem typically
is six to nine months (plus a few

39
<PAGE>

additional months of sales for certain products in the commercial market). See
"Risk Factors--Limited Product Life Cycle; Rapid Technological Change;
Management of Product Transitions."

A substantial number of PCs incorporate graphics circuitry on the
motherboard, particularly in lower cost PCs. The Company is actively soliciting
orders for such motherboards from OEMs and, in the event that the Company
secures an order, the Company will undertake to design, develop and manufacture
motherboards that deliver multimedia capabilities. There can be no assurance
that the Company will obtain any such orders or, if it does secure any orders,
such products can be produced in profitable quantities, if at all. The Company
anticipates that it will continue to expend efforts with respect to motherboards
and other potential products. See "Risk Factors--Entry Into New Product
Markets."

The Company's current major multimedia accelerator subsystems and other
multimedia subsystem products include the following:

<TABLE>
<CAPTION>
PRODUCT NAME DESCRIPTION STATUS
<S> <C> <C>
PROFESSIONAL 3D MULTIMEDIA ACCELERATOR SUBSYSTEMS

Glyder MP High performance professional 3D multimedia accelerator Shipping
subsystem with dual 3Dlabs GLINT MX graphics processors
and GAMMA geometry co-processor using 8MB of VRAM and
32MB of DRAM

Glyder MX High performance professional 3D multimedia accelerator Shipping
subsystem with a 3Dlabs GLINT MX graphics processor and
GAMMA co-processor using 8MB of VRAM and from 8MB to 32MB
of DRAM

Glyder TX Gold Mid-range professional 3D multimedia accelerator Shipping
subsystem with a 3Dlabs GLINT TX graphics processor with
8MB of VRAM plus 8MB of DRAM
Glyder Max - II Entry-level professional 3D multimedia accelerator Shipping
subsystem with a 3Dlabs Permedia II graphics processor
with 8MB of SGRAM
3D MULTIMEDIA ACCELERATOR SUBSYSTEMS

Velocity 128 Upper mid-range multimedia accelerator subsystem with 128 Shipping
bit architecture with an NVIDIA RIVA 128 graphics
processor using 4MB of 128 bit SGRAM

Velocity 3D Upper mid-range multimedia accelerator subsystem with an Mature
S3 ViRGE VX graphics processor using 4MB or 8MB of EDO
RAM

Nitro 3D Mid-range multimedia accelerator subsystem with an S3 Shipping
ViRGE GX graphics processor using either 2MB or 4MB of
SDRAM

Powergraph 64 3D Entry-level multimedia accelerator subsystem with an S3 Mature
ViRGE graphics processor using either 2MB or 4MB of SDRAM
</TABLE>

40
<PAGE>
<TABLE>
<CAPTION>
PRODUCT NAME DESCRIPTION STATUS
<S> <C> <C>
2D MULTIMEDIA ACCELERATOR SUBSYSTEMS

Lightspeed 128 Mid-range multimedia accelerator subsystem with a Tseng Mature
Labs ET6000 graphics processor using 2 or 2.25 MB of
SDRAM
Nitro 64 Video Entry level multimedia accelerator subsystem with a Mature
Cirrus Logic CL5446 graphics processor using either 1 MB
or 2MB of EDO DRAM
Powergraph 64 Video Entry level multimedia accelerator subsystem with an S3 Mature
Trio V2 graphics processor using either 1 MB or 2MB of
EDO DRAM
DVD DECODER SUBSYSTEMS

DVD Theater An all hardware DVD solution using an IBM Shipping
Microelectronics MPEG decoder chip
Impact DVD A hybrid hardware/software DVD solution using a Chromatic Shipping
Research Mpact M1 media processor supporting software for
MPEG-2 and Dolby Digital audio decoding
PC/TV CONVERGENCE SUBSYSTEMS

Video Rage II 3D multimedia accelerator subsystem using STB's "Hub" Shipping
architecture with television tuner, TV output and
optional DVD module (similar to DVD Theater)
TV-PCI TV tuner adapter with the capability of receiving cable Shipping
or over-the-air analog television broadcasts
SOUND CARDS

Wave Up Audio wavetable, upgrade card for incorporation on Shipping
certain Intel-logic motherboards
</TABLE>

SPECIALIZED TECHNOLOGY PRODUCTS

The Company's specialized technology products apply proprietary software and
hardware designs to industry standard components to deliver tailored solutions
for specific problems, and are characterized by significantly lower unit sales
volumes and relatively higher unit prices and gross profit margins than the
Company's multimedia subsystem products. The Company's specialized technology
products are sold primarily to resellers, the workstation groups of OEMs and
corporate customers for specialized applications in a number of industries,
including the financial services, hospitality, factory automation,
transportation and emergency response industries. The Company's specialized
technology products include products designed to enable a single computer to
control the display of up to 32 monitors. In addition, STB also recently
introduced a line of flat panel display products. The Company believes it is
currently one of the world's largest suppliers of multi-monitor products.

The Company offers two families of multi-monitor multimedia accelerator
subsystem 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 family of products is its "virtual screen" software driver (which
enables multiple monitors to act as a single screen, displaying numerous
"windows" of information through only one computer) and its Mediator utility
(which

41
<PAGE>
enables the user to control the placement of applications on the available
displays). Several financial institutions presently employ this capability in
their trading rooms, where large amounts of information must be continuously
available to traders. The Company has made several technological advances to its
existing MVP product line, including the introduction of full motion digital
video scalers, live video/TV tuner input ports (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 began shipping the Galileo 15, its first flat panel display
product, during the first fiscal quarter of 1998. The Galileo 15 is a 15-inch,
thin film transistor ("TFT") display. This flat panel display product consists
of (i) a multimedia accelerator subsystem that includes special circuitry to
transmit graphics and video data to digital flat panels, (ii) a receiver card to
receive the transmitted information, (iii) STB's custom driver and utility
software to allow the display subsystem to work with Windows NT and Windows 9X
and (iv) the flat panel display housed in STB's proprietary housing and mounting
system. Flat panel display products offer several advantages over cathode ray
tube ("CRT") glass monitors. In particular, flat panel display products are much
thinner, (two to six inches thick as compared to the foot or more required for
CRTs), generate less heat than CRTs and cause less strain on the user's eyes.
Flat panel display systems are currently three to five times more expensive than
an equivalent CRT system but are expected to decline in price in 1998 and 1999.

The Company also recently introduced several specialized technology products
that incorporate digital video features that meet the MPEG-2 decompression
standard and in some cases incorporate a multimedia accelerator subsystem. These
products, some of which have multi-monitor control capability, enable
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:

<TABLE>
<CAPTION>
INDUSTRY APPLICATION
<S> <C>
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
</TABLE>

In addition, on occasion, STB provides contract assembly services for third
parties, adding incremental gross profit and contributing to the absorption of
overhead by increasing utilization of manufacturing capacity. Revenues from
these contract assembly services constituted approximately 1% of the Company's
net sales in fiscal year 1997.

42
<PAGE>
DESIGN AND DEVELOPMENT

The timely development and introduction of new products is essential to
meeting the performance requirements of OEM customers and reinforcing the
Company's competitive position in its other sales channels. The Company works
closely with its suppliers and OEM customers 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 prototypes, selecting the most appropriate graphics controller
chips, memory chips and other components for the Company's products. The
Company's design and development personnel have enabled STB to repeatedly
deliver the latest technologies to the OEM market.

In order to achieve customer acceptance for its products, the Company must
ensure that its products can function properly in a variety of PC system
configurations and with most popular commercial application software and
operating systems. In addition to ensuring that the Company's products work in a
variety of configurations and with most applications, STB's compatibility lab
also compares the test performance of the Company's products against that of
competitors' products. STB submits most of its products for compatibility and
performance testing to Microsoft's WHQL. WHQL certification typically requires
up to several weeks to complete and entitles the Company to claim that a
particular product is "Designed for Microsoft Windows." The Company's OEM
customers typically require the Company's products to be Designed for Microsoft
Windows prior to making volume purchases. STB also sends product prototypes to
OEM customers for performance and compatibility testing and to the Federal
Communications Commission (the "FCC") and the Cenelec branch of the European
Economic Community (the "EEC") for "CE Certification." See "--Government
Regulations." After any necessary modifications are made to a product, it is
released for production.

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 January 31, 1998 it had a
total engineering staff of 92, including 16 hardware engineers and 43 software
engineers. The Company also has established software engineering centers in
Houston, Texas; Eugene, Oregon; and Belfast, Northern Ireland and plans to open
a software engineering center in Austin, Texas in the 1998 second fiscal
quarter. 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 access new technologies and
applications. See "--Products" and "Risk Factors-- Dependence on Key Personnel."

The Company has won numerous awards from recognized industry magazines,
including PC MAGAZINE, PC WORLD, WINDOWS MAGAZINE, PC PROFESSIONAL AND PC
COMPUTING. STB's Velocity 128 product has received greater recognition from
industry publications than any other product in Company history. The Velocity
128 recently won the PC MAGAZINE Editor's Choice award for business computing,
primarily as a result of its versatility, with outstanding performance in 3D
graphics plus video acceleration. In addition, PC COMPUTING gave the Velocity
128 its five star award, plus the prestigious Most Valuable Product award for
the best product of its class for 1997. In addition to the excellent results in
the U.S. trade press, the Velocity 128 has won awards in graphics subsystem
reviews from PC WELT in Germany, PC ACHAT and WINDOWS NEWS in France, COMPUTER
BUYER and PERSONAL COMPUTER WORLD in the U.K., and CHIP in Italy.

SUPPLIERS

The Company believes 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, multimedia accelerator
subsystems, are printed circuit boards that contain a number of components,
including a graphics controller chip, memory chips, logic chips, capacitors and
resistors. The graphics 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

43
<PAGE>
determining the functions and manufacturing cost of a multimedia accelerator.
The Company's other multimedia subsystem products generally contain components
comparable to those found on an STB multimedia accelerator subsystem but with
different types of controller chips.

The Company purchases various types of controller chips directly from sole
suppliers, including S3, Incorporated ("S3"), Cirrus Logic, Inc., 3Dlabs, NVIDIA
and IBM. 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 their 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, in most cases, obtain similar
products from other resources, 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 meeting its own scheduled shipment dates to customers,
and such difficulties are likely to recur. See "Risk Factors--Dependence on
Suppliers."

The Company purchases memory chips from a number of manufacturers, including
IBM, Mosel Vitelic, Hyundai Electronics Industries Co., Ltd., Samsung
Electronics Co., Ltd. and Toshiba Corporation. Memory chips 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 have in the past, and may in
the future, 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 memory chips 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'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."

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, it is able to respond more quickly
to changing customer needs and better control product quality and cost. By
locating its manufacturing facility in Juarez, Mexico, the Company benefits from
low labor and shipping costs, as well as proximity to its headquarters in
Richardson, Texas. The Company has increased its manufacturing capacity in
Mexico to approximately 500,000 boards per month, depending on product mix and
complexity. This increase in manufacturing capacity has been achieved primarily
through the addition of new high-volume automated SMT equipment capable of
manufacturing double-sided products, as well as through existing equipment
upgrades. 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 is currently installing additional high-volume
automated SMT equipment, with capabilities to manufacture double-sided circuit
boards, to further increase its manufacturing capacity. In addition, the Company
recently relocated a portion of its manufacturing operations to a larger
facility adjacent to its

44
<PAGE>
present manufacturing facility, which should provide the Company with the
ability to further increase its manufacturing capacity, if necessary. See
"--Properties" and "Risk Factors--Single Manufacturing Facility."

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 onto 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
contribute significantly to its ability to satisfy customers' stringent product
performance and reliability requirements. The Company generally offers a limited
warranty ranging from 15 to 60 months on multimedia subsystems sold to OEMs, a
five-year limited warranty on its specialized technology products and a limited
lifetime warranty on multimedia subsystems sold to commercial customers.

While the Company conducts substantially all of its manufacturing operations
at its facility in Juarez, Mexico, it also maintains a smaller facility at its
Richardson, Texas headquarters to develop and test prototypes and for 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.

SALES AND MARKETING

SALES. The Company presently sells its products in North America, most
countries in Europe and certain countries in the Pacific Rim. U.S. sales
accounted for approximately 74% and 73% of the Company's net sales in the 1998
first fiscal quarter and fiscal year 1997, respectively.

The Company organizes its Richardson, Texas based North American sales force
on the basis of its three sales channels. The OEM sales force provides direct
sales coverage of selected OEMs. The commercial market sales force focuses on
marketing and sales to retailers, distributors and direct mail companies, and
also coordinates the efforts of the Company's independent sales representatives
for the commercial channel. 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 in the commercial market.
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 for obtaining and maintaining
relationships with certain commercial customers. The Company's independent sales
representatives generally do not sell products that compete with those products
they handle for the Company. In general, the Company does not utilize
independent sales representatives for its OEM or specialized technology
products.

The Company's European sales force, headquartered in London, is responsible
for OEM, commercial and specialized technology product sales in the region. The
European sales force has greater 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 85%, 9% and 5% of the Company's
total net sales in the 1998 first fiscal quarter, and approximately 79%, 12% and
8% of the Company's total net sales in fiscal year 1997. The Company's top three
customers accounted for approximately 76% of net sales during the 1998 first
fiscal quarter, with Gateway 2000, Dell and Compaq accounting for approximately
40%, 32% and 4%,

45
<PAGE>
respectively, of the Company's net sales for such period. The Company's top
three customers accounted for approximately 66% of net sales during fiscal year
1997, with Gateway 2000, Dell and Compaq accounting for approximately 35%, 20%
and 11%, respectively, of the Company's net sales for such period. In the
commercial segment, the Company recently has increased its marketing efforts in
the distribution segment of the commercial market. The Company attributes the
recent increase in its commercial channel sales to its increased focus on
distributors. The Company sells products to the commercial market through
specialty retailers, such as Best Buy and CompUSA, and commercial distributors,
such as Tech Data Corporation, Ingram Micro, Inc. and Merisel, Inc. The Company
sells its specialized technology products primarily to resellers, the
workstation groups of OEMs and corporate customers in the financial services,
hospitality, factory automation, transportation and emergency response
industries, which include customers such as Reuters Limited, Compaq and LodgeNet
Entertainment Corporation.

The Company generally allows returns in the form of stock rotations only of
products sold to commercial customers such as distributors and retailers. The
Company's current stock rotation policies typically permit a commercial channel
customer to return approximately 10% of the products purchased from STB within
the previous 90 days if it concurrently 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 customers in the form of credits for price reductions on products
remaining in customer inventories at the time price protection is granted. See
"Risk Factors--Stock Rotation and Price Protection Risks" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

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.
The Company believes such direct promotion enables it to develop products that
are more in line with its customers' requirements and market trends. The Company
supplements these efforts by promoting 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 U.S. to provide technical support for purchasers of its
specialized technology products as well as for purchasers of its multimedia
subsystems sold in the commercial market. STB 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. STB provides software driver and utility
updates for its products to maintain compatibility with new versions of
software, increasing their useful life. The Company also prepares user manuals
and other product documentation that it believes are informative and easy to
understand.

COMPETITION

46
<PAGE>

multimedia subsystems market include Diamond Multimedia Systems, Inc., ATI
Technologies, Inc., Matrox Graphics, Inc., ELSA AG, AccelGraphics, Inc.,
Creative Labs, Inc., CEI, Inc., Number Nine Visual Technology Corporation, and
Hauppauge Computer Works, Inc. In the specialized technology product market, the
Company's major competitors include Colorgraphic Communication Corporation,
Datapath Ltd., and Appian Graphics Corp.

In addition to its major competitors, certain of the Company's suppliers
sell graphics controller chips directly to OEMs for use in internally produced
multimedia accelerator subsystems, 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 multimedia accelerator subsystems or
other multimedia subsystems, the Company's business, financial condition and
results of operations could be materially adversely affected. Furthermore,
several major OEMs currently integrate graphics controller chips on the
motherboard of their PCs. If one or more of the Company's major OEM customers
begins to incorporate graphics controller chips or other controller chips onto
motherboards rather than incorporating the Company's products, the Company's
business, financial condition and results of could be operations materially
adversely affected. See "Risk Factors--Dependence on Multimedia Accelerator
Market; Migration to Motherboards."

The Company expects Intel to continue to invest heavily in research and
development and new manufacturing facilities in order to maintain its position
as one of the largest manufacturers of motherboards, and to promote its product
offerings through extensive advertising campaigns designed to increase brand
loyalty by PC users. Intel may, in the future, develop multimedia subsystems or
multimedia-enabled motherboards using its i740 3D graphics processor, or other
graphics controllers, which could directly compete with products that the
Company may develop. In addition, Intel exerts significant influence over the 3D
graphics industry due to the widespread acceptance of its microprocessor
architecture and its development of new interface architectures such as the AGP
bus. Any significant modifications by Intel to the AGP or future graphics
interface architectures could render the Company's products obsolete,
incompatible or less competitive. Any broad-scale introduction of multimedia
subsystems or multimedia-enabled motherboards or significant modifications to
the graphics interface bus by Intel which the Company is unable to access, and
which consequently renders the Company's products less competitive or reduces
their potential market, could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company competes in its markets on the basis of a number of factors,
including the functionality, performance, price reliability and compatibility 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, technical, manufacturing, marketing,
distribution and other resources, greater name recognition and market presence,
and lower cost structures and larger customer bases than the Company. In
addition, some of the Company's competitors manufacture their own controller
chips, which provides these competitors with a significant advantage over the
Company when the internally produced controller chips cost less or maintain
higher price and performance levels than the controller chips available to the
Company from independent suppliers. Furthermore, while the Company believes it
is the only supplier of brand name multimedia accelerator subsystems that
manufactures its own products, some of STB's competitors internally manufacture
other multimedia subsystems, such as sound cards and PC/TV cards. The rapid pace
of change in the industry and markets in which the Company competes places a
premium on the knowledge and experience of a company's management, engineers and
other personnel, and their ability to continuously develop, enhance and
transition new products. The Company has continued to increase its engineering
resources and believes that its ability to continue adding new engineers to its
staff in the future will affect its competitiveness. See "Risk
Factors--Competition."

47
<PAGE>
INTELLECTUAL PROPERTY

The Company's success depends in part upon its proprietary technology,
including, in particular, its software drivers and utilities and its hardware
designs. The Company primarily relies upon copyright, trademark and trade secret
laws to protect its proprietary technology, and occasionally seeks patent
protection on selected inventions. 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; Intellectual Property Infringement Claims."
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 multimedia accelerator market 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, 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 source code
licensing agreements with suppliers of components that the Company desires to
incorporate into its products.

The Company has pending certain utility and design patent applications on
its flat panel PC monitor products. The Company also has a United States
trademark registration for the STB logo, and claims 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 of its OEM customers in certain respects against
intellectual property claims relating to STB's products used by these OEM
customers. If an intellectual property claim were brought against an OEM
customer or the Company and an OEM customer or the Company was 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.

Based upon the Company's contractual indemnity of certain of its OEM
customers, several of such customers recently sent the Company notices of
potential indemnity claims as a result of a notice of infringement these OEM
customers had received from a patent owner relating to the asserted infringement
of his patent. Subsequently, the patent owner filed patent infringement lawsuits
in the United States and elsewhere against several of such OEM customers and a
number of other major PC systems manufacturers. The Company provides multimedia
subsystems to such OEM customers for use in their products that are alleged to
infringe on such patent owner's rights. Based upon the Company's preliminary
evaluation of the patent, it does not believe the infringement claims are
meritorious. See "Risk Factors-- Proprietary Technology; Intellectual Property
Infringement Claims."

48
<PAGE>
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, the Company believes any liability that might result from any
existing claims will not have a material adverse effect on the financial
position of the Company.

GOVERNMENT REGULATIONS

The Company's business is regulated by federal, state, local and foreign
authorities. 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 adverse effect on the Company's business,
financial condition and results of operations. Although historically the Company
has not experienced material delays in obtaining FCC or EEC approval for any of
its products, occasional government budget constraints have caused delays in
obtaining required approval for certain of the Company's products. The Company
believes that any delay in obtaining such approvals could, in turn, result in
delays in making certain shipments on a timely basis and have a material adverse
effect on the Company's business, financial condition and results of operations.

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, relative to employees' wages, 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 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's business, financial condition and
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.

BACKLOG

As of January 31, 1998, the Company's backlog was approximately $43.9
million, as compared to approximately $21.2 million at January 31, 1997. 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.

49
<PAGE>
EMPLOYEES

As of January 31, 1998, the Company employed 2,689 individuals, of whom
2,282 were employed in operations, 92 in engineering, 76 in sales and marketing
and 239 in administration and finance. Included in the foregoing figures are
2,363 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 "Risk
Factors--Dependence on Key Personnel; Need for Additional Personnel" and
"--Single Manufacturing Facility."

PROPERTIES

The Company leases a 68,400 square foot facility in Richardson, Texas
(16,200 square feet of which are subleased to the Company pursuant to a sublease
that commenced 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 approximately 21,100 square foot facility located near its
headquarters in Richardson, Texas that is used for technical support, product
development and product repair. The foregoing leases both expire in December
1998.

The Company recently commenced construction of a new 210,000 square foot
headquarters facility in Richardson, Texas to address recent and anticipated
growth requirements. The Company expects that this facility will be completed in
December 1998. At that time, the various operations conducted at its current
facilities in Richardson will be consolidated at the new facility. See "Risk
Factors--Headquarters Relocation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

The Company currently leases a 79,100 square foot manufacturing facility in
Juarez, Mexico, and recently undertook occupancy of a new 136,800 square foot
manufacturing facility under lease on an adjacent site that provides increased
space and improved layout for manufacturing operations, as well as options to
acquire additional space. The term of the new lease will expire in November 2007
(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 extend the lease on one-half of the space through June 30,
1998 and through December 31, 1999 for the remainder of the space. See
"Business-- Manufacturing."

Additionally, the Company leases 6,900 square feet of storage space in El
Paso, Texas, under a lease expiring in March 1998. The Company anticipates
replacing this storage space with a 20,800 square foot packaging and shipping
facility, also in El Paso, under a lease expiring in April 2003. The Company
also leases a software development office in Houston, Texas under a lease
expiring in May 1999, a software development office in Eugene, Oregon under a
lease expiring in February 2000, a software development office in Belfast,
Northern Ireland under a lease expiring in April 2006, and sales offices in
London, Paris and Austin under leases expiring in September 2012, December 2004
and April 1998, respectively. The Company also maintains product inventories in
various locations 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, following completion of construction of the
Company's new headquarters facility, are adequate for its present and
anticipated levels of operations.

50
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Set forth below is information concerning the directors and executive
officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------------------
<S> <C> <C>
William E. Ogle(1)................. 51 Chief Executive Officer and Chairman of the Board of
Directors

Randall D. Eisenbach............... 47 Executive Vice President, Chief Operating Officer, Assistant
Secretary and Director

James L. Hopkins................... 52 Chief Financial Officer, Vice President of Strategic
Marketing and Director

J. Shane Long...................... 31 Vice President of Sales and Marketing and Director

Bryan F. Keyes..................... 49 Vice President of Administration and General Counsel

James J. Byrne(1)(2)(3)............ 61 Director

Dennis G. Sabo(1).................. 49 Director

Lawrence E. Wesneski(1)(2)(3)...... 50 Director
</TABLE>

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

(1) Member of the Compensation Committee

(2) Member of the Audit Committee

(3) Member of the Stock Option Committee

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 of the Company 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 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. Mr. Hopkins also served as an
advisory director to 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

51
<PAGE>
company specializing in the sale of high-technology products. Mr. Long was
elected a director of the Company following the completion of the Company's IPO.

BRYAN F. KEYES has served as Vice President of Administration and General
Counsel of the Company since November 1997. Prior to such date, Mr. Keyes 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 and various administrative activities. 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
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.

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. This 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.

DENNIS G. SABO has been a director of the Company since April 1997. He has
served as the President and Chief Executive Officer of Arithmos, Inc., a
privately held company engaged in the development of integrated circuits and
technology for LCD flat panel displays since March 1996. From 1990 through
February 1996, Mr. Sabo served as the Senior Vice President of graphics
accelerator products for S3, a designer and manufacturer of integrated circuits,
where he was involved in the early development and introduction of "Windows
Accelerators." Prior to being employed by S3, Mr. Sabo held management positions
in the field of integrated circuit design technology for approximately 20 years.

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. since August 1996. Hoak Breedlove Wesneski & Co. will participate
as a co-manager of the underwriting syndicate in connection with the offering
contemplated hereby. See "Underwriting." Prior to August 1996, Mr. Wesneski was
President of BW Securities, Inc., which provided certain financial advisory
services to the Company. From January 1987 to the present, Mr. Wesneski has
served as President and Managing Director of Breedlove Wesneski & Co., a private
merchant banking firm. From 1987 to 1995, Mr. Wesneski served as an advisory
director to the Company. Mr. Wesneski serves on the board of directors of TSC
Communications Corp., an independent operator of private pay telephones,
Advanced Technical Products Corp., a defense products manufacturing company, and
David's Supermarkets, Inc., a company that operates a regional chain of grocery
stores. Mr. Wesneski also serves as the Vice Chairman of David's Supermarkets,
Inc.

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.

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<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has an Audit Committee, a Compensation Committee and
a Stock Option Committee.

AUDIT COMMITTEE. The Audit Committee annually recommends to the Board of
Directors an accounting firm to serve as the Company's independent public
accountants, consults with the Company's independent public accountants 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 Plan.

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

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION INFORMATION

The following information summarizes annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended October 31,
1997, 1996 and 1995, of the Chief Executive Officer and the other four most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(3)
-------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1)(2) (#) ($)(4)
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
William E. Ogle.................................... 1997 $ 260,000 $ 169,240 -- $ 3,562
Chairman and Chief Executive Officer 1996 $ 200,000 $ 96,741 90,000 $ 1,974
1995 $ 175,000 $ 79,814 121,500 $ 2,685

Randall D. Eisenbach............................... 1997 $ 210,000 $ 137,604 -- $ 3,500
Executive Vice President and 1996 $ 177,770 $ 83,197 90,000 $ 1,746
Chief Operating Officer 1995 $ 150,000 $ 28,275 94,500 $ 8,148

James L. Hopkins(5)(6)............................. 1997 $ 250,461 $ 135,995 -- $ 3,300
Chief Financial Officer and Vice 1996 $ 162,066 $ 60,463 90,000 $ 1,250
President of Strategic Marketing 1995 $ 108,199 $ 7,701 69,750 $ 1,917

J. Shane Long(7)................................... 1997 $ 257,271 $ 103,445 -- $ 2,933
Vice President of Sales and Marketing 1996 $ 212,993 $ 55,626 90,000 $ 1,150
1995 $ 153,349 $ 20,393 69,750 $ 975

Bryan F. Keyes..................................... 1997 $ 110,000 $ 26,281 -- $ 1,696
Vice President of Administration 1996 $ 97,767 $ 27,540 18,000 $ 712
and General Counsel 1995 $ 91,267 $ 18,678 18,000 $ 400
</TABLE>

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

(1) The Company's current Profit Sharing Plan became effective upon the
consummation of the Company's initial public offering, and amounts reported
as bonus for fiscal year 1995 include certain payments that were made
pursuant to the former Profit Sharing Plan prior to such consummation.
Except for the percentage of pretax income allocated to the Profit Sharing
Plan and

53
<PAGE>
the relative amounts allocated among participants, the former Profit Sharing
Plan was substantially identical to the Company's current Profit Sharing
Plan.

(2) None of the Named Executive Officers received any perquisites or other
personal benefits in fiscal year 1995, fiscal year 1996 or fiscal year 1997
that in the aggregate exceeded the lesser of $50,000 or 10% of such Named
Executive Officer's salary and bonus for such year.

(3) In the 1998 first fiscal quarter, the Company granted to Messrs. Ogle,
Eisenbach, Hopkins, Long and Keyes options to purchase 30,000, 30,000
30,000, 30,000 and 7,500 shares of Common Stock, respectively, pursuant to
the Company's 1995 Long Term Incentive Plan.

(4) Reflects for fiscal year 1996 matching contributions made by the Company
pursuant to its 401(k) Savings Plan to Messrs. Ogle, Eisenbach, Hopkins,
Long and Keyes in the amounts of $1,974, $1,746, $1,250, $1,150 and $712,
respectively, and for fiscal year 1997 matching contributions made by the
Company pursuant to its 401(k) Savings Plan to Messrs. Ogle, Eisenbach,
Hopkins, Long and Keyes in the amounts of $3,562, $3,500, $3,300, $2,933 and
$1,696, respectively.

(5) Salary amount includes for fiscal year 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, for fiscal 1996
$125,000 paid as base salary and $37,065 paid as sales commissions, and for
fiscal year 1997 $180,000 paid as base salary and $70,461 paid as sales
commissions.

(6) Included in the bonus amount for Mr. Hopkins is profit sharing of $115,995
and a bonus of $20,000 for fiscal year 1997.

(7) Salary amount includes for fiscal year 1995, $97,500 paid as base salary and
$55,849 paid as sales commissions, for fiscal year 1996, $115,000 paid as
base salary and $97,993 paid as sales commissions, and for fiscal year 1997,
$160,093 paid as base salary and $97,178 paid as sales commissions.

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OPTION GRANTS IN LAST FISCAL YEAR

No options were granted to the Named Executive Officers during fiscal year
1997. In the 1998 first fiscal quarter, the Company granted to the Named
Executive Officers a total of 127,500 stock options under the Incentive Plan
with an exercise price of $15.08, which expire on December 18, 2007.

OPTION EXERCISES AND HOLDINGS

The following table shows information concerning the number and estimated
value of unexercised options held by the Named Executive Officers at fiscal year
1997 year-end:

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

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
ACQUIRED ON YEAR-END(#) AT FISCAL YEAR-END($)(1)
EXERCISE VALUE -------------------------- --------------------------
NAME (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William E. Ogle..................... -- -- 66,600 144,900 868,830 1,744,342
Randall D. Eisenbach................ 22,500 483,000 33,300 128,700 394,393 1,513,567
James L. Hopkins.................... 15,000 337,500 30,900 113,850 360,222 1,301,982
J. Shane Long....................... 22,500 217,800 23,400 113,850 253,357 1,301,997
Bryan F. Keyes...................... 7,200 160,800 3,600 25,200 42,260 322,904
</TABLE>

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

(1) Based on the last sale price of $19.58 of the Company's Common Stock on the
Nasdaq National Market on October 31, 1997. The exercise prices of the
options in this table ranged from $5.33 to $9.78 per share.

1995 LONG TERM INCENTIVE PLAN

The Board of Directors proposes to amend the STB Systems, Inc. 1995 Long
Term Incentive Plan (the "Incentive Plan") to increase the maximum aggregate
number of shares of Common Stock with respect to which options, restricted
shares and rights granted without accompanying options may be granted pursuant
to the Incentive Plan from 2,250,000 to 2,700,000. The Board of Directors
believes that the use of long term incentives based on the value of the
Company's Common Stock is necessary to attract and retain key executives and
other key employees and consultants, motivate such personnel to achieve
long-range goals and provide compensation opportunities that are competitive
with those offered by other corporations. The proposed amendment will be voted
on by the shareholders of the Company at the next annual meeting of the
Company's shareholders.

SCOPE. The Incentive Plan authorizes the grant 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, including officers of the Company and its
subsidiaries. The Incentive Plan also authorizes the grant of non-qualified
stock options to consultants and independent contractors of the Company
(collectively referred to as "Non-Employee Participants"). The purpose of the
Incentive Plan is to attract and retain key employees, consultants and
independent contractors, to motivate them to achieve long-range goals and to
further identify their interests with those of the other shareholders of the
Company.

The Incentive Plan authorizes the award of 2,250,000 shares of Common Stock,
to be used for stock options, stock appreciation rights or restricted stock. The
proposed amendment would increase the number of shares of Common Stock available
for award under the Incentive Plan to 2,700,000. If an award made under the
Incentive Plan expires, terminates or is forfeited or settled in cash, without
issuance of

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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 and
Non-Employee Participants 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 accelerate or extend the
exercisability of outstanding 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 accelerate or extend the
period of exercisability of awards after they have been granted, 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 Company estimates that approximately 10
executives and approximately 120 other employees are currently eligible 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.

Non-Employee Participants may be selected by the Stock Option Committee to
receive non-qualified stock options under the Incentive Plan.

STOCK OPTIONS. The Incentive Plan authorizes the award of both incentive
stock options (the "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 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 (ii) 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 and such term may be extended by the Stock Option
Committee, provided that the term may not exceed ten 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.

Under the Incentive Plan, a holder of non-qualified stock options is
permitted to make gifts or other non-compensated transfers of options and rights
among a limited class of permitted transferees, consisting of family members or
trusts or partnerships for family members.

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<PAGE>
STOCK APPRECIATION RIGHTS. The Incentive Plan authorizes the grant of both
primary stock appreciation rights (the "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. 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.

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<PAGE>
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 at 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 in the Incentive Plan), 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.

OPTION GRANTS. No options were granted to the Named Executive Officers
during fiscal 1997. All current employees of the Company as a group (15
persons), excluding the Named Executive Officers, who did not receive any
options during fiscal 1997, received grants of 137,625 stock options in fiscal
1997 under the Incentive Plan with an average exercise price of $15.25. These
stock options have expiration dates ranging from January 1, 2007 to October 6,
2007. In the 1998 first fiscal quarter, the Company granted to the Named
Executive Officers 127,500 stock options under the Incentive Plan with an
exercise price of $15.08, which expire on December 18, 2007.

FEDERAL INCOME TAX CONSEQUENCES. The following summary of the federal
income tax consequences of the Incentive Plan is not comprehensive and is based
on current income tax laws, regulations and rulings.

INCENTIVE STOCK OPTIONS. An optionee does not recognize income on the grant
of an ISO. Subject to the effect of the alternative minimum tax, discussed
below, if an optionee exercises an ISO in accordance with the terms of the
option and does not dispose of the shares acquired within two years from the
date of the grant of the option nor within one year from the date of exercise,
the optionee will not realize any income by reason of the exercise and the
Company will be allowed no deduction by reason of the grant or exercise. The
optionee's basis in the shares acquired upon exercise will be the amount paid
upon exercise. Provided the optionee holds the shares as a capital asset at the
time of sale or other disposition of the shares, his gain or loss, if any,
recognized on the sale or other disposition will be capital gain or loss. The
amount of his gain or loss will be the difference between the amount realized on
the disposition of the shares and his basis in the shares.

If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition, or (ii) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such shares
over the fair market value of the shares on the date of exercise will be
long-term, mid-term or short-term capital gain, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital asset

58
<PAGE>
at the time of Early Disposition. If an optionee disposes of such shares for
less than his basis in the shares, the difference between the amount realized
and his basis will be a long-term or short-term capital loss, depending upon the
holding period of the shares, provided the optionee holds the shares as a
capital asset at the time of disposition.

The excess of the fair market value of the shares at the time the ISO is
exercised over the exercise price for the shares is an amount included in an
optionee's alternative minimum taxable income (the "Stock Option Preference").

NON-QUALIFIED STOCK OPTIONS. Non-qualified stock options do not qualify for
the special tax treatment accorded to ISOs under the Internal Revenue Code.
Although an optionee does not recognize income at the time of the grant of the
option, he recognizes ordinary income upon the exercise of a non-qualified
option in an amount equal to the difference between the fair market value of the
stock on the date of exercise of the option and the amount of the exercise
price.

As a result of the optionee's exercise of a non-qualified stock option, the
Company will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. The Company's deduction will be taken
in the Company's taxable year in which the option is exercised.

The excess of the fair market value of the stock on the date of exercise of
a nonqualified stock option over the exercise price is not an item of tax
preference.

STOCK APPRECIATION RIGHTS. Recipients of SARs do not recognize income upon
the grant of such an award. When a participant elects to receive payment under
an SAR, he recognizes ordinary income in an amount equal to the cash and/or fair
market value of shares received, and the Company is entitled to a deduction
equal to such amount.

RESTRICTED STOCK; PERFORMANCE UNITS. Grantees of restricted stock and
performance units do not recognize income at the time of the grant of such stock
or units. However, when shares of restricted stock become free from any
restrictions or when performance units are paid, grantees recognize ordinary
income in an amount equal to the cash and the fair market value of the stock on
the date all restrictions are satisfied. Alternatively, the grantee of
restricted stock may elect to recognize income upon the grant of the stock and
not at the time the restrictions lapse.

TAXATION OF PREFERENCE ITEMS. Section 55 of the Internal Revenue Code
imposes an alternative minimum tax equal to the excess, if any, of (i) 26% of
the optionee's "alternative minimum taxable income" that does not exceed
$175,000, plus 28% of his "alternative minimum taxable income" in excess of
$175,000, over (ii) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optionee's Stock Option Preference
and any items of tax preference to the optionee's adjusted gross income and then
subtracting certain allowable deductions and an exemption amount. The exemption
amount is $33,750 for single taxpayers, $45,000 for married taxpayers filing
jointly and $22,500 for married taxpayers filing separately. However, these
exemption amounts are phased out beginning at certain levels of alternative
minimum taxable income.

CHANGE OF CONTROL. If there is an acceleration of the vesting of benefits
and/or an acceleration of the exercisability of stock options upon a Change of
Control (as defined in the Incentive Plan), all or a portion of the accelerated
benefits may constitute "excess parachute payments" under Section 280G of the
Internal Revenue Code. The employee receiving an excess parachute payment incurs
an excise tax of 20% of the amount of the payment in excess of the employee's
average annual compensation over the five calendar years preceding the year of
the Change of Control, and the Company is not entitled to a deduction for such
payment.

NON-EMPLOYEE DIRECTOR PLAN

In 1995, the Company adopted the Stock Option Plan for Non-Employee
Directors (the "Director Plan"). The purpose of the Director Plan is to provide
present and prospective non-employee directors of

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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") is eligible to receive a grant of stock options under
the Director Plan. The Company currently has three Non-Employee Directors, each
of whom is eligible to receive awards under the 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 Director Plan is administered by the Board of Directors
of the Company. The Board of Directors has full power to administer and
interpret the 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 Director Plan.

OPTIONS; EXERCISE PRICE; VESTING. Options to purchase 22,500 and 33,750
shares of Common Stock were granted to Messrs. Byrne and Wesneski, respectively,
upon their election as directors immediately following completion of the
Company's initial public offering. These options are exercisable at $5.33 per
share and will vest equally over the five year period from the date of grant.
Under the Director Plan, the Board of Directors may, at its discretion, award
options, determine the timing of such awards, the number of shares of Common
Stock covered by each option (subject to the maximum share limitation described
below) and the vesting provisions for each option. However, Messrs. Byrne and
Wesneski are not eligible for such grants until their initial options have fully
vested. In addition, all options become immediately exercisable in the event of
a "Business Combination" as described in the Director Plan. The maximum number
of shares available for grant and issuance under the Director Plan is 225,000.
Also under the Director Plan the Board of Directors may provide for the
substitution of the securities of another corporation for the securities of the
Company underlying outstanding options granted pursuant to the Director Plan in
the event of "Business Combinations" as described in the Director Plan.

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 that
is available for option grants under the 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 Director Plan may be evidenced by a written
instrument describing the terms and conditions of the grant. Except as described
below, options are not assignable or transferable by the Non-Employee Director,
other than by will or the laws of descent and distribution. A Non-Employee
Director may make gifts or other non-compensated transfers of options among a
limited class of permitted transferees, who are family members or trusts or
partnerships for family members. 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 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 Director Plan. Each option granted under the 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 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 Section 16 of the Exchange Act,
the

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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.

FEDERAL INCOME TAX CONSEQUENCES. A Non-Employee Director who is granted a
stock option under the Director Plan will not recognize taxable income at the
time of the grant, but will generally recognize income upon the exercise of the
stock option. The amount of income recognized upon the exercise of the stock
option will be measured by the excess, if any, of the fair market value of the
shares of Common Stock at the time of exercise over the exercise price. The
Company will generally be entitled to a corresponding deduction for the amount
of income recognized by the Non-Employee Director.

PROFIT SHARING INCENTIVE PLAN

Under the Company's Profit Sharing Incentive Plan (the "Profit Sharing
Plan"), which is administered by the Compensation Committee, 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 the Company's eligible employees. Of the total amount
of the Reserve, approximately 43% is allocated to the Executive Incentive
Program and the remaining 57% is allocated to the Employee Incentive Program. In
addition to the Company's Profit Sharing Plan, the Compensation Committee
designates each year those eligible employees who shall share in the Management
Incentive Program. The Compensation Committee seeks to designate those employees
who make the greatest contribution to the Company's overall effective management
to share in the Management Incentive Program. Once designated to share in the
Management Incentive Program, a participant receives a quarterly award based on
a specified percentage of that employee's base salary, determined as a
percentage of the Company's actual operating income compared to the budgeted
operating income for the quarter. The Company's executive officers currently
share in the Executive Incentive Program or the Management Incentive Program,
with the balance of eligible employees sharing in the Employee Incentive
Program.

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, 1998, 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 year 1998 of $275,000, $230,000, $190,800 and $169,600,
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 amounts of which are 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 twelve 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 commission 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

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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.

COMPENSATION OF DIRECTORS

Prior to its initial public offering, 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. Following the Company's initial public
offering, 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. Non-Employee
Directors of the Company are entitled to receive certain stock option awards
under the Company's Director Plan.

COMPENSATION AND OTHER COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Before the Company's initial public offering, decisions concerning
compensation, including decisions concerning compensation for fiscal year 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. Sims and Mr. Balthaser. 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 year 1995. In
March 1995, the Company's Board of Directors appointed a Compensation Committee
and a Stock Option Committee, each of which were comprised of Messrs. Byrne and
Wesneski. Messrs. Ogle and Sabo were added to the Compensation Committee in
fiscal year 1997.

Lawrence E. Wesneski, a director of the Company, serves as President and
Chief Executive Officer of Hoak Breedlove Wesneski & Co., and owns a portion of
the equity securities of Hoak Breedlove Wesneski & Co. (BW Securities, Inc.
("BWS") acquired substantially all of the assets of Hoak Securities Corporation
in August 1996. Subsequent to this acquisition, the name of BWS was changed to
"Hoak Breedlove Wesneski & Co.") Mr. Wesneski serves as President of Breedlove
Wesneski & Co. ("BWC") and served as President of BWS, and at one time owned a
portion of the equity of BWC and BWS. The Company paid BWC and its affiliates
$132,550 and $57,922 in fiscal years 1995 and 1996, respectively, for the
performance of certain services relating to the arrangement of credit facilities
for the Company. Hoak Breedlove Wesneski & Co. will participate as a co-manager
of the underwriting syndicate in connection with the offering contemplated
hereby and, as a result, will receive certain underwriting compensation upon
completion of the offering.

62
<PAGE>
CERTAIN TRANSACTIONS

RIGHT OF FIRST REFUSAL. The Company and Messrs. Ogle, Sims and Balthaser
entered into a Right of First Refusal Agreement (the "Right of First Refusal
Agreement") which provides 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 Company's initial public offering, 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 or a
portion 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.

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 prior to the initial public offering, 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 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.

SELLING SHAREHOLDER AGREEMENT. The Company has agreed to indemnify the
Selling Shareholders for any losses, claims, damages or liabilities they may
incur in connection with this offering, including their respective
indemnification and contribution obligations owed 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.

63
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of January 31, 1998, 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 Named Executive Officers of the Company, (iii) each director of
the Company, (iv) all directors and executive officers of the Company as a group
and (v) each Selling Shareholder.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) OFFERING(1)
----------------------- NUMBER OF -----------------------
NAME NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ----------------------------------------------------- ---------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
William E. Ogle(2)(3)(4)(5)(9)....................... 1,662,937 15.8% 75,000 1,587,937 11.9%
William D. Balthaser, Jr.(4)(5)(9)................... 667,499 6.4% 75,000 592,499 4.5%
Mark S. Sims(4)(5)(9)................................ 675,165 6.5% 75,000 600,165 4.5%
Randall D. Eisenbach(2).............................. 56,787 * -- 56,787 *
James L. Hopkins(2)(3)............................... 48,576 * -- 48,576 *
J. Shane Long(2)..................................... 37,350 * -- 37,350 *
Bryan F. Keyes(2)(3)................................. 10,071 * -- 10,071 *
James J. Byrne(2).................................... 15,750 * -- 15,750 *
Dennis G. Sabo....................................... -0- * -- -0- *
Lawrence E. Wesneski(2)(6)........................... 31,500 * -- 31,500 *
Invesco PLC(7)....................................... 695,175 6.6% -- 695,175 5.3%
Norwest Corporation(8)............................... 590,071 5.6% -- 590,071 4.5%
Directors and executive officers
as a group (8 persons)(2).......................... 1,862,971 17.4% 1,787,971 13.2%
</TABLE>

- ------------------------------
* 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) Includes options to purchase 90,900, 52,200, 44,850, 37,350, 8,550, 13,500,
20,250 and 267,600 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 January 31, 1998. Does not include options to purchase 150,600,
139,800, 129,900, 129,900, 27,750, 9,000, 13,500 and 600,450 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 January 31, 1998.

(3) Includes for William E. Ogle 12,375 shares held by him pursuant to an
Individual Retirement Account and 7,911 shares held by him pursuant to the
Company's 401(k) Savings Plan. Includes for James L. Hopkins 1,476 shares
held by him pursuant to the Company's 401(k) Savings Plan and for Bryan F.
Keyes 396 shares held by him pursuant to the Company's 401(k) Savings Plan.

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

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

(6) Includes 11,250 shares held by Twin Lakes Partners, L.P. ("Twin Lakes"). Mr.
Wesneski is the sole general partner of Twin Lakes.

(7) Shares are held by various affiliates of Invesco PLC as a group. The address
of Invesco PLC is 11 Devonshire Square, London EC2 4YR, England. Information
with respect to such beneficial ownership was obtained from a Schedule 13G
filed with the Securities and Exchange Commission.

(8) The address of Norwest Corporation is Norwest Center, Sixth and Marquette,
Minneapolis, Minnesota 55479. Information with respect to such beneficial
ownership was obtained from a Schedule 13G filed with the Securities and
Exchange Commission.

(9) 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 225,000 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 75,000 shares,
resulting in his ownership of 1,512,937 shares (11.0%), Mr. Balthaser will
sell an additional 75,000 shares, resulting in his ownership of 517,499
shares (3.8%), Mr. Sims will sell an additional 75,000 shares, resulting in
his ownership of 525,165 shares (3.9%), and all directors and executive
officers as a group will own 1,703,800 shares (12.7%) after the closing of
the offering.

64
<PAGE>
DESCRIPTION OF CAPITAL STOCK

AUTHORIZED SHARES

The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $0.01 par value per share ("Common Stock"), and 2,000,000 shares
of Preferred Stock, $0.01 par value per share ("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 director's 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 ChaseMellon
Shareholder Services, L.L.C.

65
<PAGE>
ANTI-TAKEOVER MEASURES

As a Texas corporation, the Company is subject to the provisions of the TBCL
that became effective on September 1, 1997. In general, the TBCL prohibits a
Texas "issuing public corporation" (such as the Company) from engaging in a
"business combination" with any shareholder who is a beneficial owner of 20% or
more of the corporation's outstanding stock for a period of three years after
such shareholder's acquisition of a 20% ownership interest, unless: (i) the
board of directors of the corporation approves the transaction or the
shareholder's acquisition of shares prior to the acquisition or (ii) two-thirds
of the unaffiliated shareholders of the corporation approve the transaction at a
shareholders' meeting. The TBCL may have the effect of inhibiting a
non-negotiated merger or other business combination involving the Company. The
Company is subject to the terms of the TBCL, unless its shareholders or
directors take action electing not to be governed by its terms (which action is
not currently contemplated).

The Company is also a party to certain agreements that could be deemed to
have an anti-takeover effect. The Right of First Refusal Agreement 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."

66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding an
aggregate of 13,239,862 shares of Common Stock, assuming no exercise of stock
options after January 31, 1998. In addition to the 2,775,000 shares of Common
Stock offered hereby (assuming no exercise of the Underwriters' over-allotment
option) there will be 10,464,862 shares of Common Stock outstanding,
substantially all of which will be freely tradeable. The executive officers and
directors of the Company and the Selling Shareholders will, upon completion of
this offering, own a total of (i) 2,713,034 shares, or 20.5% of the Common Stock
outstanding (assuming no exercise of the Underwriters' over-allotment option) or
(ii) 2,488,034 shares, or 18.5% of the Common Stock outstanding (assuming the
Underwriters' over-allotment option is exercised in full).

The Company, the Company's executive officers and directors and the Selling
Shareholders have agreed that they will not, for a period of 90 days after the
date of the Prospectus, offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into or exchangeable for shares of Common Stock now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition without the prior
written consent of CIBC Oppenheimer Corp., except for the shares of Common Stock
offered in connection with this 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(d) as currently in effect, beginning 90 days
after the date of this Prospectus, a person (or persons whose shares are
aggregated), including an affiliate of the Company who has beneficially owned
"restricted securities" for at least one year is entitled to sell within 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 (approximately 132,397 shares
immediately after this offering, assuming no exercise of the Underwriters'
over-allotment option) or (ii) the average weekly trading volume of the
Company's 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 Securities and Exchange Commission (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(d) also are subject to
certain other requirements relating to manner of sale, notice of sale
provisions, notice requirements and the availability of current public
information about the Company. Based on the number of shares outstanding as of
January 31, 1998, 1,520,371 shares of Common Stock will be eligible for sale
pursuant to the terms of Rule 144(d) (assuming no exercise of the Underwriters'
over-allotment exercise). A person (or persons whose shares are aggregated) who
is not deemed to have been an affiliate of the Company at any time during the
three months immediately preceding the sale of the Common Stock is entitled
pursuant to Rule 144(k) to sell "restricted securities" that were purchased from
the Company (or an affiliate) at least two years previously without regard to
the volume limitations, manner of sale provisions, public information
requirements or notice requirements.

67
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have severally agreed to sell to each
of the underwriters named below (the "Underwriters"), and each of the
Underwriters, for whom CIBC Oppenheimer Corp., Hambrecht & Quist LLC, Hoak
Breedlove Wesneski & Co. and The Buckingham Research Group, Incorporated are
acting as representatives (the "Representatives"), have severally agreed to
purchase from the Company and the Selling Shareholders, the respective number of
shares of Common Stock set forth opposite the name of each such Underwriter:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------------------- -----------------
<S> <C>
CIBC Oppenheimer Corp.................................................................. 955,000
Hambrecht & Quist LLC.................................................................. 640,000
Hoak Breedlove Wesneski & Co........................................................... 425,000
The Buckingham Research Group, Incorporated............................................ 110,000
BancAmerica Robertson Stephens......................................................... 80,000
Credit Suisse First Boston Corporation................................................. 80,000
Donaldson, Lufkin & Jenrette Securities Corporation.................................... 80,000
Deutsche Morgan Grenfell Inc........................................................... 80,000
Goldman, Sachs & Co.................................................................... 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated..................................... 80,000
Morgan Stanley & Co. Incorporated...................................................... 80,000
NationsBanc Mongtomery Securities LLC.................................................. 80,000
Dain Rauscher Incorporated............................................................. 80,000
J.C. Bradford & Co..................................................................... 50,000
C.L. King & Associates, Inc............................................................ 50,000
Soundview Financial Group.............................................................. 50,000
-----------------
Total................................................................................ 3,000,000
-----------------
-----------------
</TABLE>

The Underwriters propose to offer the shares of Common Stock directly to the
public at the offering price set forth on the cover page of this Prospectus and
in part to certain securities dealers at such price less a concession of not in
excess of $0.68 per share. The Underwriters may allow, and such dealers may
reallow, a concession of not in excess of $0.10 per share to certain other
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered pursuant to this Prospectus (other
than those covered by the over-allotment option described below) if any are
taken.

The Company and the Selling Shareholders have granted options to the
Underwriters, exercisable for up to 30 days after the date of this Prospectus,
to purchase from the Company and such Selling Shareholders up to an aggregate of
450,000 additional shares of Common Stock to cover over-allotments, if any, at
the public offering price less the underwriting discount set forth on the cover
page of this Prospectus. If the Underwriters exercise such option to purchase
any of the additional 450,000 additional shares of Common Stock to cover
over-allotments, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them represents with respect to the
3,000,000 shares of Common Stock offered pursuant to this Prospectus. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered pursuant to this
Prospectus. The Company and such Selling Shareholders will be obligated,
pursuant to the over-allotment option, to sell shares of Common Stock to the
Underwriters to the extent such over-allotment options are exercised.

In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the shares of Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act pursuant to
which such persons may bid for or purchase shares of Common Stock for the

68
<PAGE>

purpose of stabilizing the market price for shares of Common Stock. The
Underwriters also may create a short position for the account of the
Underwriters by selling more shares in connection with this offering than they
are committed to purchase from the Company and the Selling Shareholders, and in
such case may purchase shares of Common Stock in the open market following
completion of this offering to cover all or a portion of the shares of Common
Stock or by exercising the Underwriters' over-allotment option referred to
above. In addition, CIBC Oppenheimer Corp., on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the other Underwriters
whereby it may reclaim from an Underwriter (or dealer participating in this
offering) for the account of the other Underwriters, the selling concession with
respect to shares of Common Stock that are distributed in this offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the shares of Common Stock at a level above that
which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if undertaken, such transactions
may be discontinued at any time.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including, without limitation,
liabilities under the Securities Act, and to contribute to certain payments the
Underwriters may be required to make in respect thereof.

The Representatives of the Underwriters do not intend to confirm sales of
the Common Stock in this offering to any account over which any of the
Representatives exercise discretionary control.

The Company and all of its officers, directors and Selling Shareholders have
agreed not to offer, sell, contract to sell, pledge or grant any option to
purchase or otherwise transfer or dispose of shares of Common Stock of the
Company or any security convertible into or exchangeable or exercisable for, or
warrants, options or rights to acquire any shares of Common Stock (other than
shares issuable upon exercise of outstanding options) for 90 days after the date
of this Prospectus without the prior written consent of CIBC Oppenheimer Corp.,
subject to certain limited exceptions. See "Shares Eligible for Future Sale."

Lawrence E. Wesneski, a director of the Company, is President and Chief
Executive Officer of Hoak Breedlove Wesneski & Co., an NASD member firm that
will participate as a co-manager of the underwriting syndicate in connection
with this offering. This 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 entities. Hoak Breedlove Wesneski & Co. will not
directly participate in the determination of the offering price of the Common
Stock offered hereby.

BWS, a predecessor of Hoak Breedlove Wesneski & Co., provided certain
financial advisory services to STB prior to August 1996. Hoak Breedlove Wesneski
& Co. has not provided any financial advisory or other services to the Company
during the period from August 1996 to the present. During fiscal year 1997, Mr.
Wesneski, individually, did not receive any compensation from the Company in
excess of that paid to the Company's other Non-Employee Directors. Neither Hoak
Breedlove Wesneski & Co. nor Mr. Wesneski nor any other affiliate of Mr.
Wesneski has received or will receive any compensation from the Company in
connection with the offering contemplated hereby other than that typically
afforded managers of an underwriting syndicate.

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. Certain legal matters relating to the
offering will be passed upon for the several Underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The financial statements as of October 31, 1996 and 1997 and for each of the
three years in the period ended October 31, 1997 included in this Prospectus and
the financial statement schedule incorporated in this Registration Statement by
reference to STB Systems, Inc.'s Annual Report on Form 10-K for the year ended
October 31, 1997, 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.

69
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission (the
"Commission") (File No. 001-25540) are incorporated by reference in this
Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1997, (ii) the Company's Current Report on Form 8-K filed on
February 25, 1998, (iii) the Company' Current Report on Form 8-K/A filed on
March 2, 1998 and (iv) and the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended January 31, 1998.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock offered hereby shall
be deemed to be incorporated herein by reference and to be a part hereof from
the respective dates of filing of such documents.

Any statement contained in a document incorporated or deemed incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the Registration Statement of which it is a part to the
extent that a statement contained herein or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or such Registration Statement.

This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to each
person, including a beneficial owner, to whom a copy of this Prospectus is
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents which are incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to Bryan F.
Keyes, the Corporate Secretary of the Company, at 1651 North Glenville Drive,
Richardson, Texas 75081, Telephone: (972) 234-8750.

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form S-3 (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 of 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 60661 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 "http://www.sec.gov".

70
<PAGE>
STB SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:

Report of Independent Accountants........................................................................ F-2
Consolidated Balance Sheets as of October 31, 1996 and 1997.............................................. F-3
Consolidated Statements of Operations for the Years Ended October 31, 1995, 1996
and 1997............................................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended October 31, 1995, 1996 and
1997................................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended October 31, 1995, 1996
and 1997............................................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7

CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED):

Consolidated Balance Sheets as of October 31, 1997 and January 31, 1998.................................. F-19
Consolidated Statements of Operations for the Three Months Ended January 31, 1997 and 1998............... F-20
Consolidated Statements of Cash Flows for the Three Months Ended January 31, 1997 and 1998............... F-21
Notes to Consolidated Interim Financial Statements....................................................... F-22
</TABLE>

F-1
<PAGE>
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, 1996 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1997, 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 our audits provide a reasonable
basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Dallas, Texas
December 8, 1997, except

as to Notes 1 and 11, which

are as of February 20, 1998

F-2
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
OCTOBER 31,
---------------------
1996 1997
--------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................................ $ 3,420 $ 3,869
Accounts receivable--trade, net of allowance for doubtful accounts of $332 and $465,
respectively........................................................................... 28,032 47,208
Inventories, net......................................................................... 27,148 41,295
Other current assets..................................................................... 1,348 1,970
--------- ----------
Total current assets................................................................... 59,948 94,342
Property and equipment, net................................................................ 5,231 12,348
Other assets............................................................................... 450 2,864
--------- ----------
Total assets........................................................................... $ 65,629 $ 109,554
--------- ----------
--------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt.......................................................................... $ 11,760 $ 21,520
Accounts payable--trade.................................................................. 19,538 36,801
Accrued wages, commissions and bonuses................................................... 1,144 1,466
Other accrued liabilities................................................................ 1,609 2,027
Current portion of long-term liabilities................................................. 705 1,167
--------- ----------
Total current liabilities.............................................................. 34,756 62,981
--------- ----------
Long-term Liabilities:
Long-term notes payable.................................................................. 1,000 500
Obligations under capital leases and other long-term liabilities......................... 276 2,611
--------- ----------
Total long-term liabilities............................................................ 1,276 3,111
--------- ----------
Shareholders' Equity:
Preferred stock, 2,000,000 shares authorized, none issued or outstanding................. -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 10,155,596 and 10,452,473
shares issued, respectively............................................................ 102 105
Additional paid-in capital............................................................... 22,261 25,357
Retained earnings........................................................................ 7,479 18,245
--------- ----------
29,842 43,707
Treasury stock, 35 shares, at cost....................................................... (245) (245)
--------- ----------
Total shareholders' equity............................................................... 29,597 43,462
--------- ----------
Total liabilities and shareholders' equity............................................. $ 65,629 $ 109,554
--------- ----------
--------- ----------
</TABLE>

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

F-3
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net sales................................................................ $ 129,603 $ 180,155 $ 199,485
Cost of sales............................................................ 110,129 144,879 149,439
---------- ------------ ------------
Gross profit............................................................. 19,474 35,276 50,046
---------- ------------ ------------
Operating expenses:
Research and development............................................... 2,719 4,428 6,740
Sales and marketing.................................................... 7,437 10,986 14,788
General and administrative............................................. 6,172 9,486 10,618
---------- ------------ ------------
Total operating expenses................................................. 16,328 24,900 32,146
---------- ------------ ------------
Income from operations................................................... 3,146 10,376 17,900
Interest expense, net.................................................... 818 1,113 1,649
---------- ------------ ------------
Income before income taxes............................................... 2,328 9,263 16,251
Provision for income taxes............................................... 330 3,186 5,481
---------- ------------ ------------
Net income............................................................... $ 1,998 $ 6,077 $ 10,770
---------- ------------ ------------
---------- ------------ ------------
Net income per share:
Basic.................................................................. $ 0.23 $ 0.60 $ 1.05
---------- ------------ ------------
---------- ------------ ------------
Diluted................................................................ $ 0.23 $ 0.59 $ 0.97
---------- ------------ ------------
---------- ------------ ------------
Weighted average shares outstanding:
Basic.................................................................. 8,818,151 10,158,803 10,297,929
---------- ------------ ------------
---------- ------------ ------------
Diluted................................................................ 8,851,227 10,309,256 11,146,602
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

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

F-4
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------- PAID-IN RETAINED ----------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------------ ----------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1994................ 5,625,000 $ 56 $ 471 $ 3,914 35 $ (245) $ 4,196
Dividends declared..................... (851) (851)
Establishment of deferred tax asset.... 455 455
Distribution of S Corporation
earnings............................. (4,122) (4,122)
Net proceeds from initial public
offering............................. 4,500,000 45 21,633 21,678
Cumulative translation gain............ 8 8
Net income............................. 1,998 1,998
--
------------ --- ----------- --------- --------- ---------
Balance, October 31, 1995................ 10,125,000 101 22,104 1,402 35 (245) 23,362
Issuance of common stock............... 30,596 1 157 158
Net income............................. 6,077 6,077
--
------------ --- ----------- --------- --------- ---------
Balance, October 31, 1996................ 10,155,596 102 22,261 7,479 35 (245) 29,597
Issuance of common stock............... 231,830 2 1,219 1,221
Investment in Subsidiary............... 65,047 1 949 950
Cumulative translation gain............ (4) (4)
Tax benefit from exercise of stock
options.............................. 928 928
Net income............................. 10,770 10,770
--
------------ --- ----------- --------- --------- ---------
Balance, October 31, 1997................ 10,452,473 105 $ 25,357 $ 18,245 35 $ (245) $ 43,462
--
--
------------ --- ----------- --------- --------- ---------
------------ --- ----------- --------- --------- ---------
</TABLE>

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

F-5
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 1,998 $ 6,077 $ 10,770
Adjustments to reconcile net income to net cash flow from operating
activities:
Depreciation and amortization............................................... 733 1,252 2,550
Changes in assets and liabilities:
Accounts receivable--trade................................................ (9,542) (7,397) (18,506)
Inventories, net.......................................................... (17,923) 727 (13,652)
Other current assets...................................................... (347) (479) (621)
Other assets.............................................................. 2 151 (763)
Accounts payable--trade................................................... 9,029 1,807 15,543
Accrued wages, commissions, and bonuses................................... (182) 585 322
Other accrued liabilities................................................. 453 817 419
--------- --------- ---------
Net cash provided by (used in) operating activities..................... (15,779) 3,540 (3,938)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment........................................... (2,470) (3,086) (9,580)
Investment in subsidiary...................................................... -- -- (236)
--------- --------- ---------
Net cash used in investing activities................................... (2,470) (3,086) (9,816)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on (payments of) short-term debt................................... 4,727 (351) 9,760
Payments of Founding Shareholder Notes........................................ (1,340) -- --
Borrowings on (payments of) long-term debt.................................... 436 (1,003) 2,297
Issuance of common stock, net of issue costs.................................. 21,678 158 1,218
Distribution of S Corporation earnings........................................ (2,082) -- --
Payment of dividends.......................................................... (1,285) -- --
Tax benefit from exercise of stock options.................................... -- -- 928
--------- --------- ---------
Net cash provided by (used in) financing activities......................... 22,134 (1,196) 14,203
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................ 3,885 (742) 449
Cash and cash equivalents at beginning of period................................ 277 4,162 3,420
--------- --------- ---------
Cash and cash equivalents at end of period...................................... $ 4,162 $ 3,420 $ 3,869
--------- --------- ---------
--------- --------- ---------
</TABLE>

Supplemental disclosure of cash flow information:

-- Cash paid for interest in 1995, 1996 and 1997 was $1,023, $1,243, and
$1,640, respectively.

-- Cash paid for income taxes in 1995, 1996 and 1997 was $507, $2,775 and
$4,375 respectively.

For additional disclosure of non-cash investing and financing activities, see
Note 3, Acquisition.

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

F-6
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

STB Systems, Inc. develops, manufactures and sells a wide selection of
multimedia accelerators, other multimedia subsystem products and specialized
technology products designed for use in mid-range and high-end personal
computers ("PCs"). STB Assembly, Inc. is a wholly owned subsidiary and provides
manufacturing services to STB Systems, Inc. Symmetric Simulation Systems, Inc.
(see Note 3), also a wholly owned subsidiary of STB Systems, Inc., designs
high-end 3D graphics acceleration products.

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 include the
consolidated accounts of STB Systems, Inc., STB Assembly, Inc. and Symmetric
Simulation Systems, Inc. (see Note 3), (collectively referred to as the
"Company"; see also Note 2). STB Assembly, Inc. has two majority owned
subsidiaries, STB de Mexico S.A. de C.V. ("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.
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.

MANAGEMENT ESTIMATES. In preparing the consolidated financial statements in
conformity with generally accepted accounting principles, management is required
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results may differ from those
estimates.

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 as cash equivalents.

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 36
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, in the
event the Company reduces its selling prices, certain 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 programs are made as determined by management and
have historically been minor. Management's estimates of the costs associated
with the price protection and stock rotation programs are based on the Company's
historical experience with such arrangements and its evaluation of exposure at
each balance sheet date 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

F-7
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
associated with these programs are estimated and 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 expense. Depreciation and amortization expense for each of the
years ended October 31, 1995, 1996 and 1997 was $733,000, $1,252,000 and
$2,550,000, 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. Accordingly, the Company has adopted SFAS 123 on a
disclosure basis only.

FINANCIAL INSTRUMENTS. As of October 31, 1996 and 1997 the fair values of
the Company's revolving credit balance and the fair values of the Company's
fixed-rate debt approximates the related carrying values.

STOCK SPLITS. During fiscal 1997, the Company declared a three-for-two
split of the Company's common stock. The stock split was effected in the form of
a stock dividend on July 17, 1997, and resulted in the issuance of 3,454,011
additional shares. Share and per share amounts in the accompanying financial
statements have been retroactively adjusted to reflect the stock split.

F-8
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On January 27, 1998, the Company declared a three-for-two split of the
Company's common stock. The stock split will be effected in the form of a stock
dividend on February 20, 1998, to shareholders of record on February 11, 1998.
Shares and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect the stock split.

EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards
Board issued FAS No. 128, "Earnings per Share", (SFAS 128). The Company has
adopted SFAS 128, which establishes standards for computing and presenting
earnings per share (EPS), in the first quarter of fiscal 1998. This statement
requires dual presentation of basic and diluted EPS on the face of the income
statement for entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
the effect of potentially dilutive securities while diluted EPS reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised, converted into or resulted in the issuance of
common stock. SFAS 128 requires restatement of EPS for prior periods.
Accordingly, EPS data for all periods presented has been restated to reflect the
computation of EPS in accordance with the provisions of SFAS 128.

FOREIGN CURRENCY TRANSLATION. The U.S. dollar is the functional currency
for the Company's foreign operations. Gains and losses on the translation into
U.S. dollars of amounts denominated in foreign currencies are included in net
income.

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, 5,625,000 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 21, 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, 4,500,000 shares of common stock were offered to the public at a price of
$5.33 per share. Proceeds from the Company's Stock Offering totaled $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".

F-9
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--ACQUISITION

During the quarter ended April 30, 1997, STB Systems, Inc. acquired all of
the outstanding shares of Symmetric Simulation Systems, Inc. ("Symmetric").
Symmetric designs and builds high-end 3D graphics acceleration products for use
in applications such as computer-aided design, product visualization and
animation. This transaction was accounted for as a purchase, in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations". As
consideration, the Company issued 65,047 shares of stock at a fair market value
of $950,000 and cash in the amount of $236,000. As a result of the acquisition,
the Company recorded goodwill in the amount of $1,648,000, which is included in
other assets and is being amortized on a straight line basis over seven years.
Unamortized goodwill at October 31, 1997 was $1,548,000.

Pro forma results of operations data has not been included in these
financial statements as they are not material to the year ended October 31,
1997. The purchase prices have been allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows (in thousands):

<TABLE>
<CAPTION>
1997
---------
<S> <C>
Working capital, other than cash.................................................... $ 1,166
Property, plant and equipment....................................................... 89
Other assets........................................................................ 4
Goodwill............................................................................ 1,648
Other liabilities................................................................... (1,720)
---------
Purchase price, net of cash received................................................ $ 1,187
---------
---------
</TABLE>

NOTE 4--INVENTORIES

Inventories at October 31 consist of the following (in thousands):

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 10,667 $ 22,416
Work-in-process......................................................... 14,358 13,416
Finished goods.......................................................... 2,123 5,463
--------- ---------
Inventories, net........................................................ $ 27,148 $ 41,295
--------- ---------
--------- ---------
</TABLE>

NOTE 5--PROPERTY AND EQUIPMENT

Property and equipment at October 31 consist of the following (in
thousands):

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Furniture and equipment.................................................. $ 8,614 $ 16,485
Leasehold improvements................................................... 628 746
--------- ---------
9,242 17,231
Less: accumulated depreciation........................................... (4,011) (4,883)
--------- ---------
Property and equipment, net.............................................. $ 5,231 $ 12,348
--------- ---------
--------- ---------
</TABLE>

F-10
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--SHORT TERM DEBT AND NOTES PAYABLE TO RELATED PARTIES

On January 5, 1996, the Company increased its borrowing capacity under its
revolving credit facility ("Revolving Credit Facility") from $13,000,000 to
$25,000,000. The Revolving Credit Facility is with a bank, payable upon demand,
with interest at prime plus .75% (9.25% at October 31, 1997). Outstanding
balances under the Revolving Credit Facility were $11,760,000 and $21,520,000,
at October 31, 1996 and 1997, respectively. All indebtedness under the Revolving
Credit Facility matures on November 1, 1999.

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.

Subsequent to the balance sheet date, the Company entered into a new credit
agreement with a bank, increasing its borrowing capacity from $25,000,000 to
$30,000,000 on a new Revolving Credit Facility. All debt under the existing
facility was repaid with the increased capacity expected to be used to support
increased working capital needs. The new Revolving Credit Facility bears
interest at Libor plus 175 basis points (7.406% at October 31, 1997). In
addition, the Company will incur a fee on the unused portion of the commitment,
at an annual rate of .375%, payable quarterly, in arrears. All indebtedness
under the new Revolving Credit Facility matures on November 21, 1999. In
connection with the new Revolving Credit Facility, the Company incurred line of
credit fees in the amount of $76,000 in the first quarter of fiscal 1998.

NOTE 7--LONG-TERM LIABILITIES

Long-term liabilities at October 31 consist of the following (in thousands):

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Mezzanine Facility, interest at prime plus .75%, (prime plus 3% prior to
January 5, 1996) 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................................................................ $ 1,500 $ 1,000
Other loans, interest at 9.8%, payable in monthly installments of
principal and interest through July 1997, collateralized by certain
assets of the Company.................................................. 4 --
Obligations under capital leases......................................... 477 3,278
--------- ---------
1,981 4,278
Less: current portion.................................................... (705) (1,167)
--------- ---------
Long-term liabilities.................................................... $ 1,276 $ 3,111
--------- ---------
--------- ---------
</TABLE>

In connection with the new Revolving Credit Facility, the Mezzanine Facility
of $1,000,000 was repaid in full subsequent to the balance sheet date. In
addition to the new Revolving Credit Facility, the Company entered into a long
term loan agreement ("Term Loan") in the amount of $3,000,000 which is
structured as a sale/leaseback transaction and is included in obligations under
capital leases. The Term Loan is collateralized by certain assets of the
Company, and bears interest at the rate of Libor plus 250 basis points (8.156%
at October 31, 1997). The Term Loan is payable in monthly installments of
principal and interest over five years.

F-11
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--LONG-TERM LIABILITIES (CONTINUED)
The Company leases certain equipment under capital leases. Future minimum
lease payments under capital leases and the present value of the minimum capital
lease payments at October 31, 1997 are (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING OCTOBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1998 $ 845
1999 786
2000 754
2001 690
2002 690
------
3,765
Less: amount representing interest............................................. (487)
------
Present value of the minimum capital lease payments............................ $ 3,278
------
------
</TABLE>

NOTE 8--COMMITMENTS AND CONTINGENCIES

The Company leases office space and equipment under various noncancelable
operating lease agreements extending through 2002. Rental expense for each of
the years ended October 31, 1995, 1996 and 1997 was $773,000, $856,000, and
$2,136,000, respectively. In the first quarter of fiscal 1998 the Company moved
its manufacturing operations to a new 137,000 square foot facility in Juarez,
Mexico. Future minimum lease payments for the new facility are included in the
table below.

At October 31, 1997, future minimum lease payments for such operating leases
are (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING OCTOBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1998 $ 3,976
1999 3,345
2000 2,202
2001 2,180
2002 2,169
-------------
Total $ 13,872
-------------
-------------
</TABLE>

The Company installed two new high speed surface-mount assembly lines at its
new facility in Juarez, Mexico during the fourth quarter of fiscal 1997, at a
total cost of $6.3 million. The equipment was financed by two separate operating
leases. The first of the two lines was placed in service in September 1997 and
the financing was arranged prior to fiscal year end. The second line was placed
in service late in the fourth quarter of fiscal 1997, therefore, the financing
of this lease was not finalized until December 1997. For purposes of this
footnote, the minimum lease payments have been included for both leases. Under
the operating lease arrangements, the Company must make 60 monthly payments of
$60,775 and $53,691, respectively.

In December 1997, the Company entered into a five year agreement to
construct and lease a new corporate headquarters. Construction on the 210,000
square foot facility began in December 1997, and the total cost is estimated to
be approximately $22.8 million (including land). The lessor has agreed to fund
the cost of the land and construction of the building (subject to reductions
based on certain conditions in the

F-12
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
lease agreement). The Company plans to occupy the facility during the first
fiscal quarter of 1999 with rental payments commencing upon occupancy. Upon
completion of the initial five year term, the Company has the option to renew
the lease for an additional five years, payoff the underlying debt or cause the
building to be sold.

NOTE 9--MAJOR CUSTOMERS

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

<TABLE>
<CAPTION>
CUSTOMER 1995 1996 1997
- ----------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
A...................................................................... 42% 47% 35%
B...................................................................... -- 8% 20%
C...................................................................... -- -- 11%
D...................................................................... 10% -- --
</TABLE>

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 (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
United States...................................................... $ 98,742 $ 144,761 $ 144,665
Europe............................................................. 30,000 32,654 42,510
Other.............................................................. 861 2,740 12,310
---------- ---------- ----------
$ 129,603 $ 180,155 $ 199,485
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

NOTE 10--EMPLOYEE BENEFIT PLAN AND PROFIT SHARING PLAN

The Company has a 401(K) plan for all full-time employees. During the
period, the Company modified the plan contribution amount. The new plan provides
for the Company to make contributions of up to 50% of the amount of an
employee's contribution, but not more than 2% of an employee's total cash
compensation. Prior to the change, the Company made contributions of up to 25%
of the amount of an employee's contribution, up to 1% of the employee's total
cash compensation. The Company incurred expense of $34,000, $43,000 and $149,000
for the years ended October 31, 1995, 1996 and 1997, respectively, for its
contributions to this plan.

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 $503,000, $991,000 and
$1,464,000 in the years ended October 31, 1995, 1996 and 1997, respectively, as
a result of the Company's obligations under the profit sharing plan.

NOTE 11--EARNINGS PER SHARE

Basic net income per share has been computed in accordance with SFAS 128
using the weighted average number of common shares outstanding after giving
retroactive effect to the three-for-two stock splits effected in July 1997 and
February 1998. The provision and disclosure requirements for SFAS 128

F-13
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--EARNINGS PER SHARE (CONTINUED)
were required to be adopted for interim and annual periods ending after December
15, 1997, with restatement of EPS for all prior periods.

Diluted net income per share gives effect to all dilutive potential common
shares that were outstanding during the periods.

The following table sets forth a reconciliation of the numerator and
denominator used in the basic and diluted EPS computation for the years ended
October 31:

<TABLE>
<CAPTION>
1995 1996 1997
---------- ------------ ------------
<S> <C> <C> <C>
Net income (in thousands)...................................... $ 1,998 $ 6,077 $ 10,770
---------- ------------ ------------
---------- ------------ ------------
Basic:
Weighted average number of shares outstanding used in the
basic net income per share calculation..................... 8,818,151 10,158,803 10,297,929
---------- ------------ ------------
---------- ------------ ------------
Net income per share......................................... $ 0.23 $ 0.60 $ 1.05
---------- ------------ ------------
---------- ------------ ------------
Diluted:
Weighted average number of shares outstanding................ 8,818,151 10,158,803 10,297,929
Additional weighted average shares from assumed exercise of
dilutive stock options, net of shares assumed to be
repurchased with exercise proceeds......................... 33,076 150,453 848,673
---------- ------------ ------------
Weighted average shares used in the diluted net income per
share calculation.......................................... 8,851,227 10,309,256 11,146,602
---------- ------------ ------------
---------- ------------ ------------
Net income per share......................................... $ 0.23 $ 0.59 $ 0.97
---------- ------------ ------------
---------- ------------ ------------
</TABLE>

Options to purchase 16,500 shares of common stock at exercise prices ranging
from $24.92 to $25.67 per share were outstanding during the period but were not
included in the computation of diluted EPS because such exercise prices were
greater than the average market price of the common shares. The options will
expire in September 2007.

NOTE 12--CHANGE IN S CORPORATION STATUS AND INCOME TAXES

Immediately preceding 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 amount of $1,285,000 for the fiscal year ended October 31, 1995.
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 $4,100,000. 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. As of October 31, 1997, these notes had been repaid in full.

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 from differing
methods of recognizing inventory reserves and bad debt allowances for financial
and income tax reporting purposes. The deferred tax assets

F-14
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--CHANGE IN S CORPORATION STATUS AND INCOME TAXES (CONTINUED)
at October 31 are composed of the following and included in other current assets
in the consolidated balance sheets (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Bad debt reserves............................................................ $ 153 $ 113 $ 163
Inventory reserves........................................................... 340 476 490
Depreciation................................................................. 55 62 87
Various expense accruals..................................................... 80 408 216
Stock Option tax benefit..................................................... -- -- 903
--------- --------- ---------
Deferred tax asset........................................................... $ 628 $ 1,059 $ 1,859
--------- --------- ---------
--------- --------- ---------
</TABLE>

PROVISION FOR INCOME TAXES. The components of the income tax provision for
the C Corporation period for the years ended October 31, 1995, 1996 and 1997 are
as follows (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current Provision:
Federal.................................................................... $ 485 $ 3,468 $ 5,018
State...................................................................... 18 81 95
Foreign.................................................................... -- 68 265
--------- --------- ---------
503 3,617 5,378
--------- --------- ---------
Deferred (benefit)expense
Federal.................................................................... (173) (431) (800)
Effect of stock option exercises........................................... -- -- 903
--------- --------- ---------
(173) (431) 103
--------- --------- ---------
Provision for income taxes................................................... $ 330 $ 3,186 $ 5,481
--------- --------- ---------
--------- --------- ---------
</TABLE>

A reconciliation of taxes based on the federal statutory rate and the
provision for income taxes is summarized as follows for the years ended October
31:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income taxes at the federal statutory rate.............................. 34.0% 34.0% 35.0%
S Corporation earnings.................................................. (17.5%) -- --
State income taxes, net of federal benefit.............................. 0.5% 0.6% 0.4%
Foreign tax credit, net................................................. -- (.1%) (1.6%)
R&D credit.............................................................. (3.4%) (1.5%) (1.9%)
Other, net.............................................................. .6% 1.4% 1.8%
--------- --------- ---------
Provision for income taxes.............................................. 14.2% 34.4% 33.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>

NOTE 13--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

F-15
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--RELATED PARTY TRANSACTIONS (CONTINUED)
also an equity holder in the firm, serves as a member of the Company's board of
directors. The Company incurred costs of $58,000 for the year ended October 31,
1996, 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 $133,000 with respect to these services in 1995.

A business consulting firm has provided consulting services to the Company
since March 1990, for which the Company incurred fees of $21,000 in 1995. A
general partner in this consulting firm is an officer of the Company and a
member of the Company's board of directors.

NOTE 14--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. In April 1997, the plan
increased its number of authorized shares of common stock to be used for stock
options, stock appreciation rights, or restricted stock from 1,912,500 to
2,250,000. All options vest at the rate of 20% per year on each of the first
five anniversaries of the date of grant. At October 31, 1997, options to
purchase 332,547 shares were exercisable. The plan will terminate on December
31, 2004. Stock option activity during fiscal 1995, 1996 and 1997 is as follows:

<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED AVERAGE
OF SHARES RANGE PER SHARE EXERCISE PRICE
---------- --------------- -----------------
<S> <C> <C> <C>
Balance at October 31, 1994...................................... -- -- --
Granted........................................................ 1,086,750 $ 5.33--$ 6.17 $ 5.36
Terminated..................................................... (99,000) $ 5.33--$ 6.11 $ 5.42
Exercised...................................................... -- -- --
---------- --------------- ------
Balance at October 31, 1995...................................... 987,750 $ 5.33--$ 6.17 $ 5.35
---------- --------------- ------
Granted........................................................ 916,875 $ 4.11--$10.39 $ 8.43
Terminated..................................................... (73,125) $ 4.61--$ 5.33 $ 5.05
Exercised...................................................... (24,750) $ 5.33--$ 5.33 $ 5.33
---------- --------------- ------
Balance at October 31, 1996...................................... 1,806,750 $ 4.11--$10.39 $ 6.93
---------- --------------- ------
Granted........................................................ 137,625 $ 8.67--$25.67 $ 15.25
Terminated..................................................... (31,500) $ 5.33--$ 7.67 $ 6.92
Exercised...................................................... (198,225) $ 4.11--$10.39 $ 5.45
---------- --------------- ------
Balance at October 31, 1997...................................... 1,714,650 $ 4.11--$25.67 $ 7.77
---------- --------------- ------
</TABLE>

F-16
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--STOCK PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at October 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
EXERCISE REMAINING AVERAGE AVERAGE
PRICE SHARES CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OUTSTANDING LIFE PRICE OF SHARES PRICE
- -------------------------------------------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 4.11--$ 6.00.............................. 889,276 7.5 $ 5.27 196,048 $ 5.31
$ 6.01--$ 9.00.............................. 74,175 8.4 $ 6.82 13,425 $ 6.33
$ 9.01--$13.50.............................. 652,950 9.0 $ 9.90 123,074 $ 9.79
$13.51--$20.25.............................. 77,625 9.4 $ 14.90 -- --
$20.26--$25.67.............................. 20,625 9.9 $ 24.41 -- --
--
----------- ----------- ----------- -----
1,714,651 8.2 $ 7.77 332,547 $ 7.01
----------- -----------
----------- -----------
</TABLE>

The fair value of each option was estimated on the date of grant based on
the Black-Sholes option pricing model assuming, among other things, no dividend
yield, a risk free interest rate of 6.0%, expected volatility of 71% and
expected life of 4 years. The weighted average grant date fair value for options
granted during the fiscal years ended October 31, 1996 and 1997 was $4.89 and
$8.89, respectively. Had the Company recorded compensation expense based on the
fair value at the date of grant for its stock options under SFAS 123, the
Company's income would have been reduced to the pro forma amounts indicated
below, net of taxes:

<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
As Reported:
Net income (in thousands).............................................. $ 6,077 $ 10,770
--------- ---------
--------- ---------
Net income per share:
Basic.................................................................. $ 0.60 $ 1.05
--------- ---------
--------- ---------
Diluted................................................................ $ 0.59 $ 0.97
--------- ---------
--------- ---------
Pro Forma:
Net income (in thousands).............................................. $ 6,000 $ 10,127
--------- ---------
--------- ---------
Net income per share:
Basic.................................................................. $ 0.59 $ 0.98
--------- ---------
--------- ---------
Diluted................................................................ $ 0.58 $ 0.91
--------- ---------
--------- ---------
</TABLE>

EMPLOYEE STOCK 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

F-17
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--STOCK PLANS (CONTINUED)
value of the Common Stock on the date the option is exercised. As of October 31,
1997, 39,430 shares have been issued under this plan.

NOTE 15--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 44,905 $ 44,592 $ 42,537 $ 48,122 $ 48,092 $ 48,700 $ 42,019 $ 60,674
Gross profit............. 7,262 8,403 8,616 10,996 10,633 11,778 12,425 15,211
Net income............... 1,214 1,351 1,380 2,131 2,252 2,418 2,469 3,630
Net income per share:
Basic.................. $ 0.12 $ 0.13 $ 0.14 $ 0.21 $ 0.22 $ 0.24 $ 0.24 $ 0.35
Diluted................ $ 0.12 $ 0.13 $ 0.13 $ 0.20 $ 0.21 $ 0.22 $ 0.22 $ 0.31
</TABLE>

F-18
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................. $ 3,869 $ 3,391
Accounts receivable -- trade, net of allowance for doubtful accounts of $465 and $548,
respectively........................................................................ 47,208 49,806
Inventories, net...................................................................... 41,295 45,811
Other current assets.................................................................. 1,970 2,659
----------- -----------
Total current assets................................................................ 94,342 101,667
Property and equipment, net............................................................. 12,348 12,130
Other assets............................................................................ 2,864 1,970
----------- -----------
Total assets........................................................................ $ 109,554 $ 115,767
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt....................................................................... $ 21,520 $ 23,000
Accounts payable--trade............................................................... 36,801 38,938
Accrued wages, commissions and bonuses................................................ 1,466 936
Other accrued liabilities............................................................. 2,027 2,403
Current portion of long-term liabilities.............................................. 1,167 589
----------- -----------
Total current liabilities........................................................... 62,981 65,866
----------- -----------
----------- -----------
Long-term Liabilities:
Long-term notes payable............................................................... 500 --
Obligations under capital leases and other long-term liabilities...................... 2,611 2,538
----------- -----------
Total long-term liabilities......................................................... 3,111 2,538
----------- -----------
Shareholders' Equity:
Preferred stock, 2,000,000 shares authorized, none issued or outstanding.............. -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 10,452,473 and 10,464,897
shares issued, respectively......................................................... 105 105
Additional paid-in capital............................................................ 25,357 25,453
Retained earnings..................................................................... 18,245 22,050
----------- -----------
43,707 47,608
Treasury stock, 35 shares, at cost.................................................... (245) (245)
----------- -----------
Total shareholders' equity............................................................ 43,462 47,363
----------- -----------
Total liabilities and shareholders' equity.......................................... $ 109,554 $ 115,767
----------- -----------
----------- -----------
</TABLE>

The accompanying notes are an integral part of these financial statements

F-19
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 48,092 $ 78,758
Cost of sales......................................................................... 37,459 62,542
------------ ------------
Gross profit.......................................................................... 10,633 16,216
------------ ------------
Operating expenses:
Research and development............................................................ 1,238 2,338
Sales and marketing................................................................. 3,286 4,424
General and administrative.......................................................... 2,383 3,235
------------ ------------
Total operating expenses.............................................................. 6,907 9,997
------------ ------------
Income from operations................................................................ 3,726 6,219
Interest expense, net................................................................. 376 518
------------ ------------
Income before income taxes............................................................ 3,350 5,701
Provision for income taxes............................................................ 1,098 1,896
------------ ------------
Net income............................................................................ $ 2,252 $ 3,805
------------ ------------
------------ ------------
Net income per share:
Basic............................................................................... $ 0.22 $ 0.36
------------ ------------
------------ ------------
Diluted............................................................................. $ 0.21 $ 0.33
------------ ------------
------------ ------------
Weighted average shares outstanding:
Basic............................................................................... 10,158,549 10,461,695
------------ ------------
------------ ------------
Diluted............................................................................. 10,730,624 11,388,554
------------ ------------
------------ ------------
</TABLE>

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

F-20
<PAGE>
STB SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 2,252 $ 3,805
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization............................................................ 420 660
Changes in assets and liabilities:
Accounts receivable--trade............................................................. 667 (2,598)
Inventories............................................................................ 457 (4,516)
Other current assets................................................................... (260) (689)
Other assets........................................................................... 33 894
Accounts payable--trade................................................................ (4,483) 2,136
Accrued wages, commissions, and bonuses................................................ (109) (530)
Other accrued liabilities.............................................................. 365 376
--------- ---------
Net cash used in operating activities................................................ (658) (462)
--------- ---------
Cash flows from investing activities--
Purchases of property and equipment........................................................ (1,085) (442)
--------- ---------
Cash flows from financing activities:
Borrowings on short-term debt.............................................................. 2,145 1,480
Payments on long-term debt................................................................. (185) (1,150)
Issuance of common stock, net of issue costs............................................... 99 96
--------- ---------
Net cash provided by financing activities................................................ 2,059 426
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... 316 (478)
Cash and cash equivalents at beginning of period............................................. 3,420 3,869
--------- ---------
Cash and cash equivalents at end of period................................................... $ 3,736 $ 3,391
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements

F-21
<PAGE>
STB SYSTEMS, INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

STB Systems, Inc. develops, manufactures and sells a wide selection of
multimedia accelerator subsystems, other multimedia subsystem products and
specialized technology products for use in mid-range and high-end personal
computers ("PCs"). STB Assembly, Inc. is a wholly-owned subsidiary and provides
manufacturing services to STB Systems, Inc. Symmetric Simulation Systems, Inc.,
also a wholly-owned subsidiary of STB Systems, Inc., designs high-end 3D
graphics acceleration products for use in applications such as computer-aided
design, product visualization and animation.

The accompanying financial statements include the consolidated accounts of
STB Systems, Inc., STB Assembly, Inc. and Symmetric Simulation Systems, 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 that 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.

In February 1997, the Financial Accounting Standards Board issued FAS No.
128, "Earnings per Share", (SFAS 128). The Company has adopted SFAS 128, which
establishes standards for computing and presenting earnings per share (EPS).
This statement requires dual presentation of basic and diluted EPS on the face
of the income statement for entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
Basic EPS excludes the effect of potentially dilutive securities while diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised, converted into or resulted in
the issuance of common stock. The provision and disclosure requirements of SFAS
128 were required to be adopted for interim and annual periods ending after
December 15, 1997, with restatement of EPS for prior periods. Accordingly, EPS
data for all periods has been restated to reflect the computation of EPS in
accordance with the provisions of SFAS 128.

The financial information presented herein should be read in conjunction
with the Company's annual consolidated financial statements for the year ended
October 31, 1997. 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 the interim
periods are not necessarily indicative of the results to be expected for the
year.

NOTE 2--INVENTORIES

Inventories at October 31, 1997 and January 31, 1998 consist of the
following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1997 1998
--------------- ---------------
<S> <C> <C>
Raw materials........................................................ $ 22,416 $ 23,789
Work-in-process...................................................... 13,416 15,236
Finished goods....................................................... 5,463 6,786
------- -------
Totals............................................................. $ 41,295 $ 45,811
------- -------
</TABLE>

F-22
<PAGE>
STB SYSTEMS, INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 3--SHORT TERM DEBT

In November 1997, the Company entered into a new credit agreement with a
bank, increasing its borrowing capacity to $30,000,000 from $25,000,000. The new
revolving credit facility ("Revolving Credit Facility") bears interest at Libor
plus 175 basis points (7.348% at January 31, 1998). Availability under the
Revolving Credit Facility is subject to limitation determined by the Company's
borrowing base, which is calculated based on eligible accounts receivable as
defined in the Revolving Credit Facility Agreement. In January 1998, the Company
increased its borrowing capacity under its Revolving Credit Facility to
$40,000,000 from $30,000,000.

NOTE 4--STOCK SPLIT

On January 27, 1998, the Company declared a three-for-two split of the
Company's common stock. The stock split will be effected in the form of a stock
dividend on February 20, 1998, to shareholders of record on February 11, 1998.
Share and per share amounts in the accompanying financial statements have been
retroactively adjusted to reflect the stock split.

NOTE 5--EARNINGS PER SHARE

The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted EPS computations at January 31:

<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Net income (in thousands)................................................... $ 2,252 $ 3,805
------------ ------------
------------ ------------
Weighted average shares outstanding......................................... 10,158,549 10,461,695
------------ ------------
------------ ------------
Basic net income per share.................................................. $ 0.22 $ 0.36
------------ ------------
------------ ------------

Weighted average shares outstanding......................................... 10,158,549 10,461,695
Additional weighted average shares from assumed exercise of dilutive stock
options, net of shares assumed to be repurchased with exercise proceeds... 572,075 926,859
------------ ------------
Dilutive weighted average shares outstanding................................ 10,730,624 11,388,554
------------ ------------
------------ ------------
Diluted net income per share................................................ $ 0.21 $ 0.33
------------ ------------
------------ ------------
</TABLE>

Options to purchase 20,625 shares of common stock at exercise prices ranging
from $21.27 to $25.67 per share were outstanding during the first quarter of
fiscal 1998 but were not included in the computation of diluted EPS because such
exercise prices were greater than the average market price of the common shares.
The options will expire in 2007.

F-23
<PAGE>
[Inside Back Cover Graphics: Collage of images, including several of the
Company's products, a racing motorcyclist, 3D mechanical drawing renderings and
a PC monitor screen displaying a web browser with a page from the Company's
world wide web site.
<PAGE>
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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 ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 20
Price Range of Common Stock and Dividend Policy........................... 20
Capitalization............................................................ 21
Selected Consolidated Financial Data...................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 24
Business.................................................................. 35
Management................................................................ 51
Certain Transactions...................................................... 63
Principal and Selling Shareholders........................................ 64
Description of Capital Stock.............................................. 65
Shares Eligible for Future Sale........................................... 67
Underwriting.............................................................. 68
Legal Matters............................................................. 69
Experts................................................................... 69
Incorporation of Certain
Documents by Reference.................................................. 70
Additional Information.................................................... 70
Index to Consolidated Financial Statements................................ F-1
</TABLE>

3,000,000 SHARES

[LOGO]

COMMON STOCK

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PROSPECTUS

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CIBC OPPENHEIMER
HAMBRECHT & QUIST
HOAK BREEDLOVE WESNESKI & CO.
THE BUCKINGHAM RESEARCH GROUP,
INCORPORATED

MARCH 20, 1998

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<PAGE>
EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
December 8, 1997, except as to Notes 1 and 11 which are as of February 20, 1998,
which appears in the 1997 Annual Report to Shareholders of STB Systems, Inc.,
which is incorporated by reference in STB Systems, Inc.'s Annual Report on Form
10-K for the year ended October 31, 1997. We also consent to the incorporation
by reference of our report on the Financial Statement Schedule, which appears in
such Annual Report on Form 10-K. We also consent to the references to us under
the headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."

PRICE WATERHOUSE LLP

Dallas, Texas
March 19, 1998