ACCELGRAPHICS INC, SB-2/A, 1997-03-13

ACCELGRAPHICS INC
SB-2/A, 1997-03-13
ELECTRONIC COMPONENTS & ACCESSORIES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1997

REGISTRATION NO. 333-21343

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

AMENDMENT NO. 1

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------

ACCELGRAPHICS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER)

<TABLE>
<S> <C> <C>
DELAWARE 3670 77-0450627
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

1942 ZANKER ROAD, SAN JOSE, CALIFORNIA 95112 (408) 441-1556
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

JEFFREY W. DUNN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACCELGRAPHICS, INC.
1942 ZANKER ROAD
SAN JOSE, CALIFORNIA 95112
(408) 441-1556
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------

COPIES TO:

<TABLE>
<S> <C>
MICHAEL W. HALL JOHN W. CAMPBELL
EDMUND S. RUFFIN, JR. TAMARA POWELL TATE
AMY L. CUSTALOW DAVID LORIE
MARIBETH YOUNGER MORRISON & FOERSTER LLP
VENTURE LAW GROUP, A PROFESSIONAL CORPORATION 425 MARKET STREET
2800 SAND HILL ROAD SAN FRANCISCO, CALIFORNIA 94105
MENLO PARK, CALIFORNIA 94025 (415) 268-7000
(415) 854-4488
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

PROSPECTUS (Subject to Completion)

Dated March 13, 1997

2,600,000 Shares

LOGO

Common Stock
------------------------------

Of the 2,600,000 shares of Common Stock offered hereby, 2,145,000 shares
are being issued and sold by AccelGraphics, Inc. ("AccelGraphics" or the
"Company") and 455,000 shares are being sold by certain selling stockholders
(the "Selling Stockholders"). See "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders.

Prior to this offering, there has been no public market for the Common
Stock of the Company. Application has been made to have the Common Stock
approved for quotation on the Nasdaq National Market under the symbol "ACCL." It
is currently estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See "Underwriting" for information relating to the
determination of the initial public offering price.
------------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 HEREOF.
------------------------------

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.

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<S> <C> <C> <C> <C>
==================================================================================================
Price to Underwriting Proceeds to Proceeds to Selling
Public Discount (1) Company (2) Stockholders (2)
- --------------------------------------------------------------------------------------------------
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
==================================================================================================
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting expenses, estimated at $750,000, payable by the Company.

(3) The Company and the Selling Stockholders have granted the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 390,000 additional shares of Common Stock at the Price to
Public less the Underwriting Discount to cover over-allotments, if any. If
all such additional shares are purchased, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."

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

The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for such shares will be made at the offices of Cowen &
Company, New York, New York, on or about , 1997.

COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY

SOUNDVIEW FINANCIAL GROUP, INC.

, 1997
<PAGE> 3

[PICTURE]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING, MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN
MARKET AND MAY IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

The AccelGraphics logo, AccelGraphics(R), AccelVIEW(R) and AG300(R) are
registered trademarks of the Company. AccelECLIPSE(TM), AccelSTAR(TM), AG500(TM)
and Flying Carpet(TM) are trademarks of the Company. This Prospectus also
contains the trademarks of other companies.

<PAGE> 4

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. Except as set forth in the Consolidated
Financial Statements or as otherwise noted, all information in this Prospectus
(i) assumes a one-for-two reverse stock split of the Common Stock and Preferred
Stock which was effective on March 13, 1997, (ii) assumes the conversion of all
outstanding shares of Preferred Stock into Common Stock upon the closing of this
offering, (iii) reflects the reincorporation of the Company from California to
Delaware which was effective on March 12, 1997, and (iv) assumes no exercise of
the Underwriters' over-allotment option. See "Description of Capital Stock" and
"Underwriting."

THE COMPANY

AccelGraphics, Inc. ("AccelGraphics" or the "Company") is a leading
provider of high-performance, cost-effective, 3-dimensional ("3D") graphics
subsystems, software accelerators and application utility software products for
the professional Windows NT and Windows 95 markets. The Company pioneered the
development of professional 3D graphics subsystems for use with Microsoft's
Windows NT operating system ("NT"). A 3D graphics subsystem integrates graphics
acceleration chip(s), specialized hardware, firmware, software and memory. The
Company's 3D graphics subsystems, when included in an Intel Pentium, Pentium Pro
or Digital Alpha-based computer, create a new class of computer system called a
"Personal Workstation." Personal Workstations, which often sell for less than
$10,000, provide capabilities and performance comparable to more expensive 3D
graphics RISC/UNIX workstations. In January 1995, AccelGraphics shipped what the
Company believes was the first 3D graphics subsystem for NT and currently offers
four distinct 3D graphics subsystem product lines.

3D computing is a highly effective way to realistically and intuitively
visualize, analyze, animate and communicate data. Engineers, designers,
scientists and researchers who previously used 2-dimensional ("2D") technology
now can work faster and more efficiently by using 3D technology to create,
modify and complete more sophisticated models. 3D computing is inherently
complex and computationally demanding, requiring up to or greater than half a
billion calculations per second. Since the 1980s, professionals have primarily
used RISC/UNIX workstations for 3D computing. However, RISC/UNIX workstation
vendors have developed proprietary operating systems, processors, buses,
application programming interfaces ("APIs") and 3D graphics subsystems,
resulting in expensive systems which are often difficult to integrate into
corporate computing networks.

In contrast to RISC/UNIX workstations, 3D capabilities of the personal
computer ("PC") have been extremely limited due to restrictions of PC operating
systems and the lack of sufficient microprocessor power, application software
and high-performance standard 3D APIs. Several technological innovations,
including Intel's Pentium and Pentium Pro processors and PCI bus architecture,
Microsoft's NT operating system and the introduction of OpenGL, a
high-performance 3D graphics API, have overcome many of these limitations.
However, to perform fully functional, high-performance 3D computing, an NT-based
integrated 3D graphics subsystem is required.

The Company's products include a family of 3D graphics subsystems for
applications based on OpenGL and other 3D APIs, such as Autodesk's Heidi.
Through the Company's extensive experience in 3D algorithms, the interaction of
3D applications with OpenGL and overall 3D graphics system integration,
AccelGraphics delivers robust, well-integrated subsystem solutions to the
professional 3D graphics market. According to IDC, the world wide unit volume of
3D graphics subsystems for workstations will grow at a compounded annual growth
rate of 106% from 36,000 units in 1996 to over 650,000 units in the year 2000.

The Company sells its products through original equipment manufacturers
("OEMs") and a worldwide network of value added resellers ("VARs") and
distributors. Digital Equipment Corporation ("Digital"), Epson Direct,
Hewlett-Packard Company ("HP"), Hitachi, Ltd., Samsung Electronics Co., Ltd. and
Tri-Star Computer Corporation purchase the Company's fully-integrated 3D
graphics subsystems for use in high-performance Personal Workstations. Revenues
from Digital and HP accounted for 51% of the Company's revenue in 1996. The
Company also has technical relationships with Intel Corporation and Microsoft
Corporation, as well as with key component suppliers including 3Dlabs, Inc.,
Cirrus Logic, Inc., Evans & Sutherland Computer Corporation, and Mitsubishi
Electric Corporation. To enhance the performance of applications which use the
Company's 3D graphics subsystems, AccelGraphics has developed relationships,
some of which include joint engineering projects, with many leading independent
software vendors ("ISVs") such as Autodesk, Inc. and Autodesk Inc.'s Kinetix
division, Computer Associates International, Inc., Electronic Data Systems
Corporation's Unigraphics division, Matra Datavision S.A., Microsoft
Corporation's Softimage, Parametric Technology Corporation, Ricoh Corporation,
Structural Dynamics Research Corporation and Visible Decisions, Inc.

The Company was incorporated in April 1994 in the State of California and
commenced operations in late 1994. The Company will be reincorporated in
Delaware in March 1997. The Company's principal executive offices are located at
1942 Zanker Road, San Jose, California 95112. Its telephone number is (408)
441-1556.

3
<PAGE> 5

THE OFFERING

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<S> <C>
Common Stock offered:
By the Company................................. 2,145,000 shares
By the Selling Stockholders.................... 455,000 shares
Common Stock to be outstanding after the
offering....................................... 7,906,307 shares(1)
Use of proceeds.................................. General corporate purposes including
payment of certain indebtedness, working
capital, capital expenditures, research
and development and potential acquisitions
of businesses and technologies. See "Use
of Proceeds."
Nasdaq National Market symbol.................... ACCL
</TABLE>

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------- YEAR ENDED
JUNE DECEMBER 31,
MAR. 31, 30, SEPT. 30, DEC. 31, -------------------
1996 1996 1996 1996 1995 1996
-------- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 2,371 $3,067 $ 4,260 $ 8,973 $ 3,911 $ 18,671
Gross profit......................................... 901 1,052 1,401 3,240 1,410 6,594
Income (loss) from operations........................ (532) (589) (578) 864 (4,401) (835)
Net income (loss).................................... $ (560) $ (595) $ (598) $ 821 $ (4,465) $ (932)
Pro forma net loss per share (2)..................... $ (0.15)
Shares used to compute pro forma net loss per share
(2)................................................ 6,272
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 2,979 $ 2,979 $ 22,424
Working capital.................................................... 5,030 5,030 24,475
Total assets....................................................... 8,439 8,439 27,884
Long term obligations.............................................. 1,782 1,782 34
Mandatorily redeemable convertible preferred stock................. 8,930 -- --
Total stockholders' equity (deficit)............................... (5,170) 3,760 24,953
</TABLE>

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

(1) Based on shares outstanding at December 31, 1996, excluding 63,250 shares of
Common Stock issuable upon exercise of outstanding warrants at a weighted
average exercise price of $2.36 per share and 1,006,867 shares of Common
Stock issuable upon exercise of outstanding options at a weighted average
exercise price of $1.30 per share. See "Management -- Stock Option and
Incentive Plans."

(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing pro forma net loss per
share.

(3) Reflects the conversion of all outstanding shares of Redeemable Convertible
Preferred Stock into 4,508,657 shares of Common Stock upon the closing of
this offering.

(4) Adjusted to reflect the receipt of estimated net proceeds from the sale by
the Company shares of Common Stock offered hereby at an assumed initial
public offering price of $11.00 per share and the payment of approximately
$1,748,000 of indebtedness to Kubota Corporation. See "Use of Proceeds" and
"Capitalization."

4
<PAGE> 6

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this Prospectus.

LIMITED HISTORY OF PROFITABILITY AND UNCERTAINTY OF FUTURE FINANCIAL RESULTS

The Company has incurred a net operating loss in each year since commencing
operations in late 1994. As a result, the Company had an accumulated deficit as
of December 31, 1996 of approximately $5.5 million. The Company has only one
quarter of profitability, which may not be indicative of future operating
results, and the Company does not believe that current revenue growth rates are
sustainable. To date, the Company has earned substantially all of its revenues
from sales of its AG300/500, AccelPRO and AccelPRO TX hardware product lines.
There can be no assurance that the Company will ever achieve profitability on an
annual basis in the future or that it can sustain profitability on a quarterly
basis. The Company has completed only slightly more than two years of operations
and is subject to the risks inherent in the operation of a new business, such as
the difficulties and delays often encountered in the development and production
of new, complex technologies. There can be no assurance that the Company will be
able to address these risks.

The Company expects to expand its research and development, sales and
marketing and administrative capabilities. The anticipated increase in the
Company's operating expenses caused by this expansion could have a material
adverse effect on the Company's operating results if revenues do not increase at
an equal or greater rate. Also, the Company's expenses for these and other
activities are based in significant part on its expectations regarding future
revenues and are fixed to a large extent in the short term. Accordingly, the
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall, which would 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."

SIGNIFICANT VARIABILITY IN QUARTERLY RESULTS

The Company's quarterly operating results have varied significantly in the
past and are likely to vary significantly in the future. The Company's quarterly
results are affected by a wide variety of factors including the gain or loss of
significant customers, size and timing of individual orders, timely introduction
and market acceptance of new products offered by the Company and its
competitors, availability, reliability and cost of components, the Company's
success in negotiating original equipment manufacturer ("OEM") and other
customer agreements, customer order deferrals in anticipation of new products,
technological changes in operating systems or applications, variations in
manufacturing quality or capacities, changes in the pricing policies of the
Company or its competitors, changes in demand for 3-dimensional ("3D") graphics
functionality, changes in the mix of revenues from products having differing
gross margins, changes in sales channel mix, changes in average sales prices,
warranty expenses, fluctuations in the Company's expense levels, the Company's
success at expanding its direct sales force and indirect distribution channels,
risks related to international operations, extraordinary events such as
litigation or acquisitions and general industry and economic conditions, as well
as other factors. Any of the above risks could have a material adverse effect on
the Company's business, financial condition and results of operations.

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channel could unexpectedly cause a reduction in product shipments and revenues.
Moreover, a disproportionate percentage of the Company's revenues in any quarter
may be generated in the last month of a quarter. As a result, a shortfall in
revenues in any quarter as compared to expectations may not be identifiable
until near the end of the quarter. The Company may experience relatively weak
demand in third quarters due to historically weak summer sales in Europe.

The Company's gross margins are impacted by the sales channel mix, mix of
products sold, increased competition and related decreases in unit average
selling prices, introduction of new products, availability, reliability and cost
of components from the Company's subcontractors and suppliers, and general
economic conditions. Currently, the Company is focusing on increasing its sales
to OEMs, which have historically yielded lower margins than other channels.
Individual product lines generally provide higher margins at the beginning of
the life cycle and lower margins as the product line matures. In addition, the
Company's markets are characterized by rapidly changing technology and declining
average selling prices. Accordingly, the Company's gross margins may decline
from the levels experienced to date, which could have an adverse effect on the
Company's business, financial condition and results of operations.

A significant portion of the Company's operating expenses are relatively
fixed in the short term and planned expenditures are based on revenue forecasts.
As a result, if revenues are below levels needed to offset these operating
expenses, the Company's business, financial condition and results of operations
may be disproportionately affected because only a portion of the Company's
expenses vary with revenue. The Company generally must plan production, order
components and undertake its development, sales and marketing activities several
months in advance of shipping product and recognizing revenues. Accordingly, any
shortfall in revenues in a given quarter may impact the Company's operating
results and cash balances in a magnified way due to the Company's inability to
adjust expenses or inventory during the quarter to match the level of revenues
for the quarter. In addition, in the event the Company's customers desire to
purchase products in excess of forecasted amounts, the Company may not have
sufficient inventory or access to sufficient manufacturing capacity to meet such
demands. Although the Company has experienced growth in revenues in recent
quarters, there can be no assurance that the Company will sustain such revenue
growth or be profitable on an operating basis in any future period. For the
foregoing reasons, the Company believes that period-to-period comparisons of its
results are not necessarily meaningful and should not be relied upon as
indications of future performance. Further, it is likely that in some future
quarter the Company's revenues or operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Common Stock could be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RAPID TECHNOLOGICAL CHANGE

The computer industry in general, and the markets for the Company's
products in particular, are characterized by ongoing technological developments,
evolving industry standards and rapid changes in customer requirements. Customer
preferences can change rapidly and new technology can quickly render existing
products obsolete. In order to keep pace with this rapidly changing market
environment, the Company must continually develop and incorporate into its
products technological advances and new features desired by customers at
competitive prices. There can be no assurance that the Company will be
successful in developing and marketing, on a timely basis or at all, competitive
products, product enhancements and new products that respond to technological
changes or changes in customer requirements and industry standards, or that the
Company's enhanced or new products will adequately address the changing needs of
the marketplace. Additionally, application programming interfaces ("APIs") have
evolved and changed over time. Although OpenGL has developed into a leading
industry standard API for professional 3D graphics development, it is likely
that industry standards will continue to evolve to meet rapidly changing
customer requirements. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products that
respond to these evolving standards. Failure by the Company to respond
effectively to changes in the 3D graphics market, to develop or acquire new
technology or to successfully conform to industry standards would have a
material adverse effect on the business, financial condition and results of
operations of the Company. Operating systems and independent software vendor
("ISV") applications

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<PAGE> 8

are updated from time to time. The Company must constantly monitor these changes
and upgrade its products to remain compatible with any upgrades in operating
systems and ISV applications. There can be no assurance that the Company will be
successful in developing new versions or enhancements to its products or that
the Company will not experience delays in the upgrade of its products. In the
event that there are delays in the completion of any upgrade to its products,
the Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the Company strives to achieve
compatibility between the Company's products and 3D graphics applications the
Company believes are or will become popular and widely adopted. The Company
invests substantial resources in development efforts aimed at achieving such
compatibility. Any failure by the Company to anticipate or respond adequately to
changes in applications could result in a loss of competitiveness and could
adversely affect the Company's business, financial condition and results of
operations. See " -- Dependence on ISV Relationships" and "Business -- Research
and Development."

SHORT PRODUCT LIFE CYCLES

The market for the Company's products is characterized by frequent new
product introductions and rapid product obsolescence. The life cycles of the
Company's products are difficult to estimate. Generally, life cycles of personal
computer 3D graphics subsystems are relatively short, approximately six to
fifteen months. The Company must constantly monitor industry trends and select
new technologies and features for its products, as well as monitor the timing of
introduction of new products. Moreover, short product life cycles, coupled with
single-source supply of components used in the Company's products, may prevent
the Company from being able, in a timely manner, to reduce its procurement
commitments, production or inventory levels in response to obsolescence,
unexpected shortfalls in orders, revenues or declines in prices or, conversely,
to increase production in response to unexpected increases in demand. Failure to
respond to the market adequately could have a material adverse effect on the
Company's business, financial condition and results of operations. The timing of
the end of a product's life cycle is difficult to predict and is typically
characterized by steep declines in unit sales, pricing and margins. As new
products are planned and introduced, the Company may not be able to control the
inventory levels of older products and phase out production, potentially
resulting in excess inventory and the expenses associated therewith. The Company
could experience unexpected reductions in revenues from older generation
products as customers anticipate new products. To the extent the Company is
unsuccessful in managing product transitions, its business, financial condition
and results of operations would be adversely affected. See "Business -- Research
and Development."

RELIANCE ON THIRD PARTY DISTRIBUTION AND MAJOR OEMS

The Company relies on OEMs, value added resellers ("VARs") and a network of
distributors for both domestic and international revenues. In particular, sales
to Digital Equipment Corporation ("Digital") and Hewlett-Packard Company ("HP")
accounted for approximately 28% and 23% of 1996 revenues, respectively, and
sales to NeTpower, Inc. ("NeTpower"), a former customer, accounted for
approximately 17% of the Company's revenues in 1995. The Company believes that
its future success may depend upon its ability to broaden its customer base.
There can be no assurance that a major customer will not reduce, delay or
eliminate its purchases from the Company, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Further, HP has a non-exclusive manufacturing license pursuant to which it is
granted the right to manufacture or have manufactured the Company's products in
the event of the Company's bankruptcy, receivership or failure to supply HP with
specified quantities of products due to a cause not associated with the
negligence of either party for the term of the agreement or until the Company is
out of bankruptcy or receivership. Digital has a non-exclusive manufacturing
license pursuant to which it is granted the right to manufacture the Company's
products in the event that the Company is unable to supply Digital with
specified quantities of products, until the Company demonstrates its ability and
readiness to assume its obligations. In the event the Company were required to
grant such nonexclusive manufacturing rights to Digital, HP or any other OEM
that subsequently may obtain such rights, such grant could have the effect of
decreasing the value of the Company's ownership rights with respect to such
products and/or decrease the Company's revenues, either of which could have an
adverse effect on the Company's business, financial condition or results of
operations. The Company's customer agreements are short term and

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<PAGE> 9

automatically renew each year and generally may be canceled for convenience upon
written notice by either party. Generally, there are no minimum purchase
requirements for the Company's OEMs, VARs and distributors. Some of the
Company's OEMs, VARs and distributors offer competitive products manufactured
internally or by third parties. There can be no assurance that the Company's
OEMs, VARs and distributors will give a priority to the marketing of the
Company's products as compared to competing products or alternative solutions or
that such OEMs, VARs and distributors will continue to offer the Company's
products. Moreover, there can be no assurance that the Company will continue to
sell substantial quantities of its products to these OEMs, VARs and
distributors, or that upon any termination of the Company's relationships with
any of these OEMs, VARs or distributors, the Company would be able to obtain
suitable alternate distributions channels. The loss of one or more of the
Company's OEMs, VARs or distributors could have a material adverse effect on the
Company's business, financial condition and results of operations. Additionally,
the Company's southern and northern European distributor maintains a credit
limit with the Company for the purchase of a certain amount of the Company's
products. In the event that the demand for the Company's products exceeds this
credit limit, the Company may be unable to increase the credit limit and supply
this distributor with additional quantities of products. Accordingly, the
Company may experience significant backlog and delays in the supply of
additional products to this distributor, 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" and "Business -- Customers, Sales and Marketing."

Although the Company seeks information from end users who purchase the
Company's products from OEMs, VARs and distributors, the Company generally does
not sell directly to end users and cannot directly observe their experience with
the Company's products. The Company also does not have direct control over the
marketing and support efforts of its OEMs, VARs and distributors. This may
result in the inability of the Company to identify potential opportunities with
these customers and may cause a potential delay by the Company in the
recognition and correction of any problems with such OEM, VAR or distributor
sales or support organizations. Failure of the Company to respond to customer
preferences or experience with its products or the failure of OEMs, VARs or
distributors to market and support the Company's products successfully, 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" and "Business -- Customers, Sales
and Marketing."

DEPENDENCE ON SUBCONTRACTORS AND SOLE-SOURCE SUPPLIERS

The Company relies on subcontractors to manufacture, subassemble, test and
ship the Company's products. The Company relies on sole-source suppliers for
certain critical components, such as 3Dlabs, Inc. ("3Dlabs") for its graphics
acceleration chips, Mitsubishi Electric Corporation ("Mitsubishi") for its
graphics acceleration chips and 3DRAM chips and Nan Ya PCB Service Co. ("Nan
Ya") for its printed circuit boards. In addition, there is a limited
availability of certain application specific integrated circuit chipsets that
provide VRAM and DRAM memory. The Company procures its components and products
through purchase orders and does not have specific requirement agreements with
any of its subcontractors or suppliers. Each of the Company's subcontractors and
suppliers can cease supplying the services, products or components at any time
with no penalty. In the event it becomes necessary for the Company to replace a
key subcontractor or supplier, the Company could incur significant manufacturing
set-up costs and delays while new sources are located and alternate components
are integrated into the design of the Company's products. There can be no
assurance that the Company will be able to maintain its current subcontractor
and supplier relationships or that the Company will be able to find suitable
replacement subcontractors and suppliers, if necessary. Although the Company
maintains ongoing efforts to obtain required quantities of products, component
shortages may exist from time to time, and there can be no assurance that the
Company's current subcontractors and suppliers will continue to provide
sufficient quantities of suitable quality product components at acceptable
prices. The Company's emphasis on maintaining low inventory may accentuate the
effects of any shortages that may result from sole source products or
subcontractors. The inability of the Company to obtain product components at
their historical cost levels would directly affect the cost of the Company's
products. Also, product components may contain undetected errors or "bugs" when
first supplied

8
<PAGE> 10

to the Company that, despite testing by the Company, are discovered only after
the Company's product has been installed and used by customers. There can be no
assurance that errors will not be found in the Company's products due to errors
in the product components, or that any such errors will not impair the market
acceptance of these products or require significant product recalls. Problems
encountered by customers and product recalls could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's ability to respond to greater than anticipated market
demand may be constrained by availability of services, products or components.
Further, one of the Company's subcontractors is located in Hong Kong. When Hong
Kong transitions to the authority of the Peoples' Republic of China, the Company
could experience disruption in the supply of products from that subcontractor.
The loss of subcontractors or suppliers or the failure of subcontractors or
suppliers to meet the Company's price, quality, quantity and delivery
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products" and
"-- Manufacturing."

DIFFICULTIES IN MANAGING GROWTH

The Company has experienced significant growth in its business over the
past two years which has placed demands on the Company's operational and
financial personnel and systems, outside manufacturing capacity, research and
development, technical support and other resources. The Company is expanding its
sales and marketing organizations, developing its distribution channels to
penetrate different and broader markets, funding additional research and
development and increasing its support organization to accommodate its growing
customer base. With continued growth, the Company may find it necessary to
enhance existing and implement new financial and management information systems
and controls and train its personnel to effectively operate such systems. Any
delay in the implementation of or any disruptions in the transition to such new
and enhanced systems and controls and personnel training could adversely affect
the Company's ability to accurately forecast sales demand and adjust third party
manufacturing to such demand, adjust purchasing levels, accurately record and
control inventory levels and record and report financial and management
information on a timely and accurate basis. Inaccuracy in demand forecasts in
the environment in which the Company operates can quickly result in either
insufficient or excess inventory and disproportional overhead expenses. Certain
of the Company's officers have recently joined the Company, including the
Company's Vice President of Engineering, and the Company anticipates further
significant increases in the number of employees. The Company plans to expand
the geographic scope of its customer base and operations. Failure to manage
these changes and to expand effectively any of these areas would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Manufacturing."

DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN HIGHLY SKILLED PERSONNEL

The success of the Company depends to a large extent upon its ability to
continue to attract and retain highly skilled personnel. Competition for
employees in the high technology sector in general, and in the graphics industry
in particular, is intense, and there can be no assurance that the Company will
be able to attract and retain sufficient numbers of qualified employees. The
Company has recently experienced a significant expansion in the overall level of
its business and the scope of its operations, including research and
development, marketing, sales, technical support and administration. It may
become increasingly difficult to hire, train and assimilate the new employees
needed given the market conditions. If the Company is unable to continue to
attract and retain sufficient numbers of qualified employees, it may be required
to rely on more expensive consultants. The Company has not entered into
employment agreements with any of its key personnel. Additionally, the Company
has not required its key personnel to enter into noncompetition agreements with
the Company. The Company's inability to retain, attract and assimilate certain
members of the executive management team or key employees would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Employees," "Management -- Executive Officers and
Directors" and "-- Executive Compensation."

9
<PAGE> 11

COMPETITION

The market for 3D graphics accelerators is extremely competitive and
subject to rapid change. The Company expects competition to increase in the
future from existing competitors and from new market entrants with products that
may be less costly than the Company's products or provide better performance or
additional features not currently provided by the Company. The Company competes
with the following three major groups: professional 3D graphics board companies
(including Intergraph Corporation and Dynamic Pictures, Inc.), RISC/UNIX
workstation companies (including Sun Microsystems, Inc. ("Sun") and Silicon
Graphics, Inc. ("SGI")) and traditional volume personal computer ("PC") board
suppliers (including ELSA GmbH, Diamond Multimedia Systems, Inc. and Matrox
Electronic Systems Ltd.). A variety of potential actions by any of the Company's
competitors could have a material adverse effect on the Company's business,
financial condition and results of operations. Such actions may include
reduction of product prices, increased promotion, announcement or accelerated
introduction of new or enhanced products, product giveaways, product bundling or
other competitive actions.

Many of the companies that currently compete with the Company or that may
compete with the Company have longer operating histories and significantly
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition and larger customer bases, than the Company. As a
result, these competitors may be able to respond more quickly and effectively to
new or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion, sale and support of their
products than the Company. Consequently, the Company expects to continue to
experience increased competition, which could result in significant price
reductions, loss of market share and lack of acceptance of new products, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to compete against current or future competitors successfully or
that competitive pressures faced by the Company will not have a material adverse
effect upon its business, financial condition and results of operations.

RISK OF MIGRATION TO THE MOTHERBOARD

The Company's 3D graphics subsystems function with Personal Workstations to
provide additional 3D and 2-dimensional ("2D") graphics performance and
functionality. As technology becomes more widely utilized, it may become
economically feasible to incorporate certain 3D graphics capabilities onto PC
motherboards or into microprocessors. The Company recognizes that migration
could occur with respect to the functionality provided by the Company's current
products. The Company's success is largely dependent on its ability to continue
to develop products which incorporate higher performance technologies and
additional functionality which system manufacturers have not yet fully
incorporated into PC motherboards or microprocessors. While the Company believes
that a market will continue to exist for add-in subsystems that provide
additional performance and advanced functionality and that offer flexibility in
systems configuration, there can be no assurance that the incorporation of
certain 3D and 2D capabilities onto PC motherboards or microprocessors will not
adversely affect the market for the Company's products and consequently, the
Company's business, financial and results of operations could be materially
adversely affected.

DEPENDENCE ON ISV RELATIONSHIPS

The Company's business strategy includes developing strategic relationships
with major ISVs that serve the 3D graphics market, including Autodesk, Inc.
("Autodesk") and Autodesk's Kinetix division ("Kinetix"), Computer Associates
International, Inc., Electronic Data Systems Corporation's ("EDS") Unigraphics
division, Matra Datavision S.A., Microsoft Corporation's ("Microsoft")
Softimage, Parametric Technology Corporation ("PTC"), Ricoh Corporation,
Structural Dynamics Research Corporation ("SDRC") and Visible Decisions, Inc.
The Company has devoted substantial engineering and management resources to
developing relationships with its ISV partners. If any of the Company's current
or future ISV partners were to cease supporting the Company's products, such
action could have a material adverse effect on the Company's business, financial
condition and results of operations. Further, there can be no assurance that the
Company

10
<PAGE> 12

will be able to successfully sustain its relationships or enter into new
relationships with major ISVs on terms acceptable to the Company or at all. See
"Business -- Strategic Relationships."

UNCERTAINTY REGARDING DEVELOPMENT OF 3D GRAPHICS MARKET

The 3D graphics market on NT workstations has recently begun to develop and
is rapidly evolving. The Company's future financial performance will depend in
large part on the continued growth of this market and the demand for 3D graphics
for professional 3D applications. The failure of the 3D graphics market to
achieve anticipated growth levels or a substantial change in 3D graphics
customer preferences would have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, demand
for the Company's products is also dependent upon the widespread development of
3D graphics applications by ISVs, the success of the Company's customers in
effectively developing a market for the Company's products and the willingness
of end users to pay for enhanced 3D capabilities on NT workstations. The
Company's products currently are designed for use on NT and/or Windows 95
workstations. In the event that end users, and particularly businesses, delay
their adoption of or fail to adopt NT or Windows 95, the market for the
Company's products would be diminished and the Company's business, financial
condition and results of operations could be materially adversely affected.

LIMITED HISTORY OF PRODUCT DEVELOPMENT

The Company's products are complex, are based on relatively new technology
and have a limited history of reliability. The Company generally provides a
three-year warranty for its products. In general, the Company's return policy
permits return within five days after receipt of products that do not meet
product specifications. Companies engaged in the development and production of
new, complex technologies and products often encounter difficulties in
performance and reliability and delays in product introduction and volume
shipments. Additionally, products as complex as those offered by the Company may
contain undetected errors or "bugs" when introduced that, despite testing by the
Company, are discovered only after a product has been installed and used by
customers. There can be no assurance that the Company will be successful in
resolving any problems with the Company's existing or future products. Failure
by the Company to resolve manufacturing or operational problems with any
existing product or any new product in a timely manner would have a material
adverse effect on the Company's business, financial condition and results of
operations.

The success of the Company will likely depend on its ability to develop and
market new products that provide superior performance at competitive prices. Any
quality, reliability or performance problems with such products, regardless of
materiality, or any other actual or perceived problems with the Company's
products, could have a material adverse effect on market acceptance of such
products and the Company's reputation. There can be no assurance that such
problems or perceived problems will not arise or that, even in the absence of
such problems, the Company's products will receive market acceptance. A failure
of the Company's products to receive market acceptance for any reason would have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the announcement by the Company of new
products and technologies could cause customers to defer purchases of the
Company's existing products, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Products," "-- Manufacturing" and " -- Competition."

SOFTWARE DEFECTS

The Company is continuing to upgrade and improve features of AccelVIEW 3D,
Flying Carpet and software incorporated into its hardware products. The
Company's software products, and its hardware products incorporating any
software, are extremely complex as a result of such factors as advanced
functionality, the diverse operating environments in which they may be deployed,
the need for interoperability and the multiple versions of such products that
must be supported for diverse operating platforms, languages and standards.
These products may contain undetected errors or failures when first introduced
or as new versions are released. The Company generally provides a three-year
warranty for its products. In general, the Company's return policy permits
return within five days after receipt of products that do not meet product

11
<PAGE> 13

specifications. There can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new products
after commencement of commercial shipments, resulting in loss of or delay in
market acceptance. Such loss or delay would likely have a material adverse
effect on the Company's business, financial condition and results of operations.
Additionally, new versions or upgrades to operating systems and ISV applications
may require upgrades to the Company's software products to maintain
compatibility with these new versions or upgrades. There can be no assurance
that the Company will be successful in developing new versions or enhancements
to its software or that the Company will not experience delays in the upgrade of
its software products. In the event the Company experiences delays or is unable
to maintain compatibility with operating systems and ISV applications, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Business -- Products."

INTERNATIONAL REVENUES

The Company's international revenues accounted for approximately 22% and
31% of the Company's 1995 and 1996 revenues, respectively, and primarily
consisted of sales to third party distributors based in the United Kingdom and
Germany. However, the Company believes that products sold to its European
distributors are resold throughout Europe. The Company expects that
international revenues will continue to account for a significant portion of its
total revenues in future periods. International revenues are subject to certain
inherent risks, including unexpected changes in regulatory requirements and
tariffs, government controls, political instability, longer payment cycles,
difficulties in collecting accounts receivable, difficulties in staffing and
managing foreign operations and potentially adverse tax consequences. The
Company's inability to obtain foreign regulatory approvals on a timely basis
could have a material adverse effect on the Company's business, financial
condition and results of operations. Fluctuations in currency exchange rates
could cause the Company's products to become relatively more expensive to end
users in a particular country, leading to a reduction in sales in that country.
The impact of future exchange rate fluctuations cannot be predicted adequately.
To date, the Company has not found it appropriate to hedge the risks associated
with fluctuations in exchange rates, as substantially all of the Company's
foreign sales have been denominated in U.S. dollars. However, if future
transactions are denominated in foreign currencies, the Company may undertake
hedge transactions. There can be no assurance that any hedging techniques
implemented by the Company would be successful or that the Company's results of
operations would not be materially adversely affected by exchange rate
fluctuations. In general, certain seasonal factors and patterns impact the level
of business activities at different times in different regions of the world. For
example, sales in Europe are adversely affected in the third quarter of each
year as many customers and end users reduce their business activities during the
summer months. These seasonal factors and currency fluctuation risks could have
a material adverse effect on the Company's business, financial condition and
results of operations. Further, because the Company operates in different
countries, the Company's management must address differences in regulatory
environments and cultures. Failure to address these differences successfully
could be disruptive to the Company's operations and 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" and "Business -- Customers, Sales and Marketing."

RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY

12
<PAGE> 14

Company's proprietary technology, the Company's business, financial condition
and results of operations would be materially adversely affected. Furthermore,
while the Company requires employees and consultants to enter into
confidentiality agreements, there can be no assurance that proprietary
information will not be disclosed, that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its trade secrets. Certain technology used
by the Company's products is licensed from third parties, generally on a
non-exclusive basis. The termination of any such license, or the failure of any
third party licensor to adequately maintain or update its product, could result
in delay in the Company's ability to ship its products while it seeks to
implement technology offered by alternative sources, if any. Any required
replacement licenses could prove to be either unavailable or costly.

Although the Company has not received notices from third parties alleging
infringement claims that the Company believes would have a material adverse
effect on the Company's business, there can be no assurance that third parties
will not claim that the Company's current or future products or manufacturing
processes infringe the proprietary rights of others. Any such claim, with or
without merit, could result in costly litigation or might require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all, which could have a material adverse effect upon the
Company's business, financial condition and results of operations.

FUTURE CAPITAL REQUIREMENTS

The Company's future capital requirements will depend upon many factors,
including the development of new products, the success of the Company's research
and development efforts, the expansion of the Company's sales and marketing
efforts and the status of competitive products. The Company believes that the
net proceeds of this offering and funds available under its existing bank line
of credit will be adequate to fund its operations for at least 12 months
following the offering. There can be no assurance, however, that the Company
will not require additional financing during such time. Further, there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, if at all. If additional funds are raised by issuing equity
securities, further dilution to the existing stockholders could result. The
inability to obtain acceptable financing would 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."

BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS

The Company currently has no specific use planned for a significant portion
of the proceeds of the Common Stock being issued and sold by it in the offering
other than the payment of certain indebtedness to Kubota Corporation. As a
consequence, the Company's management will have discretion to allocate a large
percentage of these proceeds to uses which the stockholders may not deem
desirable, and there can be no assurance that the proceeds can or will yield a
return. See "Use of Proceeds."

CONCENTRATION OF STOCK OWNERSHIP

Upon completion of this offering, the Company's directors and officers and
their affiliates will beneficially own approximately 52% of the outstanding
Common Stock. As a result, these stockholders will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
Such concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal and Selling Stockholders."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; BENEFITS TO EXISTING
STOCKHOLDERS

There has been no public market for the Common Stock prior to this offering, and
there can be no assurance that an active trading market will develop or be
sustained after this offering. The initial public offering price will be
determined through negotiations among the Company, the representatives of the
Underwriters and the selling stockholders. See "Underwriting" for a discussion
of the factors to be considered in determining the

13
<PAGE> 15

initial public offering price. The negotiated public offering price may not be
indicative of the market price for the Common Stock following this offering. In
recent years, the stock market in general, and the stock prices of technology
companies in particular, have experienced extreme price fluctuations, sometimes
without regard to the operating performance of particular companies. Factors
such as quarterly variations in actual or anticipated operating results, changes
in earnings estimates by analysts, market conditions in the industry,
announcements by competitors, regulatory actions and general economic conditions
may have a significant effect on the market price of the Common Stock. Following
fluctuations in the market price of a corporation's securities, securities class
action litigation has often resulted. 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 a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
consummation of this offering will result in the creation of a public market for
the Company's Common Stock that will permit secondary sales by existing
stockholders and allow them to realize any unrealized gain on their shares of
Common Stock. See "Shares Eligible for Future Sale."

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price is expected to be substantially higher
than the book value per share of Common Stock. At an estimated offering price of
$11.00 per share, investors purchasing shares of Common Stock in this offering
will incur immediate and substantial dilution of $7.84 in the pro forma net
tangible book value per share of Common Stock in this offering and will have
paid approximately 72% of the total consideration paid for all shares of Common
Stock outstanding. After this offering, such investors will only own
approximately 33% of the Company's outstanding Common Stock. To the extent
outstanding options and warrants to purchase the Company's Common Stock are
exercised, there will be further dilution to new stockholders. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
7,906,307 shares of Common Stock, assuming no issuance of any shares nor
exercise of any outstanding stock options or warrants after December 31, 1996.
On the date of this Prospectus, the 2,600,000 shares of Common Stock offered
hereby (assuming no exercise of the Underwriters' over-allotment option) will be
immediately eligible for sale in the public market. An additional 5,672,027
shares of Common Stock (including approximately 353,811 shares issuable upon
exercise of vested options) will be eligible for sale beginning 181 days after
the date of this Prospectus, unless earlier released, in whole or in part, by
Cowen & Company. Certain stockholders holding 4,177,708 shares of Common Stock
(assuming exercise of outstanding warrants for 63,250 shares of Common Stock)
are entitled to registration rights with respect to their shares of Common
Stock. If such stockholders, by exercising their demand registration rights,
cause a significant number of securities to be registered and sold in the public
market, such sales could have an adverse effect on the market price of the
Company's Common Stock. Sales of significant amounts of such shares in the
public market after this offering, or the prospect of such sales, could
adversely affect the market price of the Common Stock. Such sales also might
make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. See "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."

BLANK CHECK PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to 2,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. 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 Preferred Stock
that may be issued in the future. The issuance of Preferred Stock may have the
effect of delaying, deterring or preventing a change of control of the Company
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of Common Stock. The Company has no current
plans to issue shares of Preferred Stock. The Company's

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<PAGE> 16

Certificate of Incorporation and Bylaws provide for, among other things, the
prospective elimination of cumulative voting with respect to the election of
directors, the elimination of actions to be taken by written consent of the
Company's stockholders and certain procedures such as advance notice procedures
with regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors. In addition, the Company's
charter documents provide that the Company's Board of Directors be divided into
three classes, each of which serves for a three-year term. The foregoing
provisions could have the effect of making it more difficult for a third party
to effect a change in the control of the Board of Directors. In addition, these
provisions could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, or of
making the Company less attractive to a potential acquiror of a majority of the
outstanding voting stock of the Company, and may complicate or discourage a
takeover of the Company. The foregoing provisions may also result in the
Company's stockholders receiving less consideration for their shares than might
otherwise be available in the event of a takeover attempt of the Company. See
"Description of Capital Stock."

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<PAGE> 17

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,145,000 shares
offered by the Company are estimated to be approximately $21,193,000
($23,904,000 if the Underwriters' over-allotment option is exercised in full) at
an assumed initial public offering price of $11.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses.
Currently, the Company plans to use approximately $1,748,000 of the net proceeds
to pay indebtedness to Kubota Corporation pursuant to a Subordinated Promissory
Note dated June 20, 1995, which indebtedness bears interest per annum at the
prime rate of interest as reported in The Wall Street Journal and is due and
payable on June 20, 1998. The Company intends to use the remaining net proceeds
from this offering for general corporate purposes, including working capital,
capital expenditures and research and development. A portion of the proceeds may
also be used to acquire or invest in complementary businesses or products, to
obtain the right to use complementary technologies and to acquire or expand
distribution channels. From time to time, the Company evaluates potential
acquisitions of such businesses, products or technologies. However, the Company
has no present understandings, commitments or agreements with respect to any
material acquisition of other businesses, products or technologies.

Pending use of the net proceeds for the above purposes, the Company intends
to invest such funds in short-term, interest-bearing, investment-grade
obligations. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.

The principal purposes of this offering are to create a public market for
the Company's shares of Common Stock, to create an increased awareness of the
Company, to increase the Company's equity capital and to facilitate future
access by the Company to public equity markets.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
In addition, the Company's existing bank line of credit currently prohibits the
payment of cash dividends on its capital stock without the bank's consent.

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<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1996 (i) on an actual basis, (ii) pro forma giving effect to the
conversion of all outstanding Preferred Stock of the Company into Common Stock
upon the closing of this offering and the changes in the number of authorized
shares of Common and Preferred Stock (all of which will occur in connection with
the sale of Common Stock offered hereby), and (iii) pro forma, as adjusted to
give effect to the sale by the Company of the shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations.......................................... $ 1,782 $ 1,782 $ 34
-------- -------- ---------
Mandatorily redeemable convertible preferred stock, $0.001 par
value:
Series A, 3,477,000 shares designated; 3,446,997 shares
issued and outstanding actual; no shares issued and
outstanding, pro forma and as adjusted.................... 5,745 -- --
Series B, 1,100,000 shares designated; 1,061,660 shares
issued and outstanding actual; no shares issued and
outstanding, pro forma and as adjusted.................... 3,185 -- --
-------- -------- ---------
8,930 -- --
-------- -------- ---------
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 10,000,000 shares
authorized actual; 2,000,000 shares authorized, pro forma
and as adjusted........................................... -- -- --
Common Stock, $0.001 par value; 50,000,000 shares authorized;
1,252,650 shares issued and outstanding actual, 5,761,307
shares issued and outstanding pro forma, 7,906,307 shares
issued and outstanding as adjusted (1).................... 1 6 8
Additional paid-in capital................................... 785 9,710 30,901
Notes receivable from stockholders........................... (89) (89) (89)
Deferred stock compensation.................................. (396) (396) (396)
Cumulative translation adjustment............................ (5) (5) (5)
Accumulated deficit.......................................... (5,466) (5,466) (5,466)
-------- -------- ---------
Total stockholders' equity (deficit)...................... (5,170) 3,760 24,953
-------- -------- ---------
Total capitalization.................................... $ 5,542 $ 5,542 $24,987
======== ======== =========
</TABLE>

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

(1) Excludes 63,250 shares of Common Stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $2.36 per share, 1,006,867
shares of Common Stock issuable upon exercise of outstanding options at a
weighted average exercise price of $1.30 per share and 1,909,536 shares
available for future issuance under the 1995 Stock Plan. See
"Management -- Stock Option and Incentive Plans," "Description of Capital
Stock" and Note 7 of Notes to Consolidated Financial Statements.

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<PAGE> 19

DILUTION

The pro forma net tangible book value of the Company at December 31, 1996
was approximately $3.8 million, or $0.65 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of pro forma total
tangible assets, less the amount of pro forma total liabilities, divided by the
pro forma number of shares of Common Stock outstanding. After giving effect to
the sale by the Company of the 2,145,000 shares of Common Stock offered hereby
at an assumed price of $11.00 per share, the Company's pro forma net tangible
book value as of December 31, 1996 would have been $25.0 million, or $3.16 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.51 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $7.84 per share to new investors purchasing
shares in the offering. The following table illustrates the dilution and pro
forma net tangible book value per share to new investors as of December 31,
1996:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $11.00
Pro forma net tangible book value per share prior to this offering........ $0.65
Increase per share attributable to new investors.......................... 2.51
------
Pro forma net tangible book value per share after this offering............. 3.16
-------
Dilution to new investors................................................... $ 7.84
=======
</TABLE>

The following table sets forth, on a pro forma basis, as of December 31,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by (i) existing
stockholders and (ii) new investors at an assumed offering price of $11.00 per
share (before deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).................... 5,761,307 72.9% $ 8,945,000 27.5% $ 1.55
New investors(1)............................ 2,145,000 27.1 23,595,000 72.5 11.00
--------- ----- ----------- -----
Total.................................. 7,906,307 100.0% $32,540,000 100.0%
========= ===== =========== =====
</TABLE>

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

(1) Sales by Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 5,306,307 shares or approximately
67.1% of the total shares of Common Stock outstanding after this offering
and will increase the number of shares held by new investors to 2,600,000
shares or approximately 32.9% of the total shares of Common Stock
outstanding after the offering.

The foregoing computations assume no exercise of the Underwriters'
over-allotment option, outstanding warrants or outstanding options after
December 31, 1996. As of December 31, 1996, there were outstanding warrants to
purchase 63,250 shares of Common Stock at a weighted average exercise price of
$2.36 per share, and outstanding options to purchase 1,006,867 shares of Common
Stock, at a weighted average exercise price of $1.30 per share. To the extent
these warrants and options are exercised, there will be further dilution to new
investors. See "Capitalization," "Management -- Stock Option and Incentive
Plans," "Description of Capital Stock" and Note 7 of Notes to Consolidated
Financial Statements.

18
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. The consolidated statement of
operations data for the years ended December 31, 1995 and 1996, and the
consolidated balance sheet data as of December 31, 1995 and 1996 are derived
from consolidated financial statements of the Company that have been audited by
Price Waterhouse LLP, independent accountants, and are included elsewhere in
this Prospectus. The historical results are not necessarily indicative of the
results to be expected for any future period. The Company operates and reports
on a fiscal year ending on the Friday nearest December 31. For convenience,
fiscal years are shown in this Prospectus as ending on December 31.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $ 3,911 $18,671
Cost of revenues................................................... 2,501 12,077
------- -------
Gross profit....................................................... 1,410 6,594
------- -------
Operating expenses:
Research and development........................................ 2,618 2,663
Sales and marketing............................................. 2,154 3,635
General and administrative...................................... 1,039 1,131
------- -------
Total operating expenses................................... 5,811 7,429
------- -------
Loss from operations............................................... (4,401) (835)
Interest expense................................................... (183) (145)
Other income, net.................................................. 119 48
------- -------
Net loss........................................................... $(4,465) $ (932)
======= =======
Pro forma net loss per share(1).................................... $ (0.15)
=======
Shares used to compute pro forma net loss per share(1)............. 6,272
=======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 1,373 $ 2,979
Working capital.................................................... 2,530 5,030
Total assets....................................................... 3,951 8,439
Long term obligations.............................................. 1,748 1,782
Mandatorily redeemable convertible preferred stock................. 5,745 8,930
Total stockholders' deficit........................................ (4,528) (5,170)
</TABLE>

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

(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing pro forma net loss per
share.

19
<PAGE> 21

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

AccelGraphics, Inc. designs, develops and markets high-performance,
cost-effective, 3-dimensional ("3D") graphics subsystems, software accelerators
and application utility software products for the professional Windows NT and
Windows 95 markets. The Company commenced operations in late 1994. In December
1994, the Company purchased from Kubota Graphics, Inc. ("Kubota Graphics"), a
subsidiary of Kubota Corporation ("Kubota"), certain inventory and intangible
assets related to 3D graphics products, as well as certain property and
equipment for $1.2 million, a price which the Company believes represents Kubota
Graphics' lower of cost or market value. The Company used a portion of the
proceeds from a $3.3 million subordinated convertible note payable to Kubota to
pay the purchase price for such assets and the remaining portion of the proceeds
from the note was used for working capital. As part of the Series A Preferred
Stock financing of the Company, Kubota converted $1.65 million of the
outstanding principal of the note into 990,000 shares of Series A Preferred
Stock.

The Company introduced its first line of 3D graphics subsystems, the
AG300/500 product line, in January 1995. In mid 1996, the Company introduced its
AccelPRO and AccelPRO TX product lines, which are replacing the AG300/500
product line. To date, sales of the AG300/500, AccelPRO and AccelPRO TX product
lines have accounted for substantially all of the Company's revenues.

The Company's customers include original equipment manufacturers ("OEMs"),
value added resellers ("VARs") and distributors. Revenues from product sales are
generally recognized upon shipment less an allowance for estimated future
returns and exchanges. The Company's gross margin has varied with the mix of
revenues by sales channels. OEM revenues generally yield lower gross margins.

The Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments, attract,
retain and motivate qualified persons, continue to upgrade its technologies and
commercialize its products. There can be no assurance that the Company will be
successful in addressing these and other risks.

Although the Company has experienced significant revenue growth since its
inception, particularly in its most recent quarter, the Company does not believe
that such growth rates are sustainable. Past revenue growth rates may not be
indicative of future revenue growth, if any, or future operating results. The
Company first attained quarterly profitability in the fourth quarter of 1996.
There can be no assurance that the Company will sustain profitability on a
quarterly basis or will achieve profitability on an annual basis. The Company's
limited operating history makes the prediction of future operating results
difficult, if not impossible. See "Risk Factors -- Limited History of
Profitability and Uncertainty of Future Financial Results" and "-- Significant
Variability in Quarterly Results."

20
<PAGE> 22

RESULTS OF OPERATIONS

The following table sets forth selected items of the Company's consolidated
statements of operations as a percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
------ -----
<S> <C> <C>
Revenues.................................................................... 100.0% 100.0%
Cost of revenues............................................................ 63.9 64.7
------ -----
Gross profit................................................................ 36.1 35.3
------ -----
Operating expenses:
Research and development.................................................. 66.9 14.3
Sales and marketing....................................................... 55.1 19.5
General and administrative................................................ 26.6 6.0
------ -----
Total operating expenses............................................... 148.6 39.8
------ -----
Loss from operations........................................................ (112.5) (4.5)
Interest expense............................................................ (4.7) (0.8)
Other income, net........................................................... 3.0 0.3
------ -----
Net loss.................................................................... (114.2)% (5.0)%
====== =====
</TABLE>

YEARS ENDED DECEMBER 31, 1995 AND 1996

Revenues

Revenues increased 377% from $3.9 million in 1995 to $18.7 million in 1996.
The increase was primarily due to sales of its AccelPRO and AccelPRO TX product
lines following their introductions in mid 1996 and, to a lesser extent, to
increased unit sales of the Company's AG300/500 product line.

Revenues from product sales are generally recognized upon product shipment,
less an allowance for estimated future returns and exchanges. Provisions for the
costs of technical support services for the Company's hardware products and
estimated future warranty claims are recorded as a cost of revenues upon
recognition of related revenues.

International revenues increased 582% from $850,000 in 1995 to $5.8 million
in 1996, representing 21.7% and 31.0%, respectively, of revenues. The increase
in international revenues is primarily a result of an increase in sales of the
Company's products in Europe and, to a lesser extent, in the Pacific Rim.
Revenues from the Company's international customers are generally denominated in
United States dollars. Although the effects of currency fluctuations have been
insignificant to date, there can be no assurance that such fluctuations will not
be significant in the future. See "Risk Factors -- International Revenues."

Revenues from the Company's former customer, NeTpower, Inc. ("NeTpower"),
accounted for 16.6% of revenues in 1995. NeTpower accounted for less than 1% of
revenues in 1996. Revenues from Digital and HP accounted for 27.9% and 22.8%,
respectively, of revenues in 1996. The loss of any major customer, or the delay
in or reduction of orders from such customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Reliance on Third Party Distribution and Major OEMs."

Gross Profit

Gross profit increased 368% from $1.4 million in 1995 to $6.6 million in
1996, representing 36.1% and 35.3%, respectively, of revenues. The absolute
dollar increase in gross profit resulted from increased revenues, while the
decline in gross profit as a percentage of revenues is primarily due to an
increased proportion of sales to OEMs, which generally yield lower margins. The
Company expects that gross margins may decrease over time as a result of
competitive pricing pressures and changes in sales channel and product mix.

21
<PAGE> 23

The Company's gross margin is affected by many factors, including the sales
channel mix, the mix of products sold, increased competition and related
decreases in unit average selling prices, introductions of new products and the
availability, reliability and cost of components and products from the Company's
subcontractors and suppliers. In addition, the Company orders products in
advance of planned shipments and, due to rapid technological changes or other
factors such as customers curtailing or changing timing or mix of orders, there
is a risk that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products. The Company's customers'
ability to reschedule or cancel orders without significant penalty could
adversely affect the Company's operating results, as the Company may be unable
to adjust its purchases from its subcontractors and suppliers to match such
customers' changes and cancellations. See "Risk Factors -- Dependence on
Subcontractors and Sole-Source Suppliers" and "-- Significant Variability in
Quarterly Results."

Operating Expenses

Research and Development. Research and development expenses increased from
$2.6 million in 1995 to $2.7 million in 1996, representing 66.9% and 14.3%,
respectively, of revenues. Research and development expenses consist primarily
of personnel costs and other personnel-related expenses, including the services
of outside consultants. Research and development expenses during 1995 were
negatively impacted by a heavy reliance on consultants, who are generally more
expensive than employees. In 1996, research and development expenses were
positively impacted by the receipt of a $190,000 non-recurring engineering fee
from a technical partner to facilitate the development of the Company's AccelPRO
product line. The Company anticipates that research and development expenses
will increase in absolute dollars, but decrease as percentage of revenues, as
the Company continues to add research and development personnel and support for
new product development activities.

Sales and Marketing. Sales and marketing expenses increased 68.8% from $2.2
million in 1995 to $3.6 million in 1996, representing 55.1% and 19.5%,
respectively, of revenues. Sales and marketing expenses consist primarily of
salaries, commissions, marketing expenses and technical support for the sales
organization. The absolute dollar increase in sales and marketing expenses was
due primarily to the expansion of the Company's sales efforts in the United
States, Europe and the Pacific Rim, as well as increased marketing and public
relations activities related to the introductions in 1996 of the AccelPRO and
AccelPRO TX product lines. The Company anticipates that sales and marketing
expenses will continue to increase in absolute dollars, but decrease as
percentage of revenues, as the Company expands its sales force and marketing
activities.

General and Administrative. General and administrative expenses increased
by 8.9% from $1.0 million in 1995 to $1.1 million in 1996, representing 26.6%
and 6.0%, respectively, of revenues. Increased general and administrative
expenses were due primarily to increased staffing and other costs incurred to
support the Company's growth. The Company anticipates that general and
administrative expenses will increase in absolute dollars, but decrease as
percentage of revenues, to support the Company's growth and for costs associated
with operating as a public company.

Interest Expense

Interest expense decreased from $183,000 in 1995 to $145,000 in 1996 and
was primarily related to interest on the subordinated convertible note payable
to Kubota. The decrease was the result of the conversion to Preferred Stock of
one half of the convertible note in June 1995.

Provision for Income Taxes

The Company recorded no provision for income taxes in 1995 and 1996 as it
incurred losses. At December 31, 1996, the Company had approximately $3.5
million of federal net operating loss carryforwards available to offset future
taxable income. Future annual use of these carryforwards may be limited as a
result of ownership change limitations.

At December 31, 1996, the Company had approximately $2.2 million of
deferred tax assets, comprised primarily of net operating loss and credit
carryforwards and reserves not currently deductible for tax purposes. The
Company believes the available objective evidence creates sufficient uncertainty
regarding the realizability of such deferred tax assets; therefore a full
valuation allowance has been recorded. The factors

22
<PAGE> 24

considered include the Company's history of losses, the lack of carryback
capacity to realize deferred tax assets, the limitation on the annual
utilization of net operating loss carryforwards, the uncertainty of the
development of the products and markets in which the Company competes and the
fact that the market in which the Company competes is intensely competitive and
characterized by rapidly changing technology. The Company believes that based on
the currently available evidence, it is more likely than not that the Company
will not generate sufficient taxable income to realize the Company's deferred
tax assets.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly financial
information for the eight quarters ended December 31, 1996, and as a percentage
of the Company's revenues for the periods. In the opinion of management, the
data has been prepared on a basis consistent with the Company's annual
consolidated financial statements included elsewhere in the Prospectus and
includes all adjustments, consisting only of normal recurring adjustments that
management considers necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of the results
to be expected for any future period. See "Risk Factors -- Significant
Variability in Quarterly Results."

The Company operates under thirteen week quarters that end on the Friday
closest to the calendar quarter end. As a result, a fiscal quarter may not end
on the same day as the calendar quarter end. For convenience of presentation,
the following unaudited quarterly financial information has been shown as ending
on the last day of the calendar quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues.............................. $ 284 $ 790 $ 1,036 $ 1,801 $ 2,371 $ 3,067
Cost of revenues...................... 220 497 661 1,123 1,470 2,015
------- ------- ------- ------ ------ ------
Gross profit.......................... 64 293 375 678 901 1,052
------- ------- ------- ------ ------ ------
Operating expenses:
Research and development............ 850 583 592 593 468 586
Sales and marketing................. 498 486 548 622 689 817
General and administrative.......... 256 263 227 293 276 238
------- ------- ------- ------ ------ ------
Total operating expenses.......... 1,604 1,332 1,367 1,508 1,433 1,641
------- ------- ------- ------ ------ ------
Income (loss) from operations......... (1,540) (1,039) (992) (830) (532) (589)
Interest expense...................... (54) (52) (38) (39) (37) (35)
Other income (expense), net........... 61 22 11 25 9 29
------- ------- ------- ------ ------ ------
Net income (loss)..................... $(1,533) $(1,069) $(1,019) $ (844) $ (560) $ (595)
======= ======= ======= ====== ====== ======

SEPT. 30, DEC. 31,
1996 1996
--------- ---------

<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues.............................. $ 4,260 $ 8,973
Cost of revenues...................... 2,859 5,733
------ ---------
Gross profit.......................... 1,401 3,240
------ ---------
Operating expenses:
Research and development............ 794 815
Sales and marketing................. 955 1,174
General and administrative.......... 230 387
------ ---------
Total operating expenses.......... 1,979 2,376
------ ---------
Income (loss) from operations......... (578) 864
Interest expense...................... (36) (37)
Other income (expense), net........... 16 (6)
------ ---------
Net income (loss)..................... $ (598) $ 821
====== =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 77.5 62.9 63.8 62.4 62.0 65.7
------ ------ ----- ----- ----- -----
Gross profit.......................... 22.5 37.1 36.2 37.6 38.0 34.3
------ ------ ----- ----- ----- -----
Operating expenses:
Research and development............ 299.3 73.8 57.1 32.9 19.7 19.1
Sales and marketing................. 175.4 61.5 52.9 34.5 29.1 26.6
General and administrative.......... 90.1 33.3 21.9 16.3 11.6 7.8
------ ------ ----- ----- ----- -----
Total operating expenses.......... 564.8 168.6 131.9 83.7 60.4 53.5
------ ------ ----- ----- ----- -----
Income (loss) from operations......... (542.3) (131.5) (95.8) (46.1) (22.4) (19.2)
Interest expense...................... (19.0) (6.6) (3.7) (2.2) (1.6) (1.1)
Other income (expense), net........... 21.5 2.8 1.1 1.4 0.4 0.9
------ ------ ----- ----- ----- -----
Net income (loss)..................... (539.8)% (135.3)% (98.4)% (46.9)% (23.6)% (19.4)%
====== ====== ===== ===== ===== =====

SEPT. 30, DEC. 31,
1996 1996
--------- ---------
<S> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues.............................. 100.0% 100.0%
Cost of revenues...................... 67.1 63.9
----- -----
Gross profit.......................... 32.9 36.1
----- -----
Operating expenses:
Research and development............ 18.6 9.1
Sales and marketing................. 22.4 13.1
General and administrative.......... 5.5 4.3
----- -----
Total operating expenses.......... 46.5 26.5
----- -----
Income (loss) from operations......... (13.6) 9.6
Interest expense...................... (0.8) (0.4)
Other income (expense), net........... 0.4 (0.1)
----- -----
Net income (loss)..................... (14.0)% 9.1%
===== =====
</TABLE>

23
<PAGE> 25

Revenues in the fourth quarter of 1996 increased primarily due to a new OEM
customer and acceptance by the market of the Company's AccelPRO and AccelPROTX
product lines which comprised substantially all of revenues in the fourth
quarter. Revenues from inception through the first two quarters of 1996 resulted
primarily from sales of the AG300/500. Sales of the AG300/500 declined in the
third quarter as that product line matured and was replaced with the AccelPRO
and AccelPRO TX product lines. Gross margin in the second and third quarters of
1996 were adversely impacted by inventory reserves in contemplation of the
discontinuance of the Company's AG300/500 product line and increased
manufacturing overhead costs. Gross margin in the fourth quarter of 1996 was
positively impacted by lower component costs. Research and development expenses
were higher in the first quarter of 1995 due to a heavy reliance on consultants,
which are generally more expensive than employees, used in developing the
Company's initial product line. If the Company is unable to continue to attract
and retain sufficient numbers of qualified employees, it may be required to rely
on more expensive consultants. Research and development expenses in the first
quarter of 1996 were positively impacted by the receipt of a $190,000
non-recurring engineering fee from a technical partner to facilitate the
development of the Company's AccelPRO product line. General and administrative
expenses have varied over the eight quarters primarily due to the timing of the
Company's use of consultants for certain general and administrative functions.
General and administrative expenses in the fourth quarter of 1996 increased due
to increased personnel and related costs as well as other costs incurred to
support the Company's overall growth.

The Company's quarterly operating results have varied significantly in the
past and are likely to vary significantly in the future. The Company's quarterly
results are affected by a wide variety of factors including the gain or loss of
significant customers, size and timing of individual orders, timely introduction
and market acceptance of new products offered by the Company and its
competitors, availability, reliability and cost of components, the Company's
success in negotiating OEM and other customer agreements, customer order
deferrals in anticipation of new products, technological changes in operating
systems or applications, variations in manufacturing quality or capacities,
changes in the pricing policies of the Company or its competitors, changes in
demand for 3D graphics functionality, changes in the mix of revenues from
products having differing gross margins, changes in sales channel mix, changes
in average sales prices, warranty expenses, fluctuations in the Company's
expense levels, the Company's success at expanding its direct sales force and
indirect distribution channels, risks related to international operations,
extraordinary events such as litigation or acquisitions and general industry and
economic conditions, as well as other factors. Any of the above risks could have
a material adverse effect on the Company's business, financial condition and
results of operations.

Quarterly revenues and operating results depend primarily on the volume,
timing and shipment of orders during the quarter, which are difficult to
forecast because customers generally place their orders on an as-needed basis
and, accordingly, the Company has historically operated with a relatively small
backlog. The Company's third party distribution channels provide the Company
with limited information regarding the quantity of the Company's products in the
sales channel. This reduces the Company's ability to predict fluctuations in
revenues resulting from a surplus or a shortage in its distribution channel and
could contribute to volatility in the Company's results of operations and cash
flows. A surplus of inventory in the distribution channel could unexpectedly
cause a reduction in product shipments and revenues. Moreover, a
disproportionate percentage of the Company's revenues in any quarter may be
generated in the last month of a quarter. As a result, a shortfall in revenues
in any quarter as compared to expectations may not be identifiable until near
the end of the quarter. The Company may experience relatively weak demand in
third quarters due to historically weak summer sales in Europe.

The Company's gross margins are impacted by the sales channel mix, mix of
products sold, increased competition and related decreases in unit average
selling prices, introduction of new products, availability, reliability and cost
of components from the Company's subcontractors and suppliers, and general
economic conditions. Currently, the Company is focusing on increasing its sales
to OEMs, which have historically yielded lower margins than other channels.
Individual product lines generally provide higher margins at the beginning of
the life cycle and lower margins as the product line matures. Generally, life
cycles of personal computer 3D graphics subsystems are relatively short,
approximately six to fifteen months. In addition, the Company's markets are
characterized by rapidly changing technology and declining average selling
prices.

24
<PAGE> 26

Accordingly, the Company's gross margins may decline from the levels experienced
to date, which could have an adverse effect on the Company's business, financial
condition and results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through
private sales of $7.3 million of Redeemable Convertible Preferred Stock and
Common Stock, the issuance of $3.3 million of convertible debt and, to a lesser
extent, credit lines. Cash used in operations was $4.6 million in 1995 and $1.3
million in 1996. For 1995, net cash used in operations was due primarily to the
net loss of $4.5 million and increases in accounts receivable and inventories
associated with higher revenues, which were partially offset by an increase in
accounts payable and other liabilities. Net cash used in operations for 1996 was
primarily due to the net loss of $932,000 and a $3.3 million increase in
accounts receivable which was partially offset by a decrease in inventories and
increases in accounts payable, accrued liabilities and customer deposits.

Net cash used in investing activities was approximately $250,000 in each of
1995 and 1996 due primarily to the purchase of property and equipment. The
Company has no significant capital spending or purchase commitments other than
normal purchase commitments and commitments under leases. Net cash provided by
financing activities was $4.1 million and $3.2 million in 1995 and 1996,
respectively, due primarily to proceeds from the issuance of Preferred Stock.

The Company has not invested in derivative securities or any other
financial instrument that involves a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will be invested in investment-grade, interest-bearing securities.

At December 31, 1996, the Company had $3.0 million in cash and cash
equivalents. The Company has a revolving line of credit agreement with a bank,
which provides, through October 1997, for maximum borrowings in an amount up to
the lower of 80% of eligible accounts receivable or $3.0 million. Borrowings
under the line are secured by all of the Company's assets and bear interest at
the bank's prime rate plus 0.25% per annum (8.5% at December 31, 1996). The
agreement requires that the Company maintain certain financial ratios and levels
of tangible net worth and profitability and also restricts the Company's ability
to pay cash dividends. At December 31, 1996, there were no borrowings and $1.1
million of standby letters of credit to vendors were outstanding under the line
of credit.

The Company believes that existing cash and cash equivalents of $3.0
million, its available borrowings and lines of credit, together with anticipated
net proceeds from this offering, will be sufficient to finance its working
capital and capital expenditure requirements for at least the next 12 months.
Thereafter, the Company may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through bank borrowings and public or private sales of its securities,

25
<PAGE> 27

including equity and debt securities. The Company's future capital requirements
will depend on numerous factors, including, without limitation, the success of
marketing, sales and distribution efforts, market acceptance of the Company's
products, the progress of its research and development programs, the costs
involved in defending and enforcing intellectual property rights, competition,
competing technological and market developments, and the effectiveness of
product commercialization activities and arrangements. There can be no assurance
that additional funds, if required, will be available to the Company on
favorable terms or at all.

26
<PAGE> 28

BUSINESS

AccelGraphics is a leading provider of high-performance, cost-effective, 3D
graphics subsystems, software accelerators and application utility software
products for the professional Windows NT and Windows 95 markets. The Company
pioneered the development of professional 3D graphics subsystems for use with
Microsoft's Windows NT operating system ("NT"). A 3-dimensional ("3D") graphics
subsystem integrates graphics acceleration chip(s), specialized hardware,
firmware, software and memory. The Company's 3D graphics subsystems, when
included in an Intel Pentium, Pentium Pro or Digital Alpha based computer,
create a new class of computer system called a "Personal Workstation." Personal
Workstations, which often sell for less than $10,000, provide capabilities and
performance comparable to more expensive 3D graphics RISC/UNIX workstations. In
January 1995, AccelGraphics shipped what the Company believes was the first 3D
graphics subsystem for NT and currently offers four distinct 3D graphics
subsystem product lines.

The Company's products include a family of 3D graphics subsystems for
applications based on OpenGL and other 3D application programming interfaces
("APIs"), such as Autodesk's Heidi. Through the Company's extensive experience
in 3D algorithms, the interaction of 3D applications with OpenGL and overall 3D
graphics system integration, AccelGraphics delivers robust, well-integrated
subsystem solutions to the professional 3D graphics market. According to
International Data Corporation ("IDC"), the world wide unit volume of 3D
graphics subsystems for workstations will grow at a compounded annual growth
rate of 106% from 36,000 units in 1996 to over 650,000 units in the year 2000.

The Company sells its products through original equipment manufacturers
("OEMs") and a worldwide network of value added resellers ("VARs") and
distributors. Digital Equipment Corporation ("Digital"), Epson Direct,
Hewlett-Packard Company ("HP"), Hitachi, Ltd., Samsung Electronics Co., Ltd. and
Tri-Star Computer Corporation purchase the Company's fully-integrated 3D
graphics subsystems for use in high-performance Personal Workstations. The
Company also has technical relationships with Intel Corporation ("Intel") and
Microsoft, as well as with key component suppliers including 3Dlabs, Inc.
("3Dlabs"), Cirrus Logic, Inc., Evans & Sutherland Computer Corporation ("Evans
& Sutherland") and Mitsubishi Corporation ("Mitsubishi"). To enhance the
performance of applications which use the Company's 3D graphics subsystems,
AccelGraphics has developed relationships, some of which include joint
engineering projects, with many leading ISVs such as Autodesk, Inc. ("Autodesk")
and Autodesk's Kinetix Division ("Kinetix"), Computer Associates International,
Inc., Electronic Data System Corporation's ("EDS") Unigraphics division, Matra
Datavision S.A., Microsoft Corporation's Softimage, PTC, Ricoh Corporation,
Structural Dynamics Research Corporation ("SDRC") and Visible Decisions, Inc.

INDUSTRY BACKGROUND

3D computing is a highly effective way to realistically and intuitively
visualize, analyze, animate and communicate data. A 3D computer model provides a
detailed visual representation of an object's structural and behavioral
characteristics, thereby simulating that object's realistic appearance and
functionality. Engineers, designers, scientists and researchers who previously
used 2-dimensional ("2D") technology now can work faster and more efficiently by
using 3D technology to create, modify and complete more sophisticated models. In
addition, animators and creative artists use 3D computing to create the illusion
of reality in exciting and entertaining motion pictures, games and commercials.

3D computing is inherently complex and computationally demanding, requiring
up to or greater than half a billion calculations per second. As a result, early
efforts at 3D computing required expensive mainframe-class computers. 3D
computing remained largely inaccessible to most users except in industries such
as defense and nuclear power. However, in the 1980s, the 3D computing
marketplace grew dramatically with the introduction of lower cost, integrated
RISC/UNIX workstations. Today, the RISC/UNIX workstation is the primary
environment for 3D computing professionals, and according to IDC, total world
wide revenue of RISC/UNIX workstations was approximately $12 billion in 1996.

As the RISC/UNIX workstation market developed, vendors differentiated their
products by developing proprietary operating systems, buses, processors, APIs
and 3D graphics subsystems. While RISC/UNIX workstations continue to provide
high-performance 3D graphics capabilities, they remain costly due to

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<PAGE> 29

relatively low production volumes, advanced technology, custom components and
proprietary architectures. In 1996, a RISC/UNIX workstation with advanced 3D
graphics capabilities typically ranged in price from $20,000 to over $100,000.
In addition, such workstations can be difficult and expensive to integrate into
corporate computing networks. Further, because many PC applications do not run
efficiently on RISC/UNIX workstations, users desiring access to both 3D graphics
and PC applications often purchased both a PC and a RISC/UNIX workstation for
their desktops.

In contrast to RISC/UNIX workstations, 3D capabilities of the PC have been
extremely limited due to restrictions of PC operating systems and the lack of
sufficient microprocessor power, application software and high-performance
standard 3D APIs. Several technological innovations, including Intel's Pentium
and Pentium Pro processors and peripheral component interconnect ("PCI") bus
architecture, Microsoft's NT operating system and the introduction of OpenGL, a
high-performance graphics API, have overcome many of these limitations. However,
systems based only on these technologies are still not able to satisfy the
demanding performance requirements of professional 3D computing. Specifically,
to perform fully functional, high-performance 3D computing, an integrated 3D
graphics subsystem is also required.

Creating a 3D graphics subsystem is substantially more demanding than
creating a 2D graphics subsystem. Both 2D and 3D require the display of pixels,
or dots, on the screen, but 3D typically requires 10 to 100 times more
computations in order to accurately display a dynamic 3D object, including
computations for 3D axis geometry (pixel location), color, depth, transparency,
lighting and textures. 3D graphics subsystems also need to support numerous
software applications that have been designed in different ways. Animation
applications, for instance, require different features and performance
characteristics than Mechanical Computer Aided Design ("MCAD") applications or
simulation applications because the end users have different requirements. At
the same time, performance within all 3D applications must meet certain
benchmarks to satisfy user expectations. For example, to convey a sense of
movement, interactive 3D graphics applications typically re-compute and
re-render each scene 20 to 30 times each second to achieve smooth motion in a
manner similar to that of television and motion pictures.

3D graphics subsystems are implemented in a series of processing steps
often called a "pipeline" as illustrated in the diagram below. The 3D graphics
pipeline takes commands from the application, processes these commands and
ultimately creates the individual pixels on the screen. Each stage of the 3D
graphics pipeline has particular complexities that require complete, integrated
solutions to overcome performance bottlenecks and potential errors. Regardless
of the underlying speed of the host central processing unit ("CPU") and graphics
subsystem, if each stage of the pipeline is not optimized, the performance
delivered to the end user may be unacceptably slow. In particular, the method by
which an application communicates to the graphics library and optimizes its
usage is critical.

3D GRAPHICS PIPELINE

[FLOW CHART]

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Many applications which utilize 3D graphics pipelines were previously only
available on RISC/UNIX workstations. However, 3D application developers have
recognized the market potential of the lower-cost Windows NT computing
environment and have either ported (the process of adapting software
applications to an operating system) or have begun to port their applications to
NT. One of the first significant 3D UNIX applications ported to NT was PTC's
ProENGINEER in late 1994 and in the fourth quarter of 1996, 27% of all new
ProENGINEER licenses sold by PTC were on NT. The NT version of PTC's ProENGINEER
has been an increasing portion of PTC's revenue since its introduction. IDC
predicts that the unit volume of 3D graphics subsystems enabling NT workstations
will grow at a compounded annual growth rate of 106% from 36,000 units in 1996
to over 650,000 units in the year 2000.

THE ACCELGRAPHICS SOLUTION

AccelGraphics pioneered the development of professional 3D graphics
subsystems for use with NT. In January 1995, AccelGraphics' AG300 was the first
3D graphics subsystem demonstrated and certified by PTC. The Company's 3D
graphics subsystems, when included in an Intel Pentium, Pentium Pro or Digital
Alpha based computer, create a new class of computer system called a "Personal
Workstation." Personal Workstations, which often sell for less than $10,000,
provide capabilities and performance comparable to more expensive 3D graphics
RISC/UNIX workstations. The Personal Workstation is now a viable, cost-effective
option for 3D professionals, and an affordable solution for users previously
limited to 2D graphics capabilities.

The AccelGraphics' solution includes high-performance, cost-effective, 3D
graphics subsystems, software accelerators and application utility software
integrated for optimal 3D graphics performance. The Company has extensive
experience in 3D algorithms, the interaction of 3D applications with OpenGL and
overall 3D graphics system integration. Through its detailed understanding of
application requirements and hardware capabilities, AccelGraphics delivers a
full featured, well-integrated subsystem solution to the 3D professional market.
An AccelGraphics-enabled Personal Workstation delivers the 3D graphics
performance many professionals require while also enabling them to operate their
PC applications on the same machine.

STRATEGY

The Company's objective is to become the leading supplier of
high-performance 3D graphics subsystems and 3D enabling software applications
for professional users. The Company's business strategy includes the following:

Extend Leadership Position in Professional 3D Graphics on Personal
Workstations. The Company believes that it has established a leading position in
3D graphics on Personal Workstations for professional applications. The Company
intends to build upon its brand name by introducing more 3D graphics subsystems
and feature-rich software applications, by continuing to integrate greater 3D
graphics functionality and performance for professional 3D graphics users and by
expanding its relationships with professional ISVs and OEMs.

Provide System Engineered Solutions. The Company creates integrated 3D
graphics solutions which are engineered to optimize each step of the 3D graphics
pipeline. AccelGraphics' strategy is to maximize overall Personal Workstation
performance by engineering its solutions to efficiently interface with all parts
of the system as well as effectively allocate processing power between the host
system and 3D graphics subsystem.

Cultivate Relationships with ISVs. The Company intends to continue forging
engineering and marketing relationships with leading ISVs and to expand joint
marketing activities. For example, the Company successfully supported the
migration to NT of UNIX software applications from EDS's Unigraphics division,

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<PAGE> 31

Microsoft's Softimage and SDRC. Through engineering involvement in the porting
of major 3D UNIX applications to the NT platform, the Company enhances the
performance of its graphics subsystems with these applications and often becomes
an ISV's initial preferred 3D graphics solution.

Expand OEM and International Sales. OEMs constitute the most significant
channel through which professional users purchase Personal Workstations
incorporating the Company's 3D graphics subsystems. The Company intends to add
personnel to provide more sales coverage and support for targeted OEM prospects
and customers. In addition, the Company intends to continue expanding its sales
presence in international markets by establishing additional relationships with
foreign distributors and hiring foreign resident sales personnel.

Develop and Penetrate New Markets. The Company plans to aggressively pursue
3D UNIX users as UNIX-based 3D graphics applications continue to migrate to the
NT platform. AccelGraphics also recognizes the market potential of 2D graphics
end users moving up to 3D graphics as end users discover that the power of
professional 3D computing has suddenly become affordable. As an example, over
20,000 former users of 2D technology have acquired the Company's 3D technology
in conjunction with Autodesk's Mechanical Desktop, a mechanical design and
modeling application which includes the Company's AccelVIEW 3D technology.

Focus on Value Added 3D Software. The Company intends to develop and offer
value added 3D software which provides enhanced features to other software
vendors' applications for 3D graphics professionals. The Company has
successfully developed and introduced its AccelVIEW 3D software product for
AutoCAD and its Flying Carpet plug-in to Netscape Navigator and Microsoft
Internet Explorer. The Company believes that such 3D software applications
provide not only a source of higher margin revenue, but an additional market
opportunity for graphics subsystem upgrades as users look for increased
productivity and performance.

Silicon Independence. The Company does not depend on either itself or any
other single provider for its silicon chip technology. This strategy of silicon
independence enables the Company to avoid the significant fixed costs and risks
associated with the development, manufacture and testing of 3D graphics
microprocessors and to benefit from the freedom and flexibility of selecting the
best chip available for each product offering.

PRODUCTS

The Company's product offerings include a range of professional 3D graphics
subsystems, accelerator software and application utility software products
marketed under the Accel brand name. In 1996, a majority of the Company's
revenues were derived from the AccelPRO and AccelPRO TX product lines. Each of
the Company's 3D graphics subsystem products support the PCI bus and major
professional 3D graphics APIs including OpenGL and Autodesk's Heidi. The
Company's products support NT and in some cases Windows 95. The Company's
products have been incorporated into systems that use Intel's Pentium and
Pentium Pro processors, Motorola's Power PC, Digital's Alpha and SGI's MIPS
processors. In addition, the Company has developed accelerator software and
software utilities that improve the 3D graphics capabilities of ISV
applications, including Autodesk's AutoCAD and Mechanical Desktop, Microsoft
Internet Explorer and Netscape Navigator.

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<PAGE> 32

The Company's principal product lines are summarized below. Suggested end
user United States prices vary depending on system configuration.

- --------------------------------------------------------------------------------
HARDWARE
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INTRODUCTION SUGGESTED END USER
PRODUCT LINE DATE DESCRIPTION PRICE
-------------- -------------- --------------------------------- ---------------------
<S> <C> <C> <C>
AccelECLIPSE March 1997 3D graphics subsystems with $3,495 - $3,995
advanced texture, overlay and
anti-aliasing support
AccelPRO TX August 1996 High-performance 3D graphics $1,995 - $2,495
subsystems with advanced hardware
texture and anti-aliasing support
AccelPRO June 1996 High-performance 3D graphics $1,795 - $2,495
subsystems without hardware
texture support
AccelSTAR November 1996 Entry-level 3D graphics $595 - $695
subsystems with limited hardware
texture support
</TABLE>

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

<TABLE>
<CAPTION>
SOFTWARE
----------------------------------------------------------------------------------------------
INTRODUCTION
PRODUCT DATE DESCRIPTION SUGGESTED END USER PRICE
-------------- -------------- ----------------------------------- -------------------------
<S> <C> <C> <C>
AccelVIEW 3D March 1996 Software add-on to Autodesk's $395
AutoCAD to deliver interactive 3D
graphics
Flying Carpet February 1997 Plug-in to Netscape Navigator and $49
Microsoft Internet Explorer for
display of and interaction with
very large VRML data sets
Flying Carpet February 1997 Data converter companion product to $49
Converter Flying Carpet
</TABLE>

AccelECLIPSE -- The AccelECLIPSE subsystem plugs into one PCI slot and
supports up to 1280 x 1024 resolution, integrated VGA, advanced tri-linear
texture MIP mapping hardware, overlays and anti-aliasing. The subsystem
incorporates Mitsubishi's 3DPRO chip set, including 15 MB of 3DRAM, an advanced
graphics memory chip architected by Mitsubishi and up to 16 MB of optional
texture memory. The AccelECLIPSE subsystem targets high-end visual simulation
users, professional animators and CAD designers.

AccelPRO TX -- The AccelPRO TX subsystem supports OpenGL features such as
Gouraud shading, anti-aliasing, transparency and advanced features such as
hardware texture mapping. The product incorporates the GLINT 500TX and GLINT
Delta chips from 3Dlabs, up to 16 MB of combined VRAM and DRAM memory supporting
up to 1280 x 1024 resolution and on-board VGA. The subsystem is targeted to
customers who seek a full featured 3D graphics subsystem solution for CAD
design, animation and network management applications.

AccelPRO -- The AccelPRO supports 1280 x 1024 resolution, 15 bits of color
and a 24 bit Z-buffer. The subsystem includes on-board VGA support and up to 16
MB of total graphics memory. The AccelPRO incorporates the GLINT 300SX and GLINT
Delta chips from 3Dlabs. The 3D graphics subsystem is targeted to customers who
seek excellent 3D performance but do not require hardware texture mapping
support.

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<PAGE> 33

AccelSTAR -- The AccelSTAR is an entry level 3D graphics subsystem that
supports the full features of OpenGL including Gouraud shading, texture mapping
and transparency, and includes on-board VGA. The 3D graphics subsystem sells for
a price comparable to a high-end 2D graphics subsystem. The AccelSTAR
incorporates the Permedia and Delta chips from 3Dlabs and up to 8 MB of total
memory. The AccelSTAR is targeted to price sensitive customers who do not
require large amounts of texture memory.

AccelVIEW 3D -- AccelVIEW 3D enables users of AutoCAD Release 13c4 on NT or
Windows 95 to perform dynamic interactive design and viewing on any database
that has been created with AutoCAD. With AccelVIEW 3D, users are able to quickly
render single parts or assemblies, as well as dynamically manipulate and
seamlessly interact with and edit wireframe, hidden-line and shaded models.
AccelVIEW 3D is tightly integrated with AutoCAD and operates as if it were a
standard part of the application. AccelVIEW 3D can work either with or without
an add-on 3D subsystem card.

Flying Carpet -- The Flying Carpet plug-in is an advanced 3D viewer for
manipulating large models and assemblies. Unlike other Virtual Reality Markup
Language ("VRML") viewers that have limitations on model size or are very slow
if the models exceed two to four thousand polygons, Flying Carpet can handle
virtually unlimited model sizes and can manipulate them up to 10 times faster
than competitive VRML viewers. Accurate data of the model is always available
for close inspection and accurate analysis. The tools for navigating through or
around a 3D model environment are extensive and easy to learn. Flying Carpet is
designed for companies who are moving to a Web-based information access
architecture and want to integrate 3D geometric product data for collaborative
engineering. The Company licenses certain technology for Flying Carpet from
Resolution Technologies, Inc.

Flying Carpet Converter -- The Flying Carpet Converter allows customers to
convert common VRML 1.0 and 2.0 files to the high-performance native format
supported by Flying Carpet. When converted to this native format, typically
large data files are 3 to 5 times smaller and load 3 to 5 times faster across
the Internet or intranet than the corresponding VRML file.

The following is a glossary of product terms:

Anti-Aliasing: a technique used to reduce the jagged or stair-step
appearance of lines displayed on the screen.

API (Application Program Interface): the language and message format
used by a program to activate and interact with functions in another
program or in the hardware.

Bits of Color: related data that provides the information to identify
the color in the display.

Gouraud Shading: a display technique used to create a continuous
transition of color across a surface as well as create a smoother
overall appearance of an illuminated surface.

Hidden-Line Removal: the portions of a wireframe object which are
hidden from view when looking at an object.

Overlay: multiple layers of images displayed on top of each other.

Pixels: the smallest unit of a computer screen image; dots.

Render: the act of displaying on the screen the solid 3D image
calculated by the software application.

Texture Mapping: the process of applying a pre-determined image to a
surface (i.e. applying a picture of a brick building facade to a shape
representing a wall).

Tri-Linear MIP (Multi In Partem-Latin) Mapping: a rendering technique
used to improve the appearance of a textured surface when viewed at a
given distance combined with a technique for improving the appearance
of a textured surface.

Tri-Linear Texture: 3-dimensional images that are used to modify the
color of fragments.

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<PAGE> 34

VRML (Virtual Reality Model Language): a universal description
language which allows navigation through 3-dimensional sites that are
placed on the World Wide Web.

Wireframe: an outline of a solid image.

Z-Buffer: a memory storage area used to keep depth information for
every pixel on the display.

TECHNOLOGY AND CORE COMPETENCIES

AccelGraphics invests in several key technologies and believes the Company
possesses skills in the various disciplines and technology areas which are
necessary for developing professional 3D computing products. These competencies
include:

OpenGL 3D Expertise. The Company enhances its products through a
proprietary high-performance 3D software implementation of OpenGL and is a
direct OpenGL licensee. The Company has invested thousands of engineering hours
in its version of the OpenGL software library, which currently contains four
times more lines of code than the original sample implementation made available
by SGI. The Company optimizes the performance of its OpenGL software library by
eliminating much of the testing and branching required to process data and
instruction streams, while adding routines optimized for various application
profiles. This effort has resulted in what the Company believes is the fastest
and most stable version of OpenGL available for Windows NT.

Software Systems Integration. The Company has invested in the development
and expansion of the "transport layer" of software that manages the direct
interfaces associated with various parts of the overall system. The parts of the
system include the virtual memory manager, the CPU and its timing, the PCI bus
implementation, the graphic board and chips, data buffer size specifications and
management, specific system configuration issues, NT register settings and other
device driver components. To ensure error-free operation with maximum
performance, the Company continually modifies and optimizes its software to
properly integrate with the various systems and applications that utilize the
Company's 3D graphics subsystems.

3D Development Tools. The Company has developed tools to determine how
applications operate and how they utilize the 3D graphics pipeline. Using these
proprietary development tools, AccelGraphics' engineers gain an understanding of
the structure and function of an application enabling them to optimize the API,
graphics libraries and hardware to efficiently process commands from each
application. The Company has developed specific features for, and optimized the
performance of, its software and its hardware with the goal that key
applications will perform better with its 3D graphics subsystems than with
competitive solutions.

Hardware Design and Systems Engineering. The Company's four distinct 3D
graphics subsystem product lines have been designed and introduced in the past
two years. An in-depth understanding of the importance of layout, trace lines,
memory interaction, chip characteristics, software implementation, BIOS
technologies and bus technology all contribute to building products and systems
that deliver reliable performance. By focusing on system level design, the
Company's 3D graphics subsystems integrate easily into Personal Workstations.

2D and 3D Expertise. In addition to the Company's 3D expertise, the Company
has extensive experience and maintains active software development efforts in 2D
graphics. The Company believes experience and competency in the smooth
implementation and interaction of 2D with 3D delivers a more robust solution to
a broader range of users.

STRATEGIC RELATIONSHIPS

The NT workstation market is comprised of many vendors collaborating to
produce a complete solution for end users. The Company has developed close
strategic relationships with key companies in this market and participates in
industry consortiums from several market segments. AccelGraphics believes these
relationships provide access to the leading-edge information and technology that
the Company needs to remain at the forefront of this rapidly changing market.

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<PAGE> 35

The Company has technical relationships with Intel and Microsoft, as well
as with key component suppliers, including 3Dlabs, Mitsubishi, Cirrus Logic,
Inc. and Evans and Sutherland. These relationships include joint engineering
development and have often resulted in modifications to suppliers' product
features and performance through architectural review and early product
evaluation.

The Company maintains relationships, some of which include joint
engineering projects, with many leading ISVs such as Autodesk and Kinetix,
Computer Associates International, Inc., EDS's Unigraphics division, Matra
Datavision S.A., Microsoft's Softimage, PTC, Ricoh Corporation, SDRC and Visible
Decisions, Inc. Examples include developing overlay software with engineers from
Microsoft's Softimage group, engineering the migration from UNIX to NT with SDRC
and developing and then imbedding 3D technology to power Autodesk's Mechanical
Desktop. In the case of Autodesk, the Company receives royalty payments on each
sale of Mechanical Desktop. By providing resources and assisting its ISV
partners in their transition to NT, the Company has often gained a period of
market advantage for new NT applications. This advantage results from the
Company's 3D graphics subsystems often being the first subsystem certified by
the ISV and sometimes the only subsystem supported by the application for an
exclusive period of time.

To develop advanced knowledge and influence the direction of new
technologies and products, the Company is actively involved in various
technology consortiums, industry standards organizations and special interest
groups. The Company's engineers are active in the OpenGL Architectural Review
Board, the VRML Consortium and the PCI Special Interest Group.

3D PROFESSIONAL MARKETS AND APPLICATIONS

The Company focuses on the professional 3D graphics market and has
engineered 3D solutions to support its ISV partners. In many cases, the
Company's products were the first NT-based products supported by these ISVs. The
following table illustrates various 3D market segments. Identified within each
market segment are selected ISVs, their 3D software applications and examples of
customers using the respective applications.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
ISV APPLICATION ISV CUSTOMER EXAMPLES
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
MECHANICAL COMPUTER AIDED DESIGN -- Electronic design of products prior to manufacturing
Autodesk Mechanical Desktop Siemens, Wisne Design
EDS Unigraphics II General Motors
Matra Datavision S.A. Prelude Design Renault
PTC Pro/ENGINEER Caterpillar, John Deere
Ricoh Corporation DESIGNBASE Hitachi, Mitsubishi
SolidWorks Corporation SolidWorks 97 Lockheed Martin
SDRC I-DEAS Master Series Ford Motor
- ----------------------------------------------------------------------------------------------
ENGINEERING ANALYSIS -- Verification of structural, vibration and thermal integrity
Altair Computing, Inc. HyperMesh Chrysler, Nissan Motor
ANSYS, Inc. ANSYS General Electric, 3M
Mechanical Dynamics Adams Caterpillar
Incorporated
- ----------------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 36

Kinetix 3D Studio MAX Mindscape, DreamWorks
Microsoft Softimage 3D Industrial Light & Magic, Sony
NewTek, Inc. LightWave 3D LucasArts Entertainment,
Digital Domain
- ----------------------------------------------------------------------------------------------
ARCHITECTURE, ENGINEERING AND CONSTRUCTION -- Plant design, maintenance, and architectural
design
Bentley Systems, Microstation Amoco, Dow Chemical
Incorporated
CADCENTRE, Ltd. Plant Design Maintenance Brown & Root, British Nuclear
Fuels
EA Systems Inc. Plant Walk Mitsui Engineering
- ----------------------------------------------------------------------------------------------
NETWORK MANAGEMENT -- Network and facilities management with 3D interpretation capabilities

Computer Associates CA Unicenter TNG Xerox
International, Inc.
- ----------------------------------------------------------------------------------------------
VISUALIZATION -- Representation of complex data such as weather or fluids flows

Advanced Visual AVS Express NASA, Sandia National
Systems Inc. Laboratories
- ----------------------------------------------------------------------------------------------
FINANCIAL VISUALIZATION -- Decision support for financial analysis

Visible Decisions, Inc. Discovery Canadian Imperial Bank
- ----------------------------------------------------------------------------------------------
SIMULATION AND TRAINING SYSTEMS -- Flight training, driver education and corporate training

Sense 8 Corporation World Tool Kit Amoco, BMW
- ----------------------------------------------------------------------------------------------
</TABLE>

CUSTOMERS, SALES AND MARKETING

Sales. The Company's sales efforts consist of a combination of direct sales
to OEMs and a worldwide network of VARs and distributors. The Company maintains
a wholly-owned subsidiary, AccelGraphics Deutschland, to market its products in
Europe. As of December 31, 1996, direct sales, marketing and support staff
totaled 20 people located in Northern California, Southern California, Florida,
New Jersey, Ohio and Wiesbaden, Germany. Pacific Rim sales are directed by the
Vice President of Asia Sales out of the Company's San Jose headquarters.
International sales revenues represented approximately 31% of revenues in 1996.

OEMs. The Company and its distributors sell fully-integrated 3D graphics
subsystems to Digital, Epson Direct, HP, Hitachi, Ltd., Samsung Electronics Co.,
Ltd. and Tri-Star Computer Corporation for use in high-performance Personal
Workstations. AccelGraphics works closely with its OEM customers to ensure the
complete testing of the Company's 3D graphics subsystems within their Personal
Workstations to achieve maximum system performance and error-free integration.

The Product Purchase Agreement with HP provides for HP to supply the
Company non-binding forecasts of HP's requirements for products, and the Company
to provide HP product warranty and product support, indemnification and certain
manufacturing rights in the event the Company is declared bankrupt or goes into
receivership or is unable to supply HP with specified quantities of products due
to a cause not associated with the negligence of either party.

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<PAGE> 37

The OEM Agreement with Digital provides for Digital to supply the Company
non-binding forecasts of Digital's requirements for products, and the Company to
provide Digital product warranty and product support, indemnification and
certain manufacturing rights in the event that the Company is unable to supply
Digital with specified quantities of products until the Company demonstrates its
ability and readiness to assume its obligations. In addition, the agreement
provides for a pricing review period pursuant to which the parties will review
products purchased versus the contract pricing.

VARs and Distributors. The Company distributes its products in 32 countries
through a network of VARs and distributors. The Company sells its products in
the United States through large VARs such as Advanced Data Graphics, Inc., Avcom
Technologies, Inc., Cad Research, Inc. and New Technologies Solutions, Inc.
Distributors include Pioneer-Standard Electronics, Inc. and Wyle Electronics in
the United States, Performance Graphics, Ltd. in Europe and Memorex Telex Japan,
Ltd. in Asia. Sales to VARs and distributors accounted for 43% of the Company's
revenues in 1996.

Marketing. The Company's marketing efforts consist primarily of advertising
in targeted trade publications, exhibiting at industry trade shows and joint
marketing activities with ISVs. The Company's collaborative marketing efforts
include mailings by the ISVs to their customers on the behalf of the Company and
inclusion of the Company's promotional literature with the ISVs software
distributions. The Company also participates in joint demonstrations, pilot
programs and seeks to obtain reviews of its products in leading trade
publications such as Pro/E The Magazine.

Customer Support. The Company utilizes Software Support Inc. ("SSI") for
initial support within the United States for VARs, distributors and end users.
SSI is an 800 person support organization which services companies such as
Gateway 2000 and Cisco Systems. The Company maintains its own in-house pre- and
post-sale support staff to provide support for the rest of the world, OEM
support and extended support for the United States. In addition, the Company
utilizes its Web site as well as e-mail exchange to support its customers. The
Company generally provides a three-year warranty for its products. In general,
the Company's return policy permits return within five days after receipt of
products that do not meet product specifications.

RESEARCH AND DEVELOPMENT

Research and development expenses increased from $2.6 million in 1995 to
$2.7 million in 1996, representing 67% and 14% of revenues, respectively. The
Company believes that continued investment in research and development is
critical to the Company's success. The Company's research and development
organization consisted of 21 employees as of December 31, 1996.

The Company's hardware development efforts are focused on the design and
testing of new products incorporating advanced components into high performance
accelerators that make efficient use of the PCI bus, system BIOS architectures,
and graphic libraries. The hardware development team combines 2D and 3D graphic
processors, RAMDACS, graphic memory chips and firmware into integrated,
efficient graphics accelerators.

Software development efforts are focused on development of software and
firmware drivers to enhance the performance of applications, upgrades to the
Flying Carpet and AccelVIEW 3D applications and support for new graphics
accelerator chips that may be incorporated in future products. From time to
time, the Company also employs outside consultants to assist with the
development of specific projects.

The Company dedicates certain engineering personnel to its ISV partners to
optimize their applications with the Company's accelerator products. The
dedicated engineering personnel often work directly on-site with the ISV
engineering development team on development of the next generation of ISV
products. The Company also works with suppliers of graphics chip sets to specify
the next generation of requirements and components for the Company's new
products. The Company coordinates with leading personal computer and NT
workstation hardware and operating system vendors to remain abreast of emerging
industry trends and opportunities.

The markets for the Company's products are characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and rapid product obsolescence. The Company's

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<PAGE> 38

success will be substantially dependent upon its ability to continue to develop
and introduce competitive products and technologies on a timely basis with
features and functionality that meet changing customer requirements. The
Company's business would be adversely affected if the Company were to incur
delays in developing new products or enhancements, or if such products or
enhancements did not gain widespread market acceptance. The Company's business
would also be adversely affected if it were to select new chipsets from among
those chipsets offered by its various semiconductor vendors, new chipsets that
do not perform favorably on a price-performance basis compared to competing
products. In addition, there can be no assurance that products or technologies
developed by others will not render the Company's products or technologies
noncompetitive or obsolete. The Company must continually assess emerging
technologies and standards, and evolving market needs, and must continually
decide which technologies and product directions to pursue. If the Company were
to focus its efforts on technologies, standards or products that do not meet
emerging end user needs and do not achieve market acceptance, the Company could
miss one or more product cycles. In such an event, the Company's business,
financial conditions and results of operations would be adversely affected.

MANUFACTURING

All manufacturing and testing is completed by major contract manufacturers
on a turnkey basis in Hong Kong, Taiwan, and Singapore. This enables the Company
to avoid the cost of owning and operating a manufacturing facility while adding
flexibility to the manufacturing process. The Company does not have contract
commitments with these subcontractors and therefore these subcontractors are not
obligated to supply assemblies, products or services to the Company for any
specific time or at any specific price, except as provided for by specific
purchase orders. Although at present there is an abundance of turnkey
manufacturing in the world, there is no guarantee this will continue. Some long
lead time and sole-sourced items are forecasted and purchased by the Company and
are sold to the turnkey vendor upon demand. Quality auditing and root cause
failure analysis are performed by the Company to maintain quality. The Company
negotiates with vendors for the best pricing on key components and assigns the
pricing to the subcontractors, while receiving the benefit of the
subcontractors' volume purchase prices on the more standard parts.

The Company relies on subcontractors to manufacture, subassemble, test and
ship the Company's products. The Company relies on sole-source suppliers for
certain critical components, such as 3Dlabs for its graphics acceleration chips,
Mitsubishi for its graphics acceleration chips and 3DRAM chips and Nan Ya for
its printed circuit boards. In addition, there is some limited availability of
application specific integrated circuit chipsets that provide VRAM and DRAM
memory. The Company procures its components and products through purchase orders
and does not have specific requirement agreements with any of its subcontractors
or suppliers. Each of the Company's subcontractors and suppliers can cease
supplying the services, products or components at any time with no penalty. In
the event it becomes necessary for the Company to replace a key subcontractor or
supplier, the Company could incur significant manufacturing set-up costs and
delays while new sources are located and alternate components are integrated
into the design of the Company's products. There can be no assurance that the
Company will be able to maintain its current subcontractor and supplier
relationships or that the Company will be able to find suitable replacement
subcontractors and suppliers, if necessary. Although the Company maintains
ongoing efforts to obtain required quantities of products, component shortages
may exist from time to time, and there can be no assurance that the Company's
current subcontractors and suppliers will continue to provide sufficient
quantities of suitable quality product components at acceptable prices. The
inability of the Company to obtain product components at their historical cost
levels would directly affect the cost of the Company's products. In addition,
the Company's ability to respond to greater than anticipated market demand may
be constrained by availability of services, products or components. Further, one
of the Company's subcontractors is located in Hong Kong. When Hong Kong
transitions to the authority of the Peoples' Republic of China, the Company
could experience disruption in the supply products from that subcontractor. The
loss of subcontractors or suppliers or the failure of subcontractors or
suppliers to meet the Company's price, quality, quantity and delivery
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.

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<PAGE> 39

PROPRIETARY RIGHTS

Although the Company has three patent applications filed in the United
States, these claims are not related to the Company's current product lines.
Instead, the Company relies exclusively on trade secret and copyright protection
for its proprietary technology. Despite the Company's precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
technologies without authorization or to develop competing technologies
independently. Furthermore, the laws of certain countries in which the Company
does business, including countries in which the Company does a significant
amount of business, such as the United Kingdom and Germany, may not protect the
Company's software and intellectual property rights to the same extent as the
laws of the United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. If unauthorized
copying or misuse of the Company's products were to occur to any substantial
degree, or if a competitor of the Company were to effectively duplicate the
Company's proprietary technology, the Company's business, financial condition
and results of operations would be materially adversely affected. Furthermore,
while the Company requires employees and consultants to enter into
confidentiality agreements, there can be no assurance that proprietary
information will not be disclosed, that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its trade secrets. Certain technology used
by the Company's products is licensed from third parties, generally on a
non-exclusive basis. The termination of any such license, or the failure of any
third party licensor to adequately maintain or update its product, could result
in delay in the Company's ability to ship its products while it seeks to
implement technology offered by alternative sources, if any. Any required
replacement licenses could prove to be either unavailable or costly.

While the Company has not received notices from third parties alleging
infringement claims that the Company believes would have a material adverse
effect on the Company's business, there can be no assurance that third parties
will not claim that the Company's current or future products or manufacturing
processes infringe the proprietary rights of others. Any such claim, with or
without merit, could result in costly litigation or might require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all, which could have a material adverse effect upon the
Company's business, financial condition and results of operations.

COMPETITION

The market for 3D graphic accelerators is extremely competitive and subject
to rapid change. The Company expects competition to increase in the future from
existing competitors and from new market entrants with products that may be less
costly than the Company's products or provide better performance or additional
features not currently provided by the Company. The Company competes with the
following three major groups: professional 3D graphics board companies
(including Intergraph Corporation and Dynamic Pictures, Inc.), RISC/UNIX
workstation companies (including Sun and SGI) and traditional volume PC board
suppliers (including ELSA GmbH, Diamond Multimedia Systems, Inc. and Matrox
Electronic Systems Ltd.). A variety of potential actions by any of the Company's
competitors could have a material adverse effect on the Company's business,
financial condition and results of operations. Such actions may include
reduction of product prices, increased promotion, announcement or accelerated
introduction of new or enhanced products, product giveaways, product bundling or
other competitive actions.

38
<PAGE> 40

compete against current or future competitors successfully or that competitive
pressures faced by the Company will not have a material adverse effect upon its
business, financial condition and results of operations.

EMPLOYEES

As of December 31, 1996, the Company had 55 employees, including 20 in
sales, marketing and customer support, 21 in research and development and 14 in
finance and administration. None of the Company's employees are represented by a
labor union. The Company has not experienced work stoppages and believes it has
a good relationship with its employees. Competition for qualified personnel in
the industry in which the Company competes is intense. The Company believes that
its future success will depend in part on its continued ability to attract, hire
and retain qualified personnel. See "Risk Factors -- Dependence on Key
Personnel; Need to Attract and Retain Highly Skilled Personnel."

FACILITIES

The Company's principal facilities occupy approximately 13,000 square feet
in San Jose, California, pursuant to a lease which expires on March 31, 1998. In
addition, the Company occupies various sales and support facilities in Florida,
California and Wiesbaden, Germany. The Company believes its current facilities
are adequate to meet its needs through the next six months. The Company is
exploring various alternatives to house its planned expansion and believes that
additional facilities should be available on acceptable terms.

LEGAL PROCEEDINGS

There are no material pending or threatened legal proceedings against the
Company. The Company from time to time is involved in routine legal matters
incident to its business.

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<PAGE> 41

MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
executive officers and directors of the Company, including their ages and
positions as of December 31, 1996:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------ --- -----------------------------------------------------
<S> <C> <C>
Jeffrey W. Dunn..................... 42 Chairman, President and Chief Executive Officer
Nancy E. Bush....................... 39 Vice President, Finance and Administration, Chief
Financial Officer, Assistant Secretary and Director
Stephen L. Bartlett................. 56 Vice President, Operations
Lew S. Epstein...................... 49 Vice President, Sales
Gregory C. Milliken................. 35 Vice President, Business Development
Niraj Swarup........................ 36 Vice President, Marketing
Keith H. Uhlin...................... 40 Vice President, Engineering
David E. Gold(1).................... 53 Director
Jos C. Henkens(1)(2)................ 44 Director
Shintaro Miyamoto................... 33 Director
David W. Pidwell(2)................. 49 Director
Peter L. Wolken(1)(2)............... 62 Director
</TABLE>

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

(1) Member of the Audit Committee
(2) Member of the Compensation Committee

Mr. Dunn co-founded the Company in November 1994 and serves as Chairman,
President and Chief Executive Officer. From February 1993 to December 1994, Mr.
Dunn was Vice President of Marketing at Kubota Graphics. From October 1988 to
January 1993, Mr. Dunn was Vice President of Worldwide Sales and Support for
Cygnet Systems, Inc., a manufacturer of robotic mass storage devices. Mr. Dunn
has also held sales and/or sales management positions at Xerox Corporation,
Avnet Computer Technologies, Inc. and Microcon Software Centers, Inc.

Ms. Bush co-founded the Company in November 1994 and serves as Chief
Financial Officer and Director and has been Vice President, Finance and
Administration and Assistant Secretary since December 1996. From January 1991 to
November 1994, Ms. Bush was employed with ATG Cygnet Inc., formerly Cygnet
Systems, Inc. Her positions at ATG Cygnet, Inc. included MIS Manager from
January 1991 to February 1992, Controller from February 1992 to October 1992,
Director of Finance from October 1992 to October 1993, Chief Financial Officer
and Vice President of Operations from October 1993 to September 1994 and Chief
Executive Officer from September 1994 to November 1994. In June 1993, Cygnet
Systems, Inc. declared Chapter 11 bankruptcy and became ATG Cygnet Inc. Prior to
1991, she held finance and manufacturing positions at Spectra Physics Inc. and
Corning Incorporated.

Mr. Bartlett joined the Company in July 1996 and was elected Vice
President, Operations in August 1996. From May 1993 to July 1995, Mr. Bartlett
was Director of Operations for Sigma Designs, Inc. From March 1991 to April
1993, Mr. Bartlett served as Vice President of Operations at Radius, Inc. and
from January 1988 to March 1991, he was Director of Operations for Radius, Inc.

Mr. Epstein joined the Company in August 1995 as Vice President, Sales.
From January 1994 to September 1995, Mr. Epstein was Vice President of Sales and
Support for Los Altos Technologies. From January 1993 to June 1994, he was Vice
President of Sales for Centric Engineering. From May 1990 to December 1992, Mr.
Epstein was Vice President of Sales and Support for Intergraph Corporation.

Mr. Milliken co-founded the Company and has been Vice President, Business
Development since December 1996. Mr. Milliken served as Vice President,
Marketing of the Company from 1994 to 1996. From March 1994 to July 1994, Mr.
Milliken served as Mechanical Industry Marketing Manager at Kubota Graphics and
from July 1994 to November 1994, Mr. Milliken was a Director of Product
Marketing at

40
<PAGE> 42

Kubota Graphics. From January 1991 to February 1994, Mr. Milliken was a
Marketing Manager for Autodesk.

Mr. Swarup joined the Company in April 1996 as Director, Marketing and was
elected Vice President, Marketing in December 1996. Prior to joining
AccelGraphics, Mr. Swarup held various project manager and group marketing
manager positions at Sun from May 1990 to April 1996.

Mr. Uhlin joined the Company in November 1996 and was elected Vice
President, Engineering in December 1996. From September 1988 to November 1996,
Mr. Uhlin was Director of Advanced 3D Graphics for Cirrus Logic, Inc.

Mr. Gold has served as a director of the Company since June 1995. Since
February 1985, he has been a General Partner at Indosuez Ventures, a venture
capital firm. Mr. Gold is also a director of several private companies.

Mr. Henkens has served as a director of the Company since June 1995. Since
January 1983, Mr. Henkens has been associated with Advanced Technology Ventures,
a venture capital firm. Mr. Henkens is also a director of Actel Corporation,
Credence Systems Corporation, ParcPlace Digitalk, Inc. as well as a number of
private technology companies.

Mr. Miyamoto has served as director of the Company since October 1996. From
April 1985 to March 1992, Mr. Miyamoto served as Assistant Manager of Kubota.
Since April 1992, Mr. Miyamoto has been Manager of Kubota's U.S. office.

Mr. Pidwell has served as a director of the Company since February 1996.
Since March 1996, Mr. Pidwell has been a private investor in the Company. From
December 1987 to January 1996, Mr. Pidwell founded and was President and Chief
Executive Officer of Rasna Corporation, a mechanical design automation software
company. Mr. Pidwell is also a director of several private technology companies.

Mr. Wolken has served as a director of the Company since June 1995. Since
July 1981, he has been cofounder and General Partner of AVI Management Partners
I, II and III, a venture capital firm. Mr. Wolken serves as a director of a
number of private technology companies and is a director of Qualix Group Inc.

TERM OF OFFICE OF DIRECTORS AND OFFICERS

The Company's Bylaws currently provide for a Board of Directors consisting
of seven members. All directors hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified. However,
the Company's Bylaws and Certificate of Incorporation provide that as of the
record date for the Company's first annual stockholders' meeting when the
Company is exempt from Section 2115 of the California Corporation Code, the
Board of Directors will be divided into three classes with the directors of each
class serving staggered terms. Assuming the Company is exempt from such Section
2115 as of the record date for the Company's 1998 annual stockholders' meeting,
the Class I directors will be Messrs. Gold and Miyamoto, whose current terms
will end on the annual stockholders meeting held in 1998, the Class II directors
are Messrs. Henkens and Wolken, whose current terms will end on the annual
stockholders meeting held in 1999, and the Class III directors are Ms. Bush and
Messrs. Dunn and Pidwell, whose current terms will end on the annual
stockholders meeting held in 2000. Upon the expiration of the term of each class
of directors, members constituting such class of directors will be elected for a
three-year term at the next succeeding annual meeting of stockholders. The Board
of Directors elects the Company's officers, and such officers serve at the
discretion of the Board of Directors of the Company. The current Board of
Directors was elected pursuant to an Amended and Restated Voting Agreement
between the Company and the holders of Preferred Stock of the Company which
terminates upon the consummation of this offering. The Amended and Restated
Voting Agreement contains certain minimum share holding requirements for these
seats.

COMMITTEES OF THE BOARD OF DIRECTORS

There are currently two standing committees of the Board of Directors, the
Audit Committee and the Compensation Committee. The Audit Committee reviews the
Company's annual audit and meets with the

41
<PAGE> 43

Company's independent auditors to review the Company's internal controls and
financial management practices. The Board's Audit Committee currently consists
of Messrs. Gold, Henkens and Wolken. The Compensation Committee recommends
compensation for certain of the Company's personnel to the Board and, together
with the Board of Directors, administers the Company's stock and option plans.
The Compensation Committee currently consists of Messrs. Henkens, Pidwell and
Wolken.

DIRECTOR COMPENSATION

The Company does not pay any compensation to directors for serving in that
capacity, nor does it reimburse directors for expenses incurred in attending
board meetings. However, nonemployee directors will be entitled to participate
in the 1997 Directors' Stock Option Plan. See "-- Stock Option and Incentive
Plans -- 1997 Directors' Stock Option Plan."

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning
compensation paid to the Company's Chief Executive Officer and each of the other
four most highly compensated officers who were serving as officers on December
31, 1996 (the "Named Officers") whose aggregate annual compensation exceeded
$100,000 for the year ended December 31, 1996.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
- ---------------------------------------------------------- -------- ------- ------------
<S> <C> <C> <C>
Jeffrey W. Dunn........................................... $181,192 $27,599 65,500
Chairman, President and Chief Executive Officer
Nancy E. Bush............................................. 102,692 22,999 22,000
Vice President, Finance and Administration and Chief
Financial Officer
Lew S. Epstein............................................ 126,006 61,049 23,500
Vice President, Sales
Gregory C. Milliken....................................... 105,654 18,399 --
Vice President, Business Development
Ralph E. Nichols(1)....................................... 140,618 9,619 16,000
Vice President, Engineering
</TABLE>

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

(1) Includes $33,186 of consultancy fees which Mr. Nichols received from
September through December 1996. Mr. Nichols resigned as Vice President,
Engineering from the Company in September 1996. Mr. Keith Uhlin, the
Company's current Vice President, Engineering, began employment with the
Company in November 1996.

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<PAGE> 44

OPTION GRANTS IN 1996

The following table provides certain summary information concerning options
granted during the year ended December 31, 1996 to the Named Officers.

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
------------------------------------------------------------ ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION -----------------
NAME GRANTED(#)(2) IN 1996 PER SHARE DATE 5% 10%
- --------------------------- ------------- ----------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey W. Dunn............ 65,500 9.06% $0.30 03/14/06 $12,358 $31,317
Nancy E. Bush.............. 22,000 3.04 0.30 03/14/06 4,151 10,519
Lew S. Epstein............. 16,000 2.21 0.30 03/14/06 3,109 7,650
7,500 1.04 0.30 05/23/06 1,415 3,586
Ralph E. Nichols........... 16,000 2.21 0.30 03/14/06 3,019 7,650
</TABLE>

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

(1) Consists of stock options granted pursuant to the Company's 1995 Stock Plan.
The Company's options generally become exercisable at a rate of 12.5% after
six months following the date of grant and approximately 2% per month
thereafter, as long as the optionee remains an employee of or consultant to
the Company. The maximum term of each option granted is ten years from the
date of grant. The exercise price is equal to the fair market value of the
stock on the grant date as determined by the Board of Directors. See
"-- Stock Option and Incentive Plans."

(2) The 5% and 10% assumed compounded annual rates of stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock appreciation over the ten-year option
term will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the Common Stock appreciates over the option
term, no value will be realized from the option grants made to the persons
named in the Summary Compensation Table.

OPTION VALUES AT DECEMBER 31, 1996

The following table provides certain summary information concerning the
shares of Common Stock represented by outstanding stock options held by each of
the Named Officers as of December 31, 1996.

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
SHARES AT DECEMBER 31, 1996(#) AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey W. Dunn........ -- -- 15,010 50,490 $ 120,080 $ 403,920
Nancy E. Bush.......... -- -- 5,041 16,959 40,328 132,650
Lew S. Epstein......... -- -- 30,967 73,158 250,961 591,714
Ralph E. Nichols....... 48,000 $ 10,080(2) 3,666 12,334 29,327 98,672
</TABLE>

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

(1) Calculated by multiplying the applicable number of shares by the difference
between the estimated fair value of the Company's Common Stock as of
December 31, 1996 ($8.30 per share) and the exercise price of the options.

(2) Calculated by multiplying the applicable number of shares by the difference
between the fair value of the Company's Common Stock as of the date of
exercise ($0.30 per share) and the exercise price of the exercised options.

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<PAGE> 45

STOCK OPTION AND INCENTIVE PLANS

1995 Stock Plan. The Company's 1995 Stock Plan (as amended, the "1995 Stock
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in December 1994. An aggregate of 3,300,000 shares of the Company's
Common Stock are reserved for issuance under the 1995 Stock Plan.

The 1995 Stock Plan provides for the granting to employees (including
officers and directors) of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code (the "Code"), for the granting to
employees, consultants and nonemployee directors of nonstatutory stock options
and for the granting to employees of stock purchase rights. The 1995 Stock Plan
may be administered by the Board of Directors or a committee of the Board (the
"1995 Administrator"). The 1995 Administrator determines the terms of options
and stock purchase rights granted under the 1995 Stock Plan, including the
number of shares subject to the option or right, exercise price, term and
exercisability. The maximum number of shares which may be subject to options or
stock purchase rights granted to any one employee under the 1995 Stock Plan for
any fiscal year of the Company is 500,000. The exercise price of all incentive
stock options granted under the 1995 Stock Plan must be at least equal to the
fair market value of the Common Stock of the Company on the date of grant and
the exercise price of all nonstatutory stock options must be at least 85% of the
fair value of the Common Stock of the Company on the date of grant and 100% of
the fair value of the Common Stock on the date of grant for grants made to Named
Officers. The exercise price of any option granted to an optionee who owns stock
representing more than 10% of the voting power of the Company's outstanding
capital stock must equal at least 110% of the fair market value of the Common
Stock on the date of grant. The minimum purchase price of shares acquired by
exercising stock purchase rights is 85% of the fair market value of the Common
Stock on the date of grant. Payment of the exercise price may be made in cash,
promissory notes, shares or other consideration determined acceptable by the
1995 Administrator. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of stock of the Company, the
maximum term of an incentive stock option must not exceed five years. The term
of all other options must not exceed ten years.

If the Company consolidates or merges with or into another corporation,
then each option will be either assumed or an equivalent option substituted by
the successor corporation or, if not assumed or substituted, the unvested
portion of each option will be accelerated. If not terminated earlier, the 1995
Stock Plan will terminate in 2005. The 1995 Administrator has the authority to
amend or terminate the 1995 Stock Plan as long as such action does not adversely
affect any outstanding option.

1997 Employee Stock Purchase Plan. The Company's 1997 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
January 1997 and will be submitted for approval by the Company's stockholders in
March 1997. An aggregate of 400,000 shares of the Company's Common Stock are
reserved for issuance under the Purchase Plan.

The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of 12
months' duration, with new offering periods other than the first offering period
commencing on or about February 1 and August 1 of each year. Each offering
period will consist of two consecutive purchase periods of six months duration
with the last day of such period being designated a purchase date. The initial
offering period is expected to commence on the date of this offering with the
first purchase date occurring on January 31, 1998 and subsequent purchase dates
to occur every six months thereafter. The Purchase Plan will be administered by
the Board of Directors or by a committee appointed by the Board. Employees
(including officers and employee directors) of the Company, or of any
majority-owned subsidiary designated by the Board, are eligible to participate
in the Purchase Plan if they are employed by the Company or any such subsidiary.
The Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's compensation, at a
price equal to the lower of 85% of the fair market value of the Company's Common
Stock at the beginning of the offering period or on the purchase date. Employees
may end their participation in the offering at any time during the offering
period, and participation ends automatically on termination of employment with
the Company.

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<PAGE> 46

The Purchase Plan provides that in the event of a merger of the Company
with or into another corporation or a sale of substantially all of the Company's
assets, each right to purchase stock under the Purchase Plan will be assumed or
an equivalent right substituted by the successor corporation, unless the Board
of Directors shortens the offering period so that employees' rights to purchase
stock under the Purchase Plan will be exercised prior to the merger or sale of
assets. The Board of Directors has the power to amend or terminate the Purchase
Plan as long as such action does not adversely affect any outstanding rights to
purchase stock thereunder. If not terminated earlier, the Purchase Plan will
have a term of twenty years.

1997 Directors' Stock Option Plan. The 1997 Directors' Stock Option Plan
(the "Directors' Plan") was adopted by the Board of Directors in January 1997
and will be submitted for approval by the Company's stockholders in March 1997.
An aggregate of 200,000 shares of the Company's Common Stock are reserved for
issuance under the Directors' Plan. The Directors' Plan provides for the grant
of nonstatutory stock options to nonemployee directors of the Company. The
Directors' Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
Board of Directors. To the extent they arise, it is expected that conflicts of
interest will be addressed by abstention of the interested director from both
deliberations and voting regarding matters in which he or she has a personal
interest.

The Directors' Plan provides that each person who is or becomes a
nonemployee director of the Company will be granted a nonstatutory stock option
to purchase 15,000 shares of Common Stock (the "First Option") on the date on
which the optionee first becomes a nonemployee director of the Company or, for
current directors, on the date of this offering. After the first option grant,
on the date of each annual meeting, each nonemployee director shall be granted
an additional option to purchase 5,000 shares of Common Stock (a "Subsequent
Option") if, on such date, he or she has served on the Company's Board of
Directors for at least six months.

The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method of
making a grant. No option granted under the Directors' Plan is transferable by
the optionee other than by will or the laws of descent or distribution, and each
option is exercisable, during the lifetime of the optionee, only by such
optionee. The Directors' Plan provides that the First Option shall become
exercisable in installments as to 33 1/3% of the total number of shares subject
to the First Option on each of the first, second and third anniversaries of the
date of grant of the First Option, and each Subsequent Option shall become
exercisable in full on the third anniversary of the date of grant of such
Subsequent Option. If a nonemployee director ceases to serve as a director for
any reason, he or she may, but only within 60 days after the date he or she
ceases to be a director of the Company, exercise options granted under the
Directors' Plan to the extent that he or she was entitled to exercise such
options at the date of such termination. To the extent he or she was not
entitled to exercise any such option at the date of such termination, or if he
or she does not exercise such option (which he or she was entitled to exercise),
within such 60 day period, such option will terminate. The exercise price of all
stock options granted under the Directors' Plan will equal the fair market value
of a share of the Common Stock on the date of grant of the option. Options
granted under the Directors' Plan have a term of ten years.

In the event of a merger of the Company with or into another corporation or
a sale of substantially all of the Company's assets, the unvested portion of
each option will be accelerated. The Board of Directors may amend or terminate
the Directors' Plan; provided, however, that no such action may adversely affect
any outstanding option, and the provisions regarding the grant of options under
the Directors' Plan may be amended only once in any six-month period, other than
to conform with changes in the Code. If not terminated earlier, the Directors'
Plan will have a term of ten years.

401(k) Savings & Retirement Plan. The Company's tax deferred savings plan
(the "401(k) Plan") was adopted by the Board of Directors in December 1994. The
401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on contributions, are generally not taxable to employees until withdrawn
from the 401(k) Plan. The 401(k) Plan covers all employees of the Company.
Employees may elect to defer, in the form of

45
<PAGE> 47

contributions to the 401(k) Plan, between 1% and 20% of their pre-tax
compensation; however, the amount deferred may not exceed the statutorily
prescribed annual limit. The 401(k) Plan permits matching contributions to be
made to the 401(k) Plan by the Company on behalf of employees. Contributions are
allocated to each employee's individual account, which is invested in selected
mutual funds or a guaranteed income fund according to the directions of the
employee.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Section 145 ("Section 145") of the Delaware General Corporation Law
("DGCL") provides a detailed statutory framework covering indemnification of
officers and directors against liabilities and expenses arising out of legal
proceedings brought against them by reason of their being or having been
directors or officers. Section 145 generally provides that a director or officer
of a corporation (i) shall be indemnified by the corporation for all expenses of
such legal proceedings when he is successful on the merits, (ii) may be
indemnified by the corporation for the expenses, judgments, fines and amounts
paid in settlement of such proceedings (other than a derivative suit), even if
he is not successful on the merits, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, and (iii) may be
indemnified by the corporation for the expenses of a derivative suit (a suit by
a stockholder alleging a breach by a director or officer of a duty owed to the
corporation), even if he is not successful on the merits, if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation. No indemnification may be made under clause (iii)
above, however, if the director or officer is adjudged liable for negligence or
misconduct in the performance of his duties to the corporation, unless a
corporation determines that, despite such adjudication, but in view of all the
circumstances, he is entitled to indemnification. The indemnification described
in clauses (ii) and (iii) above may be made only upon a determination that
indemnification is proper because the applicable standard of conduct has been
met. Such a determination may be made by a majority of a quorum of disinterested
directors, independent legal counsel, the stockholders or a court of competent
jurisdiction.

Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit. The Company's Restated Certificate of Incorporation will provide for
the elimination of personal liability of a director for breach of fiduciary
duty, as permitted by Section 102(b)(7) of the DGCL.

The Company's Certificate of Incorporation and Bylaws require the Company
to indemnify its directors and officers against any damages arising from their
actions as an agent of the Company to the fullest extent permitted by Delaware
law. The Bylaws further provide that the Company may similarly indemnify its
other employees and agents. In addition, each director has entered into an
indemnification agreement with the Company, pursuant to which the Company has
agreed to indemnify such director to the fullest extent permitted by Delaware
law. Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the provisions referenced
in Item 24 of this Registration Statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification would
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which might result in a claim for such indemnification.

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<PAGE> 48

CERTAIN TRANSACTIONS

The Company entered into an Asset Purchase Agreement dated as of December
9, 1994 with Kubota Graphics pursuant to which the Company purchased certain
assets of Kubota Graphics (the "Asset Acquisition"). In connection with the
Asset Acquisition, the Company entered into a Convertible Note Purchase
Agreement dated as of December 22, 1994, with Kubota, the parent corporation of
Kubota Graphics, pursuant to which the Company issued Kubota a subordinated
convertible promissory note carrying an initial principal amount of $3.3 million
(the "Convertible Note"). The Company used $1.2 million of the proceeds from the
Convertible Note to purchase certain assets pursuant to the Asset Acquisition
and the remaining proceeds were used for working capital. By its terms, the
original note was due December 22, 1996 and bore interest at a rate of 6%.
One-half of the Convertible Note was convertible into Preferred Stock upon the
Company achieving a revenue milestone and the entire Convertible Note was
convertible into Preferred Stock at the same rate upon the closing of an equity
offering with proceeds in excess of $2.0 million. Upon the occurrence of the
closing of the Series A Preferred Stock equity offering, Kubota and the Company
renegotiated the Convertible Note such that Kubota converted one-half, or $1.65
million of principal plus $98,000 of accrued interest, into a new note which is
due June 20, 1998, bears interest at the prime rate and is convertible only in
the case of certain dilution events, and the other one-half of principal, or
$1.65 million, was converted into 90,000 shares of Series A Preferred Stock. Mr.
Miyamoto, a director of the Company, is an affiliate of Kubota. Mr. Dunn was
formerly Vice President of Marketing at Kubota Graphics.

In June and July 1995, the Company issued an aggregate of 3,446,997 shares
of Series A Preferred Stock at a price per share of $1.67 to investors that
included, among others, Advanced Technology Ventures IV (750,000 shares), AVI
Capital, L.P. and its affiliated entities (749,997 shares), STF II, L.P.
(600,000 shares) and Woodside Fund III, L.P. (300,000 shares). In connection
with this financing, Kubota converted $1,650,000 of the outstanding principal on
the Convertible Note into 990,000 shares of Series A Preferred Stock.

In March 1996, the Company issued an aggregate of 1,061,660 shares of
Series B Preferred Stock at a per share price of $3.00 to investors that
included, among others, Asset Management Associates (333,333 shares), Kubota
(162,750 shares), Woodside Fund III, L.P. (132,652 shares), Advanced
Technologies Ventures IV, L.P. (123,295 shares), AVI Capital, L.P. and
affiliated entities (123,295 shares) and STF II, L.P. (98,636 shares).

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

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<PAGE> 49

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 31, 1996, and as adjusted to
reflect the sale by the Company of the shares of Common Stock offered by this
Prospectus, (i) by each person who is known by the Company to beneficially own
5% or more of the Common Stock, (ii) by each of the Company's directors and
Named Officers, (iii) by all current executive officers and directors as a group
and (iv) by the Selling Stockholders. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OWNED AFTER THE
THE OFFERING OF SHARES OFFERING(1)(2)
EXECUTIVE OFFICERS, DIRECTORS --------------------- BEING ---------------------
AND 5% STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Kubota Corporation....................... 1,152,750 20.0% 113,464 1,039,286 13.2%
2372-A Qume Drive
San Jose, CA 95131
Advanced Technology Ventures IV, L.P..... 873,295 15.2 85,958 787,337 10.0
485 Ramona Street, Suite 200
Palo Alto, CA 94301
AVI Capital L.P. (and related
entities)(3)........................... 873,292 15.2 85,958 787,334 10.0
One First Street, Suite 12
Los Altos, CA 94022
STF II, L.P.............................. 698,636 12.1 69,864 628,772 8.0
c/o Indosuez Ventures
2180 Sand Hill Road, Suite 450
Menlo Park, CA 94025
Woodside Fund III, L.P................... 432,652 7.5 -- 432,652 5.5
850 Woodside Drive
Woodside, CA 94062
Asset Management Associates 1996, L.P.... 333,333 5.8 33,333 300,000 3.8
2275 East Bayshore Road, Suite 150
Palo Alto, CA 94303
Shintaro Miyamoto(4)..................... 1,152,750 20.0 113,464 1,039,286 13.2
Jos C. Henkens(5)........................ 873,295 15.2 85,958 787,337 10.0
Peter L. Wolken(6)....................... 873,292 15.2 85,958 787,334 10.0
David E. Gold(7)......................... 698,636 12.1 69,864 629,772 8.0
David W. Pidwell(8)...................... 24,166 * -- 24,166 *
50628 Vickery Lane
Saratoga, CA 95070
Jeffrey W. Dunn(9)....................... 478,989 8.3 23,064 455,925 5.8
Gregory C. Milliken(10).................. 220,312 3.8 11,015 209,297 2.7
Nancy E. Bush(11)........................ 148,458 2.6 7,125 141,333 1.8
Lew S. Epstein(12)....................... 43,639 * 5,622 38,017 *
Niraj Swarup(13)......................... 16,046 * 3,000 13,046 *
Stephen L. Bartlett(14).................. 12,395 * -- 12,395 *
Keith H. Uhlin........................... -- * -- -- *
All executive officers and directors as a
group (12 persons)(15)................. 4,541,978 77.6 405,070 4,136,908 51.7

OTHER SELLING STOCKHOLDERS
John O. Burness.......................... 67,500 1.2 3,375 64,125 *
John J. Caravello........................ 86,250 1.5 4,312 81,938 1.1
Other Selling Stockholders each
beneficially owning less than 1% of the
Company's Common Stock (14
persons)(16)........................... 69,335 1.2 8,910 60,425 *
</TABLE>

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

* Less than 1%.

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<PAGE> 50

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of shares, the
Common Stock options held by that person that are currently exercisable, or
become exercisable within 60 days following December 31, 1996, are deemed
outstanding. However, such shares are not deemed outstanding for purposes
of computing the percentage ownership of any other person.

(2) Assumes that the Underwriters' over-allotment option to purchase up to
390,000 shares from the Company and the Selling Shareholders is not
exercised. If the Underwriters' over-allotment option is exercised in full,
the Company will sell an additional 270,593 shares, and the Selling
Stockholders will sell an additional 119,407 shares in the aggregate.

(3) Includes 127,936 shares held by Associated Ventures Investors II, L.P.,
24,911 shares held by AVI Partners Growth Fund, L.P. and 9,119 shares held
by AVI Silicon Valley Partners, L.P.

(4) Represents 1,152,750 shares held by Kubota Corporation, which Mr. Miyamoto
may be deemed to beneficially own by virtue of his status as Manager of
Kubota Corporation. Mr. Miyamoto disclaims beneficial ownership of the
shares held by such entity. Mr. Miyamoto is a director of the Company.

(5) Represents 873,295 shares held by Advanced Technology Ventures IV, L.P.,
which Mr. Henkens may be deemed to beneficially own by virtue of his status
as a General Partner of Advanced Technology Ventures, a General Partner of
Advanced Technology Ventures IV, L.P. Mr. Henkens disclaims beneficial
ownership of the shares held by such entity except to the extent of his
proportionate partnership interest therein. Mr. Henkens is a director of
the Company.

(6) Represents 711,326 shares held by AVI Capital, L.P., 127,936 shares held by
Associated Ventures Investors II, L.P., 24,911 shares held by AVI Partners
Growth Fund, L.P. and 9,119 shares held by AVI Silicon Valley Partners,
L.P., which Mr. Wolken may be deemed to beneficially own by virtue of his
status as General Partner of AVI Management Partners, General Partner of
each of the listed AVI funds. Mr. Wolken disclaims beneficial ownership of
the shares held by such entities except to the extent of his proportionate
partnership interests therein. Mr. Wolken is a director of the Company.

(7) Represents 698,636 shares held by STF II, L.P., which Mr. Gold may be
deemed to beneficially own by virtue of his status as a General Partner of
STF II, L.P. Mr. Gold disclaims beneficial ownership of the shares held by
such entity except to the extent of his proportionate partnership interest
therein. Mr. Gold is a director of the Company.

(8) Includes 16,666 shares held by both the Pidwell Family Living Trust Dated
6/25/87 and 7,500 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1996. Mr. Pidwell is a director of the
Company.

(9) Includes 423,334 shares held by both Jeffrey W. Dunn and Susan M. Dunn, as
trustees of the Jeffrey W. Dunn and Susan M. Dunn Trust Agreement dated
August 30, 1996. Also includes 11,250 shares held by Mr. Dunn's minor
children and 17,739 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1996. Also includes 26,666 shares held by
the Leo Dunn -- Family Share, John J. Yagjian et. al. Trustees, Agreement
dated 3/28/91 (the "Trust") which Mr. Dunn may be deemed to beneficially
own by virtue of his interest in the trust. Mr. Dunn disclaims beneficial
ownership of the shares held by such trust except to the extent of his
proportionate interest therein. Mr. Dunn is Chairman, President and Chief
Executive Officer of the Company.

(10) Mr. Milliken is Vice President, Business Development of the Company.

(11) Includes 5,958 shares issuable upon exercise of options exercisable within
60 days of December 31, 1996. Ms. Bush is Vice President, Finance and
Administration, Chief Financial Officer, Assistant Secretary and Director
of the Company.

(12) Includes 35,306 shares issuable upon exercise of options exercisable within
60 days of December 31, 1996. Mr. Epstein is Vice President, Sales of the
Company.

(13) Represents 16,046 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1996. Mr. Swarup is Director, Marketing of
the Company.

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<PAGE> 51

(14) Represents 12,395 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1996.

(15) Includes 3,597,973 shares beneficially owned by entities affiliated with
Messrs. Gold, Henkens, Miyamoto, Pidwell and Wolken for which they disclaim
beneficial ownership of the shares held by such entities except to the
extent of their proportionate partnership interests therein. Also includes
94,944 shares issuable upon exercise of options exercisable within 60 days
of December 31, 1996.

(16) Includes an aggregate of 16,352 shares issuable pursuant to currently
exercisable options.

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $0.001 per
share, and 2,000,000 shares of undesignated Preferred Stock, par value $0.001
per share, after giving effect to the amendment and restatement of the Company's
Certificate of Incorporation to delete references to the Series A Preferred
Stock and Series B Preferred Stock and increase the authorized number of shares
of Common Stock, which will occur upon conversion of such Preferred Stock into
Common Stock upon the closing of this offering.

COMMON STOCK

As of December 31, 1996, there were 5,761,307 shares of Common Stock
outstanding that were held of record by approximately 52 stockholders (as
adjusted to reflect the conversion of all outstanding shares of the Company's
Series A Preferred Stock and Series B Preferred Stock into Common Stock at a
one-to-one ratio upon the completion of this offering). Stock options to
purchase an aggregate of 1,006,867 shares of Common Stock were outstanding as of
December 31, 1996. Warrants to purchase an aggregate of 63,250 shares of
Preferred and Common Stock were also outstanding (as adjusted to reflect the
conversion of all outstanding shares of Preferred Stock). There will be
7,906,307 shares of Common Stock outstanding (assuming no exercise outstanding
warrants or the Underwriters' over-allotment option or exercise of outstanding
options under the Company's stock and option plans after December 31, 1996)
after giving effect to the sale of the shares of Common Stock to the public
offered hereby at an estimated offering price of $11.00 per share.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Until the Company
has at least 800 stockholders of record and its stock is listed on the Nasdaq
National Market (a "Listed Corporation"), the Company's stockholders have the
right to cumulate their votes with respect to the election of directors. Subject
to preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and satisfaction of preferential
rights of any outstanding Preferred Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights and there are no redemption or
sinking fund provisions available to the Common Stock. The outstanding shares of
Common Stock are, and the shares of Common Stock to be issued upon completion of
this offering will be, fully paid and nonassessable.

PREFERRED STOCK

Upon completion of this offering, the Board of Directors will be authorized
to issue 2,000,000 shares of undesignated Preferred Stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock may
have the effect of delaying, deterring or preventing a change in control of the
Company without further action by the stockholders. The issuance of Preferred
Stock with voting and conversion rights may adversely affect the voting power of
the holders of Common Stock, including the loss of voting control to others. At
present, the

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<PAGE> 52

Company has no plans to issue any shares of Preferred Stock. See "Risk
Factors -- Blank Check Preferred Stock; Anti-Takeover Provisions."

REGISTRATION RIGHTS OF CERTAIN HOLDERS

The holders of 4,177,708 shares of Common Stock or warrants exercisable for
Common Stock (the "Registrable Securities") or their transferees are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an investors'
rights agreement (the "Rights Agreement") between the Company and the holders of
Registrable Securities. The holders of at least 40% of the Registrable
Securities may require, on two occasions at any time after six months following
the effective date of this offering, that the Company use its best efforts to
register the Registrable Securities for public resale; provided, among other
limitations, that the proposed aggregate selling price, prior to deductions for
underwriting discounts and commissions, is at least $7.5 million. The Company
may delay such registration by up to 90 days if the Company's Board of Directors
determines that it would be seriously detrimental to the Company and its
stockholders to file such registration statement. If the Company registers any
of its Common Stock either for its own account or for the account of other
security holders, the holders of Registrable Securities are entitled to include
their shares of Common Stock in the registration. A holder's right to include
shares is subject to certain conditions and limitations, including lock-up
agreements restricting the sale of such shares for 180 days after the effective
date of the registration statement filed in connection with this offering and
the right of the underwriters to limit the number of shares included in such
registration. Holders of Registrable Securities may also require the Company, on
no more than one occasion over any 12-month period, to register all or a portion
of their Registrable Securities on Form S-3 when use of such form becomes
available to the Company, provided, among other limitations, that the proposed
aggregate selling price for shares offered thereby is at least $500,000. The
right of holders of Registrable Securities to have such shares registered on
Form S-3 is subject to the right of the underwriters participating therein to
limit the number of shares included in such registration. The Company may delay
such registration on Form S-3 by up to 90 days if the Company's Board of
Directors determines that it would be seriously detrimental to the Company and
its stockholders to file such registration statement. Subject to certain
limitations contained in the Rights Agreement, all fees, costs and expenses of
registrations effected pursuant to the Rights Agreement must be borne by the
Company and all selling expenses (including underwriting discounts and selling
commissions) relating to Registrable Securities must be borne by the holders of
the securities being registered.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW

The Company's Certificate of Incorporation provides that any action
required or permitted to be taken by the stockholders of the Company may be
taken only at a duly called annual or special meeting of the stockholders and
eliminates cumulative voting in the election of directors upon qualification of
the Company as a Listed Corporation. The Certificate of Incorporation and Bylaws
also restrict the right of stockholders to change the size of the Board of
Directors and to fill vacancies on the Board of Directors. Generally, the
Certificate of Incorporation and Bylaws require that newly created directorships
be filled by a majority vote of the Board of Directors then in office. The
Bylaws also establish procedures, including advance notice procedures, with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors or for stockholder proposals
to be submitted at stockholder meetings. In addition, the Company's Certificate
of Incorporation provides that the Board of Directors is divided into three
classes of directors, with each class serving a staggered three-year term, as of
the record date of the Company's first annual stockholders' meeting when the
Company is exempt from Section 2115 of the California Corporations Code. A
classified board may maintain the incumbency of the Board of Directors, as it
generally makes it more difficult for stockholders to replace a majority of the
directors. The amendment of any of these provisions requires approval by holders
of 66.67% or more of the outstanding Common Stock. The Certificate of
Incorporation also authorizes the issuance of up to 2,000,000 shares of
Preferred Stock. The rights of the holders of the Common Stock will be subject
to, and may be subordinated to, the rights of the holders of any Preferred Stock
that may be issued in the future and, as a result, the issuance of such
Preferred Stock could have a material adverse effect on the market value of the
Common Stock. The Company has no present plan to issue shares of Preferred
Stock.

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<PAGE> 53

These provisions of the Company's charter documents could have the effect
of making it more difficult for a third party to effect a change in the control
of the Board of Directors and therefore may discourage another person or entity
from making a tender offer for the Company's Common Stock, including offers at a
premium over the market price of the Common Stock, and might result in a delay
in changes in control of management. In addition, these provisions could have
the effect of making it more difficult for proposals favored by the stockholders
to be presented for stockholder consideration.

The Company has also included in its Certificate of Incorporation
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware Law and to indemnify its directors and officers to the fullest
extent permitted by Section 145 of the Delaware Law.

The Company is subject to the provisions of Section 203 of the Delaware
General Corporate Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date that the
person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the stockholder, and an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders. In addition, upon completion of this offering, certain provisions
of the Company's charter documents, including a provision eliminating the
ability of stockholders to take actions by written consent, may have the effect
of delaying or preventing changes in control or management of the Company, which
could have an adverse effect on the market price of the Company's Common Stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Harris Trust
Company of California. Its address is 601 South Figueroa Street, Suite 4900, Los
Angeles, CA 90017, and its telephone number is (213) 239-0600.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
7,906,307 shares of Common Stock, assuming no exercise of options or warrants
after December 31, 1996. Of these shares, 2,600,000 shares (assuming no exercise
of the underwriters' over-allotment option) will be freely tradable without
restriction or further registration under the Securities Act unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 of the
Securities Act. The remaining 5,306,307 shares will be "restricted securities"
as that term is defined under Rule 144 (the "Restricted Shares"). Sales of
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Common Stock.

5,672,027 shares of Common Stock (including approximately 353,811 shares
issuable upon exercise of vested options) will be eligible for sale after
expiration of a contractual lock-up beginning 181 days after the effective date
of the Registration Statement containing this Prospectus, unless earlier
released, in whole or in part, by Cowen & Company.

On February 20, 1997, the Securities and Exchange Commission announced the
adoption of certain changes to Rule 144 to reduce the holding period
requirements contained in Rule 144 to permit the resale of limited amounts of
restricted securities by any person after a one-year, rather than a two-year,
holding period. Such amendment also permits unlimited resales of restricted
securities held by non-affiliates of an issuer after a holding period of two
years, rather than three years. Such changes shall become effective on a date
which is 60 days following official publication of the changes to Rule 144.

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<PAGE> 54

In general, under the new Rule 144, beginning 90 days after the date of
this Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year, including persons
who may be deemed to be "affiliates" of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 79,063 shares immediately after this
offering) or (ii) the average weekly trading volume of the Common Stock as
reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the Restricted Shares proposed to be
sold (including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts commencing 90 days after the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule 144.
The Company intends to register on a Form S-8 registration statement under the
Securities Act, during the 180-day lockup period, (i) assuming no exercise of
options after December 31, 1996, a total of 1,006,867 shares of Common Stock
issuable upon exercise of outstanding options under the 1995 Stock Plan, (ii)
1,909,536 shares reserved for issuance under the 1995 Stock Plan, (iii) 200,000
shares of Common Stock reserved for issuance under the 1997 Directors' Plan and
(iv) 400,000 shares of Common Stock reserved for issuance under the 1997
Employee Purchase Plan. Such registration will permit the resale of shares so
registered by non-affiliates in the public market without restriction under the
Securities Act.

After this offering, the holders of 4,177,708 shares of Common Stock
(assuming exercise of outstanding warrants for 63,250 shares of Common Stock)
are entitled to certain demand and piggyback rights with respect to registration
of such shares under the Securities Act. See "Description of Capital
Stock -- Registration Rights of Certain Holders." Registration of such shares
under the Securities Act would result in such shares becoming freely tradable
without restriction under the Securities Act (except for shares purchased by
affiliates of the Company) immediately upon the effectiveness of such
registration. If such holders, by exercising their demand registration rights,
cause securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price for the Company's Common Stock.
If the Company were to include in a Company initiated registration any
Registrable Securities pursuant to the exercise of piggyback registration
rights, such sales may have an adverse effect on the Company's ability to raise
needed capital or the cost thereof.

53
<PAGE> 55

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Cowen &
Company, Robertson, Stephens & Company LLC and SoundView Financial Group, Inc.
are acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company and the Selling Stockholders the respective number of
shares of Common Stock set forth opposite the name of such Underwriter below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Cowen & Company...........................................................
Robertson, Stephens & Company LLC.........................................
SoundView Financial Group, Inc............................................
---------
Total........................................................... 2,600,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below),
if any such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and in part to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain 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 hereby (other than those
covered by the over-allotment option described below) if any are taken.

The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable for up to 30 days after the date of this Prospectus, to
purchase up to an aggregate of 390,000 additional shares of Common Stock to
cover over-allotments, if any. If the Underwriters exercise their over-allotment
option, 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 as shown in the foregoing table bears to the
2,600,000 shares of Common Stock offered hereby. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby.

The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.

The Company, the Selling Stockholders, the Company's officers and directors
and certain of the Company's stockholders and optionholders have agreed, subject
to certain limited exceptions, not directly or indirectly, to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
any right to acquire Common Stock for

54
<PAGE> 56

a period of 180 days after the date of this Prospectus without the prior written
consent (which consent may be given, without notice to the Company's
stockholders or other public announcement) of Cowen & Company. Cowen & Company
has advised the Company that it has no present intention of releasing any of the
Company's stockholders or optionholders from such lock-up agreements until the
expiration of such 180-day period. See "Shares Eligible for Future Sale."

The Representative have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares offered hereby to any
account over which they exercise discretionary authority.

Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price will be
determined by negotiation between the Company and the Representatives. Among the
factors to be considered in such negotiations will be the prevailing market
conditions, the results of operations of the Company in recent periods, the
market capitalizations and stages of development of other companies that the
Company and the Representatives believe to be comparable to the Company, the
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in the offering, if the Underwriters repurchase previously distributed
Common Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Morrison & Foerster LLP, San Francisco,
California. As of the date of this Prospectus, certain attorneys at Venture Law
Group, including Michael W. Hall, the Company's Secretary and a Director of
Venture Law Group and certain affiliated partnerships beneficially own an
aggregate of 20,798 shares of the Company's Common Stock.

EXPERTS

The consolidated financial statements of AccelGraphics, Inc. as of December
31, 1995 and 1996 and for the years then ended included in this Prospectus have
been so included in reliance upon the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

55
<PAGE> 57

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form SB-2
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and, in each instance, if such contract or
document is filed as an exhibit, reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, NY 10048, and copies of all or any part thereof
may be obtained from such office after payment of fees prescribed by the
Commission. The Registration Statement is also available through the
Commission's Website on the World Wide Web at the following address:
http://www.sec.gov.

56
<PAGE> 58

ACCELGRAPHICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheet as of December 31, 1995 and 1996........................... F-3
Consolidated Statement of Operations for the years ended December 31, 1995 and 1996... F-4
Consolidated Statement of Stockholders' Deficit for the years ended December 31, 1995
and 1996............................................................................ F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1995 and 1996... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 59

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of AccelGraphics, Inc.

The reincorporation and reverse stock split described in Note 1 to the
consolidated financial statements have not been consummated at March 11, 1997.
When they have been consummated, we will be in a position to furnish the
following report:

"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of stockholders' deficit and
of cash flows present fairly, in all material respects, the financial
position of AccelGraphics, Inc. and its subsidiary at December 31, 1995 and
1996, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above."

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
January 30, 1997

F-2
<PAGE> 60

ACCELGRAPHICS, INC.

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
----------------- DECEMBER 31,
1995 1996 1996
------ ------ ------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $1,373 $2,979
Accounts receivable, net of allowances of $45 and $495..... 1,084 4,392
Inventories................................................ 1,011 507
Prepaid expenses........................................... 48 49
------ ------
Total current assets............................... 3,516 7,927
Property and equipment, net.................................. 435 512
------ ------
$3,951 $8,439
====== ======

LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligation................ $ -- $ 16
Accounts payable........................................... 502 1,466
Accrued liabilities........................................ 426 1,123
Customer advances.......................................... 58 292
------ ------
Total current liabilities.......................... 986 2,897
------ ------
Capital lease obligation, net of current portion............. -- 34
------ ------
Subordinated convertible note payable to related party....... 1,748 1,748
------ ------
Mandatorily redeemable convertible preferred stock........... 5,745 8,930 $ --
------ ------ ------
Commitments (Note 8)
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value, 10,000 shares authorized
actual; 2,000 shares authorized, none issued and
outstanding pro forma................................... -- -- --
Common Stock, $0.001 par value, 50,000 shares authorized;
1,071 and 1,253 shares issued and outstanding actual;
5,761 shares issued and outstanding pro forma........... 1 1 6
Additional paid-in capital................................. 80 785 9,710
Notes receivable from stockholders......................... (75) (89) (89)
Deferred stock compensation................................ -- (396) (396)
Cumulative translation adjustment.......................... -- (5) (5)
Accumulated deficit........................................ (4,534) (5,466) (5,466)
------ ------ ------
Total stockholders' equity (deficit)............... (4,528) (5,170) $3,760
======
------ ------
$3,951 $8,439
====== ======
</TABLE>

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

F-3
<PAGE> 61

ACCELGRAPHICS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Revenues................................................................. $ 3,911 $18,671
Cost of revenues......................................................... 2,501 12,077
------- -------
Gross profit........................................................... 1,410 6,594
------- -------
Operating expenses:
Research and development............................................... 2,618 2,663
Sales and marketing.................................................... 2,154 3,635
General and administrative............................................. 1,039 1,131
------- -------
Total operating expenses............................................ 5,811 7,429
------- -------
Loss from operations..................................................... (4,401) (835)
Interest expense......................................................... (183) (145)
Other income, net........................................................ 119 48
------- -------
Net loss................................................................. $(4,465) $ (932)
======= =======
Pro forma net loss per share (unaudited) (Note 1)........................ $ (0.15)
=======
6,272
Shares used in pro forma per share calculation (unaudited) (Note 1)...... =======
</TABLE>

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

F-4
<PAGE> 62

ACCELGRAPHICS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)

<TABLE>
<CAPTION>
NOTES TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED CUMULATIVE ACCUM- STOCK-
----------------- PAID-IN FROM STOCK TRANSLATION ULATED HOLDERS'
SHARES AMOUNTS CAPITAL STOCKHOLDERS COMPENSATION ADJUSTMENT DEFICIT DEFICIT
------ ------- ---------- ------------ ------------ ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994.................... 910 $ 1 $ 60 $(55) $ - $ - $ (69) $ (63)
Common Stock options
exercised............... 202 - 31 (20) - - - 11
Repurchase of Common
Stock................... (41) - (11) - - - - (11)
Net loss.................. - - - - - - (4,465) (4,465)
----- --- ---- ---- ----- --- ------- -------
Balance at December 31,
1995.................... 1,071 1 80 (75) - - (4,534) (4,528)
Common stock options
exercised............... 129 - 23 (13) - - - 10
Repayment of stockholder
loan.................... - - - 2 - - - 2
Interest on notes
receivable.............. - - - (3) - - - (3)
Deferred compensation
related to stock
options................. - - 608 - (608) - - -
Stock issued in exchange
for services............ 53 - 74 - - - - 74
Amortization of deferred
compensation............ - - - - 212 - - 212
Translation adjustment.... - - - - - (5) - (5)
Net loss.................. - - - - - - (932) (932)
----- --- ---- ---- ----- --- ------- -------
Balance at December 31,
1996.................... 1,253 $ 1 $785 $(89) $ (396) $(5) $(5,466) $(5,170)
===== == ==== ==== ===== === ======= =======
</TABLE>

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

F-5
<PAGE> 63

ACCELERGRAPHICS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
-------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $(4,465) $ (932)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 158 228
Stock compensation expense and other.......................... 98 283
Changes in assets and liabilities:
Accounts receivable......................................... (1,084) (3,308)
Inventories................................................. (130) 504
Prepaid expenses............................................ 20 (1)
Accounts payable............................................ 340 964
Accrued liabilities......................................... 426 697
Customer advances........................................... 58 234
------- -------
Net cash used in operating activities.................... (4,579) (1,331)
------- -------
Cash flows from investing activities:
Acquisition of property and equipment............................ (245) (251)
------- -------
Net cash used in investing activities.................... (245) (251)
------- -------
Cash flows from financing activities:
Principal repayment of note payable/capital lease obligation..... (470) (4)
Proceeds from issuance of notes payable.......................... 470 -
Proceeds from repayment of stockholder notes..................... - 2
Net proceeds from issuance of Common Stock....................... - 10
Proceeds from issuance of Preferred Stock........................ 4,095 3,185
------- -------
Net cash provided by financing activities................ 4,095 3,193
------- -------
Effect of exchange rate on cash.................................... - (5)
------- -------
Net increase (decrease) in cash and cash equivalents............... (729) 1,606
Cash and cash equivalents at beginning of year..................... 2,102 1,373
------- -------
Cash and cash equivalents at end of year........................... $ 1,373 $ 2,979
======= =======
Supplemental cash flow disclosures:
Interest paid.................................................... $ 47 $ 135
Supplemental disclosure of noncash financing activities:
Property and equipment acquired under capital leases............. $ - $ 54
Conversion of note payable to Preferred Stock.................... $ 1,650 $ -
</TABLE>

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

F-6
<PAGE> 64

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:

The Company

AccelGraphics, Inc. (the "Company") designs, develops and markets
high-performance, cost-effective, 3-dimensional graphics subsystems, software
accelerators and application utility software products for the professional
Windows NT and Windows 95 market. The Company was incorporated in April 1994 in
the State of California and commenced operations in late 1994.

Reincorporation and reverse stock split

Upon the completion of the offering, the Board of Directors will be
authorized to issue 2,000,000 shares of undesignated preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences, and
number of shares constituting any series or the designation of such series,
without further action or vote by the stockholders.

In January 1997, the Board of Directors approved, subject to stockholder
approval, a one-for-two reverse split of the Company's common and preferred
stock, an increase in the authorized Common Stock to 50,000,000 shares and
reincorporation into the state of Delaware.

All references to share and per share amounts of Common and Preferred stock
and other data in these consolidated financial statements have been
retroactively restated to reflect the reincorporation and reverse stock split.

Basis of consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, AccelGraphics Deutschland, which was
incorporated in December 1995. All significant intercompany accounts and
transactions have been eliminated.

Fiscal year end

The Company operates under a 52-53 week fiscal year which ends on the
Friday closest to December 31. Fiscal 1995 and 1996 were 52 week years. For
convenience of presentation, the accompanying consolidated financial statements
have been shown as ending on December 31 of each year.

Use of estimates

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

Translation of foreign currencies

The functional currency of the Company's wholly owned subsidiary is the
local currency. Accordingly, all assets and liabilities are translated into
United States dollars at current exchange rates as of the respective balance
sheet date. Revenue and expense items are translated using the average exchange
rates prevailing during the period. Gains and losses resulting from translation
are accumulated as a component of stockholders' deficit. The Company's sales are
denominated in United States dollars. Net gains and losses resulting from
foreign exchange transactions were not significant during the periods presented.

F-7
<PAGE> 65

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Revenue recognition

Revenues from product sales are generally recognized upon product shipment,
less an allowance for estimated future returns and exchanges. Provision for the
cost of technical support services claims and estimated future warranty for the
company's hardware products are recorded as a cost of revenues upon recognition
of related revenues.

Revenues from software products are recognized in accordance with the
provisions of Statement of Position 91-1, "Software Revenue Recognition."
Revenues from software products have not been significant to date.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of first-in, first-out cost or market.

Research and development costs

Expenditures for research and development are charged to expense as
incurred. Certain software development costs are capitalized after technological
feasibility has been established. Development costs incurred in the period
between achievement of technological feasibility, which the Company defines as
the establishment of a working model, until the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs. Non-recurring engineering fees are
reflected as a reduction of research and development expense in the period
earned. During 1996, the Company recognized $190,000 of such fees based upon
milestones, and the Company has no further obligations under this agreement.

Property and equipment

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from three to five years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the remaining lease term.

Concentration of credit risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of bank deposits and trade
accounts receivable. The Company places its cash and cash equivalents in
checking and market rate accounts in high credit quality financial institutions.
The Company's trade accounts receivable are derived from sales to dealers,
original equipment manufacturers and distributors located primarily in the U.S.
and Europe. The Company performs ongoing credit evaluations of its customers and
maintains an allowance for potential credit losses.

Revenues from the Company's former customer, NeTpower, Inc., comprised
16.6% of revenues in 1995. Revenues from Digital Equipment Corporation and
Hewlett-Packard Company were 27.9% and 22.8%, respectively, of revenue in 1996.

Revenues from export sales, primarily Europe, were approximately $850,000
and $5,780,000 during 1995 and 1996, respectively.

F-8
<PAGE> 66

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Three customers accounted for 46.5%, 13.4% and 12.6% of the accounts
receivable balance at December 31, 1996.

Accounting for stock-based compensation

The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In January 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation" (see Note 7).

Pro forma balance sheet (unaudited)

If the offering contemplated by this prospectus (the "Offering") is
consummated, all shares of mandatorily redeemable convertible preferred stock
outstanding at the closing date will automatically convert into an aggregate of
approximately 4,509,000 shares of common stock. The pro forma effect of this
transaction has been reflected in the accompanying unaudited pro forma
stockholders' equity as of December 31, 1996.

Pro forma net loss per share (unaudited)

Pro forma net loss per share is computed using the weighted-average number
of common and common equivalent shares outstanding during the periods. Common
equivalent shares consist of mandatorily redeemable convertible preferred stock
(using the if-converted method) and stock options and warrants (using the
treasury stock method). Common equivalent shares are excluded from the
computation if their effect is antidilutive, except that, pursuant to the rules
of the Securities and Exchange Commission, common equivalent shares (using the
treasury stock method and assumed public offering price) issued subsequent to
February 7, 1996 have been included in the computation as if they were
outstanding for all periods presented. Prior period earnings per share data have
not been presented since such amounts are not deemed meaningful. The effect on
net loss per share of the anticipated repayment of the subordinated convertible
related party note payable using proceeds from the public offering is
antidilutive, consequently no supplemental loss per share have been presented.

NOTE 2 -- RELATED-PARTY TRANSACTIONS:

The Company has a subordinated convertible note payable to a related party.
(see Note 5).

The Company has made loans to certain employees totaling $82,000 for the
purchase of common stock. These loans accrue interest at fixed rates ranging
between 5.26% and 7.32% per annum and are due on the earlier of November 9, 1998
or termination of employment with the Company. Upon termination of employment,
the Company has the option to repurchase the unvested shares by canceling the
related portion of the loan.

The Company purchased marketing services from a distributor who is also a
common stockholder for $108,000 and $12,000 in 1995 and 1996, respectively.
These amounts have been recorded in the 1995 and 1996 consolidated statement of
operations as sales and marketing expense. The Company recognized revenue from
this distributor of $109,000 and $1,195,000 in 1995 and 1996, respectively.

The Company's outside legal counsel are Series A and Series B stockholders.
The Company incurred legal expenses to this stockholder of $89,000 and $121,000
during 1995 and 1996, respectively.

F-9
<PAGE> 67

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 -- BALANCE SHEET COMPONENTS:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials............................................ $ 455 $ 144
Work-in-process.......................................... 493 41
Finished goods........................................... 63 322
------ ----
$1,011 $ 507
====== ====
Property and equipment:
Office furniture and equipment........................... $ 587 $ 871
Leasehold improvements................................... 6 27
------ ----
593 898
Less: accumulated depreciation and amortization.......... (158) (386)
------ ----
$ 435 $ 512
====== ====
</TABLE>

At December 31, 1996 the Company had $54,000 of capitalized
lease equipment and related accumulated amortization of $5,000.

<TABLE>
<S> <C> <C>
Accrued liabilities:
Accrued employee compensation............................ $ 240 $ 616
Warranty reserve, customer support and other............. 186 507
---- ----
$ 426 $1,123
==== ====
</TABLE>

NOTE 4 -- LINE OF CREDIT:

The Company has a revolving line of credit agreement with a bank, which,
through October 1997, provides for maximum borrowings in an amount up to the
lower of 80% of eligible accounts receivable or $3,000,000. Borrowings under the
line are secured by all of the Company's assets and bear interest at the bank's
prime rate plus 0.25% per annum (8.5% at December 31, 1996). The agreement
requires that the Company maintain certain financial ratios and levels of
tangible net worth and profitability and also restricts the Company's ability to
pay cash dividends. At December 31, 1996, there were no borrowings and
$1,109,000 of standby letters of credit to vendors outstanding under the line of
credit.

NOTE 5 -- SUBORDINATED CONVERTIBLE NOTE PAYABLE TO A RELATED PARTY:

In December 1994, the Company issued a subordinated convertible note
payable in the amount of $3,300,000 to Kubota Corporation ("Kubota"). In
connection with the issuance of its Series A Preferred Stock in June 1995,
Kubota converted $1,650,000 of the note into 990,000 shares Series of A
Preferred Stock. The outstanding balance of $1,650,000, together with accrued
interest of $98,000, was replaced with a new subordinated convertible note
payable of $1,748,000 which is due on June 20, 1998. Interest at the prime rate
(8.25% at December 31, 1996) is payable on a quarterly basis. Interest expense
under the note payable was $178,000 and $144,000 during the years ended December
31, 1995 and 1996, respectively. In the event the Company undertakes a dilutive
issuance of stock, the note is convertible into Kubota's pro rata share of the
new stock being issued as such new stock's issuance price.

NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:

The Company has authorized 10,000,000 shares of Preferred Stock -- $0.001
par value, of which 3,477,000, 3,477,000, 1,100,000 and 1,100,000 shares have
been designated Series A, Series A-1, Series B and

F-10
<PAGE> 68

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Series B-1 Mandatorily Redeemable Convertible Preferred Stock, respectively
(collectively referred to as "Preferred Stock").

A summary of Preferred Stock activity is as follows (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
SHARES AMOUNT
------- -------
<S> <C> <C>
Balance at December 31, 1994....................................... -- $ --
Issuance of Series A Preferred Stock (June 1995)
at $1.67 per share for cash...................................... 1,707 2,845
Issuance of Series A Preferred Stock (June 1995)
at $1.67 per share upon conversion of note with Kubota
Corporation...................................................... 990 1,650
Issuance of Series A Preferred Stock (July 1995)
at $1.67 per share for cash...................................... 750 1,250
------ ------
Balance at December 31, 1995....................................... 3,447 5,745
Issuance of Series B Preferred Stock (March 1996)
at $3.00 per share for cash...................................... 1,062 3,185
------ ------
Balance at December 31, 1996....................................... 4,509 $ 8,930
====== ======
</TABLE>

At December 31, 1996, no Series A-l or Series B-1 Preferred Stock has been
issued.

Holders of Preferred Stock have certain rights, preferences and
restrictions with respect to dividends, redemption, conversion, liquidation,
antidilution and voting as set forth in the amended and restated Articles of
Incorporation, which are summarized below:

Dividends

Holders of Series A and Series B Preferred Stock are entitled to receive
noncumulative, preferential annual dividends when declared of $0.167 and $0.30,
respectively, per share. Under the California Corporations Code, the Company is
legally restricted from distributing dividends because of its accumulated
deficit.

Redemption

With consent of the holders of no less than 60% of the respective series of
the then outstanding Preferred Stock, on or after June 20, 2001 (for Series A)
and on or after March 7, 2002 (for Series B), the Company must redeem one-third
of the outstanding shares of the respective series of Preferred Stock that are
requested to be redeemed (by such holders) per year until all such shares of
Preferred Stock are redeemed. The Redemption price for Series A and Series B
will be the original issue price plus declared and unpaid dividends.

Conversion

Each share of Preferred Stock is convertible at the option of the holder
into one share of Common Stock. Such Conversion Price is subject to adjustment
to give effect to certain dilutive events that may occur. Conversion occurs
automatically for each share of Preferred Stock upon closing of an underwritten
public offering with a minimum price per share of $7.00 and aggregate proceeds
to the Company of at least $7,500,000.

Liquidation

In the event of liquidation, acquisition, merger or sale of substantially
all of the assets of the Company, holders of Series A and Series B Preferred
Stock are entitled to a per share distribution in preference to holders of
Common Stock equal to $1.67 and $3.00, respectively, plus any declared but
unpaid dividends. Thereafter, any excess, up to specified levels, will be
distributed pro rata to all stockholders on an if converted basis. In the event
funds are insufficient to make a complete distribution to the holders of
Preferred Stock, as

F-11
<PAGE> 69

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

described above, the remaining assets of the Company will be distributed to the
holders of Preferred Stock in proportion to the aggregate preferential amounts
owed to such holders upon a liquidation, dissolution or winding up of the
Company.

Antidilution

In the event the Company issues any shares of stock for a price per share
that is less than the conversion price for the Preferred Stock, then the
conversion price is adjusted in proportion to the dilutive effect of the new
shares issued.

Voting

The holders of each share of Preferred Stock shall have the right to one
vote for each share of Common Stock into which the Preferred Shares could then
be converted. The holders of Preferred Stock have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock.

NOTE 7 -- COMMON STOCK AND STOCK OPTION PLAN:

Common Stock

At December 31, 1996, there were approximately 1,152,000 shares of Common
Stock which were sold to certain employees and consultants as restricted stock.
These shares may be repurchased at the Company's option if the employee or
consultant terminates services prior to vesting, generally over four years.
372,000 shares of such restricted stock were not vested and thus subject to thus
such repurchase at December 31, 1996.

Stock Plan

The 1995 Stock Plan (the "Plan"), authorizes the Board of Directors to
grant incentive stock options, nonstatutory stock options and stock purchase
rights to employees and consultants. Under the Plan, incentive stock options are
granted at a price not less than 100% of the fair market value of the Company's
Common Stock and at a price not less than 110% of the fair market value for
grants to employees who owned more than 10% of the voting power of all classes
of stock on the date of grant, as determined by the Company's Board of
Directors. Nonqualified stock options may be granted at a price not less than
85% of the fair market value of the Common Stock and at a price not less than
110% of the fair market value for grants to a person who owned more than 10% of
voting power of all classes of stock on the date of grant, as determined by the
Board of Directors. Stock purchase rights may be granted at a price not less
than 85% of the fair market value of the Common Stock and at a price of 100% of
the fair market value of the Common Stock for grants to a stockholder owning 10%
or more of the Company's outstanding stock. Stock purchase rights expire 30 days
after the date of grant. Options generally become exercisable at a rate of not
less than 25% per year over a four year vesting period. At December 31, 1996,
options authorized under the Plan were 2,000,000 (see Note 10) and options for
approximately 610,000 shares were available for future grant.

F-12
<PAGE> 70

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Transactions under the 1995 Stock Plan are summarized as follows (in
thousands except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1996
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period............ -- 457 $ 0.17
Granted..................................... 670 $ 0.16 723 $ 1.74
Exercised................................... (202) $ 0.13 (129) $ 0.17
Canceled.................................... (11) $ 0.15 (44) $ 0.15
------ ------
Outstanding at period end..................... 457 $ 0.17 1,007 $ 1.30
====== ======
Options exercisable at period end............. 120 $ 0.17 155 $ 0.22
====== ======
Weighted average grant date fair value of
options granted during the year............. $ 0.16 $ 2.59
====== ======
Weighted average grant date fair value of
options granted during the year at exercise
prices below market prices.................. $ -- $ 1.53
====== ======
</TABLE>

During the year ended December 31, 1996, the Company granted options for
the purchase of approximately 776,000 shares of Common Stock to employees at
exercise prices ranging from $0.30 to $6.90 per share. Based in part on an
independent valuation of the fair value of the Company's common stock as of July
1996 and December 1996, management has calculated deferred compensation of
approximately $608,000 related to options granted during 1996. Such deferred
compensation will be amortized over the vesting period relating to these
options, of which $212,000 has been recorded during the year ended December 31,
1996.

During 1996, the Company issued 53,000 shares to consultants for services
rendered. Such issuances were recorded at fair market value.

The following table summarizes information about employee stock options
outstanding at December 31, 1996 (in thousands, except per share amounts):

<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ----------------------------
------------------------------------------------------ WEIGHTED
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER REMAINING AVERAGE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE PRICE
- ----------------------------- ------------------ ---------------- -------------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$0.12 - $0.70................ 815 9.10 $ 0.26 155 $ 0.22
$5.30 - $6.90................ 192 9.88 $ 5.72 -- --
----- ---- ----- --- -----
1,007 9.25 $ 1.30 155 $ 0.22
===== ==== ===== === =====
</TABLE>

F-13
<PAGE> 71

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Fair Value Disclosures

Had compensation expense for options granted in 1995 and 1996 been
determined based on the fair value at the grant dates, as prescribed in FAS 123,
the Company's net loss and pro forma net loss per share would have been as
follows (in thousands except per share amounts):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
-------- -------
<S> <C> <C>
Net loss:
As reported............................................. $(4,465) $ (932)
Pro forma............................................... (4,468) (948)
Pro forma net loss per share (unaudited):
As reported............................................. $(0.15)
Pro forma............................................... (0.15)
</TABLE>

The fair value of each option grant is estimated as of the date of grant
using the minimum value method with the following assumptions used for grants
during the applicable period: no dividend yield for both periods; risk-free
interest rates of 5.3% to 7.4% for options granted during the year ended
December 31, 1995 and 5.1% to 6.7% for options granted during the year ended
December 31, 1996; and a weighted average expected option term of 3.5 years for
both periods.

Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding paragraph and, because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of pro forma effects on results for future
years.

Warrants

In conjunction with its line of credit agreement, the Company granted the
bank warrants to purchase 30,000 shares of its Series A Preferred Stock at an
exercise price of $1.67 per share. The warrants expire on October 10, 2000. The
warrants had a nominal value at date of grant.

In December 1995, in connection with a development agreement with a
strategic partner, the Company granted a strategic partner warrants to purchase
26,250 shares of the Company's common stock at $3.00 per share. The warrants
expire on the earlier of December 29, 1998 or an initial public offering of the
Company's common stock. The warrants had a nominal value at date of grant.

In conjunction with a lease line of credit, in July 1996 the Company
granted the lessor warrants to purchase 7,000 shares of its Series B preferred
stock at an exercise price of $3.00 per share. The warrants expire on the
earlier of July 1, 2006 or an initial public offering of the Company's common
stock. The warrants had a nominal value at date of grant.

NOTE 8 -- LEASES AND COMMITMENTS:

The Company is obligated under a non-cancelable operating lease for office
space and a non-cancelable capital lease for equipment. The leases expire at
various times through 2000. The office lease agreement provides for rent
abatement and scheduled rent increases and also contains an option to extend the
lease for three years. Rent expense is recognized ratably over the lease term.
Rent expense was $129,000 and $156,000 for the years ended December 31, 1995 and
1996, respectively.

F-14
<PAGE> 72

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Future minimum lease commitments under these leases at December 31, 1996
are as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASE LEASE
--------- -------
<S> <C> <C>
Year ending December 31,
1997.................................................... $ 144 $ 18
1998.................................................... 37 18
1999.................................................... -- 18
2000.................................................... -- 3
---- ----
Total........................................... $ 181 57
====
Less amount representing interest....................... (7)
----
Present value of capital lease obligation............... 50
Less current portion.................................... (16)
----
Long term capital lease obligation................... $ 34
====
</TABLE>

NOTE 9 -- INCOME TAXES:

No provision for federal and state income taxes was recorded in 1995 or
1996 as the Company incurred net operating losses.

Significant components of the Company's deferred tax assets are as follows
(in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 1,365 $ 1,365
Tax credit carryforwards................................... 100 200
Nondeductible reserves and accruals........................ 370 630
------- -------
Total deferred tax assets................................ 1,835 2,195
Deferred tax asset valuation allowance................... (1,835) (2,195)
------- -------
$ -- $ --
======= =======
</TABLE>

The Company has incurred losses since its inception through December 31,
1996. Management believes that based on the currently available evidence,
including the Company's history of annual losses, the lack of carryback capacity
to realize deferred tax assets, the annual limitation on the utilization of net
operating loss carryforwards, the uncertainty of the development of the market
in which the Company competes and the fact that the market in which the Company
competes is intensely competitive and characterized by rapidly changing
technology, it is more likely than not that the Company will not generate
sufficient taxable income to realize the deferred tax asset. Accordingly, a full
valuation allowance has been recorded.

At December 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $3,500,000 and $1,500,000, respectively,
available to offset future taxable income. Such carryforwards expire beginning
in 2010. The Company also has $100,000 each of federal and state research and
development credit carryforwards. Utilization of approximately $2,500,000 of the
Company's net operating loss and research and development credit carryforwards
is subject to an annual limitation due to ownership change limitations
prescribed by the Internal Revenue Code of 1986 and similar state provisions and
may be further limited should another ownership change occur. The annual
limitation may result in the expiration of the net operating loss and credit
carryforwards before their utilization.

F-15
<PAGE> 73

ACCELGRAPHICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10 -- SUBSEQUENT EVENTS:

In January 1997, the Board of Directors, subject to stockholder approval,
approved an increase in the number of shares reserved for issuance under the
Company's 1995 Stock Option Plan by 1,300,000 to 3,300,000 shares.

The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in January 1997 and will be approved by the
stockholders in March 1997. A total of 400,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, will be implemented by a
series of twelve month offering periods other than the first offering period
commencing on or about February 1, and August 1, of each year. The first
offering period is expected to commence on the effective date of this offering.
The Purchase Plan will be administered by the Board of Directors or by a
committee appointed by the Board of Directors. Employees including officers and
employee directors of the Company, or of any majority owned subsidiary
designated by the Board of Directors, are eligible to participate in the
Purchase Plan if they are employed by the Company or any such subsidiary for at
least 20 hours per week and more than five months per year. The Purchase Plan
permits eligible employees to purchase Common Stock through payroll deductions,
which may not exceed 10% of an employee's compensation at a price equal to the
lower of 85% of the fair market value of the Company's Common Stock at the
beginning or end of the offering period.

The Company's 1997 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Board of Directors in January 1997 and will be approved by the
stockholders in March 1997. A total of 200,000 shares of Common Stock has been
reserved for issuance under the Directors' Plan.

F-16
<PAGE> 74

APPENDIX

DESCRIPTION OF GRAPHICS AND ART

INSIDE COVER:

An NT workstation with 3D overlapping graphics showing scientific
visualization, mechanical CAD, entertainment and business graphics. The caption
is "Accelerating Professional 3D Graphics for Windows NT."

GATEFOLD:

Center of gatefold has six interlocked gears with a different picture on
each gear. The pictures represent the hardware, graphics pipeline, value added
software, ISV partners and AccelGraphics. Each corner of the gatefold has a copy
of one or two of the gears. The following text is included throughout the
gatefold:

Hardware Design and System Engineering

AccelGraphics' in-depth understanding of the importance of layout, trace
lines, memory interaction, 3D and 2D chip characteristics, software
implementation, BIOS technologies and bus technology all contribute to building
products and systems that deliver reliable performance. By focusing on system
level design, the Company's 3D graphics subsystems integrate easily into
Professional Workstations.

OpenGL 3D Expertise

AccelGraphics enhances its products through a proprietary high-performance
3D software implementation of OpenGL and is a direct OpenGL licensee. The
Company optimizes the performance of its OpenGL software library by eliminating
much of the testing and branching required to process data and instruction
streams, while adding routines optimized for various application profiles. This
effort has resulted in what the Company believes is the fastest and most stable
version of OpenGL available for Windows NT.

Focus on Value Added Software

AccelGraphics provides value added 3D software applications to 3D graphics
professionals. The Company has successfully developed and introduced its
AccelVIEW 3D software product for AutoCAD and its Flying Carpet plug-in to
Netscape Navigator and Microsoft Internet Explorer. The Company believes this
offers an additional market opportunity for graphics subsystem upgrades as users
look for increased productivity and performance.

Cultivate Relationships with ISVs

AccelGraphics maintains engineering and marketing relationships with
leading ISVs. For example, the Company successfully supported the migration to
NT of UNIX software applications from EDS's Unigraphics division, Microsoft's
Softimage and SDRC. The Company enhances the performance of its graphics
subsystems with these applications and often becomes an ISV's initial preferred
3D graphics solution.

GRAPHIC IMAGE PAGE 26:

The title is "3D Graphics Pipeline." Diagram of 4 small boxes in a top row
connected by arrows pointing to the right. This row of boxes is separated by a
second row of five boxes also connected by arrows pointing to the right. The
rows of boxes are separated by a double row of dotted lines. The row of boxes
above the line are labeled on the right as "Host CPU," the area between the
dotted lines is labeled "Bus Interface" and the bottom row of boxes is labeled
on the right as "Graphics Accelerator." The top right hand box is connected
through the area identified as the "Bus Interface" to the bottom left hand box
in the second row, with an arrow pointing toward the bottom box. The boxes are
labeled as follows: along the top row from left to right "Application,"
"Application Programming Interface," "Geometry Transforms," "Lighting
Calculations,"
<PAGE> 75

along the second row of boxes from left to right "Polygon Processing," "Texture
Mapping," "Z-buffer (depth) Calculations," "Pixel Processing," "Display Update."

INSIDE BACK COVER:

The inside back cover is titled "Providing AccelGraphics' 3D Solutions for
Windows NT Professionals." A copy of the six interlocked gears from the gatefold
with the names of the Companies in AccelGraphics distribution channels above the
drawing. In addition the following chart appears on the table.

<TABLE>
<CAPTION>
Distributors OEMs Value Added Resellers
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
- - C2000 - Digital Equipment Corporation - Advanced Data Graphics
- - Flexi Interactive - Epson Direct Corporation - Avcom Technologies
- - Forefront Graphics - Hewlett-Packard - CAD Research
- - InterCAD - Hitachi - JAR Associates
- - Kubota Graphics - Samsung Electronics Company - MicroCAD Solutions
- - Macrosun - Tri-Star Computer Corporation - New Technology Solutions
- - Memorex Telex Japan - Rand Technologies
- - MicroSouth
- - Pedensia
- - Performance Graphics
- - Pioneer Standard Electronics
- - Scitech International
- - TechnoGraphy
- - Wyle Electronics
</TABLE>

<PAGE> 76

===============================================================

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 5
Use of Proceeds............................... 16
Dividend Policy............................... 16
Capitalization................................ 17
Dilution...................................... 18
Selected Consolidated Financial Data.......... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 20
Business...................................... 27
Management.................................... 40
Certain Transactions.......................... 47
Principal and Selling Stockholders............ 48
Description of Capital Stock.................. 50
Shares Eligible for Future Sale............... 52
Underwriting.................................. 54
Legal Matters................................. 55
Experts....................................... 55
Additional Information........................ 56
Index to Financial Statements................. F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

===============================================================
===============================================================

2,600,000 Shares

LOGO

Common Stock
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY

ROBERTSON, STEPHENS & COMPANY

SOUNDVIEW FINANCIAL
GROUP, INC.

, 1997
===============================================================
<PAGE> 77

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. The Company's Bylaws require the
Company to indemnify its directors and officers to the fullest extent permitted
by Delaware law, including circumstances in which indemnification is otherwise
discretionary under Delaware law. The Company has entered into indemnification
agreements with its directors containing provisions which are in some respects
broader than the specific indemnification provisions contained in the Delaware
law. The indemnification agreements may require the Company, among other things,
to indemnify its directors against certain liabilities that may arise by reason
of their status or service as directors (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance, if available on reasonable
terms. The Company's Certificate of Incorporation provides for indemnification
of its directors and officers to the maximum extent permitted by the Delaware
law, and the Company's Bylaws provide for indemnification of its directors,
officers, employees and other agents to the maximum extent permitted by Delaware
law. In addition, the Company has entered into Indemnification Agreements with
its directors and officers. Reference is also made to the Underwriting Agreement
indemnifying officers and directors of the Company against certain liabilities.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
-----------
<S> <C>
SEC registration fee.................................... $ 10,873
NASD filing fee......................................... 4,088
Nasdaq National Market listing fee...................... 45,000
Printing and engraving expenses......................... 150,000
Legal fees and expenses................................. 300,000
Accounting fees and expenses............................ 175,000
Blue Sky qualification fees and expenses................ 10,000
Transfer Agent and Registrar fees....................... 12,000
Miscellaneous fees and expenses......................... 43,039
------
Total................................................. $ 750,000
======
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Since April 8, 1994 (the date of incorporation of the Company), the Company
has issued and sold the following securities:

1. In November 1994, pursuant to Section 4(2) of the Act, the Company
issued and sold an aggregate of 910,312 shares of Common Stock to four
founders at a purchase price of $0.06666 per share.

2. On December 22, 1994, pursuant to Section 4(2) of the Act, the
Company entered into a Convertible Note Purchase Agreement with Kubota
Corporation, pursuant to which the Company issued Kubota Corporation a
subordinated convertible promissory note carrying an initial principal
amount of $3,300,000.

<PAGE> 78

3. In June and July 1995, pursuant to Rule 506 of Regulation D, the
Company issued and sold, pursuant to a Series A Preferred Stock Purchase
Agreement, an aggregate of 3,446,997 shares of Series A Preferred Stock to
twelve investors at a purchase price of $1.66666 per share. In connection
with this financing, Kubota Corporation converted $1,650,000 of the
outstanding principal on the Convertible Note into 990,000 shares of Series
A Preferred Stock.

4. On October 11, 1995, pursuant to Rule 506 of Regulation D, the
Company issued to Silicon Valley Bank a warrant for the purchase of up to
30,000 shares of Series A Preferred Stock at an exercise price of $1.66666
per share.

5. On December 29, 1995, pursuant to Section 4(2) of the Act, the
Company issued to Intel Corporation a warrant for the purchase of up to
26,250 shares of Common Stock at an exercise price of $3.00 per share.

6. In March 1996, pursuant to Rule 506 of Regulation D, the Company
issued and sold, pursuant to a Series B Preferred Stock Purchase Agreement,
an aggregate of 1,061,660 shares of Series B Preferred Stock to 20
investors at a per share price of $3.00.

7. On July 1, 1996, pursuant to Rule 506 of Regulation D, the Company
issued to Phoenix Leasing Incorporated a warrant for the purchase of up to
7,000 shares of Series B Preferred Stock at an exercise price of $3.00 per
share.

8. From February 1995 through December 1996, pursuant to Rule 701 of
Regulation D, the Company granted options under the 1995 Stock Plan to
purchase an aggregate of 1,270,078 shares of Common Stock at exercise
prices ranging from $0.12 to $6.90 per share to 62 employees, directors and
consultants.

9. From February 1995 through December 1996, pursuant to Rule 701 of
Regulation D, the Company sold 175,749 shares of Common Stock at purchase
prices ranging from $0.12 to $5.30 per share to 14 employees, directors and
consultants, pursuant to restricted stock purchase agreements under the
1995 Stock Plan.

10. From February 1995 through December 1996, pursuant to Rule 701 of
Regulation D, the Company issued and sold 166,600 shares of Common Stock
pursuant to the exercise of options granted under the 1995 Stock Plan at
exercise prices ranging from $0.12 per share to $0.30 to 12 officers,
employees and consultants.

The issuance of the above securities was deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Act, Regulation D
promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Act as
transactions by an issuer not involving a public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under such Rule 701. The above securities deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the Act
were issued to "sophisticated" purchasers within the meaning of that exemption.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the share certificates, options and warrants issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Company.

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
2.1* Form of Agreement and Plan of Merger between Registrant and AccelGraphics,
Inc. (a California Corporation)
2.2* Asset Acquisition Agreement dated December 9, 1994 between the Company and
Kubota Graphics Corporation
</TABLE>

<PAGE> 79

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<S> <C>
3.1* Amended and Restated Articles of Incorporation of Registrant (California)
3.2* Certificate of Amendment to Articles of Incorporation of Registrant
(California)
3.3* Certificate of Incorporation of Registrant (Delaware)
3.4 Amended and Restated Certificate of Incorporation of Registrant (Delaware)
3.5 Amended and Restated Certificate of Incorporation of Registrant (Delaware)
3.6* Bylaws of Registrant (California)
3.7 Bylaws of Registrant (Delaware)
3.8 Amended and Restated Bylaws of Registrant (Delaware)
4.1 Specimen Common Stock Certificate
4.2* Warrant to Purchase shares of Common Stock
4.3* Warrant to Purchase shares of Series A Preferred Stock
4.4* Warrant to Purchase shares of Series B Preferred Stock
4.5* Convertible Note Purchase Agreement dated December 22, 1994 between the
Company and Kubota Corporation
5.1* Opinion of Venture Law Group, A Professional Corporation
9.1* Amended and Restated Voting Agreement dated March 7, 1996 between the
Company and certain holders of the Company's securities
10.1* 1995 Stock Plan, as amended and forms of stock purchase and stock option
agreement
10.2* 1997 Directors' Stock Option Plan and form of stock option agreement
10.3* 1997 Employee Stock Purchase Plan and form of subscription agreement
10.4* AccelGraphics, Inc. 401(k) Savings & Retirement Plan
10.5* Form of Indemnification Agreement (California)
10.6* Form of Indemnification Agreement (Delaware)
10.7* Amended and Restated Registration Rights Agreement dated as of July 1,
1996, between Registrant and holders of its Preferred Stock and warrant
holders
10.8* Lease Agreement dated December 16, 1994 between the Company and John
Arrillaga, Trustee and Richard T. Perry, Trustee
10.9*+ Digital Equipment Corporation OEM Agreement dated February 21, 1996
between the Company and Digital Equipment Corporation
10.10*+ Product Purchase Agreement dated as of July 1, 1996 between the Company
and Hewlett-Packard France
10.11*+ Turnkey Agreement dated as of February 5, 1996 between the Company and MAT
Technologies Ltd.
10.12*+ Software License Agreements dated August 8, 1995, January 23, 1996 and
July 5, 1996, respectively between the Company and 3D Labs Inc.
10.13*+ Open GL License Agreement dated June 30, 1992, as amended, between the
Company and Kubota Pacific Computer
10.14* Silicon Valley Bank Loan Business Loan Agreement dated October 11, 1995,
between the Company and Silicon Valley Bank
11.1* Statement of Computation of Pro Forma Net Loss Per Share
21.1* Subsidiaries of Registrant
23.1 Consent of Price Waterhouse LLP, Independent Accountants (included in
II-6)
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (included in II-5)
27* Financial Data Schedule
</TABLE>

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

*Previously filed.

+Confidential treatment requested.
<PAGE> 80

ITEM 28. UNDERTAKINGS

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

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the provisions referenced
in Item 24 of this Registration Statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned Registrant will:

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

(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
<PAGE> 81

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this amendment to
the registration statement to be signed on its behalf by the undersigned, in the
City of San Jose, State of California, on this 12th day of March 1997.

ACCELGRAPHICS, INC.

By: /s/ JEFFREY W. DUNN
----------------------------------
Jeffrey W. Dunn
President, Chief Executive Officer
and Director

In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------- -------------------
<S> <C> <C>

/s/ JEFFREY W. DUNN President, Chief March 12, 1997
- ----------------------------------------------- Executive Officer and
(Jeffrey W. Dunn) Director (Principal
Executive Officer)

/s/ NANCY E. BUSH* Vice President, Finance March 12, 1997
- ----------------------------------------------- and Administration; Chief
(Nancy E. Bush) Financial Officer and
Assistant Secretary
(Principal Financial and
Accounting Officer)
/s/ DAVID E. GOLD* Director March 12, 1997
- -----------------------------------------------
(David E. Gold)

/s/ JOS HENKENS* Director March 12, 1997
- -----------------------------------------------
(Jos Henkens)

/s/ SHINTARO MIYAMOTO* Director March 12, 1997
- -----------------------------------------------
(Shintaro Miyamoto)

/s/ DAVID PIDWELL* Director March 12, 1997
- -----------------------------------------------
(David Pidwell)

/s/ PETER WOLKEN* Director March 12, 1997
- -----------------------------------------------
(Peter Wolken)

*By: /s/ JEFFREY W. DUNN March 12, 1997
- -----------------------------------------------
(Jeffrey W. Dunn)
(Attorney-in-fact)
</TABLE>

<PAGE> 82

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated January 30, 1997,
relating to the consolidated financial statements of AccelGraphics, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California

March 11, 1997

<PAGE> 83

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement
2.1* Form of Agreement and Plan of Merger between Registrant and AccelGraphics,
Inc. (a California Corporation)
2.2* Asset Acquisition Agreement dated December 9, 1994 between the Company and
Kubota Graphics Corporation
3.1* Amended and Restated Articles of Incorporation of Registrant (California)
3.2* Certificate of Amendment to Articles of Incorporation of Registrant
(California)
3.3* Certificate of Incorporation of Registrant (Delaware)
3.4 Amended and Restated Certificate of Incorporation of Registrant (Delaware)
3.5 Amended and Restated Certificate of Incorporation of Registrant (Delaware)
3.6* Bylaws of Registrant (California)
3.7 Bylaws of Registrant (Delaware)
3.8 Amended and Restated Bylaws of Registrant (Delaware)......................
4.1 Specimen Common Stock Certificate.........................................
4.2* Warrant to Purchase shares of Common Stock................................
4.3* Warrant to Purchase shares of Series A Preferred Stock....................
4.4* Warrant to Purchase shares of Series B Preferred Stock....................
4.5* Convertible Note Purchase Agreement dated December 22, 1994 between the
Company and Kubota Corporation..........................................
5.1* Opinion of Venture Law Group, A Professional Corporation..................
9.1* Amended and Restated Voting Agreement dated March 7, 1996 between the
Company and certain holders of the Company's securities.................
10.1* 1995 Stock Plan, as amended and forms of stock purchase and stock option
agreement...............................................................
10.2* 1997 Directors' Stock Option Plan and form of stock option agreement......
10.3* 1997 Employee Stock Purchase Plan and form of subscription agreement......
10.4* AccelGraphics, Inc. 401(k) Savings & Retirement Plan......................
10.5* Form of Indemnification Agreement (California)............................
10.6* Form of Indemnification Agreement (Delaware)..............................
10.7* Amended and Restated Registration Rights Agreement dated as of July 1,
1996, between Registrant and holders of its Preferred Stock and warrant
holders.................................................................
10.8* Lease Agreement dated December 16, 1994 between the Company and John
Arrillaga, Trustee and Richard T. Perry, Trustee........................
10.9*+ Digital Equipment Corporation OEM Agreement dated February 21, 1996
between the Company and Digital Equipment Corporation...................
10.10*+ Product Purchase Agreement dated as of July 1, 1996 between the Company
and Hewlett-Packard France..............................................
10.11*+ Turnkey Agreement dated as of February 5, 1996 between the Company and MAT
Technologies Ltd. ......................................................
10.12*+ Software License Agreements dated August 8, 1995, January 23, 1996 and
July 5, 1996, respectively between the Company and 3D Labs Inc. ........
10.13*+ Open GL License Agreement dated June 30, 1992, as amended, between the
Company and Kubota Pacific Computer.....................................
10.14* Silicon Valley Bank Loan Business Loan Agreement dated October 11, 1995,
between the Company and Silicon Valley Bank.............................
11.1* Statement of Computation of Pro Forma Net Loss Per Share..................
21.1* Subsidiaries of Registrant................................................
23.1 Consent of Price Waterhouse LLP, Independent Accountants (included in
II-6)...................................................................
</TABLE>

<PAGE> 84

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
<S> <C> <C>
23.2* Consent of Counsel (included in Exhibit 5.1)..............................
24.1* Power of Attorney (included in II-5)......................................
27* Financial Data Schedule...................................................
</TABLE>

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

*Previously filed.

+Confidential treatment requested.

<PAGE> 1
Exhibit 1.1

2,600,000 SHARES

ACCELGRAPHICS, INC.

COMMON STOCK

UNDERWRITING AGREEMENT

COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY LLC
SOUNDVIEW FINANCIAL GROUP, INC.
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York,
New York 10005

Dear Sirs:

1. Introductory. AccelGraphics, Inc., a Delaware corporation (the
"Company"), and the selling stockholders named in Schedule B hereto
(the "Selling Stockholders") propose to sell, pursuant to the terms of
this Agreement, to the several underwriters named in Schedule A hereto
(the "Underwriters," or, each, an "Underwriter"), an aggregate of
2,600,000 shares of Common Stock, $.001 par value (the "Common Stock")
of the Company. The aggregate of 2,600,000 shares so proposed to be
sold is hereinafter referred to as the "Firm Stock." The Company and
the Selling Stockholders listed in Schedule B hereto also propose to
sell to the Underwriters, upon the terms and conditions set forth in
Section 3 hereof, up to an additional 390,000 shares of Common Stock
(the "Optional Stock"). The Firm Stock and the Optional Stock are
hereinafter collectively referred to as the "Stock." Cowen & Company
("Cowen"), Robertson, Stephens & Company LLC and SoundView Financial
Group, Inc. are acting as representatives of the several Underwriters
and in such capacity are hereinafter referred to as the
"Representatives."

2. (a) Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several
Underwriters that:

(i) A registration statement on Form SB-2 (File No. 333-_______)
in the form in which it became or becomes effective and also
in such form as it may be when any post-effective amendment
thereto shall become effective with respect to the Stock,
including any preeffective prospectuses included as part of
the registration statement as originally filed or as part of
any amendment or supplement thereto, or filed pursuant to
Rule 424 under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, copies of which have
heretofore been delivered to you, has been carefully
prepared by the Company in conformity with the requirements
of the Securities Act and has been filed with the Commission
under the Securities Act; one or more amendments to such
registration statement, including in each case an amended

1
<PAGE> 2

preeffective prospectus, copies of which amendments have
heretofore been delivered to you, have been so prepared and
filed. If it is contemplated, at the time this Agreement is
executed, that a post-effective amendment to the
registration statement will be filed and must be declared
effective before the offering of the Stock may commence, the
term "Registration Statement" as used in this Agreement
means the registration statement as amended by said
post-effective amendment. The term "Registration Statement"
as used in this Agreement shall also include any
registration statement relating to the Stock that is filed
and declared effective pursuant to Rule 462(b) under the
Securities Act. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the
Registration Statement, or, (A) if the prospectus included
in the Registration Statement omits information in reliance
on Rule 430A under the Securities Act and such information
is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act, the term
"Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information
contained in the prospectus filed with the Commission
pursuant to Rule 424(b) and (B) if prospectuses that meet
the requirements of Section 10(a) of the Securities Act are
delivered pursuant to Rule 434 under the Securities Act,
then (i) the term "Prospectus" as used in this Agreement
means the "prospectus subject to completion" (as such term
is defined in Rule 434(g) under the Securities Act) as
supplemented by (a) the addition of Rule 430A information or
other information contained in the form of prospectus
delivered pursuant to Rule 434(b)(2) under the Securities
Act or (b) the information contained in the term sheets
described in Rule 434(b)(3) under the Securities Act, and
(ii) the date of such prospectuses shall be deemed to be the
date of the term sheets. The term "Preeffective Prospectus"
as used in this Agreement means the prospectus subject to
completion in the form included in the Registration
Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such
prospectus shall have been amended from time to time prior
to the date of the Prospectus.

(ii) The Commission has not issued or, to the Company's
knowledge, threatened to issue any order preventing or
suspending the use of any Preeffective Prospectus, and, at
its date of issue, each Preeffective Prospectus conformed in
all material respects with the requirements of the
Securities Act and did not include any untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, other than any such nonconformance or
untrue statement or omission in a Preeffective Prospectus
that has been corrected in the Prospectus; and, when the
Registration Statement becomes effective and at all times
subsequent thereto up to and including each of the Closing
Dates (as hereinafter defined), the Registration Statement
and the Prospectus and any amendments or supplements thereto
contained and will contain all material statements and
information required to be included therein by the
Securities Act and conformed and will conform in all
material respects to the requirements of the Securities Act
and neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, included or will
include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided, however, that the foregoing representations,
warranties and agreements shall not apply to information
contained in or omitted from any Preeffective Prospectus or
the Registration Statement or the Prospectus or any such
amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the
Company by or on behalf of any

2
<PAGE> 3

Underwriter, directly or through you, or by any Selling
Stockholder, specifically for use in the preparation
thereof; there is no franchise, lease, contract, agreement
or document required to be described in the Registration
Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed
therein as required; and all descriptions of any such
franchises, leases, contracts, agreements or documents
contained in the Registration Statement are accurate and
complete descriptions of such documents in all material
respects.

(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus,
neither the Company nor any of its subsidiaries has incurred
any material liabilities or obligations, direct or
contingent, nor entered into any transactions not in the
ordinary course of business, and there has not been any
material adverse change in the condition (financial or
otherwise), properties, business, management, net worth or
results of operations of the Company and its subsidiaries
considered as a whole, or any change in the capital stock,
short-term or long-term debt of the Company and its
subsidiaries considered as a whole.

(iv) The consolidated financial statements, together with the
related notes and schedules, set forth in the Prospectus in
the Registration Statement fairly present the financial
position and the results of operations and changes in
financial position of the Company and its consolidated
subsidiaries at the respective dates or for the respective
periods therein specified. Such statements and related notes
have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis except
as may be set forth in the Prospectus. The selected
financial and statistical data set forth in the Prospectus
under the captions "Prospectus Summary -- Summary
Consolidated Financial Data" and "Selected Consolidated
Financial Data" fairly present, on the basis stated in the
Registration Statement, the information set forth therein.

(v) The Company and each of its subsidiaries have been duly
organized and are validly existing and in good standing as
corporations under the laws of their respective
jurisdictions of organization, with power and authority
(corporate and other) to own or lease their properties and
to conduct their businesses as described in the Prospectus;
the Company is and each of its subsidiaries are in
possession of and operating in compliance with all material
franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders required for
the conduct of its business, all of which are valid and in
full force and effect; and the Company is and each of such
subsidiaries is duly qualified to do business and in good
standing as foreign corporations in all other jurisdictions
where their ownership or leasing of properties or the
conduct of their businesses requires such qualification,
except where failure to so qualify would not have a material
adverse effect on the Company and its subsidiaries taken as
a whole. The Company and each of its subsidiaries have all
requisite power and authority, and all necessary consents,
approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public
regulatory or governmental agencies and bodies to own, lease
and operate their properties and conduct their business as
now being conducted and as described in the Registration
Statement and the Prospectus, and no such consent, approval,
authorization, order, registration, qualification, license
or permit contains a materially burdensome restriction not
adequately disclosed in the Registration Statement and the
Prospectus. The Company owns or controls, directly or
indirectly, only the corporations, associations or other
entities set forth in Exhibit 21.1 to the Registration
Statement.

3
<PAGE> 4

(vi) The Company's authorized and outstanding capital stock will
be on the Closing Dates as set forth under the heading
"Capitalization" in the Prospectus; the outstanding shares
of Common Stock (including the outstanding shares of Stock)
of the Company conform to the description thereof in the
Prospectus; the outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and
nonassessable; and the outstanding shares of Common Stock
are duly listed on the Nasdaq National Market and have been
issued in compliance with all federal and state securities
laws and were not issued in violation of or subject to any
preemptive rights or similar rights to subscribe for or
purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or
contemplated by the Prospectus and the consolidated
financial statements of the Company and related notes
thereto included in the Prospectus, the Company does not
have outstanding any options or warrants to purchase, or any
preemptive rights or other rights to subscribe for or to
purchase any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible
securities or obligations, except for options granted
subsequent to the date of information provided in the
Prospectus pursuant to the Company's employee and stock
option plans as disclosed in the Prospectus. The description
of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or
exercised thereunder, as set forth in the Prospectus,
accurately and fairly presents the information required to
be shown with respect to such plans, arrangements, options
and rights. All outstanding shares of capital stock of each
subsidiary have been duly authorized and validly issued, and
are fully paid and nonassessable and (except for directors'
qualifying shares) are owned directly by the Company or by
another wholly owned subsidiary of the Company free and
clear of any liens, encumbrances, equities or claims.

(vii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized
and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid
and nonassessable and free of any preemptive or similar
rights and will conform to the description thereof in the
Prospectus.

(viii) Except as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of
the Company or any subsidiary is subject, which, if
determined adversely to the Company or any such subsidiary,
might individually or in the aggregate (A) prevent or
adversely affect the transactions contemplated by this
Agreement, (B) suspend the effectiveness of the Registration
Statement, (C) prevent or suspend the use of the
Preeffective Prospectus in any jurisdiction or (D) result in
a material adverse change in the condition (financial or
otherwise), properties, business, management, net worth or
results of operations of the Company and its subsidiaries
considered as a whole and the Company is not aware of any
valid basis for any such legal or governmental proceeding;
and to the Company's knowledge no such proceedings are
threatened or contemplated against the Company or any
subsidiary by governmental authorities or others. The
Company is not a party nor subject to the provisions of any
material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body. The
description of the Company's litigation under the heading
"Legal Proceedings" in the Prospectus is true and correct
and complies with the Rules and Regulations.

(ix) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated
(A) will not result in any violation of the

4
<PAGE> 5

provisions of the certificate of incorporation, bylaws or
other organizational documents of the Company or any
subsidiary, or to the knowledge of the Company any law,
order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any
subsidiary or any of their properties or assets, and (B)
will not result in a breach or violation of any of the terms
or provisions of or constitute a default under any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its
properties is or may be bound.

(x) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated
hereby, except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or
under the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act") or the securities or
"Blue Sky" laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters.

(xi) The Company has the full corporate power and authority to
enter into this Agreement and to perform its obligations
hereunder (including to issue, sell and deliver the Stock),
and this Agreement has been duly and validly authorized,
executed and delivered by the Company and is a valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent
that rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or the public
policy underlying such laws and by applicable bankruptcy,
insolvency and other similar laws affecting conditions,
rights and rules of law governing specific performance,
injunctive relief and other equitable remedies.

(xii) The Company and its subsidiaries are, in all material
respects, in compliance with, and conduct their businesses
in conformity with, all applicable federal, state, local and
foreign laws, rules and regulations or any court or
governmental agency or body; to the knowledge of the
Company, otherwise than as set forth in the Registration
Statement and the Prospectus, no prospective change in any
of such federal or state laws, rules or regulations has been
adopted which, when made effective, would have a material
adverse effect on the operations of the Company and its
subsidiaries. Except as disclosed in the Registration
Statement, to its knowledge the Company and its subsidiaries
are in compliance with all applicable existing federal,
state, local and foreign laws and regulations relating to
the protection of human health or the environment or
imposing liability or requiring standards of conduct
concerning any Hazardous Materials ("Environmental Laws"),
except for such instances of noncompliance which, either
singly or in the aggregate, would not have a material
adverse effect. The term "Hazardous Material" means (A) any
"hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, (B) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act, as amended, (C)
any petroleum or petroleum product, (D) any polychlorinated
biphenyl and (E) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material, waste or substance
regulated under or within the meaning of any other
Environmental Law.

(xiii) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, payroll, franchise
and other tax returns and have paid all taxes shown as due
thereon or with respect to any of their properties, and
there is no tax deficiency that has been, or to the
knowledge of the Company is likely to be, asserted against
the

5
<PAGE> 6

Company or any of its subsidiaries or any of their
respective properties or assets that would have a material
adverse effect on the financial position, business or
operations of the Company and its subsidiaries.

(xiv) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration
Statement or otherwise, except for persons and entities who
have expressly waived such right or who have been given
proper notice and have failed to exercise such right within
the time or times required under the terms and conditions of
such right.

(xv) Neither the Company nor any of its officers has taken or
will take, directly or indirectly, any action designed or
intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or
which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any
security of the Company.

(xvi) To the Company's knowledge, the Company and its subsidiaries
own or possess the right to use all patents described in the
Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses;
the Company and its subsidiaries own or possess the right to
use all trademarks (including "AccelGraphics" and the other
trademarks listed in the Prospectus), trademark
registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets
and rights described in the Prospectus as being owned by
them or any of them or necessary for the conduct of their
respective businesses; and the Company is not aware of any
claim to the contrary or any challenge by any other person
to the rights of the Company and its subsidiaries with
respect to the foregoing. The Company's business as now
conducted does not and will not infringe or conflict with in
any material respect: (A) any registered trademarks or
service marks or copyrights; or (B) to the Company's
knowledge, patents, trade names, trade secrets, licenses or
other intellectual property or franchise right of any
person. Except as described in the Prospectus, the Company
has not received any claim alleging the infringement by the
Company of any patent, trademark, service mark, trade name,
copyright, trade secret, license in or other intellectual
property right or franchise right of any person.

(xvii) The Company and its subsidiaries have performed all material
obligations required to be performed by them under all
contracts required by Item 601(b)(10) of Regulation S-B
under the Securities Act to be filed as exhibits to the
Registration Statement, and neither the Company nor any of
its subsidiaries nor any other party to such contract is in
default under or in breach of any such obligations. Neither
the Company nor any of its subsidiaries has received any
notice of such default or breach.

(xviii) The Company is not involved in any labor dispute nor to the
Company's knowledge is any such dispute threatened. The
Company is not aware that (A) any executive, key employee or
significant group of employees of the Company or any
subsidiary plans to terminate employment with the Company or
any such subsidiary or (B) any such executive or key
employee is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreement
that would be violated by the present or proposed business
activities of the Company and its subsidiaries. Neither the
Company nor any subsidiary has or expects to have any
liability for any prohibited transaction or funding
deficiency or any complete or partial withdrawal liability
with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), to which the Company or
any

6
<PAGE> 7

subsidiary makes or ever has made a contribution and in
which any employee of the Company or any subsidiary is or
has ever been a participant. With respect to such plans, the
Company and each subsidiary are in compliance in all
material respects with all applicable provisions of ERISA.

(xix) The Company has obtained the written agreement described in
Section 8(k) of this Agreement from each of its officers,
directors and holders of Common Stock.

(xx) The Company and its subsidiaries have, and the Company and
its subsidiaries as of the Closing Dates will have, good and
marketable title in fee simple to all real property and good
and marketable title to all personal property owned or
proposed to be owned by them which is material to the
business of the Company or of its subsidiaries, in each case
free and clear of all liens, encumbrances and defects,
except (A) such as are described the Prospectus, (B) liens
on property held by the lessor of property leased by the
Company, (C) the lien held by Kubota Corporation pursuant to
its subordinated convertible note in the original principal
amount of $3,300,000 or (D) such as would not have a
material adverse effect on the Company and its subsidiaries
considered as a whole; and any real property and buildings
held under lease by the Company and its subsidiaries or
proposed to be held after giving effect to the transactions
described in the Prospectus are, or will be as of each of
the Closing Dates, held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a
material adverse effect on the Company and its subsidiaries
considered as a whole, in each case except as described in
or contemplated by the Prospectus.

(xxi) The Company and its subsidiaries are insured against losses
and risks and in such amounts as are customary in the
businesses in which they are engaged, and neither the
Company nor any subsidiary of the Company has any reason to
believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be
necessary to continue their business at a cost that would
not materially and adversely affect the condition, financial
or otherwise, or the earnings, business or operations of the
Company and its subsidiaries considered as a whole, except
as described in or contemplated by the Prospectus.

(xxii) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive
from the Company any brokerage or finder's fee or other fee
or commission as a result of any of the transactions
contemplated by this Agreement.

(xxiii) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida).

(xxiv) The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in
accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity
with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is
permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability
for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to
any differences.

(xxv) To the Company's knowledge, neither the Company nor any of
its subsidiaries nor any employee or agent of the Company or
any of its subsidiaries has made any payment of

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<PAGE> 8

funds of the Company or any of its subsidiaries or received
or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is
of a character required to be disclosed in the Prospectus.

(xxvi) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and
warranty by the Company as to the matters covered thereby.

(xxvii) To the Company's knowledge, no relationship, direct or
indirect, exists between or among the Company or its
subsidiaries, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or its
subsidiaries, on the other hand, which is required to be
described in the Prospectus that is not so described.

(xxviii) Neither the Company nor any of its subsidiaries is or, after
application of the net proceeds of this offering as
described under the caption "Use of Proceeds" in the
Prospectus, will become an "investment company" or an entity
"controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.

(b) Representations and Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder represents and warrants to, and
agrees with, the several Underwriters that such Selling Stockholder:

(i) Now has, and on the Closing Dates will have, valid and
marketable title to the Stocks to be sold by such Selling
Stockholder, free and clear of any lien, claim, security
interest or other encumbrance, including, without
limitation, any restriction on transfer, and has full right,
power and authority to enter into this Agreement, the Power
of Attorney and the Custody Agreement (each as hereinafter
defined), and, to the extent such Selling Stockholder is a
corporation, has been duly organized and is validly existing
and in good standing as a corporation under the laws of its
jurisdiction of organization.

(ii) Now has, and on each of the Closing Dates will have, upon
delivery of and payment for each share of Stock hereunder,
full right, power and authority, any approval required by
law to sell, transfer, assign and deliver the Stock being
sold by such Selling Stockholder hereunder, and each of the
several Underwriters will acquire valid and marketable title
to all of the Stock being sold to the Underwriters by such
Selling Stockholder, free and clear of any liens,
encumbrances, equities, claims, restrictions on transfer or
other defects whatsoever.

(iii) For a period of 180 days after the date of the Prospectus,
without the consent of Cowen, such Selling Stockholder will
not, directly or indirectly, (A) offer, sell, assign,
transfer, encumber, pledge, contract to sell, grant an
option to purchase or otherwise dispose of, other than by
operation of law, any shares of Stock (including, without
limitation, Stock which may be deemed to be beneficially
owned by the undersigned in accordance with the rules and
regulations under the Securities Act), or (B) enter into any
swap or similar agreement that transfers, in whole or in
part, the economic risk of the Stock, whether any such
transaction described in clause (A) or (B) above is to be
settled by delivery of Stock or such other securities, in
cash or otherwise, and whether any such transaction relates
to Stock now owned or hereafter acquired.

(iv) Has duly executed and delivered a power of attorney, in
substantially the form heretofore delivered by the
Representatives (the "Power of Attorney"), appointing
Jeffrey W. Dunn and Nancy E. Bush, and each of them, as
attorney-in-fact (the "Attorneys-in-fact") with authority to
execute and deliver this Agreement on behalf of

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<PAGE> 9

such Selling Stockholder, to authorize the delivery of the
shares of Stock to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling
Stockholder in connection with the transactions contemplated
by this Agreement.

(v) Has duly executed and delivered a custody agreement, in
substantially the form heretofore delivered by the
Representatives (the "Custody Agreement"), with Harris Trust
and Savings Bank as custodian (the "Custodian"), pursuant to
which certificates in negotiable form for the shares of
Stock to be sold by such Selling Stockholder hereunder have
been placed in custody for delivery under this Agreement.

(vi) Has, by execution and delivery of each of this Agreement,
the Power of Attorney and the Custody Agreement, created
valid and binding obligations of such Selling Stockholder,
enforceable against such Selling Stockholder in accordance
with its terms, except to the extent that rights to
indemnity hereunder may be limited by federal or state
securities laws or the public policy underlying such laws
and by applicable bankruptcy, insolvency and other similar
laws affecting creditors' rights and rules of law governing
specific performance, injunctive relief and other equitable
remedies.

Each Selling Stockholder agrees that the shares of Stock
represented by the certificates held in custody under the
Custody Agreement are for the benefit of and coupled with
and subject to the interests of the Underwriters and the
Company hereunder, and that the arrangement for such custody
and the appointment of the Attorneys-in-fact are
irrevocable; that the obligations of such Selling
Stockholder hereunder shall not be terminated by operation
of law, whether by the death or incapacity, liquidation or
distribution of such Selling Stockholder, or any other
event, that if such Selling Stockholder should die or become
incapacitated or is liquidated or dissolved or any other
event occurs, before the delivery of the Stock hereunder,
certificates for the Stock to be sold by such Selling
Stockholder shall be delivered on behalf of such Selling
Stockholder in accordance with the terms and conditions of
this Agreement and the Custody Agreement, and action taken
by the Attorneys-in-fact or any of them under the Power of
Attorney shall be as valid as if such death, incapacity,
liquidation or dissolution or other event had not occurred,
whether or not the Custodian, the Attorneys-in-fact or any
of them shall have notice of such death, incapacity,
liquidation or dissolution or other event.

(vii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause
or result in the stabilization or manipulation of the price
of the Common Stock of the Company and, other than as
permitted by the Securities Act, the Selling Stockholder
will not distribute any prospectus or other offering
material in connection with the offering of the Stock.

(viii) The information pertaining to such Selling Stockholder under
the caption "Principal and Selling Stockholders" in the
Prospectus is complete and accurate in all material
respects.

(ix) As to each Selling Stockholder that beneficially owns more
than 50,000 shares of Stock or is an officer or director of
the Company, the sale of the Stock by such Selling
Stockholder pursuant hereto is not prompted by any
information concerning the Company or its subsidiaries which
is not set forth in the Registration Statement.

(x) As to Mr. Dunn and Ms. Bush, to the knowledge of such Seller
Stockholder (A) the Registration Statement and any amendment
thereto do not contain, and will not contain, any untrue
statement of a material fact and do not omit, and will not
omit, to state any

9
<PAGE> 10

material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) the
Prospectus and any amendments and supplements thereto do not
contain, and will not contain, any untrue statement of
material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading.

3. Purchase by, and Sale and Delivery to, Underwriters--Closing Dates. On
the basis of the representations, warranties, covenants and agreements
herein contained, but subject to the terms and conditions herein set
forth, the Company and the Selling Stockholders agree, severally and
not jointly, to sell to the Underwriters the Firm Stock, with the
number of shares to be sold by the Company and each Selling
Stockholder being the number of Shares set opposite his, her or its
name in Schedule B; and on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to
the terms and conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company
and the Selling Stockholders, the number of shares of Firm Stock to be
purchased by each Underwriter being set opposite its name in Schedule
A, subject to adjustment in accordance with Section 12 hereof. The
number of shares of Stock to be purchased by each Underwriter from
each Selling Stockholder hereunder shall bear the same proportion to
the total number of shares of Stock to be purchased by such
Underwriter hereunder as the number of shares of Stock being sold by
each Selling Stockholder bears to the total number of shares of Stock
being sold by all Selling Stockholders, subject to adjustment by the
Representatives to eliminate fractions.

The purchase price per share to be paid by the Underwriters to the
Company and the Selling Stockholders will be the price per share set
forth in the table on the cover page of the Prospectus under the
heading "Proceeds to Company" (the "Purchase Price").

The Company and the Selling Stockholders will deliver the Firm Stock
to the Representatives for the respective accounts of the several
Underwriters (in the form of definitive certificates, issued in such
names and in such denominations as the Representatives may direct by
notice in writing to the Company and the Selling Stockholders given at
or prior to 12:00 Noon, New York Time, on the second full business day
preceding the First Closing Date (as defined below) or, if no such
direction is received, in the names of the respective Underwriters or
in such other names as Cowen may designate (solely for the purpose of
administrative convenience) and in such denominations as Cowen may
determine), against payment of the aggregate Purchase Price therefor
by certified or official bank check or checks in immediately available
funds (same day funds), payable to the order of the Company and Harris
Trust and Savings Bank as Custodian for the Selling Stockholders, all
at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park,
California 94025. The time and date of the delivery and closing shall
be at 10:00 A.M., New York Time, on ________________, 1997, in
accordance with Rule 15c6-1 of the Exchange Act. The time and date of
such payment and delivery are herein referred to as the "First Closing
Date." The First Closing Date and the location of delivery of, and the
form of payment for, the Firm Stock may be varied by agreement among
the Company, the Selling Stockholders and Cowen. The First Closing
Date may be postponed pursuant to the provisions of Section 12.

The Company and the Selling Stockholders shall make the certificates
for the Stock available to the Representatives for examination on
behalf of the Underwriters not later than 10:00 A.M., New York Time,
on the business day preceding the First Closing Date at the offices of
Cowen & Company, Financial Square, New York, New York 10005.

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<PAGE> 11

It is understood that Cowen or other Representatives, individually and
not as Representatives of the several Underwriters, may (but shall not
be obligated to) make payment to the Company or to the Selling
Stockholders on behalf of any Underwriter or Underwriters, for the
Stock to be purchased by such Underwriter or Underwriters. Any such
payment by Cowen or other Representatives shall not relieve such
Underwriter or Underwriters from any of its or their other obligations
hereunder.

The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is
advisable. The Representatives shall promptly advise the Company and
the Selling Stockholders of the making of the initial public offering.

For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the
Prospectus, the Company and each of the Selling Stockholders hereby
grants to the Underwriters an option to purchase, severally and not
jointly, up to the aggregate number of shares of Optional Stock set
forth opposite the Company's and each such Selling Stockholder's
respective names on Schedule B hereto, for an aggregate of up to
390,000 shares. The price per share to be paid for the Optional Stock
shall be the Purchase Price. The option granted hereby may be
exercised as to all or any part of the Optional Stock at any time, and
from time to time, not more than thirty (30) days subsequent to the
effective date of this Agreement. No Optional Stock shall be sold and
delivered unless the Firm Stock previously has been, or simultaneously
is, sold and delivered. The right to purchase the Optional Stock or
any portion thereof may be surrendered and terminated at any time upon
notice by the Underwriters to the Company.

The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Company setting forth the
number of shares of the Optional Stock to be purchased by them and the
date and time for delivery of and payment for the Optional Stock. Each
date and time for delivery of and payment for the Optional Stock
(which may be the First Closing Date, but not earlier) is herein
called the "Option Closing Date" and shall in no event be earlier than
two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First
Closing Date are herein called the "Closing Dates.") All purchases of
Optional Stock from the Company and Selling Stockholders shall be made
on a pro rata basis. Optional Stock shall be purchased for the account
of each Underwriter in the same proportion as the number of shares of
Firm Stock set forth opposite such Underwriter's name in Schedule B
hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise
of the option by the Underwriters, the Company and Selling
Stockholders agree to sell to the Underwriters the number of shares of
Optional Stock set forth in the written notice of exercise and the
Underwriters agree, severally and not jointly and subject to the terms
and conditions herein set forth, to purchase the number of such shares
determined as aforesaid.

The Company and the Selling Stockholders will deliver the Optional
Stock to the Underwriters (in the form of definitive certificates,
issued in such names and in such denominations as the Representatives
may direct by notice in writing to the Company given at or prior to
12:00 Noon, New York Time, on the second full business day preceding
the Option Closing Date or, if no such direction is received, in the
names of the respective Underwriters or in such other names as Cowen
may designate (solely for the purpose of administrative convenience)
and in such denominations as Cowen may determine, against payment of
the aggregate Purchase Price therefor by certified or official bank
check or checks in Clearing House funds (next day funds), payable to
the order of the Company and as Custodian for the Selling Stockholders
all at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo
Park, California 94025. The Company and the Selling Stockholders shall
make the certificates for the Optional Stock available to the
Underwriters for examination not later than 10:00 A.M., New York

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<PAGE> 12

Time, on the business day preceding the Option Closing Date at the
offices of Cowen & Company, Financial Square, New York, New York
10005. The Option Closing Date and the location of delivery of, and
the form of payment for, the Option Stock may be varied by agreement
among the Company, the Selling Stockholders and Cowen. The Option
Closing Date may be postponed pursuant to the provisions of Section
12.

4. Covenants and Agreements of the Company. The Company covenants and
agrees with the several Underwriters that:

(a) The Company will (i) if the Company and the Representatives
have determined not to proceed pursuant to Rule 430A of the
of the Rules and Regulations, use its best efforts to cause
the Registration Statement to become effective, (ii) if the
Company and the Representatives have determined to proceed
pursuant to Rule 430A of the Rules and Regulations, use its
best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A
and Rule 424 of the Rules and Regulations and (iii) if the
Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the
applicable provisions thereof. The Company will advise the
Representatives promptly as to the time at which the
Registration Statement becomes effective, will advise the
Representatives promptly of the issuance by the Commission
of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any
proceedings for that purpose, and will use its best efforts
to prevent the issuance of any such stop order and to obtain
as soon as possible the lifting thereof, if issued. The
Company will advise the Representatives promptly of the
receipt of any comments of the Commission or any request by
the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional
information and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus
which shall not previously have been submitted to the
Representatives a reasonable time prior to the proposed
filing thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance
with the Securities Act and the Rules and Regulations.

(b) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any
amendments or supplements to the Registration Statement or
the Prospectus which in the opinion of the Representatives
may be necessary to enable the several Underwriters to
continue the distribution of the Stock and will use its best
efforts to cause the same to become effective as promptly as
possible.

(c) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is
required to be delivered under the Securities Act any event
relating to or affecting the Company or any of its
subsidiaries occurs as a result of which the Prospectus or
any other prospectus as then in effect would include an
untrue statement of a material fact, or omit to state any
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Securities Act, the Company
will promptly notify the Representatives thereof and will
prepare an amended or supplemented prospectus which will
correct such statement or omission; and in case any
Underwriter is required to deliver a prospectus relating to
the Stock nine (9) months or more after the effective date
of the Registration Statement, the Company upon the request
of the Representatives and at the expense of such
Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Securities Act.

(d) The Company will deliver to the Representatives, at or
before the Closing Dates, signed copies of the Registration
Statement, as originally filed with the Commission, and all
amendments

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<PAGE> 13
thereto including all financial statements and exhibits
thereto and will deliver to the Representatives such number
of copies of the Registration Statement, including such
financial statements but without exhibits, and all
amendments thereto, as the Representatives may reasonably
request. The Company will deliver or mail to or upon the
order of the Representatives, from time to time until the
effective date of the Registration Statement, as many copies
of the Preeffective Prospectus as the Representatives may
reasonably request. The Company will deliver or mail to or
upon the order of the Representatives on the date of the
initial public offering, and thereafter from time to time
during the period when delivery of a prospectus relating to
the Stock is required under the Securities Act, as many
copies of the Prospectus, in final form or as thereafter
amended or supplemented as the Representatives may
reasonably request; provided, however, that the expense of
the preparation and delivery of any prospectus required for
use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters
required to deliver such prospectus.

(e) The Company will make generally available to its
stockholders as soon as practicable, but not later than
fifteen (15) months after the effective date of the
Registration Statement, an earnings statement which will be
in reasonable detail (but which need not be audited) and
which will comply with Section 11(a) of the Securities Act,
covering a period of at least twelve (12) months beginning
after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.

(f) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering
and sale by the Underwriters and by dealers under the
securities laws of such U.S., Canadian and foreign
jurisdictions as the Representatives may designate and at
the request of the Representatives will make such
applications and furnish such consents to service of process
or other documents as may be required of it as the issuer of
the Stock for that purpose; provided, however, that the
Company shall not be required to qualify to do business or
to file a general consent (other than that arising out of
the offering or sale of the Stock) to service of process in
any such jurisdiction where it is not now so subject. The
Company will, from time to time, prepare and file such
statements and reports as are or may be required of it as
the issuer of the Stock to continue such qualifications in
effect for so long a period as the Representatives may
reasonably request for the distribution of the Stock. The
Company will advise the Representatives promptly after the
Company becomes aware of the suspension of the
qualifications or registration of (or any such exception
relating to) the Common Stock of the Company for offering,
sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and in the
event of the issuance of any orders suspending such
qualifications, registration or exception, the Company will,
with the cooperation of the Representatives use its best
efforts to obtain the withdrawal thereof.

(g) The Company will furnish to its stockholders annual reports
containing financial statements certified by independent
public accountants and with quarterly summary financial
information in reasonable detail which may be unaudited.
During the period of five (5) years from the date hereof,
the Company will deliver to the Representatives and, upon
request, to each of the other Underwriters, as soon as they
are available, copies of each annual report of the Company
and each other report furnished by the Company to its
stockholders and will deliver to the Representatives, (i) as
soon as they are available, copies of any other reports
(financial or other) which the Company shall publish or
otherwise make available to any of its stockholders as such,
(ii) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the
Commission or the Nasdaq National Market and (iii) from time
to time such other information concerning the Company as you
may reasonably request. So long as the Company has active
subsidiaries, such financial statements will be on a
consolidated basis to the extent the

13
<PAGE> 14

accounts of the Company and its subsidiaries are
consolidated in reports furnished to its Stockholders
generally.

(h) The Company will use its best efforts to list the Stock,
subject to official notice of issuance, on the Nasdaq
National Market concurrently with the effectiveness of the
Registration Statement.

(i) The Company will maintain a transfer agent and registrar for
its Common Stock.

(j) For a period of one year after the date hereof, prior to
filing its quarterly statements on Form 10-Q, the Company
will have its independent auditors perform a limited
quarterly review of its quarterly numbers.

(k) The Company will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or
otherwise dispose of any shares of Common Stock or
securities convertible into or exercisable or exchangeable
for Common Stock during the 180 days following the date on
which the price of the Common Stock to be purchased by the
Underwriters is set, other than the Company's sale of Common
Stock hereunder and the Company's issuance of Common Stock
upon the exercise of warrants and stock options which are
presently outstanding and described in the Prospectus.

(l) The Company will file with the Commission any reports on
Form SR required pursuant to Rule 463 of Rules and
Regulations and will deliver promptly to the Representatives
a signed copy of each report on Form SR filed by it with the
Commission.

(m) The Company will apply the net proceeds from the sale of the
Stock as set forth in the description under "Use of
Proceeds" in the Prospectus, which description complies in
all respects with the requirements of Item 504 of Regulation
S-B.

(n) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and
by, the Commission in connection with the registration of
the Stock under the Securities Act.

(o) Prior to each of the Closing Dates the Company will furnish
to you, as soon as they have been prepared, copies of any
unaudited interim consolidated financial statements of the
Company and its subsidiaries for any periods subsequent to
the periods covered by the consolidated financial statements
appearing in the Registration Statement and the Prospectus.

(p) Prior to each of the Closing Dates the Company will issue no
press release or other communications directly or indirectly
and hold no press conference with respect to the Company or
any of its subsidiaries, the financial condition, results of
operations, business, prospects, assets or liabilities of
any of them, or the offering of the Stock, without your
prior written consent, which shall not be unreasonably
withheld.

(q) During the period of five (5) years hereafter, the Company
will furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the
Annual Report of the Company containing the balance sheet of
the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows
for the year then ended and the report thereon of the
Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-KSB, Quarterly Report on
Form 10-QSB, Report on Form 8-K or other report filed by the
Company with the Commission, or the NASD or Nasdaq National
Market; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders
of its Common Stock.

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<PAGE> 15

5. Payment of Expenses. (a) The Company will pay (directly or by
reimbursement) all costs, fees and expenses incurred in connection
with expenses incident to the performance of the obligations of the
Company under this Agreement and in connection with the transactions
contemplated hereby, including but not limited to (i) all expenses and
taxes incident to the issuance and delivery of the Stock to the
Representatives; (ii) all expenses incident to the registration of the
Stock under the Securities Act; (iii) the costs of preparing stock
certificates (including printing and engraving costs); (iv) all fees
and expenses of the registrar and transfer agent of the Stock; (v) all
necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Stock to the Underwriters; (vi) fees and
expenses of the Company's counsel and the Company's independent
accountants; (vii) all costs and expenses incurred in connection with
the preparation, printing, filing, shipping and distribution of the
Registration Statement, each Preeffective Prospectus and the
Prospectus (including all exhibits and financial statements) and all
amendments and supplements provided for herein, the Selling
Stockholders' Powers of Attorney, the Custody Agreement, the Blue Sky
memoranda (including related fees and expenses of counsel to the
Underwriters) and this Agreement; (viii) all costs and expenses (other
than legal costs and expenses) incurred in connection with the
printing, filing, shipping and distribution of the "Agreement Among
Underwriters" between the Representatives and the Underwriters, the
Master Selected Dealers' Agreement, the Underwriters' Questionnaire;
(ix) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with exemptions from the
qualifying or registering (or obtaining qualification or registration
of) all or any part of the Stock for offer and sale and determination
of its eligibility for investment under the Blue Sky or other
securities laws of such jurisdictions as the Representatives may
designate; (x) all fees and expenses paid or incurred in connection
with filings made with the NASD; and (xi) all other costs and expenses
incident to the performance of their obligations hereunder which are
not otherwise specifically provided for in this Section.

(b) Each Selling Stockholder will pay (directly or by
reimbursement) all fees and expenses incident to the
performance of such Selling Stockholder's obligations under
this Agreement which are not otherwise specifically provided
for herein, including but not limited to any fees and
expenses of counsel for such Selling Stockholder, such
Selling Stockholder's pro rata share of fees and expenses of
the Attorneys-in-fact and the Custodian and all expenses and
taxes incident to the sale and delivery of the Stock to be
sold by such Selling Stockholder to the Underwriters
hereunder.

(c) In addition to their other obligations under Section 6(a)
hereof, the Company and each Selling Stockholder jointly and
severally agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon (i) any
statement or omission or any alleged statement or omission,
(ii) any act or failure to act or any alleged act or failure
to act or (iii) any breach or inaccuracy in their
representations and warranties, they will reimburse each
Underwriter on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the
Company's and each Selling Stockholder's obligation to
reimburse each Underwriter for such expenses and the
possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so
held to have been improper, each Underwriter shall promptly
return it to the Company and each Selling Stockholder, as
the case may be, together with interest, compounded daily,
determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit
standing) announced from time to timed by Citibank, N.A.,
New York, New York (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter
in a timely manner as provided below shall bear interest at
the Prime Rate from the due date for such

15
<PAGE> 16

reimbursement. This expense reimbursement agreement will be
in addition to any other liability which the Company or any
Selling Stockholder may otherwise have. The request for
reimbursement will be sent to the Company with a copy to
each Selling Stockholder. In the event that the Company
fails to make such reimbursement payment within thirty (30)
days of the reimbursement request, the Representatives shall
notify the Selling Stockholders of their obligation to make
such reimbursement payments within fifteen (15) days;
provided, however, that each Selling Stockholder other than
Mr. Dunn and Ms. Bush shall be required to advance at such
time only its pro rata portion of the reimbursement payment.
To the extent that any Selling Stockholder fails to pay its
pro rata portion in timely response to the Underwriters'
request, Mr. Dunn and Ms. Bush shall be jointly and
severally liable for such reimbursement payment and each
shall render such payment to the Representatives within
fifteen (15) days of written demand therefor by the
Representatives.

(d) In addition to its other obligations under Section 6(b)
hereof, each Underwriter severally agrees that, as an
interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged
statement or omission, described in Section 6(b) hereof
which relates to information furnished to the Company
pursuant to Section 6(c) hereof, it will reimburse the
Company (and, to the extent applicable, each officer,
director, controlling person or Selling Stockholder) on a
quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to
the extent applicable, each officer, director, controlling
person or Selling Stockholder) for such expenses and the
possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent
applicable, each officer, director, controlling person or
Selling Stockholder) shall promptly return it to the
Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company
within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.

(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set
forth in paragraph (c) and/or (d) of this Section 5,
including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall
be settled by arbitration conducted under the provisions of
the Constitution and Rules of the Board of Governors of the
New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must
be commenced by service of a written demand for arbitration
or written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an
arbitration tribunal in such demand or notice, then the
party responding to said demand or notice is authorized to
do so. Such an arbitration would be limited to the operation
of the interim reimbursement provisions contained in
paragraph (c) and/or (d) of this Section 5 and would not
resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the
provisions of Section 6.

6. Indemnification and Contribution. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and
the respective officers, directors, partners, employees,
representatives and agents of

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<PAGE> 17

each of such Underwriter (collectively, the "Underwriter Indemnified
Parties" and, each, an "Underwriter Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (including the
reasonable cost of investigating and defending against any claims
therefor and counsel fees incurred in connection therewith), joint or
several, which may be based upon the Securities Act, or any other
statute or at common law, (i) on the ground or alleged ground that any
Preeffective Prospectus, the Registration Statement or the Prospectus
(or any Preeffective Prospectus, the Registration Statement or the
Prospectus as from time to time amended or supplemented) includes or
allegedly includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter, directly or
through the Representatives, specifically for use in the preparation
thereof, (ii) for any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in
any manner to, the Stock or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim,
damage, liability or expense arising out of or based upon matters
covered by clause (i) above (provided that the Company shall not be
liable under this clause (ii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss,
claim, damage, or liability or expense resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct), or
(iii) that arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company
contained herein or any failure of the Company to perform its
obligations hereunder. In no case is the Company to be liable with
respect to any claims made against any Underwriter Indemnified Party
against whom the action is brought unless such Underwriter Indemnified
Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the Underwriter
Indemnified Party, but failure to notify the Company of such claim
shall not relieve it from any liability that it may have to any
Underwriter Indemnified Party otherwise than on account of its
indemnity contained in this paragraph. The Company will be entitled to
participate at its own expense in the defense or, if it so elects, to
assume the defense of any suit brought to enforce any such liability,
but if the Company elects to assume the defense, such defense shall be
conducted by counsel chosen by it and reasonably acceptable to the
Underwriters. In the event the Company elects to assume the defense of
any such suit and retain such counsel, any Underwriter Indemnified
Parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless
(i) the Company shall have specifically authorized the retaining of
such counsel or (ii) the parties to such suit include any such
Underwriter Indemnified Parties, and the Company and such Underwriter
Indemnified Parties at law or in equity have been advised by counsel
to the Underwriters that one or more legal defenses may be available
to it or them which may not be available to the Company, in which case
the Company shall not be entitled to assume the defense of such suit
notwithstanding its obligation to bear the fees and expenses of such
counsel. The Company shall not be liable to indemnify any Underwriter
Indemnified Party for any settlement of any such claim effected
without the Company's consent, which shall not be unreasonably
withheld. This indemnity agreement is not exclusive and will be in
addition to any liability which the Company might otherwise have and
shall not limit any rights or remedies which may otherwise be
available at law or in equity to each Underwriter Indemnified Party.

(b) Each Selling Stockholder agrees to indemnify and hold
harmless each Underwriter Indemnified Party against any
losses, claims, damages, liabilities or expenses (including,
unless such Selling Stockholder elects to assume the
defense, the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in
connection therewith), which may be based upon the
Securities Act, or any other statute or at common law, (i)
on the ground or alleged ground that any Preeffective
Prospectus, the Registration Statement or the Prospectus

17
<PAGE> 18

(or any Preeffective Prospectus, the Registration Statement
or the Prospectus, as from time to time amended and
supplemented) includes an untrue statement of a material
fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading, but only insofar as such statement or
omission was made in reliance upon, and in conformity with,
written information furnished to the Company by such Selling
Stockholder, directly or indirectly, specifically for use in
the preparation thereof, or (ii) that arise out of or are
based in whole or in part on any inaccuracy in the
representations and warranties of the Selling Stockholders
contained herein or any failure of the Selling Stockholders
to perform their obligations hereunder. Such Selling
Stockholder shall be entitled to participate at his own
expense in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any such liability,
but, if such Selling Stockholder elects to assume the
defense, such defense shall be conducted by counsel chosen
by it. In the event that any Selling Stockholder elects to
assume the defense of any such suit and retain such counsel,
the Underwriter Indemnified Parties, defendant or defendants
in the suit, may retain additional counsel but shall bear
the fees and expenses of such counsel unless (i) such
Selling Stockholder shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit
include such Underwriter Indemnified Parties and such
Selling Stockholder and such Underwriter Indemnified Parties
have been advised by counsel that one or more legal defenses
may be available to it or them which may not be available to
such Selling Stockholder, in which case such Selling
Stockholder shall not be entitled to assume the defense of
such suit notwithstanding its obligation to bear the fees
and expenses of such counsel. This indemnity agreement is
not exclusive and will be in addition to any liability which
such Selling Stockholder might otherwise have and shall not
limit any rights or remedies which may otherwise be
available at law or in equity to each Underwriter
Indemnified Party. In no event, however, shall the liability
of any Selling Stockholder under this Section 6(b) exceed
the proceeds received by such Selling Stockholder from the
Underwriters in the offering. The Company and the Selling
Stockholders may agree, as among themselves and without
limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability
for which they each shall be responsible.

(c) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls
the Company within the meaning of the Securities Act
(collectively, the "Company Indemnified Parties") and each
Selling Stockholder and each person, if any, who controls a
Selling Stockholder within the meaning of the Securities Act
(collectively, the "Stockholder Indemnified Parties"),
against any losses, claims, damages, liabilities or expenses
(including, unless the Underwriter or Underwriters elect to
assume the defense, the reasonable cost of investigating and
defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which
arise out of or are based in whole or in part upon the
Securities Act, the Exchange Act or any other federal,
state, local or foreign statute or regulation, or at common
law, on the ground or alleged ground that any Preeffective
Prospectus, the Registration Statement or the Prospectus (or
any Preeffective Prospectus, the Registration Statement or
the Prospectus, as from time to time amended and
supplemented) includes an untrue statement of a material
fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances in which they were
made, not misleading, but only insofar as any such statement
or omission was made in reliance upon, and in conformity
with, written information furnished to the Company by such
Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof. For all
purposes of this Agreement, the syndicate information and
the amount of selling concessions and reallowance set forth
in the Prospectus constitute the only information relating
to any Underwriter furnished in writing to the Company by
the Representatives specifically for

18
<PAGE> 19

use in any Preeffective Prospectus, the Registration
Statement or the Prospectus. In no case is such Underwriter
to be liable with respect to any claims made against any
Company Indemnified Party or Stockholder Indemnified Party
against whom the action is brought unless such Company
Indemnified Party or Stockholder Indemnified Party shall
have notified such Underwriter in writing within a
reasonable time after the summons or other first legal
process giving information of the nature of the claim shall
have been served upon the Company Indemnified Party or
Stockholder Indemnified Party, but failure to notify such
Underwriter of such claim shall not relieve it from any
liability which it may have to any Company Indemnified Party
or Stockholder Indemnified Party otherwise than on account
of its indemnity agreement contained in this paragraph. Such
Underwriter shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any such liability,
but, if such Underwriter elects to assume the defense, such
defense shall be conducted by counsel chosen by it. In the
event that any Underwriter elects to assume the defense of
any such suit and retain such counsel, the Company
Indemnified Parties or Stockholder Indemnified Parties and
any other Underwriter or Underwriters or controlling person
or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by
them, respectively. The Underwriter against whom indemnity
may be sought shall not be liable to indemnify any person
for any settlement of any such claim effected without such
Underwriter's consent, which shall not be unreasonably
withheld. This indemnity agreement is not exclusive and will
be in addition to any liability which such Underwriter might
otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to any
Company Indemnified Party or Stockholder Indemnified Party.

(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified
party under subsection (a), (b) or (c) above in respect of
any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each
indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (or actions
in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Stock.
If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the
other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative
benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as
set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged
omission to state a material fact relates to information
supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be
just and equitable if contribution were determined by pro
rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of
allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable
by an indemnified party as a result of the losses,

19
<PAGE> 20

claims, damages, liabilities or expenses (or actions in
respect thereof) referred to above shall be deemed to
include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating,
defending, settling or compromising any such claim.
Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the
shares of the Stock underwritten by it and distributed to
the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Underwriters'
obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. No person
guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.

7. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations,
warranties and other statements of the Company, the Selling
Stockholders and the several Underwriters, as set forth in this
Agreement or made by them respectively, pursuant to this Agreement,
shall remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter, the Selling Stockholders, the
Company or any of its officers or directors or any controlling person,
and shall survive delivery of and payment for the Stock until all
applicable statutes of limitation have expired.

8. Conditions of Underwriters' Obligations. The respective obligations of
the several Underwriters hereunder shall be subject to the accuracy,
at and (except as otherwise stated herein) as of the date hereof and
at and as of each of the Closing Dates, of the representations and
warranties made herein by the Company and the Selling Stockholders, to
compliance at and as of each of the Closing Dates by the Company and
the Selling Stockholders with their covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to
each of the Closing Dates, and to the following additional conditions:

(a) The Registration Statement shall have become effective and
no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall
have been initiated or, to the knowledge of the Company or
the Representatives, shall be threatened by the Commission,
and any request for additional information on the part of
the Commission (to be included in the Registration Statement
or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto,
required pursuant to Rule 424(b) or Rule 434 of the Rules
and Regulations, shall have been made in the manner and
within the time period required by Rule 424(b) and Rule 434
of the Rules and Regulations, as the case may be.

(b) The Representatives shall have been satisfied that there
shall not have occurred any change, on a consolidated basis,
prior to each of the Closing Dates in the condition
(financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company
and its subsidiaries considered as a whole, or any change in
the capital stock, short-term or long-term debt of the
Company and its subsidiaries considered as a whole, such
that (i) the Registration Statement or the Prospectus, or
any amendment or supplement thereto, contains an untrue
statement of fact which, in the opinion of the
Representatives, is material, or omits to state a fact
which, in the opinion of the Representatives, is required to
be stated therein or is necessary to make the statements
therein not misleading, or (ii) it is unpracticable in the
reasonable judgment of the Representatives to proceed with
the public offering or purchase the Stock as contemplated
hereby.

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<PAGE> 21

(c) The Representatives shall be satisfied that no legal or
governmental action, suit or proceeding affecting the
Company which is material and adverse to the Company or
which affects or may affect the Company's or the Selling
Stockholders' ability to perform their respective
obligations under this Agreement shall have been instituted
or threatened and there shall have occurred no material
adverse development in any existing such action, suit or
proceeding.

(d) At the time of execution of this Agreement, the
Representatives shall have received from Price Waterhouse
LLP, independent certified public accountants, a letter,
dated the date hereof, in form and substance satisfactory to
the Underwriters. In addition, the Representatives shall
have received from such accountants a letter stating that
their review of the Company's internal accounting controls,
to the extent they deemed necessary in establishing the
scope of their examination of the Company's financial
statements as of December 31, 1996, did not disclose any
weakness in internal controls that they considered to be
material weaknesses.

(e) The Representatives shall have received from Price
Waterhouse LLP, independent certified public accountants,
letters, dated each of the Closing Dates, to the effect that
such accountants reaffirm, as of each of the Closing Dates,
and as though made on each of the Closing Dates, the
statements made in the letter furnished by such accountants
pursuant to paragraph (d) of this Section 8.

(f) The Representatives shall have received from Venture Law
Group, counsel for the Company, opinions, dated each of the
Closing Dates, to the effect set forth in Exhibit I hereto.

(g) The Representatives shall have received from counsel for
each of the Selling Stockholders an opinion dated each of
the Closing Dates to the effect set forth in Exhibit III
hereto.

(h) The Representatives shall have received from Morrison &
Foerster LLP, counsel for the Underwriters, their opinions
dated each of the Closing Dates with respect to the
incorporation of the Company, the validity of the Stock, the
Registration Statement and the Prospectus and such other
related matters as it may reasonably request, and the
Company and the Selling Stockholders shall have furnished to
such counsel such documents as they may request for the
purpose of enabling them to pass upon such matters.

(i) The Representatives shall have received certificates, dated
each of the Closing Dates, of the chief executive officer or
the President and the chief financial or accounting officer
of the Company to the effect that:

(i) No stop order suspending the effectiveness of the
Registration Statement has been issued and to the
knowledge of the signatories no proceedings for
that purpose have been instituted or are pending
or contemplated under the Securities Act;

(ii) Neither any Preeffective Prospectus, as of its
date, nor the Registration Statement nor the
Prospectus, nor any amendment or supplement
thereto, as of the time when the Registration
Statement became effective and at all times
subsequent thereto up to the delivery of such
certificate, included any untrue statement of a
material fact or omitted to state any material
fact required to be stated therein or necessary to
make the statements therein not misleading.

(iii) The representations and warranties of the Company
in this Agreement are true and correct in all
material respects at and as of each of the Closing
Dates, and the Company has complied in all
material respects with all the covenants and
agreements and performed or satisfied all the
conditions on its part to be performed or
satisfied at or prior to the Closing Dates; and

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<PAGE> 22

(iv) Since the respective dates as of which information
is given in the Registration Statement and the
Prospectus, and except as disclosed in or
contemplated by the Prospectus, (A) there has not
been any material adverse change or a development
involving a material adverse change in the
condition (financial or otherwise), properties,
business, management, net worth or results of
operations of the Company and the Company has not
entered into any material transactions not in the
ordinary course of business; (B) the business and
operations conducted by the Company and its
subsidiaries have not sustained a loss by strike,
fire, flood, accident or other calamity (whether
or not insured) of such a character as to
interfere materially with the conduct of the
business and operations of the Company; (C) no
legal or governmental action, suit or proceeding
is pending or threatened against the Company which
is material to the Company, whether or not arising
from transactions in the ordinary course of
business, or which may materially and adversely
affect the transactions contemplated by this
Agreement; (D) the Company has not incurred any
material liability or obligation, direct,
contingent or indirect, made any change in its
capital stock (except pursuant to its stock
plans), made any material change in its short-term
or funded debt or repurchased or otherwise
acquired any of the Company's capital stock; and
(E) the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders
of record on a date prior to each of the Closing
Dates.

(j) The Company and each of the Selling Stockholders
shall have furnished to the Representatives such
additional certificates as the Representatives may
have reasonably requested as to the accuracy, at
and as of each of the Closing Dates, of the
representations and warranties made herein by them
and as to compliance at and as of each of the
Closing Dates by them with their covenants and
agreements herein contained and other provisions
hereof to be satisfied at or prior to each of the
Closing Dates, and as to satisfaction of the other
conditions to the obligations of the Underwriters
hereunder.

(k) Cowen shall have received the written agreements,
substantially in the form of Exhibit II hereto, of
all the officers, directors and holders of Common
Stock of the Company that each will not offer,
sell, assign, transfer, encumber, contract to
sell, grant an option to purchase or otherwise
dispose of any shares of Common Stock (including,
without limitation, Common Stock which may be
deemed to be beneficially owned by such officer,
director or holder in accordance with the Rules
and Regulations) during the 180 days following the
effective date of the Registration Statement,
except for the Stock being sold hereunder by the
Selling Stockholders.

(l) The Nasdaq National Market shall have approved the
stock for listing, subject only to official notice
of issuance.

All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory
in form and substance to the Representatives. The Company will furnish
to the Representatives conformed copies of such opinions,
certificates, letters and other documents as the Representatives shall
reasonably request. If any of the conditions hereinabove provided for
in this Section shall not have been satisfied when and as required by
this Agreement, this Agreement may be terminated by the
Representatives by notifying the Company of such termination in
writing or by telegram at or prior to each of the Closing Dates, but
Cowen, on behalf of the Representatives, shall be entitled to waive
any of such conditions.

9. Effective Date. This Agreement shall become effective immediately as
to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all
other provisions, at 11:00 a.m. New York City time on the first full
business day following the effectiveness of the Registration Statement
or at such earlier time after the

22
<PAGE> 23

Registration Statement becomes effective as the Representatives may
determine on and by notice to the Company or by release of any of the
Stock for sale to the public. For the purposes of this Section 9, the
Stock shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Stock or
upon the release by you of telegrams (a) advising Underwriters that
the shares of Stock are released for public offering or (b) offering
the Stock for sale to securities dealers, whichever may occur first.

10. Termination. This Agreement (except for the provisions of Section 5)
may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the
Representatives and may be terminated by the Representatives at any
time before it becomes effective in accordance with Section 9 by
notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there
shall be no liability of any party to this Agreement to any other
party, other than as provided in Sections 5, 6 and 11 and other than
as provided in Section 12 as to the liability of defaulting
Underwriters.

This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the
First Closing Date trading in securities on any of the New York Stock
Exchange, American Stock Exchange or Nasdaq National Market System
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange or market, or a banking moratorium
shall have been declared by New York or United States authorities;
(ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market; (iii) if
at or prior to the First Closing Date there shall have been (A) an
outbreak or escalation of hostilities between the United States and
any foreign power or of any other insurrection or armed conflict
involving the United States or (B) any material and adverse change in
financial markets or any calamity or crisis which, in the judgment of
the Representatives, makes it impractical or inadvisable to offer or
sell the Stock on the terms contemplated by the Prospectus; (iv) if
there shall have been any development or prospective development
involving particularly the business or properties or securities of the
Company or any of its subsidiaries or the transactions contemplated by
this Agreement, which, in the judgment of the Representatives, makes
it impracticable or inadvisable to offer or deliver the Stock on the
terms contemplated by the Prospectus; (v) if there shall be any
litigation or proceeding, pending or threatened, which, in the
judgment of the Representatives, makes it impracticable or inadvisable
to offer or deliver the on the terms contemplated by the Prospectus;
or (vi) if there shall have occurred any of the events specified in
the immediately preceding clauses (i) - (v) together with any other
such event that makes it, in the judgment of the Representatives,
impractical or inadvisable to offer or deliver the Stock on the terms
contemplated by the Prospectus.

11. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any
election of the Company or the Selling Stockholders pursuant to the
first paragraph of Section 10 or shall be terminated by the
Representatives under Section 8 or Section 10, the Company will bear
and pay the expenses specified in Section 5 hereof and, in addition to
its obligations pursuant to Section 6 hereof, the Company will
reimburse the reasonable out-of-pocket expenses of the several
Underwriters (including reasonable fees and disbursements of counsel
for the Underwriters) incurred in connection with this Agreement and
the proposed purchase of the Stock, and promptly upon demand the
Company will pay such amounts to you as Representatives.

12. Substitution of Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock
hereunder and the aggregate number of shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not
exceed ten percent

23
<PAGE> 24

(10%) of the total number of shares underwritten, the other
Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase.
If any Underwriter or Underwriters shall so default and the aggregate
number of shares with respect to which such default or defaults occur
is more than ten percent (10%) of the total number of shares
underwritten and arrangements satisfactory to the Representatives and
the Company for the purchase of such shares by other persons are not
made within forty-eight (48) hours after such default, this Agreement
shall terminate.

If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a
defaulting Underwriter or Underwriters as provided in this Section 12,
(i) the Company and the Selling Stockholders shall have the right to
postpone the Closing Dates for a period of not more than five (5) full
business days in order that the Company and the Selling Stockholders
may effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments
to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of
shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein
contained shall relieve any defaulting Underwriter of its liability to
the Company, the Selling Stockholders or the other Underwriters for
damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on
the part of any non-defaulting Underwriter, the Selling Stockholders
or the Company, except for expenses to be paid or reimbursed pursuant
to Section 5 and except for the provisions of Section 6.

13. Notices. All communications hereunder shall be in writing and, if sent
to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Cowen & Company at
Financial Square, New York, New York 10005 except that notices given
to an Underwriter pursuant to Section 6 hereof shall be sent to such
Underwriter at the address furnished by the Representatives or, if
sent to the Company, shall be mailed, delivered or telegraphed and
confirmed c/o AccelGraphics, Inc., 1942 Zanker Road, San Jose,
California 95112, Attention: President.

14. Successors. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling
Stockholders and their respective successors and legal
representatives. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other
person; except that the representations, warranties, covenants,
agreements and indemnities of the Company and the Selling Stockholders
contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters
within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, and the indemnities of the several Underwriters
shall also be for the benefit of each director of the Company, each of
its officers who has signed the Registration Statement and the person
or persons, if any, who control the Company or any Selling
Stockholders within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act.

15. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

24
<PAGE> 25

16. Authority of the Representatives. In connection with this Agreement,
you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Cowen, as Representative, will be
binding on all the Underwriters; and any action taken under this
Agreement by any of the Attorneys-in-fact will be binding on all the
Selling Stockholders.

17. Partial Unenforceability. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such
minor changes) as are necessary to make it valid and enforceable.

18. General. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof.

In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in
this Agreement are for the convenience of the parties only and will
not affect the construction or interpretation of this Agreement. This
Agreement may be amended or modified, and the observance of any term
of this Agreement may be waived, only by a writing signed by the
Company, the Selling Stockholders and the Representatives.

19. Counterparts. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.

25
<PAGE> 26

Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that the
individual has been duly appointed as Attorney-in-fact by such Selling
Stockholder pursuant to a validly existing and binding Power of
Attorney which authorizes such Attorney-in-fact to take such action.

If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter and your acceptance shall constitute a
binding agreement between us.

Very truly yours,

ACCELGRAPHICS, INC.

By:____________________________
President

SELLING STOCKHOLDERS LISTED
IN SCHEDULE B

By:____________________________
Attorney-in-Fact
Acting on [his] [her] own behalf
and on behalf of the Selling
Stockholders listed in Schedule B.

26
<PAGE> 27

Accepted and delivered in
o as of
the date first above written.

COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY LLC
SOUNDVIEW FINANCIAL GROUP, INC.
Acting on their own behalf and as Representatives of several Underwriters
referred to in the foregoing Agreement.

By: COWEN & COMPANY
By: Cowen Incorporated,
its general partner

By: ______________________________
John P. Dunphy
Managing Director - Syndicate

27
<PAGE> 28

SCHEDULE A
<TABLE>
<CAPTION>

Number Number of
of Firm Optional
Shares Shares
to be to be
Name Purchased Purchased
<S> <C> <C>

Cowen & Company . . . . . . . . . . .
Robertson, Stephens & Company LLC . . . . . .
SoundView Financial Group, Inc. . . . . . . .

Total 2,600,000 390,000
</TABLE>

SCHEDULE A

<PAGE> 29

SCHEDULE B

<TABLE>
<CAPTION>
Number of Number of
Firm Optional
Shares to Shares to
be Sold be Sold
---------- ----------
<S> <C> <C>

AccelGraphics, Inc. 2,145,000

SELLING STOCKHOLDERS
Kubota Corporation 113,464
Advanced Technology Venturers IV, L.P. 85,958
John O. Burness 3,375
John J. Caravello 4,312
AVI Capital L.P.
Associated Ventures Investors II, L.P.
AVI Partners Growth Fund, L.P.
AVI Silicon Valley Partners, L.P.
STF II, L.P. 69,864
Asset Management Associates 1996, L.P. 33,333
Jeffrey W. Dunn 23,064
Gregory C. Milliken 11,015
Nancy E. Bush 7,125
Lew G. Epstein 5,622
Niraj Swarup 3,000

------------ ------------
Total 2,600,000 390,000
============ ============
</TABLE>

SCHEDULE B

<PAGE> 30

[Form of Opinion of Issuer's Counsel] Exhibit I

[Date]

Cowen & Company
Robertson, Stephens & Company LLC
SoundView Financial Group, Inc.
As representatives of the
several Underwriters

c/o Cowen & Company
Financial Square
New York, New York 10005

Re: AccelGraphics, Inc.
2,600,000 Shares of Common Stock

Dear Sirs:

We have acted as counsel for AccelGraphics, Inc., a Delaware corporation (the
"Company"), in connection with the sale by the Company and purchase of ____
shares of Common Stock, par value $.001 per share, of the Company (the "Shares")
by the several Underwriters listed in Schedule A to the Underwriting Agreement,
dated ____, among the Company, Cowen & Company, Robertson, Stephens & Company,
LLC and SoundView Financial Group, Inc., as representatives of the several
Underwriters named therein, and the Selling Stockholders named in Schedule B
thereto (the "Underwriting Agreement"). This opinion is being furnished pursuant
to Section 8(f) of the Underwriting Agreement. All defined terms not defined
herein shall have the meanings ascribed to them in the Underwriting Agreement.

We are of the opinion that:

1. The Company and each of its subsidiaries have been duly incorporated and are
validly existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation, to our knowledge are duly qualified
to do business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification, and have all
power and authority necessary to own or hold their respective properties and
conduct the businesses in which they are engaged;

2. The Company has an authorized capitalization as set forth in the Prospectus
as of the dates set forth therein, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are fully paid
and non-assessable and all of the Shares to be issued and sold by the Company
and the Selling Stockholders to the Underwriters pursuant to the Underwriting
Agreement have been duly and validly authorized and, when issued and delivered
against payment therefor as provided for in the Underwriting Agreement, shall be
duly and validly issued, fully paid and non-assessable; and all of the issued
shares of capital stock of each subsidiary of the Company have been duly and
validly authorized and issued and are fully paid, non-assessable and are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;

3. There are no preemptive or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any of the Shares pursuant to
the Company's Certificate of Incorporation or By-Laws or to our knowledge any
agreement or other instrument;

<PAGE> 31

4. To our knowledge, other than as described in the Prospectus there are no
legal or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the Company or any
of its Subsidiaries is the subject which, if determined adversely to the Company
or any of its subsidiaries, could have a material adverse effect on the Company
and its subsidiaries; and, to the best of our knowledge, no such proceedings are
threatened or contemplated by governmental authorities or other third parties;

5. The Company has full corporate power and authority to enter into the
Underwriting Agreement and to perform its obligations thereunder (including to
issue, sell and deliver the Shares), and the Underwriting Agreement has been
duly and validly authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that rights to indemnification
and contribution thereunder may be limited by federal or state securities laws
or the public policy underlying such laws;

6. To our knowledge, the execution, delivery and performance of the Underwriting
Agreement and the consummation of the transactions therein contemplated other
than performance of the Company's indemnification obligations under the
Underwriting Agreement, concerning which we express no opinion, will not result
in a breach or violation of any of the terms or provisions of or constitute a
default under any indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which any of them or any of their properties is or may be bound, the
Certificate of Incorporation, By-laws or other organizational documents of the
Company or any of its subsidiaries, or any law, order, rule or regulation of any
court or governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties or result in the creation of a
lien; provided, however, that we express no opinion or belief with respect to
state securities or blue sky laws;

7. No consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, except such as may be
required by the National Association of Securities Dealers, Inc. (the "NASD") or
under the Securities Act or the securities or "Blue Sky" laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters;

8. To our knowledge, the Company and each of its subsidiaries are in compliance
with, and conduct their businesses in conformity with, all applicable federal,
state, local and foreign laws, rules and regulations, including, but not limited
to, those of any governmental agency, court or tribunal; to our knowledge, no
prospective change in any of such federal, state, local or foreign laws, rules
or regulations has been adopted which, when made effective, would have a
material adverse effect on the operations of the Company and its subsidiaries.

9. The Registration Statement was declared effective under the Securities Act as
of __________, 1997, the Prospectus was filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations on __________, 1997 and no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose is pending or, to the best of our knowledge,
threatened by the Commission;

10. The Registration Statement and the Prospectus and any amendments or
supplements thereto comply as to form in all respects with the requirements of
the Securities Act and the Rules and Regulations.

<PAGE> 32

11. To our knowledge, there are no contracts or other documents which are
required by the Securities Act or by the Rules and Regulations to be described
in the Prospectus or filed as exhibits to the Registration Statement which have
not been described in the Prospectus or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted by the Rules and
Regulations;

12. To our knowledge, other than as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to this Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act;

l3. To our knowledge, the descriptions in the Registration Statement and
Prospectus of statutes, rules, regulations, legal or governmental proceedings,
contracts and other documents are accurate and such descriptions fairly present
the information required to be disclosed by the Securities Act and the Rules and
Regulations; and to our knowledge, there are no legal or governmental
proceedings, statutes, ruler or regulations, or any contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement which are not described
and filed as required;

14. To our knowledge, the statements under the captions "Risk Factors," to the
extent they reflect matters of federal law arising under the federal laws of the
United States or legal conclusions relating to such law, accurately summarize
and fairly present the legal and regulatory matters described therein;

15. The Company has complied with all provisions of Section 517.075 of the
Florida Statutes (Chapter 92-198; Laws of Florida); and

The foregoing opinion is limited to matters governed by the Federal laws of the
United States of America, the general corporate law of the State of Delaware and
the laws of the State of California.

We have acted as counsel to the Company on a regular basis, have acted as
counsel to the Company in connection with previous financing transactions and
have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement and the Prospectus, and based on the
foregoing and except with respect to any matters related to intellectual
property or the financial statements and related schedules set forth in the
Registration Statement, no facts have come to our attention which lead us to
believe that the Registration Statement or any amendment thereto, as of the
Effective Date, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state a material fact Required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.

Very truly yours,

[Signatory]

By: ________________________
Name:
Title:

<PAGE> 33

[Form of Lock-Up Agreement] Exhibit II

[Date]

Cowen & Company
Robertson, Stephens & Company
SoundView Financial Group, Inc.
As representatives of the
several Underwriters

c/o Cowen & Company
Financial Square
New York, New York 10005

Re: AccelGraphics, Inc.
____ Shares of Common Stock

Dear Sirs:

In order to induce Cowen & Company ("Cowen"), Robertson Stephens & Company, and
SoundView Financial Group, Inc. (together with Cowen, the "Representatives"), to
enter in to a certain underwriting agreement with AccelGraphics, Inc., a
California corporation (the "Company"), with respect to the public offering of
shares of the Company's Common Stock ("Common Stock"), the undersigned hereby
agrees that from the date hereof until 180 days following the date of the final
prospectus filed by the Company with the Securities and Exchange Commission in
connection with such public offering, the undersigned will not, without the
prior written consent of Cowen, directly or indirectly, (i) offer, sell, assign,
transfer, encumber, pledge, contract to sell, grant an option to purchase or
otherwise dispose of, other than by operation of law, any shares of Common Stock
(including, without limitation, Common Stock which may be deemed to be
beneficially owned by the undersigned in accordance with the rules and
regulations promulgated under the Securities Act of 1933, as the same may be
amended or supplemented from time to time (such shares, the "Beneficially Owned
Shares")) or (ii) enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, and
whether any such transaction relates to Common Stock now owned or hereafter
acquired by the undersigned.

Anything contained herein to the contrary notwithstanding, any person to whom
shares of Common Stock or Beneficially Owned Shares are transferred from the
undersigned shall be bound by the terms of this Agreement.

In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Common Stock with respect to any shares of Common Stock or
Beneficially Owned Shares.

Very truly yours,

[Signatory]

By: _____________________
Name:
Title:

<PAGE> 34

[Form of Opinion of Selling Stockholders' Counsel] Exhibit III

[Date]

Cowen & Company Robertson, Stephens & Company LLC SoundView Financial Group,
Inc.
As representatives of the
several Underwriters

c/o Cowen & Company
Financial Square
New York, New York 10005

Re: AccelGraphics, Inc.
2,600,000 Shares of Common Stock

Dear Sirs:

We have acted as counsel for certain Selling Stockholders (the "Selling
Stockholders") in connection with the sale by the Selling Stockholders and
purchase of ________ shares (the "Shares") of Common Stock of AccelGraphics,
Inc., a Delaware corporation (the "Company"), par value $.001 per share, by the
several Underwriters listed in Schedule A to the Underwriting Agreement, dated
________, among the Company, Cowan & Company, Robertson, Stephens & Company LLC
, and SoundView Financial Group, Inc., as representatives of the several
Underwriters named therein, and the Selling Stockholders named in Schedule B
thereto (the "Underwriting Agreement"). This opinion is being furnished pursuant
to Section 8(g) of the Underwriting Agreement. All defined terms not defined
herein shall have the meaning ascribed to them in the Underwriting Agreement.

We are of the opinion that:

1. To our knowledge each Selling Stockholder has all right, power and authority
to sell, transfer, assign and deliver the Shares being sold by it pursuant to
the Underwriting Agreement, and, upon delivery of the payment for such Shares
thereunder, each of the several Underwriters will acquire valid and marketable
title to such stock being sold to the Underwriters by it free and clear of any
liens, encumbrances, equities, claims or restrictions on transfer, assuming that
the Underwriters are acquiring such Shares in good faith and without notice of
any adverse claim with respect to the Shares;

2. Each Selling Stockholder has full power and authority to enter into the
Underwriting Agreement and the applicable Custody Agreement and Power of
Attorney and to perform its obligations thereunder and, by execution and
delivery of the Underwriting Agreement and the applicable Custody Agreement and
Power of Attorney, has created a valid and binding obligation of such Selling
Stockholder in accordance with their terms, except to the extent that rights to
indemnity and contribution thereunder may be limited by federal or state
securities laws or the public policy underlying such laws;

3. To our knowledge the execution and delivery of the Underwriting Agreement and
the applicable Custody Agreement and Power of Attorney by each Selling
Stockholder and the consummation of the transactions

1
<PAGE> 35

contemplated thereby will not conflict with or violate any law, rule, or
regulation applicable to Selling Stockholder; and

4. The sale of the Shares to the Underwriters by each Selling Stockholder
pursuant to the Underwriting Agreement, the compliance by such Selling
Stockholder with the provisions of the Underwriting Agreement and the applicable
Custody Agreement and Power of Attorney, and the consummation of the
transactions contemplated therein, do not (a) require the consent, approval,
authorization, registration, or qualification of or with any governmental
authority, except such as have been obtained and such as may be required under
state securities or "Blue Sky" laws, or (b) to our knowledge, conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other material agreement or instrument to which such Selling Stockholder is a
party or by which the Selling Stockholder or any of its properties, are bound,
or any statute, rule or regulation or any judgment, decree or order of any court
or other governmental authority or any arbitrator applicable to such Selling
Stockholder.

Very truly yours,

[Signatory]

By: ____________________
Name:
Title:

<PAGE> 1
Exhibit 3.4

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

ACCELGRAPHICS GRAPHICS, INC.

The following Amended and Restated Certificate of Incorporation of
AccelGraphics, Inc. amends and restates the provisions of and supersedes the
Certificate of Incorporation filed with the Secretary of State of the State of
Delaware on January 28, 1997 in its entirety.

ARTICLE I

The name of the corporation is AccelGraphics, Inc. (the "Corporation").

ARTICLE II

The address of the corporation's registered office in the State of
Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware
19805. The name of its registered agent at such address is Corporation Service
Company.

ARTICLE III

The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.

ARTICLE IV

Upon the effective date of the filing of the Amended and Restated
Certificate of Incorporation, every two shares of this Corporation's
outstanding Common Stock and Preferred Stock shall be converted and
reconstituted into one share of the like class and series of the Corporation's
capital stock from which such shares were converted (the "Stock Split"). In
lieu of the issuance of fractional shares, the Corporation shall pay to the
holder thereof in cash an amount equal to the fraction of a share to which such
holder is entitled multipled by the fair market value of such share, as
determined by the Corporation's Board of Directors. All share amounts and
amounts per share set forth in the Amended and Restated Certificate of
Incorporation have been appropriately adjusted to reflect the Stock Split. No
further adjustment of any Dividend Preference, Liquidation Preference,
Conversion Price, Redemption Price, or Protective Provisions pursuant to
Sections 1, 2, 3, 4, or 6 respectively, of Part B of this Article IV shall be
made as a result of the Stock Split.

<PAGE> 2

(A) Classes of Stock. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock". The total number of shares which the Corporation is authorized to
issue is Sixty Million (60,000,000) shares. The number of shares of Common
Stock authorized to be issued is Fifty Million (50,000,000), par value $.001
per share, and the number of shares of Preferred Stock authorized to be issued
is Ten Million (10,000,000), par value $.001 per share.

(B) Rights, Preferences, Privileges and Restrictions of Preferred
Stock. The Preferred Stock authorized by this Certificate of Incorporation may
be issued from time to time in series. The rights, preferences, privileges and
restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of Three Million Four Hundred Seventy-Seven Thousand
(3,477,000) shares, the Series A-1 Preferred Stock, which series shall consist
of Three Million Four Hundred Seventy-Seven Thousand (3,477,000) shares, the
Series B Preferred Stock, which series shall consist of One Million One Hundred
Thousand (1,100,000) shares, and the Series B-1 Preferred Stock, which series
shall consist of One Million One Hundred Thousand (1,100,000) shares are as set
forth below in this Part (B) of Article IV.

Except as to the Series A, Series A-1, Series B and Series B-1
Preferred Stock and except as otherwise provided in this Certificate of
Incorporation, the Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them. The
Board of Directors, except as otherwise provided in this Certificate of
Incorporation, is also authorized to decrease the number of shares of any
series, subsequent to the issuance of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

1. Dividend Provisions. The holders of shares of Series
A, Series A-1, Series B, and Series B-1 Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the Corporation) on the Common Stock of the Corporation, at the rate
of $0.16666667 per share for each share of Series A and Series A-1 Preferred
Stock, and $0.30 per share for each share of Series B and Series B-1 Preferred
Stock, (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) per annum or, if greater (as determined on an as-converted
basis), an amount equal to that paid on any other outstanding shares of the
Corporation whenever funds are legally available therefor, payable quarterly
when, as and if declared by the Board of Directors. Such dividends shall not
be cumulative.

-2-
<PAGE> 3

2. Liquidation Preference.

(a) In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Series A, Series A-1, Series B, and Series B-1 Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Common Stock, by reason of their
ownership thereof, an amount per share equal to $1.66666667 for each outstanding
share of Series A and Series A-1 Preferred Stock, respectively, (as adjusted for
stock splits, stock dividends and recapitalizations ) (the "Original Series A
and Series A-1 Issue Price"), and $3.00 for each outstanding share of Series B
and Series B-1 Preferred Stock ( as adjusted for stock splits, stock dividends
and recapitalizations) (the "Original Series B and Series B-1 Issue Price"),
plus an amount equal to declared but unpaid dividends thereon. If, upon the
occurrence of such an event, the assets and property thus distributed among the
holders of the Series A, Series A-1, Series B and Series B-1 Preferred Stock
shall be insufficient to permit the payment to such holders of the full
preferential amount, then the assets and property of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A, Series A-1, Series B and Series B-1 Preferred Stock in proportion to
the aggregate preferential amounts owed such holders upon a liquidation,
dissolution or winding up of the Corporation.

(b) After the distributions described in
subsections (a) above have been paid in full, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
among the holders of Series A, Series A-1, Series B, and Series B-1 Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming conversion of all such Preferred Stock).

(c) For purposes of this Section 2, (i) any
acquisition of the Corporation by means of merger or other form of corporate
reorganization in which the stockholders of the Corporation do not own a
majority of the outstanding shares of the surviving corporation or (ii) a sale
of all or substantially all of the assets of the Corporation shall be treated
as a liquidation, dissolution or winding up of the Corporation and shall
entitle the holders of Preferred Stock and Common Stock to receive at the
closing cash, securities or other property as specified in Sections 2(a) and
2(b) above; provided that in connection with the distribution of assets
contemplated by this subsection (c) the holders of Series A and Series A-1
Preferred Stock only shall be entitled to receive a total of $6.66666667 per
share (which amount includes the Original Series A and Series A-1 Issue Price)
and the holders of Series B and Series B-1 Preferred Stock only shall be
entitled to receive a total of $12.00 per share (which amount includes the
Original Series B and Series B-1 Issue Price), and if there are any remaining
proceeds such remaining proceeds shall be distributed, among the holders of
Common Stock pro rata based on the number of shares of Common Stock held by
each such stockholder.

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<PAGE> 4

(d) Any securities to be delivered to the holders
of the Preferred Stock and/or Common Stock pursuant to Section 2(c) above shall
be valued as follows:

(i) Securities not subject to investment
letter or other similar restrictions on free marketability:

(A) If traded on a national
securities exchange or the Nasdaq Stock Market, the value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
30-day period ending three (3) days prior to the closing;

(B) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing
bid prices over the 30-day period ending three (3) days prior to the closing;
and

(C) If there is no active public
market, the value shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Corporation.

(ii) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability shall be to make an appropriate discount from the market value
determined as above in (i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors of
the Corporation.

(e) In the event the requirements of subsection
2(c) are not complied with, the Corporation shall forthwith either:

(i) cause such closing to be postponed
until such time as the requirements of Section 2(c) have been complied with, or

(ii) cancel such transaction, in which
event the rights, preferences, privileges and restrictions of the holders of
Preferred Stock shall revert to and be the same as such rights, preferences,
privileges and restrictions existing immediately prior to the date of the first
notice referred to in Section 2(f) hereof.

(f) The Corporation shall give each holder of
record of Preferred Stock written notice of such a Section 2(c) transaction not
later than ten (10) days prior to the stockholders' meeting called to approve
such transaction, or ten (10) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the
final approval of such transaction. The first of such notices shall describe
the material terms and conditions of the impending transaction, and the
Corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than ten (10)
days after the Corporation has given the first notice provided for herein or
sooner than ten (10) days

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<PAGE> 5

after the Corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the written
consent of the holders of a majority of the Series A, Series A-1, Series B and
Series B-1 Preferred Stock then outstanding.

3. Conversion. The holders of the Series A, Series A-1,
Series B and Series B-1 Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):

(a) Right to Convert. Each share of Series A,
Series A-1, Series Band Series B-1 Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the Series A,
Series A-1, Series B, and Series B-1 Preferred Stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
$1.66666667 for each share of Series A and Series A-1 Preferred Stock, $3.00
for each share of Series B and Series B-1 Preferred Stock by the Conversion
Price at the time in effect for such shares. The initial "Conversion Price"
for each share of Series A and Series A-1 Preferred Stock shall be $1.66666667
per share, for each share of Series B and Series B-1 Preferred Stock shall be
$3.00 per share; provided, however, in either case, that such Conversion Prices
shall be subject to adjustment as set forth below.

(b) Automatic Conversion.

(i) Each share of Series A, Series A-1,
Series B, and Series B-1 Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price at the time in effect for such
series of Preferred Stock immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement on Form S-1 under the
Securities Act of 1933, as amended, which results in aggregate gross cash
proceeds to the Corporation in excess of $7,500,000 and the public offering
price of which is not less than $7.00 per share (adjusted to reflect subsequent
stock dividends, stock splits or recapitalization).

(ii) Conversion Into Series A-1 and Series
B-1 Preferred.

(A) Each share of Series A
Preferred Stock held by a Non-Participating Investor who does not purchase such
holder's full Pro Rata Share of New Securities in a Series A Dilutive Issuance,
in accordance with the procedures set forth in Section 3(b)(ii)(C) hereof,
shall automatically be converted into a share of Series A-1 Preferred Stock at
a conversion rate of one fully paid and nonassessable share of Series A-1
Preferred Stock for each share of Series A Preferred Stock held by such
holder. Each share of Series B Preferred Stock held by a Non-Participating
Investor who does not purchase such holder's full Pro Rata Share of New
Securities in a Series B Dilutive Issuance, in accordance with the procedures
set forth in Section 3(b)(ii)(C)

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<PAGE> 6

hereof, shall automatically be converted into a share of Series B-1 Preferred
Stock at a conversion rate of one fully paid and nonassessable share of Series
B-1 Preferred Stock for each share of Series B Preferred Stock held by such
holder.

(B) For purposes of this Section 3(b)(ii),
the following definitions shall apply:

(1) "New Securities" shall mean
any Additional Stock of Common Stock, as such term is defined in Section
3(d)(ii) below, sold in any financing transaction after the Initial Purchase
Date (as defined in Section 3(d)(i)(A) below).

(2) "Pro Rata Share" shall mean
the ratio of (X) the sum of the number of shares of Common Stock issuable upon
the conversion of the particular series of Preferred Stock held by a holder of
such series of Preferred Stock to (Y) the sum of the total number of shares of
Common Stock outstanding (assuming conversion of all of the outstanding shares
of Preferred Stock of the Corporation).

(3) "Participating Investor" shall
mean any holder of Series A Preferred Stock that agrees to purchase at least
its Pro Rata Share of a Series A Dilutive Issuance or a holder of Series B
Preferred Stock that agrees to purchase at least its Pro Rata share of a Series
B Dilutive Issuance, in each case pursuant to Section 3(b)(ii)(C) hereof.

(4) "Non-Participating Investor"
shall mean any holder of Series A Preferred Stock or Series B Preferred Stock
that is not a Participating Investor.

(5) "Series A Dilutive Issuance"
shall mean an issuance of New Securities for a consideration per share less
than the Conversion Price of the Series A Preferred Stock in effect on the date
of and immediately prior to such issue.

(6) "Series B Dilutive Issuance"
shall mean an issuance of New Securities for a consideration per share less
than the Conversion Price of the Series B Preferred Stock in effect on the date
of and immediately prior to such issue.

(C) In the event that the Corporation
shall propose to undertake a Series A Dilutive Issuance or Series B Dilutive
Issuance, it shall give each holder of the particular series of Preferred Stock,
as appropriate, a written notice (the "Pay- to-Play Notice") of its intention to
sell New Securities at least thirty (30) days prior to the anticipated date of
first sale of such New Securities (the "New Securities Closing Date"). The
Pay-to-Play Notice shall describe the type of New Securities, the price of such
New Securities and the general terms upon which the Corporation proposes

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<PAGE> 7

to issue such New Securities. Each holder of such series of Preferred Stock
shall have a right to purchase its Pro Rata Share of such New Securities (a
"Purchase Right"), which Purchase Right shall expire fifteen (15) days prior to
the New Securities Closing Date. Each holder of such series of Preferred Stock
shall be entitled to exercise its Purchase Right by providing written notice to
the Corporation that such holder agrees to become a Participating Investor in
accordance with the terms specified in the Pay-to-Play Notice. Any holder of
the particular series of Preferred Stock (in the event of a Series A Dilutive
Issuance or Series B Dilutive Issuance, as appropriate) who fails to provide
such written notice to the Corporation prior to the expiration of such holder's
Purchase Right shall be deemed to be a Non-Participating Investor.

(D) Upon the conversion of Series A
or Series B Preferred Stock into Series A-1 or Series B-1 Preferred Stock held
by a Non-Participating Investor as set forth herein, such shares of Series A or
Series B Preferred Stock shall no longer be outstanding on the books of the
Corporation and the Non-Participating Investor shall be treated for all
purposes as the record holder of shares of Series A-1 Preferred Stock or Series
B-1 Preferred Stock, as appropriate, as of the date of closing of the
applicable Series A Dilutive Issuance or Series B Dilutive Issuance.

(c) Mechanics of Conversion. Before any holder
of Series A, Series A -1, Series B, and Series B-1 Preferred Stock shall be
entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for such series of Preferred
Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office such
holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offer of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion will be conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, unless otherwise designated in writing by the holders of such
Preferred Stock, in which event the person(s) entitled to receive the Common
Stock issuable upon such conversion of the Preferred Stock shall not be deemed
to have converted such Preferred Stock until immediately prior to the closing
of such sale of securities.

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<PAGE> 8
(d) Conversion Price Adjustments of Preferred
Stock.

(i) (A) If the Corporation, at any
time or from time to time after the date of the first issuance of Series A
Preferred Stock (the "Series A Initial Purchase Date"), the first issuance of
Series B Preferred Stock (the "Series B Initial Purchase Date"), shall issue
any Additional Stock (as defined below) without consideration or for a
consideration per share less than the Conversion Price for the Series A
Preferred Stock or Series B Preferred Stock in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for the Series A and/or
the Series B Preferred Stock in effect immediately prior to each such issuance
shall forthwith be adjusted to a price determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of shares of Additional Stock so issued
would purchase at such Conversion Price, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of such shares of Additional Stock so issued; provided
that for the purposes of this subsection, all shares of Common Stock issuable
upon conversion of outstanding Preferred Stock shall be deemed to be
outstanding, and immediately after any Additional Stock is deemed issued, such
Additional Stock shall be deemed to be outstanding.

(B) No adjustment of the Conversion
Price for the Series A or Series B Preferred Stock shall be made in an amount
less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three years from the date of
the event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections 3(d)(i)(E)(3) and 3(d)(i)(E)(4)
below, no adjustment of such Conversion Price pursuant to this subsection
3(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.

(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.

(D) In the case of the issuance of
the Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.

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<PAGE> 9

(E) In the case of the issuance, whether
before, on or after the Series A Initial Purchase Date or the Series B Initial
Purchase Date of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities (which are not excluded from the definition of Additional Stock), the
following provisions shall apply:

(1) The aggregate maximum number
of shares of Common Stock deliverable upon exercise of such options to purchase
or rights to subscribe for Common Stock shall be deemed to have been issued at
the time such options or rights were issued and for a consideration equal to
the consideration (determined in the manner provided in subsections 3(d)(i)(C)
and 3(d)(i)(D) above), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum purchase price provided in such options
or rights for the Common Stock covered thereby.

(2) The aggregate maximum number
of shares of Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in subsections 3(d)(i)(C) and 3(d)(i)(D)
above).

(3) In the event of any change in
the number of shares of Common Stock deliverable or any increase in the
consideration payable to the Corporation upon exercise of such options or rights
or upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the Series A or Series
B Preferred Stock obtained with respect to the adjustment which was made upon
the issuance of such options, rights or securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect such change, but no
further adjustment shall be made for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of any such options or rights or
the conversion or exchange of such securities.

(4) Upon the expiration of any
such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the Series A or Series B
Preferred Stock obtained with respect to

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<PAGE> 10

the adjustment which was made upon the issuance of such options, rights or
securities or options or rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities. Upon the
expiration of any such options or rights, the termination of any such rights to
convert or exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, only the number of shares of Common
Stock actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options
or rights related to such securities shall continue to be deemed to be issued.

(5) All Common Stock deemed
issued pursuant to this subsection 3(d)(i)(E) shall be considered issued only at
the time of its deemed issuance and any actual issuance of such stock shall not
be an actual issuance or a deemed issuance of the Corporation's Common Stock
under the provisions of this Section 3.

(F) No adjustment of the Conversion
Price for the Series A-1 or Series B-1 Preferred Stock shall be made upon the
issuance of any Additional Stock without consideration or for consideration per
share less than the Conversion Price of the Series A-1 or Series B-1 Preferred
Stock in effect immediately prior to the issuance of such Additional Stock.

(ii) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to
subsection 3(d)(i)(E)) by the Corporation on or after the Series A Initial
Purchase Date or Series B Initial Purchase Date Initial Purchase Date other
than shares of Common Stock issued or issuable

(A) pursuant to a transaction
described in subsection 3(d)(iii) below,

(B) up to 3,3000,000 shares of
Common Stock (as adjusted for stock splits, stock dividends and
recapitalizations) to officers, directors, employees and consultants of the
Corporation directly or pursuant to benefit plans approved by the stockholders
and directors of the Corporation,

(C) in connection with capital
equipment leases, commercial debt financing, technology acquisitions and other
comparable transactions approved by the Board of Directors, or

(D) upon conversion of the Series
A, Series A-1, Series B or Series B-1 Preferred Stock.

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<PAGE> 11

(iii) In the event the Corporation should
at any time or from time to time after the Series A Initial Purchase Date or
Series B Initial Purchase Date fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of each series of Series A, Series A-1, Series B and
Series B-1 Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of such series
shall be increased in proportion to such increase of outstanding shares
determined in accordance with subsection 3(d)(i)(E).

(iv) If the number of shares of Common
Stock outstanding at any time after the Series A Initial Purchase Date or
Series B Initial Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for each series of Series A, Series A-1,
Series B and Series B-1 Preferred Stock shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be decreased in proportion to such decrease in outstanding
shares.

(e) Other Distributions. In the event the
Corporation shall declare a distribution payable in securities of other
persons, evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to in
subsection 3(d)(iii), then, in each such case for the purpose of this
subsection 3(e), the holders of Series A, Series A-1, Series B and Series B-1
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series A, Series A-1,
Series B and Series B-1 Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.

(f) Recapitalizations. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than
a subdivision, combination or merger or sale of assets transaction provided for
elsewhere in Section 2 or this Section 3) provision shall be made so that the
holders of each series of Series A, Series A-1, Series B and Series B-1
Preferred Stock shall thereafter be entitled to receive upon conversion of such
series of Series A, Series A-1, Series B and Series B-1 Preferred Stock the
number of shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled

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<PAGE> 12

on such recapitalization. In any such case, appropriate adjustment shall be
made in the application of the provisions of this Section 3 with respect to the
rights of the holders of each series of Series A, Series A-1, Series B and
Series B-1 Preferred Stock after the recapitalization to the end that the
provisions of this Section 3 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of such series
of Series A, Series A-1, Series B, and Series B-1 Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.

(g) No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 3 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of each series of Series A, Series A-1, Series
B and Series B-1 Preferred Stock against impairment.

(h) No Fractional Shares and Certificate as to
Adjustments.

(i) No fractional shares shall be issued
upon conversion of the Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.

(ii) Upon the occurrence of each
adjustment or readjustment of any Conversion Price of any series of Preferred
Stock pursuant to this Section 3, the Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of such series of Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such series of Preferred Stock.

(i) Notices of Record Date. In the event of any
taking by the Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive

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<PAGE> 13

any other right, the Corporation shall mail to each holder of Preferred Stock,
at least 20 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.

(j) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Preferred
Stock, in addition to such other remedies as shall be available to the holder
of such Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.

The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Series A-1 and
Series B-1 Preferred Stock solely for the purpose of effecting the conversion
of the shares of Series A and Series B Preferred Stock, respectively, such
number of its shares of Series A-1 and Series B-1 Preferred Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares
of Series A and Series B Preferred Stock; and if at any time the number of
authorized but unissued shares of Series A-1 and Series B-1 Preferred Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of such Series A and Series B Preferred Stock, respectively, in addition to
such other remedies as shall be available to the holder of such Series A and/or
Series B Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Series A-1 and/or Series B-1 Preferred Stock to such number
of shares as shall be sufficient for such purposes.

(k) Notices. Any notice required by the
provisions of this Section 3 to be given to the holders of shares of Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Corporation.

4. Redemption Rights.

(a) Redemption. On or at any time after the
sixth anniversary of the Series A Initial Purchase Date for the Series A or
Series A-1 Preferred Stock or the Series B Initial Purchase Date for the Series
B or Series B-1 Preferred Stock the Corporation may redeem all or a portion of
the then outstanding shares of each series of Preferred Stock at the Original
Series A and Series A-1 Issue Price plus declared and unpaid dividends, the
Original Series B and Series B-1 Issue Price plus declared and

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unpaid dividends, respectively, (the "Redemption Price"). In the event the
Corporation determines to redeem a portion of the outstanding shares of a
particular series of Preferred Stock, the Corporation shall effect such
redemption pro rata according to the number of shares held by each holder
thereof. In addition, on or at any time after the sixth anniversary of the
Series A Initial Purchase Date for the Series A or Series A-1 Preferred Stock
or on or after the sixth anniversary of the Series B Initial Purchase Date for
the Series B or Series B-1 Preferred Stock at the option of and upon the
written request of the holders of not less than sixty percent (60%) of the
respective series of Preferred Stock then outstanding and at such dates as such
holders may so elect (the "Redemption Date"), the Corporation shall redeem
one-third of the outstanding shares of the respective series of Preferred Stock
that are requested to be redeemed (or any lesser percentage as such holders
shall elect) per year until all of such shares of Preferred Stock that are
requested to be redeemed are redeemed by paying therefor in cash the Redemption
Price. In the event that the Corporation is unable on any Redemption Date to
effect the redemption of all such series of Preferred Stock for which
redemption is so requested pursuant to this Section 4(a), the Corporation shall
effect such redemption pro rata according to the number of shares held by each
requesting holder thereof. Notwithstanding the foregoing, however, holders of
each series of Preferred Stock shall be entitled to request redemption only one
time per calendar year.

(b) Notice for Company Initiated Redemption.
With respect to a redemption of Preferred Stock initiated by the Corporation,
at least 30 days' previous written notice by certified or registered mail,
postage prepaid, shall be given to the holders of record of the Preferred Stock
to be redeemed, such notice to be addressed to each such stockholder at the
address of such holder given to the Corporation for the purpose of notice, or
if no such address appears or is so given, at the place where the principal
office of the Corporation is located. Such notice shall state the Redemption
Date, the Redemption Price, the then current Conversion Rate and the date of
termination of the right to convert (which date shall not be earlier than
thirty (30) days and not later than sixty (60) days after the above written
notice by mail has been given) and shall call upon such holder to surrender to
the Corporation on said date at the place designated in the notice such
holder's certificate or certificates representing the shares to be redeemed.
On or after the Redemption Date stated in such notice, the holder of each share
of Preferred Stock called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such
notice and shall thereupon be entitled to receive payment of the Redemption
Price for the series of Preferred Stock surrendered. If less than all the
shares represented by any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. If such notice
of redemption shall have been duly given, and if on the Redemption Date funds
necessary for the redemption shall be available therefor, then, as to any
certificates evidencing any Preferred Stock so called for redemption and not
surrendered, all rights of the holders of such shares so called for redemption
and not surrendered shall cease with respect to such shares, except only the
right of the holders to receive the Redemption Price for such series of
Preferred Stock which they hold, without interest, upon surrender of their
certificates therefor.

-14-
<PAGE> 15

(i) With respect to a redemption
initiated by the holders of Preferred Stock, at least 30 but no more than 60
days prior to the Redemption Date of the Series A, Series A-1, Series B and
Series B-1 Preferred Stock, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series A-1,
Series B, or Series B-1 to be redeemed, at the address last shown on the
records of the Corporation for such holder or given by the holder to the
Corporation for the purpose of notice, notifying such holder of the redemption
to be effected, specifying the number of shares to be redeemed from such
holder, the Redemption Date, the Redemption Price, the place at which payment
may be obtained and the date on which such holder's Conversion Rights (as
previously defined) as to such shares terminate and calling upon such holder to
surrender to the Corporation, in the manner and at the place designated, the
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in Section (4)(c)(ii) below, on or
after the Redemption Date, each holder of Series A, Series A-1, Series B or
Series B-1 Preferred Stock to be redeemed shall surrender to the Corporation
the certificate or certificates representing such shares, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.

(ii) From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
dividends on the Series A, Series A-1, Series B, or Series B-1 Preferred Stock
designated for redemption in the Redemption Notice shall cease to accrue, all
rights of the holders of such shares (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to
be outstanding for any purpose whatsoever. If the funds of the Corporation
legally available for redemption of shares of Series A, Series A-1, Series B,
and Series B-1 Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Series A, Series A-1, Series B or Series
B-1 Preferred Stock to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares in
accordance with the provisions of Section (6)(c) hereof. The shares of Series
A, Series A-1, Series B and Series B-1 Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Company are
legally available for the redemption of shares of Series A, Series A-1,
Series B and Series B-1 Preferred Stock, such funds will immediately be used to
redeem the balance of the shares which the Company has become obligated to
redeem on any Redemption Date but which it has not redeemed.

-15-
<PAGE> 16

(d) Trust Fund. On or prior to any Redemption
Date, the Corporation shall deposit, with any bank or trust company in the
State of Delaware, as a trust fund, a sum sufficient to redeem, on the
Redemption Date thereof, the shares called for redemption, with irrevocable
instructions and authority to the bank or trust company to give the notice of
redemption thereof (or to complete the giving of such notice if theretofore
commenced) and to pay, on or after the Redemption Date or prior hereto, the
Redemption Price of the shares to their respective holders upon the surrender
of their share certificates, then from and after the date of the deposit
(although prior to the Redemption Date), the shares so called shall be
redeemed. The deposit shall constitute full payment of the shares to their
holders and from and after the date of the deposit the shares shall no longer
be outstanding, and the holders thereof shall cease to be stockholders with
respect to such shares, and shall have no rights with respect thereto except
the right to notice pursuant to paragraph (b) above and to receive from the
bank or trust company payment of the Redemption Price for the Preferred Stock
which they hold, without interest, upon the surrender of their certificates
therefor and the right to convert said shares as provided herein at any time up
to but not after the close of business on the fifth day prior to the Redemption
Date of such shares (which date will not be earlier than thirty (30) days after
the written notice of redemption has been mailed to holders of record of the
Preferred Stock called for redemption). Any monies so deposited on account of
the Redemption Price of Preferred Stock converted subsequent to the making of
such deposit shall be repaid to the Corporation forthwith upon the conversion
of such Preferred Stock. Any interest accrued on any funds so deposited shall
be the property of, and paid to, the Corporation. If the holders of Preferred
Stock so called for redemption shall not, at the end of six (6) years from the
Redemption Date thereof, have claimed any funds so deposited, such bank or
trust company shall thereupon pay over to the Corporation such unclaimed funds,
and such bank or trust company shall thereafter be relieved of all
responsibility in respect thereof to such holders and such holders shall look
only to the Corporation for payment of the Redemption Price for the Preferred
Stock which they hold.

5. Voting Rights. The holder of each share of Preferred
Stock shall have the right to one vote for each share of Common Stock into
which such Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote.

6. Protective Provisions. So long as at least 450,000
shares of Series A, Series A-1, Series B, and Series B-1 Preferred Stock (as
adjusted for stock splits, stock dividends or recapitalizations) are
outstanding and have not been converted into Common Stock, the Corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then

-16-
<PAGE> 17

outstanding shares of Preferred Stock, voting together as one class except
where otherwise required by law:

(a) amend or repeal any provision of the
Corporation's Certificate of Incorporation or Bylaws if such action would alter
or change the designations, preferences and relative, participating, optional
and other special rights, or the restrictions provided for the benefit of the
Preferred Stock;

(b) authorize a merger, sale of all or
substantially all the assets, consolidation, recapitalization or reorganization
of the Corporation;

(c) authorize or issue shares of any class of
stock having a preference over, or being on a parity with, the Preferred Stock
with respect to dividends or assets;

(d) pay or declare any dividend on shares of
Common Stock if current dividends on Preferred remain unpaid, except dividends
solely in Common Stock; or

(e) any repurchase or other acquisition by the
Corporation of its own shares.

7. Status of Converted Stock. In the event any shares
of Preferred Stock shall be converted pursuant to Section 3 hereof or redeemed
pursuant to Section 4 hereof, the shares so converted or redeemed shall be
canceled and shall not be issuable by the Corporation, and the Certificate of
Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.

1. Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of any assets of the
Corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.

2. Liquidation Rights. Upon the liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
shall be distributed as provided in Section 2 of Part (B) of this Article IV.

3. Redemption. The Common Stock is not redeemable.

4. Voting Rights. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
stockholders meeting in

-17-
<PAGE> 18

accordance with the Bylaws of the Corporation, and shall be entitled to vote
upon such matters and in such manner as may be provided by law.

ARTICLE V

The Board of Directors of the corporation is expressly authorized to make,
alter or repeal Bylaws of the corporation, but the stockholders may make
additional Bylaws and may alter or repeal any Bylaw whether adopted by them or
otherwise.

ARTICLE VI

Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the corporation.

ARTICLE VII

(A) To the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or as may hereafter be amended, a director
of the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.

(B) The corporation shall indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was a director,
officer or employee of the corporation or any predecessor of the corporation,
or serves or served at any other enterprise as a director, officer or employee
at the request of the corporation or any predecessor to the corporation.

(C) Neither any amendment nor repeal of this Article VII, nor the
adoption of any provision of this corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of
this Article VII in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VII, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.

ARTICLE VIII

The corporation is to have perpetual existence.

ARTICLE IX

The number of directors which will constitute the whole Board of Directors
of the corporation shall be designated in the Bylaws of the corporation.

-18-
<PAGE> 19

ARTICLE X

Meetings of stockholders may be held within or without the State of Delaware,
as the Bylaws may provide. The books of the corporation may be kept (subject
to any statutory provision) outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors in the
Bylaws of the corporation.

ARTICLE XI

"Exempt from Section 2115 of the California Corporations Code" as used
in this Amended and Restated Certificate of Incorporation shall mean such time
when the corporation has outstanding securities listed on the New York Stock
Exchange or the American Stock Exchange or has outstanding securities
designated as qualified for trading as a national market security on the
National Association of Securities Dealers Automatic Quotation System (or such
successor national market system) and when the corporation has at least 800
holders of its equity securities. For the management of the business and for
the conduct of the affairs of the corporation, and in further definition,
limitation and regulation of the powers of the corporation, its directors and
its stockholders or any class thereof, as the case may be, it is further
provided that, effective on the record date of the first Annual Meeting of
Stockholders when the Company is Exempt from Section 2115 of the California
Corporations Code:

(A) The Board of Directors of the corporation shall
divide the directors into three classes, as nearly equal in number as
reasonably possible with the term of office of the first class to expire at the
1998 annual meeting of stockholders or any special meeting in lieu thereof (or
the next consecutive annual meeting of stockholders when the Company is Exempt
from Section 2115 of the California Corporations Code), the term of office of
the second class to expire at the 1999 annual meeting of stockholders or any
special meeting in lieu thereof (or the next consecutive annual meeting of
stockholders when the Company is Exempt from Section 2115 of the California
Corporations Code) and the term of office of the third class to expire at the
2000 annual meeting of stockholders or any special meeting in lieu thereof (or
the next consecutive annual meeting of stockholders when the Company is Exempt
from Section 2115 of the California Corporations Code). At each annual meeting
of stockholders or special meeting in lieu thereof following such initial
classification, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders or special meeting in lieu thereof after their election
and until their successors are duly elected and qualified.

-19-
<PAGE> 20
authorized number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term or his or her prior death,
retirement, removal or resignation and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall if reasonably
possible be apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director more
than any other class. To the extent reasonably possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation and newly eliminated directorships shall be subtracted from those
classes whose terms of office are to expire at the earliest dates following
such allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. In the event of a vacancy in the Board of Directors, the remaining
directors, except as otherwise provided by law, may exercise the powers of the
full Board of Directors until the vacancy is filled. Notwithstanding the
foregoing provisions of this Article XI, each director shall serve until his or
her successor is duly elected and qualified or until his or her death,
resignation, or removal. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.

(C) There shall be no right with respect to shares of stock of the
corporation to cumulate votes in the election of directors.

The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by the stockholders of the corporation in accordance with the
provisions of Sections 242 and 245 of the General Corporate Law of the State of
Delaware, as amended.

Signature Page Follows

-20-
<PAGE> 21

IN WITNESS WHEREOF, the undersigned have executed this certificate on
March ___, 1997.

________________________________________
Jeffrey W. Dunn, President and Chief
Executive Officer

________________________________________
Michael W. Hall, Secretary

The undersigned certify under penalty of perjury that they have read
the foregoing Amended and Restated Certificate of Incorporation and know the
contents thereof, and that the statements therein are true.

Executed at San Jose, California on March ___, 1997.

_______________________________________
Jeffrey W. Dunn, President and
Chief Executive Officer

_______________________________________
Michael W. Hall, Secretary

-21-

<PAGE> 1
Exhibit 3.5

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

ACCELGRAPHICS, INC.

The following Amended and Restated Certificate of Incorporation of
AccelGraphics, Inc. amends and restates the provisions of and supersedes the
Amended and Restated Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on March ____, 1997 in its entirety.

FIRST: The name of this corporation is AccelGraphics, Inc. (the
"corporation").

SECOND: The address of the corporation's registered office in the
State of Delaware is The Corporation Service Company, 1013 Centre Road, County
of New Castle, Wilmington, Delaware 19805. The name of its registered agent at
such address is The Corporation Service Company.

THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.

FOURTH: (A) This corporation is authorized to issue 52,000,000
shares of its capital stock, which shall be divided into two classes known as
Common Stock and Preferred Stock, respectively.

(B) The total number of shares of Common Stock
which this corporation is authorized to issue is 50,000,000 with a par value of
$0.001 per share. The total number of shares of Preferred Stock which this
corporation is authorized to issue is 2,000,000 with a par value of $0.001 per
share. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of this corporation is hereby authorized,
within the limitations and restrictions prescribed by law or stated in this
Certificate of Incorporation, and by filing a certificate pursuant to
applicable law of the State of Delaware, to provide for the issuance of
Preferred Stock in series and (i) to establish from time to time the number of
shares to be included in each such series; (ii) to fix the voting powers,
designations, powers, preferences and relative, participating, optional or
other rights of the shares of each such series and the qualifications,
limitations or restrictions thereof, including but not limited to, the fixing
or alteration of the dividend rights, dividend rate, conversion rights,
conversion rates, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued series of shares of Preferred Stock; and
(iii) to increase or decrease the number of shares of any series subsequent to
the issue of shares of that series, but not below the number of shares of such
series then outstanding.

<PAGE> 2

In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

FIFTH: In furtherance and not in limitation of powers conferred by
statute, the Board of Directors of the corporation is expressly authorized to
make, alter or repeal Bylaws of the corporation.

SIXTH: No action shall be taken by the stockholders of the
corporation other than at an annual or special meeting of the stockholders,
upon due notice and in accordance with the provisions of the corporation's
Bylaws.

SEVENTH: Elections of directors need not be by written ballot unless
otherwise provided in the Bylaws of the corporation.

EIGHTH: (A) To the fullest extent permitted by the Delaware
General Corporation Law, as the same exists or as may hereafter be amended, a
director of the corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director.

(B) The corporation shall indemnify to the
fullest extent permitted by law any person made or threatened to be made a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate is or
was a director, officer or employee of the corporation or any predecessor of
the corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the corporation or any predecessor to the
corporation.

(C) Neither any amendment nor repeal of this
Article EIGHTH, nor the adoption of any provision of this corporation's
Certificate of Incorporation inconsistent with this Article EIGHTH shall
eliminate or reduce the effect of this Article EIGHTH in respect of any matter
occurring, or any action or proceeding accruing or arising or that, but for
this Article EIGHTH, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.

NINTH: The corporation is to have perpetual existence.

TENTH: The number of directors which will constitute the whole Board
of Directors of the corporation shall be designated in the Bylaws of the
corporation.

ELEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the corporation may
be kept (subject to any statutory provision) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors in the Bylaws of the corporation.

2
<PAGE> 3

TWELFTH: "Exempt from Section 2115 of the California Corporations
Code" as used in this Amended and Restated Certificate of Incorporation shall
mean such time when the corporation has outstanding securities listed on the
New York Stock Exchange or the American Stock Exchange or has outstanding
securities designated as qualified for trading as a national market security on
the National Association of Securities Dealers Automatic Quotation System (or
such successor national market system) and when the corporation has at least
800 holders of its equity securities. For the management of the business and
for the conduct of the affairs of the corporation, and in further definition,
limitation and regulation of the powers of the corporation, its directors and
its stockholders or any class thereof, as the case may be, it is further
provided that, effective on the record date of the first annual meeting of
stockholders when the Company is Exempt from Section 2115 of the California
Corporations Code:

(B) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the directors then in office even though less than a quorum,
or by a sole remaining director. In the event of any increase or decrease in
the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member until the expiration of his or her current term or his or her prior
death, retirement, removal or resignation and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships

3
<PAGE> 4
shall be subtracted from those classes whose terms of office are to expire at
the earliest dates following such allocation, unless otherwise provided for
from time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
Notwithstanding the foregoing provisions of this Article TWELFTH, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation, or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.

(C) There shall be no right with respect to shares of
stock of the corporation to cumulate votes in the election of directors.

4
<PAGE> 5

IN WITNESS WHEREOF, the undersigned have executed this certificate on
______ ___, 1997.

_______________________________________
Jeffrey W. Dunn, President and
Chief Executive Officer

_______________________________________
Michael W. Hall, Secretary

Executed at San Jose, California on _______ ___, 1997.

_______________________________________
Jeffrey W. Dunn, President and
Chief Executive Officer

_______________________________________
Michael W. Hall, Secretary

<PAGE> 1
EXHIBIT 3.7

BYLAWS

ACCELGRAPHICS, INC.
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page

<S> <C>
ARTICLE I - CORPORATE OFFICES......................................................1

1.1 Registered Office....................................................1
1.2 Other Offices........................................................1

ARTICLE II - MEETINGS OF STOCKHOLDERS..............................................1

2.1 Place Of Meetings....................................................1
2.2 Annual Meeting.......................................................1
2.3 Special Meeting......................................................1
2.4 Notice Of Stockholders' Meetings.....................................1
2.5 Advance Notice Of Stockholder Nominees...............................2
2.6 Advance Notice Of Stockholder Business...............................2
2.7 Manner Of Giving Notice; Affidavit Of Notice.........................3
2.8 Quorum...............................................................3
2.9 Adjourned Meeting; Notice............................................3
2.10 Conduct Of Business..................................................4
2.11 Voting...............................................................4
2.12 Stockholder Action By Written Consent Without A Meeting..............4
2.13 Waiver Of Notice.....................................................4
2.14 Record Date For Stockholder Notice; Voting...........................4
2.15 Proxies..............................................................5

ARTICLE III - DIRECTOR.............................................................5

3.1 Powers...............................................................5
3.2 Number Of Directors..................................................5
3.3 Election, Qualification And Term Of Office Of Directors..............6
3.4 Resignation And Vacancies............................................6
3.5 Place Of Meetings; Meetings By Telephone.............................6
3.6 Regular Meetings.....................................................7
3.7 Special Meetings; Notice.............................................7
3.8 Quorum...............................................................7
3.9 Waiver Of Notice.....................................................8
3.10 Board Action By Written Consent Without A Meeting....................8
3.11 Fees And Compensation Of Directors...................................8
3.12 Approval Of Loans To Officers........................................8
3.13 Removal Of Directors.................................................8
3.14 Chairman Of The Board Of Directors...................................9

ARTICLE IV - COMMITTEES............................................................9

4.1 .Committees Of Directors..............................................9
4.2 Committee Minutes....................................................10
4.3 Meetings And Action Of Committees....................................10
</TABLE>

<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V - OFFICERS...............................................................10

5.1 Officers.............................................................10
5.2 Appointment Of Officers..............................................10
5.3 Subordinate Officers.................................................10
5.4 Removal And Resignation Of Officers................................. 11
5.5 Vacancies In Offices................................................ 11
5.6 Chief Executive Officer..............................................11
5.7 President............................................................11
5.8 Vice Presidents......................................................11
5.9 Secretary............................................................12
5.10 Chief Financial Officer..............................................12
5.11 Representation Of Shares Of Other Corporations.......................12
5.12 Authority And Duties Of Officers.....................................13

ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS...................................................................13

6.1 Indemnification Of Directors And Officers............................13
6.2 Indemnification Of Others............................................13
6.3 Payment Of Expenses In Advance.......................................14
6.4 Indemnity Not Exclusive..............................................14
6.5 Insurance............................................................14
6.6 Conflicts............................................................14

ARTICLE VII - RECORDS AND REPORTS..................................................15

7.1 Maintenance And Inspection Of Records................................15
7.2 Inspection By Directors..............................................15
7.3 Annual Statement To Stockholders.....................................15

ARTICLE VIII - GENERAL MATTERS.....................................................15

8.1 Checks...............................................................15
8.2 Execution Of Corporate Contracts And Instruments.....................16
8.3 Stock Certificates; Partly Paid Shares...............................16
8.4 Special Designation On Certificates..................................16
8.5 Lost Certificates....................................................17
8.6 Construction; Definitions............................................17
8.7 Dividends............................................................17
8.8 Fiscal Year..........................................................17
8.9 Seal.................................................................18
8.10 Transfer Of Stock....................................................18
8.11 Stock Transfer Agreements............................................18
8.12 Registered Stockholders..............................................18

ARTICLE IX - AMENDMENTS............................................................18
</TABLE>
<PAGE> 4
FORM OF

BYLAWS

ACCELGRAPHICS, INC.

ARTICLE I

CORPORATE OFFICES

1.1 REGISTERED OFFICE.

The registered office of the corporation shall be in the City
of Wilmington, County of New Castle, State of Delaware. The name of the
registered agent of the corporation at such location is the Corporation Service
Company.

1.2 OTHER OFFICES.

The Board of Directors may at any time establish other offices
at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS.

Meetings of stockholders shall be held at any place, within or
outside the State of Delaware, designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
registered office of the corporation.

2.2 ANNUAL MEETING.

The annual meeting of stockholders shall be held, on any date,
time and place, either within or without the State of Delaware, as may be
designated by the Board of Directors. At the meeting, directors shall be elected
and any other proper business may be transacted.

2.3 SPECIAL MEETING.

A special meeting of the stockholders may be called at any
time by the Board of Directors, or by the chairman of the board, or by one or
more stockholders holding shares in the aggregate entitled to cast not less than
ten percent (10%) of the votes at that meeting.

2.4 NOTICE OF STOCKHOLDERS' MEETINGS.
<PAGE> 5
All notices of meetings with stockholders shall be in writing
and shall be sent or otherwise given in accordance with Section 2.5 of these
Bylaws not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. The notice
shall specify the place, date, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.

2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.

Only persons who are nominated in accordance with the
procedures set forth in this Section 2.5 shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.5. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than sixty (60) days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such stockholder's notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or re-election as a Director, (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including, without limitation, such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder, (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) relating to the nomination. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.

2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS.

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At any meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before a meeting, business must be: (a) as specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. Business to be brought before a meeting by
a stockholder shall not be considered properly brought if the stockholder has
not given timely notice thereof in writing to the secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than twenty (20)
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event less than thirty (30) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting: (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address of the stockholder proposing such business,
(iii) the class and number of shares of the corporation, which are beneficially
owned by the stockholder, (iv) any material interest of the stockholder in such
business, and (v) any other information that is required by law to be provided
by the stockholder in his capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at any meeting except in accordance with the procedures set forth in
this Section 2.6. The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section , and, if
he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.

2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.

2.8 QUORUM.

The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting or (ii)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or

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represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.

2.9 ADJOURNED MEETING; NOTICE.

When a meeting is adjourned to another time or place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.

2.10 CONDUCT OF BUSINESS.

The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including the manner of
voting and the conduct of business.

2.11 VOTING.

The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).

Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.

2.12 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Any action required to be taken at an annual or special
meeting of stockholders of the corporation, or any action that may be taken at
an annual or special meeting of such stockholders, must be taken at an annual or
special meeting of stockholders of the corporation, with prior notice and with a
vote, and may not be taken by a consent in writing.

2.13 WAIVER OF NOTICE.

Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
Bylaws.

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2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.

In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action.

If the Board of Directors does not so fix a record date:

(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.

(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.

2.15 PROXIES.

Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such stockholder by a
written proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212 of the General Corporation Law of Delaware.

ARTICLE III

DIRECTORS

3.1 POWERS.

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corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors.

3.2 NUMBER OF DIRECTORS.

The Board of Directors shall consist of seven persons until
changed by a proper amendment of this Section 3.2.

No reduction of the authorized number of directors shall have
the effect of removing any director before such director's term of office
expires.

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

(a) The board of directors shall be divided into three classes, as
nearly equal in number as possible. The term of office of the first class shall
expire at the 1998 annual meeting of stockholders or any special meeting in lieu
thereof, the term of office of the second class shall expire at the 1999 annual
meeting of stockholders or any special meeting in lieu thereof and the term of
office of the third class shall expire at the 2000 annual meeting of
stockholders or any special meeting in lieu thereof. At each annual meeting of
stockholders or special meeting in lieu thereof following such initial
classification, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders or special meeting in lieu thereof after their election
and until their successors are duly elected and qualified.

(b) Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall if reasonably possible be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.

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(c) The foregoing provisions shall become effective only when the
corporation becomes a listed corporation within the meaning of Section 301.5 of
the California Corporations Code.

(d) Elections of directors need not be by written ballot.

3.4 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

The Board of Directors of the corporation may hold meetings,
both regular and special, either within or outside the State of Delaware.

Unless otherwise restricted by the certificate of
incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.

3.5 REGULAR MEETINGS.

Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.

3.6 SPECIAL MEETINGS; NOTICE.

Special meetings of the Board of Directors for any purpose or
purposes may be called at any time by the chairman of the board, the president,
any vice president, the secretary or any two (2) directors.

Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.

3.7 QUORUM.

At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the certificate of

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incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.

A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.

3.8 WAIVER OF NOTICE.

Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these Bylaws.

3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the board or committee. Written consents representing
actions taken by the board or committee may be executed by telex, telecopy or
other facsimile transmission, and such facsimile shall be valid and binding to
the same extent as if it were an original.

3.10 FEES AND COMPENSATION OF DIRECTORS.

Unless otherwise restricted by the certificate of
incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. No such compensation shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.

3.11 APPROVAL OF LOANS TO OFFICERS.

The corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the corporation or of
its subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall

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be deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.

3.12 REMOVAL OF DIRECTORS.

Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.

No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such director's
term of office.

3.13 CHAIRMAN OF THE BOARD OF DIRECTORS.

The corporation may also have, at the discretion of the Board
of Directors, a chairman of the Board of Directors who shall not be considered
an officer of the corporation.

ARTICLE IV

COMMITTEES

4.1 COMMITTEES OF DIRECTORS.

The Board of Directors may, by resolution passed by a majority
of the whole board, designate one or more committees, with each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors or in the Bylaws of the
corporation, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (i) amend the certificate of incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix the designations
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any

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series), (ii) adopt an agreement of merger or consolidation under Sections 251
or 252 of the General Corporation Law of Delaware, (iii) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v) amend
the Bylaws of the corporation; and, unless the board resolution establishing the
committee, the Bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.

4.2 COMMITTEE MINUTES.

Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES.

Meetings and actions of committees shall be governed by, and
held and taken in accordance with, the provisions of Section 3.4 (place of
meetings and meetings by telephone), Section 3.5 (regular meetings), Section 3.6
(special meetings and notice), Section 3.7 (quorum), Section 3.8 (waiver of
notice), and Section 3.9 (action without a meeting) of these Bylaws, with such
changes in the context of such provisions as are necessary to substitute the
committee and its members for the Board of Directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the Board of Directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the Board of Directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The Board of Directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.

ARTICLE V

OFFICERS

5.1 OFFICERS.

The officers of the corporation shall be a chief executive
officer, a president, a secretary, and a chief financial officer. The
corporation may also have, at the discretion of the Board of Directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.

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5.2 APPOINTMENT OF OFFICERS.

The officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.

5.3 SUBORDINATE OFFICERS.

The Board of Directors may appoint, or empower the chief
executive officer or the president to appoint, such other officers and agents as
the business of the corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these Bylaws or as the Board of Directors may from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS.

Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or without
cause, by an affirmative vote of the majority of the Board of Directors at any
regular or special meeting of the board or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to
the attention of the secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the corporation under any
contract to which the officer is a party.

5.5 VACANCIES IN OFFICES.

Any vacancy occurring in any office of the corporation shall
be filled by the Board of Directors.

5.6 CHIEF EXECUTIVE OFFICER.

Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board, if any, the chief executive
officer of the corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these bylaws.

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5.7 PRESIDENT.

Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board (if any) or the chief
executive officer, the president shall have general supervision, direction, and
control of the business and other officers of the corporation. He or she shall
have the general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.

5.8 VICE PRESIDENTS.

In the absence or disability of the chief executive officer
and president, the vice presidents, if any, in order of their rank as fixed by
the Board of Directors or, if not ranked, a vice president designated by the
Board of Directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the Board of Directors, these Bylaws, the president or the
chairman of the board.

5.9 SECRETARY.

The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, at the
principal executive office of the corporation or at the office of the
corporation's transfer agent or registrar, as determined by resolution of the
Board of Directors, a share register, or a duplicate share register, showing the
names of all stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation.

The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.

5.10 CHIEF FINANCIAL OFFICER.

The chief financial officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements,

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gains, losses, capital retained earnings, and shares. The books of account shall
at all reasonable times be open to inspection by any director.

The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an account of all his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
Board of Directors or the bylaws.

5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by the person
having such authority.

5.12 AUTHORITY AND DUTIES OF OFFICERS.

In addition to the foregoing authority and duties, all
officers of the corporation shall respectively have such authority and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the Board of Directors or the stockholders.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS

6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.

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6.2 INDEMNIFICATION OF OTHERS.

The corporation shall have the power, to the maximum extent
and in the manner permitted by the General Corporation Law of Delaware, to
indemnify each of its employees and agents (other than directors and officers)
against expenses (including attorneys' fees), judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) includes any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.

6.3 PAYMENT OF EXPENSES IN ADVANCE.

Expenses incurred in defending any action or proceeding for
which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.

6.4 INDEMNITY NOT EXCLUSIVE.

The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the certificate of
incorporation

6.5 INSURANCE.

The corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.

6.6 CONFLICTS.

No indemnification or advance shall be made under this Article
VI, except where such indemnification or advance is mandated by law or the
order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:

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<PAGE> 18
(a) That it would be inconsistent with a provision of the
certificate of incorporation, these Bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or

(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.

ARTICLE VII

RECORDS AND REPORTS

7.1 MAINTENANCE AND INSPECTION OF RECORDS.

The corporation shall, either at its principal executive
offices or at such place or places as designated by the Board of Directors, keep
a record of its stockholders listing their names and addresses and the number
and class of shares held by each stockholder, a copy of these Bylaws as amended
to date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to so
act on behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.

7.2 INSPECTION BY DIRECTORS.

Any director shall have the right to examine the corporation's
stock ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.

7.3 ANNUAL STATEMENT TO STOCKHOLDERS.

The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.

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ARTICLE VIII

GENERAL MATTERS

8.1 CHECKS.

From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the corporation, and only the persons so
authorized shall sign or endorse those instruments.

8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.

8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.

The shares of a corporation shall be represented by
certificates, provided that the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairman or vice-chairman of the Board of Directors, or the chief executive
officer or the president or vice-president, and by the chief financial officer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.

The corporation may issue the whole or any part of its shares
as partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon

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<PAGE> 20
partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.

8.4 SPECIAL DESIGNATION ON CERTIFICATES.

If the corporation is authorized to issue more than one class
of stock or more than one series of any class, then the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
that the corporation shall issue to represent such class or series of stock;
provided, however, that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements there
may be set forth on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.

8.5 LOST CERTIFICATES.

Except as provided in this Section 8.5, no new certificates
for shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the corporation and cancelled at the same time. The
corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate, or the owner's legal representative, to give
the corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.

8.6 CONSTRUCTION; DEFINITIONS.

Unless the context requires otherwise, the general provisions,
rules of construction, and definitions in the Delaware General Corporation Law
shall govern the construction of these Bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.

8.7 DIVIDENDS.

The directors of the corporation, subject to any restrictions
contained in (i) the General Corporation Law of Delaware or (ii) the certificate
of incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.

The directors of the corporation may set apart out of any of
the funds of the corporation available for dividends a reserve or reserves for
any proper purpose and may abolish

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<PAGE> 21
any such reserve. Such purposes shall include but not be limited to equalizing
dividends, repairing or maintaining any property of the corporation, and meeting
contingencies.

8.8 FISCAL YEAR.

The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors and may be changed by the Board of
Directors.

8.9 SEAL.

The corporation may adopt a corporate seal, which may be
altered at pleasure, and may use the same by causing it or a facsimile thereof,
to be impressed or affixed or in any other manner reproduced.

8.10 TRANSFER OF STOCK.

Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.

8.11 STOCK TRANSFER AGREEMENTS.

The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.

8.12 REGISTERED STOCKHOLDERS.

The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, shall be entitled to hold liable for calls
and assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.

ARTICLE IX

AMENDMENTS

The Bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.

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<PAGE> 22
CERTIFICATE BY SECRETARY OF AMENDED AND RESTATED BYLAWS

The undersigned hereby certifies that the undersigned is the duly
elected, qualified, and acting secretary OF AccelGraphics, Inc., and that the
foregoing Amended and Restated Bylaws were adopted on February __, 1997.

Executed this _____ day of February 1997.

-------------------------------------
Edmund S. Ruffin, Jr., Secretary

<PAGE> 1
Exhibit 3.8

BYLAWS

ACCELGRAPHICS, INC.

(A DELAWARE CORPORATION)

<PAGE> 2

TABLE OF CONTENTS
PAGE

<TABLE>
<S> <C>
ARTICLE I - CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Place Of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Notice Of Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Advance Notice of Stockholder Nominees . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Advance Notice Of Stockholder Business . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Manner Of Giving Notice; Affidavit Of Notice . . . . . . . . . . . . . . . . . . . . . 3
2.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Adjourned Meeting; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Conduct Of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 No Stockholder Action By Written Consent Without A Meeting . . . . . . . . . . . . . 4
2.13 Waiver Of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Record Date For Stockholder Notice; Voting . . . . . . . . . . . . . . . . . . . . . 5
2.15 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III - DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Number Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Election, Qualification And Term Of Office Of Directors . . . . . . . . . . . . . . . 6
3.4 Place Of Meetings; Meetings By Telephone . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Special Meetings; Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 Waiver Of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 Board Action By Written Consent Without A Meeting . . . . . . . . . . . . . . . . . . 9
3.10 Fees And Compensation Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 Approval Of Loans To Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 Removal Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 Chairman Of The Board Of Directors . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV - COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Committees Of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Committee Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Meetings And Action Of Committees . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.1 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Appointment Of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Subordinate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 Removal And Resignation Of Officers . . . . . . . . . . . . . . . . . . . . . . . . 12
5.5 Vacancies In Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.6 Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.8 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.9 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.10 Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.11 Representation Of Shares Of Other Corporations . . . . . . . . . . . . . . . . . . 14
5.12 Authority And Duties Of Officers . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS . . . . . . . . 14
6.1 Indemnification Of Directors And Officers . . . . . . . . . . . . . . . . . . . . . 14
6.2 Indemnification Of Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Payment Of Expenses In Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Indemnity Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.6 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII - RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Maintenance And Inspection Of Records . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Inspection By Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Annual Statement To Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Execution Of Corporate Contracts And Instruments . . . . . . . . . . . . . . . . . . 17
8.3 Stock Certificates; Partly Paid Shares . . . . . . . . . . . . . . . . . . . . . . . 17
8.4 Special Designation On Certificates . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6 Construction; Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.7 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.8 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.9 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.10 Transfer Of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.11 Stock Transfer Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.12 Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IX - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>

<PAGE> 4
FORM OF

BYLAWS

ACCELGRAPHICS, INC.

ARTICLE I

CORPORATE OFFICES

1.1 REGISTERED OFFICE.

The registered office of the corporation shall be in the City
of Wilmington, County of New Castle,, State of Delaware. The name of the
registered agent of the corporation at such location is the Corporation Service
Company.

1.2 OTHER OFFICES.

The Board of Directors may at any time establish other offices
at any place or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS.

2.2 ANNUAL MEETING.

The annual meeting of stockholders shall be held, on any date,
time and place, either within or without the State of Delaware, as may be
designated by the Board of Directors. At the meeting, directors shall be
elected and any other proper business may be transacted.

2.3 SPECIAL MEETING.

A special meeting of the stockholders may be called at any
time by the Board of Directors, or by the chairman of the board, or by one or
more stockholders holding shares in the aggregate entitled to cast not less
than ten percent (10%) of the votes at that meeting.

<PAGE> 5

2.4 NOTICE OF STOCKHOLDERS' MEETINGS.

All notices of meetings with stockholders shall be in writing
and shall be sent or otherwise given in accordance with Section 2.5 of these
Bylaws not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. The notice
shall specify the place, date, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.

2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.

Only persons who are nominated in accordance with the
procedures set forth in this Section 2.5 shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the direction
of the Board of Directors or by any stockholder of the corporation entitled to
vote for the election of directors at the meeting who complies with the notice
procedures set forth in this Section 2.5. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the secretary of the corporation. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than sixty (60) days
nor more than ninety (90) days prior to the meeting; provided, however, that in
the event that less than sixty (60) days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10th) day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a Director, (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares
of the corporation which are beneficially owned by such person and (iv) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including, without limitation, such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder, (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder and (iii) a description of all arrangements or
understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) relating to the nomination. At the
request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the secretary of the
corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
Bylaws, and if he or she should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded.

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2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS.

At any meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before a meeting, business must be: (a) as specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. Business to be brought before a meeting
by a stockholder shall not be considered properly brought if the stockholder
has not given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than twenty (20) nor more than sixty (60) days prior to the meeting;
provided, however, that in the event less than thirty (30) days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth (10th) day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was
made. A stockholder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting: (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address
of the stockholder proposing such business, (iii) the class and number of
shares of the corporation, which are beneficially owned by the stockholder,
(iv) any material interest of the stockholder in such business, and (v) any
other information that is required by law to be provided by the stockholder in
his capacity as a proponent of a stockholder proposal. Notwithstanding
anything in these bylaws to the contrary, no business shall be conducted at any
meeting except in accordance with the procedures set forth in this Section 2.6.
The chairman of the meeting shall, if the facts warrant, determine and declare
at the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section, and, if he should so determine,
he shall so declare at the meeting that any such business not properly brought
before the meeting shall not be transacted.

2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the corporation.
An affidavit of the secretary or an assistant secretary or of the transfer
agent of the corporation that the notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.

2.8 QUORUM.

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entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
noticed.

2.9 ADJOURNED MEETING; NOTICE.

When a meeting is adjourned to another time or place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.

2.10 CONDUCT OF BUSINESS.

The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including the manner of
voting and the conduct of business.

2.11 VOTING.

Except as may be otherwise provided in the certificate of
incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.

2.12 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Any action required to be taken or which may be taken at
annual or special meeting of stockholders of the corporation, must be taken at
an annual or special meeting of stockholders of the corporation, with prior
notice and with a vote, and may not be taken by a consent in writing.

Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting,
without prior notice, and without a vote if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding stock having not
less than the minimum number

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of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted.

Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.

2.13 WAIVER OF NOTICE.

2.14 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.

If the Board of Directors does not so fix a record date:

(i) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.

(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto.

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A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.

2.15 PROXIES.

Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such stockholder by
a written proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212 of the General Corporation Law of
Delaware.

ARTICLE III

DIRECTORS

3.1 POWERS.

Subject to the provisions of the General Corporation Law of
Delaware and any limitations in the certificate of incorporation or these
Bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the Board of Directors.

3.2 NUMBER OF DIRECTORS.

The Board of Directors shall consist of seven persons until
changed by a proper amendment of this Section 3.2.

No reduction of the authorized number of directors shall have
the effect of removing any director before such director's term of office
expires.

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

(a) The Board of Directors of the corporation shall
divide the directors into three classes, as nearly equal in number as
reasonably possible with the term of office of the first class to expire at the
1998 annual meeting of stockholders or any special meeting in lieu thereof (or
the next consecutive annual meeting of stockholders when the Company is Exempt
from Section 2115 of the California Corporations Code), the term of office of
the second class to expire at the 1999 annual meeting of stockholders or any
special meeting in lieu thereof (or the next consecutive annual meeting of
stockholders when the Company is Exempt from Section 2115 of the California
Corporations Code) and the term of office of the third class to

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expire at the 2000 annual meeting of stockholders or any special meeting in
lieu thereof (or the next consecutive annual meeting of stockholders when the
Company is Exempt from Section 2115 of the California Corporations Code). At
each annual meeting of stockholders or special meeting in lieu thereof
following such initial classification, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders or special meeting in lieu
thereof after their election and until their successors are duly elected and
qualified.

(b) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the directors then in office even though less than a quorum,
or by a sole remaining director. In the event of any increase or decrease in
the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member until the expiration of his or her current term or his or her prior
death, retirement, removal or resignation and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall if
reasonably possible be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent reasonably possible,
consistent with the foregoing rule, any newly created directorships shall be
added to those classes whose terms of office are to expire at the latest dates
following such allocation and newly eliminated directorships shall be
subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
Notwithstanding the foregoing, each director shall serve until his or her
successor is duly elected and qualified or until his or her death, resignation,
or removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.

(c) For the purposes of the provisions in the above
Sections 3.3 (a) and (b) "Exempt from Section 2115 of the California
Corporations Code" as used in these Bylaws shall mean such time when the
corporation has outstanding securities listed on the New York Stock Exchange or
the American Stock Exchange or has outstanding securities designated as
qualified for trading as a national market security on the National Association
of Securities Dealers Automatic Quotation System (or such successor national
market system) and when the corporation has at least 800 holders of its equity
securities. For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation, its directors and its stockholders
or any class thereof, as the case may be, it is further provided that,
effective on the record date of the first annual meeting of stockholders when
the Company is Exempt from Section 2115 of the California Corporations Code:

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(d) There shall be no right with respect to shares of
stock of the corporation to cumulate votes in the election of directors.

(e) Elections of directors need not be by written ballot.

3.4 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

The Board of Directors of the corporation may hold meetings,
both regular and special, either within or outside the State of Delaware.

3.5 REGULAR MEETINGS.

Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.

3.6 SPECIAL MEETINGS; NOTICE.

Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight
(48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director or
to a person at the office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director. The notice
need not specify the purpose or the place of the meeting, if the meeting is to
be held at the principal executive office of the corporation.

3.7 QUORUM.

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incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.

3.8 WAIVER OF NOTICE.

Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the certificate of incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these Bylaws.

3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Unless otherwise restricted by the certificate of
incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be
taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing and the writing or writings are filed with
the minutes of proceedings of the board or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.

3.10 FEES AND COMPENSATION OF DIRECTORS.

3.11 APPROVAL OF LOANS TO OFFICERS.

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limitation, a pledge of shares of stock of the corporation. Nothing in this
section contained shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.

3.12 REMOVAL OF DIRECTORS.

No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of such director's
term of office.

3.13 CHAIRMAN OF THE BOARD OF DIRECTORS.

The corporation may also have, at the discretion of the Board
of Directors, a chairman of the Board of Directors who shall not be considered
an officer of the corporation.

ARTICLE IV

COMMITTEES

4.1 COMMITTEES OF DIRECTORS.

The Board of Directors may, by resolution passed by a majority
of the whole board, designate one or more committees, with each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board of Directors or in the Bylaws of
the corporation, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (i) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating
to dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other

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class or classes or any other series of the same or any other class or classes
of stock of the corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), (ii) adopt
an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the Bylaws of the
corporation; and, unless the board resolution establishing the committee, the
Bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.

4.2 COMMITTEE MINUTES.

Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES.

Meetings and actions of committees shall be governed by, and
held and taken in accordance with, the provisions of Section 3.4 (place of
meetings and meetings by telephone), Section 3.5 (regular meetings), Section
3.6 (special meetings and notice), Section 3.7 (quorum), Section 3.8 (waiver of
notice), and Section 3.9 (action without a meeting) of these Bylaws, with such
changes in the context of such provisions as are necessary to substitute the
committee and its members for the Board of Directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the Board of Directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the Board of Directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to
attend all meetings of the committee. The Board of Directors may adopt rules
for the government of any committee not inconsistent with the provisions of
these Bylaws.

ARTICLE V

OFFICERS

5.1 OFFICERS.

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5.2 APPOINTMENT OF OFFICERS.

5.3 SUBORDINATE OFFICERS.

The Board of Directors may appoint, or empower the chief
executive officer or the president to appoint, such other officers and agents
as the business of the corporation may require, each of whom shall hold office
for such period, have such authority, and perform such duties as are provided
in these Bylaws or as the Board of Directors may from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS.

Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or without
cause, by an affirmative vote of the majority of the Board of Directors at any
regular or special meeting of the board or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to
the attention of the secretary of the corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party.

5.5 VACANCIES IN OFFICES.

Any vacancy occurring in any office of the corporation shall be
filled by the Board of Directors.

5.6 CHIEF EXECUTIVE OFFICER.

Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board, if any, the chief
executive officer of the corporation shall, subject to the control of the Board
of Directors, have general supervision, direction, and control of the business
and the officers of the corporation. He or she shall preside at all meetings
of the stockholders and, in the absence or nonexistence of a chairman of the
board, at all meetings of the Board of Directors and shall have the general
powers and duties of management usually vested in the office of chief executive
officer of a corporation and shall have such other powers and duties as may be
prescribed by the Board of Directors or these bylaws.

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5.7 PRESIDENT.

Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board (if any) or the chief
executive officer, the president shall have general supervision, direction, and
control of the business and other officers of the corporation. He or she shall
have the general powers and duties of management usually vested in the office
of president of a corporation and such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws.

5.8 VICE PRESIDENTS.

5.9 SECRETARY.

The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, at the
principal executive office of the corporation or at the office of the
corporation's transfer agent or registrar, as determined by resolution of the
Board of Directors, a share register, or a duplicate share register, showing
the names of all stockholders and their addresses, the number and classes of
shares held by each, the number and date of certificates evidencing such
shares, and the number and date of cancellation of every certificate
surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required to be given
by law or by these Bylaws. He or she shall keep the seal of the corporation,
if one be adopted, in safe custody and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or by these
Bylaws.

5.10 CHIEF FINANCIAL OFFICER.

The chief financial officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of accounts
of the properties and business transactions of the corporation, including
accounts of its assets, liabilities, receipts,

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disbursements, gains, losses, capital retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.

5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

The chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the secretary or
assistant secretary of this corporation, or any other person authorized by the
Board of Directors or the chief executive officer or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority
granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by the
person having such authority.

5.12 AUTHORITY AND DUTIES OF OFFICERS.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS

6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.

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6.2 INDEMNIFICATION OF OTHERS.

The corporation shall have the power, to the maximum extent
and in the manner permitted by the General Corporation Law of Delaware, to
indemnify each of its employees and agents (other than directors and officers)
against expenses (including attorneys' fees), judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent
of the corporation. For purposes of this Section 6.2, an "employee" or "agent"
of the corporation (other than a director or officer) includes any person (i)
who is or was an employee or agent of the corporation, (ii) who is or was
serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii)
who was an employee or agent of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.

6.3 PAYMENT OF EXPENSES IN ADVANCE.

Expenses incurred in defending any action or proceeding for
which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance
of the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.

6.4 INDEMNITY NOT EXCLUSIVE.

6.5 INSURANCE.

The corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
or her and incurred by him or her in any such capacity, or arising out of his
or her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.

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6.6 CONFLICTS.

(a) That it would be inconsistent with a provision of the
certificate of incorporation, these Bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or

(b) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.

ARTICLE VII

RECORDS AND REPORTS

7.1 MAINTENANCE AND INSPECTION OF RECORDS.

The corporation shall, either at its principal executive
offices or at such place or places as designated by the Board of Directors,
keep a record of its stockholders listing their names and addresses and the
number and class of shares held by each stockholder, a copy of these Bylaws as
amended to date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.

7.2 INSPECTION BY DIRECTORS.

Any director shall have the right to examine the corporation's
stock ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether
a director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock list and to make copies or extracts
therefrom. The Court may, in its

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discretion, prescribe any limitations or conditions with reference to the
inspection, or award such other and further relief as the Court may deem just
and proper.

7.3 ANNUAL STATEMENT TO STOCKHOLDERS.

ARTICLE VIII

GENERAL MATTERS

8.1 CHECKS.

From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the corporation, and only the
persons so authorized shall sign or endorse those instruments.

8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.

8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.

The shares of a corporation shall be represented by
certificates, provided that the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairman or vice-chairman of the Board of Directors, or the chief executive
officer or the president or vice-president, and by the chief financial officer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is

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<PAGE> 21

issued, it may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.

8.4 SPECIAL DESIGNATION ON CERTIFICATES.

If the corporation is authorized to issue more than one class
of stock or more than one series of any class, then the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
that the corporation shall issue to represent such class or series of stock;
provided, however, that, except as otherwise provided in Section 202 of the
General Corporation Law of Delaware, in lieu of the foregoing requirements
there may be set forth on the face or back of the certificate that the
corporation shall issue to represent such class or series of stock a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.

8.5 LOST CERTIFICATES.

Except as provided in this Section 8.5, no new certificates
for shares shall be issued to replace a previously issued certificate unless
the latter is surrendered to the corporation and cancelled at the same time.
The corporation may issue a new certificate of stock or uncertificated shares
in the place of any certificate previously issued by it, alleged to have been
lost, stolen or destroyed, and the corporation may require the owner of the
lost, stolen or destroyed certificate, or the owner's legal representative, to
give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate or uncertificated
shares.

8.6 CONSTRUCTION; DEFINITIONS.

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<PAGE> 22

8.7 DIVIDENDS.

The directors of the corporation, subject to any restrictions
contained in (i) the General Corporation Law of Delaware or (ii) the
certificate of incorporation, may declare and pay dividends upon the shares of
its capital stock. Dividends may be paid in cash, in property, or in shares of
the corporation's capital stock.

The directors of the corporation may set apart out of any of
the funds of the corporation available for dividends a reserve or reserves for
any proper purpose and may abolish any such reserve. Such purposes shall
include but not be limited to equalizing dividends, repairing or maintaining
any property of the corporation, and meeting contingencies.

8.8 FISCAL YEAR.

The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors and may be changed by the Board of
Directors.

8.9 SEAL.

The corporation may adopt a corporate seal, which may be
altered at pleasure, and may use the same by causing it or a facsimile thereof,
to be impressed or affixed or in any other manner reproduced.

8.10 TRANSFER OF STOCK.

8.11 STOCK TRANSFER AGREEMENTS.

The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.

8.12 REGISTERED STOCKHOLDERS.

The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, shall be entitled to hold liable for calls
and assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.

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<PAGE> 23

ARTICLE IX

AMENDMENTS

The Bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to
adopt, amend or repeal Bylaws upon the directors. The fact that such power has
been so conferred upon the directors shall not divest the stockholders of the
power, nor limit their power to adopt, amend or repeal Bylaws.

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<PAGE> 24

CERTIFICATE BY SECRETARY OF AMENDED AND RESTATED BYLAWS

The undersigned hereby certifies that the undersigned is the duly
elected, qualified, and acting secretary of AccelGraphics, Inc., and
that the foregoing Amended and Restated Bylaws were adopted on February
__.1997.

Executed this _____ day of February 1997.

______________________________________
Michael W. Hall, Secretary

<PAGE> 1
EXHIBIT 4.1

[ACCELGRAPHICS LOGO]

COMMON STOCK

_______________
Shares

See reverse for certain descriptions and a
statement as to the rights, preferences,
privileges and restrictions on shares

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS CERTIFIES THAT

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

IS THE RECORD HOLDER OF

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

FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$.001 PAR VALUE PER SHARE, OF

ACCELGRAPHICS, INC.

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:
-------------------

[SEAL]

/s/ /s/
----------------------- -----------------------
Chief Financial Officer President

Countersigned and registered:
HARRIS TRUST COMPANY OF CALIFORNIA
Transfer Agent and Registrar

By:
------------------------------------
Authorized Signature

<PAGE> 2
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.

The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ...................Custodian...............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act........................................
in common (State)
COM PROP -- as community property UNIF TRF MIN ACT -- .............Custodian (until age.........)
(Cust)
....................under Uniform Transfers
(Minor)
to Minors Act..............................
(State)
</TABLE>

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED,___________________________hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------

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

_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

_______________________________________________________________________________

________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.

Dated________________________

X_______________________________________________

X_______________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
NOTICE: FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.

Signature(s) Guaranteed

By___________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.