
<PAGE>   1
 
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997
 
                                               REGISTRATION NO.      -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
 
                                   FORM SB-2
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                               ------------------
 
                              ACCELGRAPHICS, INC.
                     (EXACT NAME OF SMALL BUSINESS ISSUER)
 
<TABLE>
<S>                               <C>                               <C>
            CALIFORNIA                           3670                           77-0388689
   (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.  [ ]
                               ------------------
                        CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
 
<TABLE>
<S>                                        <C>           <C>               <C>               <C>
----------------------------------------------------------------------------------------------------------
                                                             PROPOSED      PROPOSED MAXIMUM
                                           DOLLAR AMOUNT MAXIMUM OFFERING      AGGREGATE       AMOUNT OF
          TITLE OF EACH CLASS OF               TO BE         PRICE PER         OFFERING      REGISTRATION
       SECURITIES TO BE REGISTERED         REGISTERED(1)     SHARE(2)          PRICE(2)           FEE
----------------------------------------------------------------------------------------------------------
Common Stock..............................  $35,880,000       $12.00          $35,880,000     $10,872.73
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>
 
(1) Dollar amount to be registered consists of 2,990,000 shares of Common Stock
    at $12.00 per share.
 
(2) Estimated solely for the purpose of computing the amount of the registration
    fee pursuant to Rule 457(a).
 
     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                  , 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.
 
<TABLE>
<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]
 
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
 
The AccelGraphics logo, AccelGraphics(R), AccelVIEW(R) and AG300(R) are
registered trademarks of the Company. The AccelGraphics design(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 to be effected prior to this offering, (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 prior to the closing of this offering 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
three 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. Dataquest predicts that by 1999,
NT will operate nearly six times the number of workstations as RISC/UNIX.
 
     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 unit volume of 3D
graphics subsystems enabling 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. The Company sells fully integrated 3D graphics subsystems to
Digital Equipment Corporation, Epson Direct, Hewlett-Packard Company, Hitachi,
Ltd., Samsung Electronics Co., Ltd. and Tri-Star Computer Corporation for use in
high-performance Personal Workstations. 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. and Texas Instruments, Inc. 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
 
<TABLE>
<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) Excludes 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 at December
    31, 1996. 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 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 disproportion-
 
                                        5
<PAGE>   7
 
ate 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, 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. 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
 
                                        6
<PAGE>   8
 
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. 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
 
     The Company relies on OEMs, 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 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. Digital has a non-exclusive
manufacturing license in the event that the Company is unable to supply Digital
with specified quantities of products. The Company's customer agreements are
short term and automatically renew each year and generally may be canceled for
convenience upon written notice by either party. 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. 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
 
                                        7
<PAGE>   9
 
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 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
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 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
 
                                        8
<PAGE>   10
 
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. 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."
 
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 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 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
 
                                        9
<PAGE>   11
 
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 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. 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. 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
 
                                       10
<PAGE>   12
 
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. 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. 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
 
     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
 
                                       11
<PAGE>   13
 
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 adequently 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."
 
                                       12
<PAGE>   14
 
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 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 4,106,767
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. In addition, at various times beginning 181 days after the date
of this Prospectus, an additional 1,591,932 shares will become eligible for sale
in the public market upon expiration of their respective two-year holding
periods, subject to certain volume and resale restrictions as set forth in Rule
144 under the Securities Act. 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. The Securities and Exchange Commission has
proposed to reduce the Rule 144 holding periods. If enacted, such modification
will have a material effect on the timing of when shares of Common Stock become
eligible for resale. 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
 
                                       13
<PAGE>   15
 
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 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."
 
                                       14
<PAGE>   16
 
                                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.
 
                                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.
 
                                       15
<PAGE>   17
 
                                 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.
 
                                       16
<PAGE>   18
 
                                    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.
 
                                       17
<PAGE>   19
 
                      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.
 
                                       18
<PAGE>   20
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
 
     AccelGraphics, Inc. designs, develops and markets 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 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.
 
     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 OEMs, 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 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.
 
     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."
 
                                       19
<PAGE>   21
 
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 increased unit sales of the Company's
AG300/500 product line as well as revenues from sales of its AccelPRO and
AccelPRO TX product lines following their introductions in mid 1996.
 
     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, accounted for 16.6%
of revenues in 1995. 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."
 
  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.
 
                                       20
<PAGE>   22
 
     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 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 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 to support the
Company's growth and for costs associated with operating as a public company.
 
  Interest Expense
 
     Interest expense in both 1995 and 1996 primarily related to interest on the
subordinated convertible note payable to Kubota.
 
  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 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
 
                                       21
<PAGE>   23
 
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)
                                          =======       =======       =======        ======        ======        ======
 
<CAPTION>
 
                                          SEPT. 30,     DEC. 31,
                                            1996          1996
                                          ---------     ---------
 
<S>                                      <C><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)%
                                           ======        ======         =====         =====         =====         =====
 
<CAPTION>
 
                                          SEPT. 30,     DEC. 31,
                                            1996          1996
                                          ---------     ---------
<S>                                      <C><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>
 
                                       22
<PAGE>   24
 
     Revenues in the fourth quarter of 1996 increased primarily due to the
market acceptance of the Company's AccelPRO and AccelPRO TX product lines and
increased shipments to a new OEM customer. 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. 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. 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
 
                                       23
<PAGE>   25
 
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.
 
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,
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.
 
                                       24
<PAGE>   26
 
                                    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. 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 three 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 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 unit volume of 3D graphics subsystems enabling personal
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 OEMs and a worldwide network of VARs
and distributors. The Company sells 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.
The Company also has technical relationships with Intel Corporation ("Intel")
and Microsoft, as well as with key component suppliers including 3Dlabs, Cirrus
Logic, Inc. and Texas Instruments, Inc. 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 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.
 
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
robust 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 2D
technology now can work faster and more efficiently by using 3D technology to
create, modify and complete more sophisticted 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 sales of
RISC/UNIX workstations were 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 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
 
                                       25
<PAGE>   27
 
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 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
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, color, depth, transparency, lighting and textures. 3D graphics
subsystems also need to support numerous software applications that have been
architected 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 robust, integrated
solutions to overcome performance bottlenecks and potential errors. Regardless
of the underlying speed of the host CPU and graphics accelerator, 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
 
     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
 
                                       26
<PAGE>   28
 
Windows NT computing environment and have either ported 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. The NT version of PTC's
ProENGINEER has been an increasing portion of PTC's revenue since its
introduction. Dataquest predicts that by 1999, Windows NT will power nearly six
times the number of workstations as UNIX. 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
robust, 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,
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.
 
                                       27
<PAGE>   29
 
     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 Software. The Company intends to continue to provide
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 that value added 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 pursues a strategy of silicon
independence. This strategy 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.
 
     The Company's principal product lines are summarized below. Suggested end
user United States prices vary depending on system configuration.
 
--------------------------------------------------------------------------------
                                    HARDWARE
--------------------------------------------------------------------------------
 
<TABLE>
  <S>             <C>             <C>                                <C>
  PRODUCT LINE    INTRODUCTION    DESCRIPTION                         SUGGESTED END USER
  --------------  DATE            ---------------------------------          PRICE
                  --------------                                     ---------------------
  AccelPROTX      August 1996     High-performance 3D graphics          $2,295 - $2,795
                                  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>
 
--------------------------------------------------------------------------------
 
                                       28
<PAGE>   30
 
<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        February 1997   Plug-in to Netscape Navigator and            $49
    Carpet                        Microsoft Internet Explorer for
                                  display of and interaction with
                                  very large VRML data sets
    Flying        February 1997   Data converter companion product to          $49
  Carpet                          Flying Carpet
    Converter
</TABLE>
 
     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 robust 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.
 
     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 accelerator 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 robust 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.
 
     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.
 
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:
 
                                       29
<PAGE>   31
 
     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 three 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.
 
     The Company has technical relationships with Intel and Microsoft, as well
as with key component suppliers, including 3Dlabs, Cirrus Logic, Inc. and Texas
Instruments Inc. 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
 
                                       30
<PAGE>   32
 
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, Wisney 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                   Northrop Grumman
 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
----------------------------------------------------------------------------------------------
 ANIMATION AND MULTIMEDIA AUTHORING -- Creation of motion pictures, games, commercials
 
 Kinetix                        3D Studio MAX                   Broderbund, DreamWorks
 Microsoft                      Softimage 3D                    LucasArts Entertainment, Sony
 NewTek, Inc.                   LightWave 3D                    Broderbund, Mindscape
----------------------------------------------------------------------------------------------
 ARCHITECTURE, ENGINEERING AND CONSTRUCTION -- Plant design, maintenance, and architectural
 design
 Bentley Systems,               Microstation                    AMOCO, Dow Chemical
  Incorporated
 CADCENTRE, Ltd.                Plant Design Maintenance        Brown & Root, Nuclear Fuel
                                                                Services
 EA Systems Inc.                Plant Walk                      Mitsui Engineering
----------------------------------------------------------------------------------------------
</TABLE>
 
                                       31
<PAGE>   33
 
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
        ISV                     APPLICATION                     ISV CUSTOMER EXAMPLES
<S>                             <C>                             <C>
----------------------------------------------------------------------------------------------
 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. 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 sells 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.
 
     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, 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 product lines.
 
                                       32
<PAGE>   34
 
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 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.
 
                                       33
<PAGE>   35
 
     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
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.
 
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
 
                                       34
<PAGE>   36
 
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.
 
     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.
 
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.
 
                                       35
<PAGE>   37
 
                                   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. Bartlett serves as Chairman for the Los Gatos Rowing Club.
 
     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
 
                                       36
<PAGE>   38
 
Graphics and from July 1994 to November 1994, Mr. Milliken was a Director of
Product Marketing at 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
1987 to 1995, 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. Currently, the members of the Board of Directors are not compensated for
their services.
 
                                       37
<PAGE>   39
 
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 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.
 
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.
 
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>
 
                                       38
<PAGE>   40
 
---------------
 
(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.
 
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 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. 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
 
                                       39
<PAGE>   41
 
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.
 
     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
 
                                       40
<PAGE>   42
 
"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 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
 
     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.
 
     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.
 
                                       41
<PAGE>   43
 
                              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 for the sum of $1.2 million (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"). Mr. Miyamota, a director of the Company,
is an affiliate of Kubota.
 
     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.
 
                                       42
<PAGE>   44
 
                       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        628,772        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..........................     67,000        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%.
 
                                       43
<PAGE>   45
 
 (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 Chief
     Financial Officer 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 General Partner of
     Indosuez Ventures, 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 450,000 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 53,333 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.
 
                                       44
<PAGE>   46
 
(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 Company's reincorporation in Delaware and
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. 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
 
                                       45
<PAGE>   47
 
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 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," as defined in Section 301.5(d) of the
California Corporations Code (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.
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
 
                                       46
<PAGE>   48
 
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.
 
     These and other 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 and
Savings Bank. 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.
 
     4,106,767 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. In addition, at various times
after 181 days from the date of this Prospectus, 1,591,932 shares will become
eligible for sale in the public market upon expiration of their respective
two-year holding periods, subject to certain volume and resale restrictions set
forth in Rule 144.
 
     In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of one percent of the number of
shares of Common Stock then outstanding or the average weekly trading volume of
the Common Stock as reported
 
                                       47
<PAGE>   49
 
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. In addition, 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
three years the shares proposed to be sold would be entitled to sell such shares
under Rule 144(k) without regard to the requirements described above. The
Securities and Exchange Commission has recently proposed to reduce the Rule 144
holding periods. If enacted, such proposal will have a material effect on the
timing of when Restricted Shares become eligible for resale.
 
     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.
 
                                       48
<PAGE>   50
 
                                  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
 
                                       49
<PAGE>   51
 
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.
 
                                 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.
 
                             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.
 
                                       50
<PAGE>   52
 
                              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>   53
 
                       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 February 6, 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>   54
 
                              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>   55
 
                              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>   56
 
                              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>   57
 
                             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>   58
 
                              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>   59
 
                              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.
 
  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>   60
 
                              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>   61
 
                              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>   62
 
                              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>   63
 
                              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
 
     Approximately 1,152,000 shares of Common Stock were issued to certain
employees as restricted stock. Such restriction lapses at various times through
March 1998. At December 31, 1996, approximately 372,000 common shares were
subject to repurchase by the Company.
 
  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>   64
 
                              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>   65
 
                              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>   66
 
                              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>   67
 
                              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>   68
 
                                    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 Windows NT Graphics for the Professional."
 
GATEFOLD:
 
     Center of gatefold has four interlocked gears with a different picture on
each gear. The pictures represent the hardware, graphics pipeline, software
utilities and ISV partners. Each corner of the gatefold has a copy of one of the
gears with small amounts of relevant descriptive text.
 
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," 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:
 
     A copy of the four interlocked gears from the gatefold with the logos of
the Companies in AccelGraphics distribution channels around the drawing.
<PAGE>   69
 
------------------------------------------------------------
------------------------------------------------------------
 
  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............................   15
Dividend Policy............................   15
Capitalization.............................   16
Dilution...................................   17
Selected Consolidated Financial Data.......   18
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...............................   19
Business...................................   25
Management.................................   37
Certain Transactions.......................   43
Principal and Selling Stockholders.........   44
Description of Capital Stock...............   46
Shares Eligible for Future Sale............   49
Underwriting...............................   50
Legal Matters..............................   51
Experts....................................   51
Additional Information.....................   51
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>   70
 
                                    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, 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, 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.
 
                                      II-1
<PAGE>   71
 
          3. In June and July 1995, 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, 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, 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, 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, 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, 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, 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, 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 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
         3.1       Amended and Restated Articles of Incorporation of Registrant (California)
         3.2*      Amendment to Amended and Restated 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)
</TABLE>
 
                                      II-2
<PAGE>   72
 
<TABLE>
<CAPTION>
        NUMBER                                    DESCRIPTION
        ------     --------------------------------------------------------------------------
        <S>        <C>
         3.7       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>
 
---------------
 
     *To be filed by amendment.
 
     +Confidential treatment requested.
 
                                      II-3
<PAGE>   73
 
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.
 
                                      II-4
<PAGE>   74
 
                                   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 registration
statement to be signed on its behalf by the undersigned, in the City of San
Jose, State of California, on this 7th day of February 1997.
 
                                          ACCELGRAPHICS, INC.
 
                                          By: /s/ JEFFREY W. DUNN
                                            Jeffrey W. Dunn
                                            President, Chief Executive Officer
                                            and Director
 
                               POWER OF ATTORNEY
 
     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Jeffrey W. Dunn and Nancy E. Bush,
and each of them acting individually, as his or her attorney-in-fact, each with
full power of substitution, for him or her in any and all capacities, to sign
any and all amendments to this Registration Statement (including post-effective
amendments), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said Registration Statement, or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under Securities Act 1993, as amended. 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.                President, Chief          February 7, 1997
                     DUNN                          Executive Officer and
               (Jeffrey W. Dunn)                    Director (Principal
                                                    Executive Officer)
 
                         /s/ NANCY E.             Vice President, Finance      February 7, 1997
                     BUSH                        and Administration; Chief
                (Nancy E. Bush)                    Financial Officer and
                                                    Assistant Secretary
                                                 (Principal Financial and
                                                    Accounting Officer)
                     GOLD/s/ DAVID E.                    Director              February 7, 1997
                (David E. Gold)
 
                            /s/ JOS                      Director              February 7, 1997
                    HENKENS
                 (Jos Henkens)
 
                       /s/ SHINTARO                      Director              February 7, 1997
                   MIYAMOTO
              (Shintaro Miyamoto)
 
                          /s/ DAVID                      Director              February 7, 1997
                    PIDWELL
                (David Pidwell)
 
                          /s/ PETER                      Director              February 7, 1997
                    WOLKEN
                (Peter Wolken)
</TABLE>
 
                                      II-5
<PAGE>   75
 
                                                                    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
February 6, 1997
 
                                      II-6
<PAGE>   76
 
                                 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*    Amendment to Amended and Restated 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)...........................................
 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>   77
 
<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>
 
---------------
 
*To be filed by amendment.
 
+Confidential treatment requested.
