DIAMOND MULTIMEDIA SYSTEMS, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into by and between William J. Schroeder (the "Employee") and
Diamond Multimedia Systems, Inc., a Delaware corporation (the
"Company"), effective as of June 21, 1999 (the "Effective Date").
RECITALS
A. It is expected that the Company from time to time will consider
the possibility of an acquisition by another company or other change of
control.  The Board of Directors of the Company (the "Board") recognizes
that such consideration can be a distraction to the Employee and can
cause the Employee to consider alternative employment opportunities.
The Board has determined that it is in the best interests of the Company
and its stockholders to assure that the Company will have the continued
dedication and objectivity of the Employee, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined
below) of the Company.
B. The Board believes that it is in the best interests of the Company
and its stockholders to provide the Employee with an incentive to
continue his employment and to motivate the Employee to maximize the
value of the Company upon a Change of Control for the benefit of its
stockholders.
C. The Board believes that it is imperative to provide the Employee
with certain severance benefits upon Employee's termination of
employment following a Change of Control which provides the Employee
with enhanced financial security and provides incentive and
encouragement to the Employee to remain with the Company notwithstanding
the possibility of a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in
Section 5 below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
(1) Term of Agreement.  This Agreement shall terminate upon the date
that all of the obligations of the parties hereto with respect to this
Agreement have been satisfied.
(2) At-Will Employment.  The Company and the Employee acknowledge that
the Employee's employment is and shall continue to be at-will, as
defined under applicable law, except as may otherwise be specifically
provided under the terms of any written formal employment agreement
between the Company and Employee (an "Employment Agreement").  If the
Employee's employment terminates for any reason, including (without
limitation) any termination prior to a Change of Control, the Employee
shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement or under his or
her Employment Agreement (if any) together with, or as may otherwise be
available in accordance with the Company's established employee plans
and practices or pursuant to other agreements with the Company.
(3) Severance Benefits.
 (a) Termination Following Change of Control.
(i) If the Employee's employment terminates at any time within twelve
(12) months following a Change of Control, then, subject to Section 4,
the Employee shall be entitled to receive the following severance
benefits and no other compensation, severance or benefits:
A) Involuntary Termination; Not for Cause Termination.  If the
Employee's employment is terminated as a result of Involuntary Termina-
tion (whether such termination is initiated by the Company or by the
Employee), or as a result of termination other than for Cause, then the
Employee shall receive the following severance benefits from the
Company:
 1) Severance Payment.  A cash payment (or payments) in an amount
equal to one hundred fifty percent (150%) of the Employee's Base Pay.
 2)   Continued Employee Benefits.  One hundred percent (100%)
Company-paid health, dental and life insurance coverage at the same
level of coverage as was provided to such employee immediately prior to
the Change of Control (the "Company-Paid Coverage"), for a period of
twelve (12) months after the date of termination of such Employee.
Company-Paid Coverage shall not include the percentage of the payment
for such insurance as contributed by the Employee immediately prior to
the Employee's termination (the "Contribution Percentage").  Company-
Paid Coverage is expressly contingent upon timely payment of the
Contribution Percentage by the Employee.  If Employee's health insurance
coverage included the Employee's dependents immediately prior to the
Employee's termination, then Employees' Company-Paid Coverage shall
include health insurance coverage for such dependents, subject to timely
payments of the Contribution Percentage, as above.  For purposes of the
continuation health coverage required under Section 4980B of the Code
("COBRA"), the date of the "qualifying event" giving rise to an
Employee's COBRA election period (and that of his "qualifying
beneficiaries") shall be the last date on which the Employee receives
Company-Paid Coverage under this Plan.  If the Employee obtains
comparable or better coverage prior to the lapse of the specified
Company-Paid Coverage period, the Employee must inform the Company in
writing within 30 days thereof and Company-Paid Coverage will thereupon
be canceled immediately.
 3) Outplacement Assistance.  Employee shall be entitled to
reasonable, pre-approved Company-paid outplacement assistance, including
job counseling and referral services, for a period of six (6) months
following the date of termination of employment.
(ii) If the Employee's employment terminates at any time within the
period that is between twelve (12) months and twenty-four (24) months
following a Change of Control, then, subject to Section 4, the Employee
shall be entitled to receive the following severance benefits and no
other compensation, severance or benefits:
A) Involuntary Termination; Not for Cause Termination.  If the
Employee's employment is terminated as a result of Involuntary Termina-
tion (whether such termination is initiated by the Company or by the
Employee), or as a result of termination other than for Cause, then the
Employee shall receive the following severance benefits from the
Company:
 1) Severance Payment.  A cash payment (or payments) in an amount
equal to seventy-five percent (75%) of the Employee's Base Pay.
 2) Continued Employee Benefits.  One hundred percent (100%) Company-
paid health, dental and life insurance coverage at the same level of
coverage as was provided to such employee immediately prior to the
Change of Control (the "Company-Paid Coverage"), for a period of six (6)
months after the date of termination of such Employee.   Company-Paid
Coverage shall not include the percentage of the payment for such
insurance as contributed by the Employee immediately prior to the
Employee's termination (the "Contribution Percentage").  Company-Paid
Coverage is expressly contingent upon timely payment of the Contribution
Percentage by the Employee.  If Employee's health insurance coverage
included the Employee's dependents immediately prior to the Employee's
termination, then Employees' Company-Paid Coverage shall include health
insurance coverage for such dependents, subject to timely payments of
the Contribution Percentage, as above.  For purposes of the continuation
health coverage required under Section 4980B of the Code ("COBRA"), the
date of the "qualifying event" giving rise to an Employee's COBRA
election period (and that of his "qualifying beneficiaries") shall be
the last date on which the Employee receives Company-Paid Coverage under
this Plan.  If the Employee obtains comparable or better coverage prior
to the lapse of the specified Company-Paid Coverage period, the Employee
must inform the Company in writing within 30 days thereof and Company-
Paid Coverage will thereupon be canceled immediately.
 3) Outplacement Assistance.  Employee shall be entitled to
reasonable, pre-approved Company-paid outplacement assistance, including
job counseling and referral services, for a period of six (6) months
following the date of termination of employment.
 (b) Timing of Severance Payments. The severance payment or payments to
which Employee is entitled shall be paid by the Company to Employee
either: (a) in cash and in full, not later than ten (10) calendar days
after the date of termination of Employee's employment, or, (b) as
salary continuation on the same basis and timing as in effect
immediately prior to the Change of Control; (a) or (b) will be chosen at
the Company's discretion.  The Company will make this choice known to
Employee at the time of termination.  If Employee should die before all
amounts payable to his or her have been paid, such unpaid amounts shall
be paid to Employee's designated beneficiary, if living, or otherwise to
the personal representative of Employee's estate.
 (c) Voluntary Resignation; Termination For Cause.  If the Employee's
employment terminates by reason of the Employee's voluntary resignation
(and is not an Involuntary Termination), or if the Employee is
terminated for Cause, then the Employee shall not be entitled to receive
severance or other benefits except for those (if any) as may then be
established under the Company's then existing severance and benefits
plans and practices or pursuant to other written agreements with the
Company.
 (d) Disability; Death.  If the Company terminates the Employee's
employment as a result of the Employee's Disability, or such Employee's
employment is terminated due to the death of the Employee, then the
Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's
then existing written severance and benefits plans and practices or
pursuant to other written agreements with the Company.
 (e) Termination Apart from Change of Control.  In the event the
Employee's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twenty-four (24)-month
period following a Change of Control, then the Employee shall be
entitled to receive severance and any other benefits only as may then be
established under the Company's existing written severance and benefits
plans and practices or pursuant to other written agreements with the
Company.
 (f) Options; Restricted Stock.  In the event that the Employee is
entitled to severance benefits pursuant to subsection 3(a)(i) or
subsection 3(a)(ii), then upon such termination, in addition to any
portion of the Employee's stock options that were exercisable
immediately prior to such termination, or restricted stock that was not
subject to the right of repurchase held by the Company, such options
shall continue to vest  as to an additional amount, and such restricted
stock shall continue to vest from the Company's right of repurchase as
to an additional amount, as though the Employee had remained
continuously employed for a period of twelve (12) months following such
termination in the case of subsection 3(a)(i) above, or six (6) months
following such termination in the case of subsection 3(a)(ii) above, for
the period prescribed in such option plans or restricted stock purchase
agreements.
 (g) Exclusive Remedy.  In the event of a termination of Employee's
employment within twenty-four (24) months following a Change of Control,
the provisions of this Section 3 are intended to be and are exclusive
and in lieu of any other rights or remedies to which Employee or the
Company may otherwise be entitled, whether at law, tort or contract, in
equity, or under this Agreement.  Employee shall be entitled to no
benefits, compensation or other payments or rights upon termination of
employment following a Change in Control other than those benefits
expressly set forth in this Section 3, whichever shall be applicable.
(4) Limitation on Payments.  In the event that the severance and other
benefits provided for in this Agreement or otherwise payable to the
Employee (i) constitute "parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") and (ii) but for this Section 4, would be subject to the excise
tax imposed by Section 4999 of the Code, then the Employee's severance
benefits under Section 3(a)(i) shall be either
 (a) delivered in full, or
 (b) delivered as to such lesser extent which would result in no
portion of such severance benefits being subject to excise tax under
Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by the Employee on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding
that all or some portion of such severance benefits may be taxable under
Section 4999 of the Code.  Unless the Company and the Employee otherwise
agree in writing, any determination required under this Section 4 shall
be made in writing by the Company's independent public accountants
immediately prior to Change of Control (the "Accountants"), whose
determination shall be conclusive and binding upon the Employee and the
Company for all purposes.  For purposes of making the calculations
required by this Section 4, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely
on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code.  The Company and the Employee shall
furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination
under this Section.  The Company shall bear all costs the Accountants
may reasonably incur in connection with any calculations contemplated by
this Section 4.
(5) Definition of Terms.  The following terms referred to in this
Agreement shall have the following meanings:
 (a) Base Pay.  "Base Pay" shall mean (i) $400,000 or  (ii) such
greater amount of  base straight-time gross earnings, exclusive of
payments for overtime, shift premiums, incentive compensation, incentive
payments, bonuses, commissions or other compensation, paid immediately
prior to the date of Involuntary Termination or termination by the
Company other than for Cause.
 (b) Cause.  "Cause" shall mean (i) any act of dishonesty taken by
Employee and intended to result in substantial gain or personal
enrichment of the Employee, (ii) Employee personally engaging in knowing
and intentional illegal conduct which is injurious to the reputation of
the Company or its affiliates; (iii) Employee's continued failure to
substantially perform the duties and obligations of his employment which
are not remedied within thirty (30) days after notice thereof from the
Board of Directors or Chief Executive Officer of the Company to
Employee; (iv) Employee being convicted of a felony, or committing an
act of dishonesty or fraud against, or the misappropriation of property
belonging to, the Company or its affiliates; (v) Employee's engagement
in repeated substance abuse which impairs his ability to perform the
duties and obligations of Employee's employment or impairs the
reputation of the Company; (vi) Employee personally engaging in any act
of moral turpitude that impairs the reputation of the Company; (vii) if
the performance by Employee of those acts identified in Section 2924 of
the California Labor Code; (viii) Employee knowingly and intentionally
breaching in any material respect the terms of this Agreement (or any
confidentiality agreement or invention or proprietary information
agreement with the Company); (ix) Employee's commencement of employment
with another employer while he is an employee of the Company; or (x) any
material breach by Employee of any material provision of this Agreement
which continues uncured for thirty (30) days following notice thereof.
 (c) Change of Control.  "Change of Control" means the occurrence of
any of the following events:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly
or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding
voting securities; or
(ii) A change in the composition of the Board occurring within a two-
year period, as a result of which fewer than  a majority of the
directors are Incumbent Directors.  "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of the Incumbent Directors
at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual
or threatened proxy contest relating to the election of directors to the
Company); or
(iii) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
 (d) Disability.  "Disability" shall mean that the Employee has been
unable to perform his Company duties as the result of his incapacity due
to physical or mental illness, and such inability, at least 26 weeks
after its commencement, is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Employee or the Employee's legal representative (such Agreement as to
acceptability not to be unreasonably withheld).  Termination resulting
from Disability may only be effected after at least 30 days' written
notice by the Company of its intention to terminate the Employee's
employment.  In the event that the Employee resumes the performance of
substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
 (e) Involuntary Termination.  "Involuntary Termination" shall mean (i)
a reduction by the Company in the Base Pay of Employee as in effect
immediately prior to such reduction, except when a reduction in Base Pay
is implemented for a majority of the Company's executives or employees;
(ii) without the Employee's express written consent, the Company
requires the Employee to change the location of his or her job or
office, so that he or she will be based at a location more than forty
(40) miles from the location of his job or office immediately prior to
the Change of Control; (iii) the cost to the Company of Company-provided
benefits to Employee, taken as a whole, under plans, arrangements
policies and procedures, materially decreases below the cost of the
Company-provided benefits to Employee immediately prior to the Change of
Control, or the cost to the Employee of such benefits materially
increases above the cost to the Employee immediately prior to the Change
of Control; however, if such decrease or increase results either from
the Company's good faith exercise of business judgment, a decrease that
is implemented affecting the majority of Company's employees, or in
response to changes in federal or state law, such decrease or increase
shall not constitute Involuntary Termination; (iv) without Employee's
express written consent, a reduction of the Employee's title, duties,
position or responsibilities, or the removal of the Employee from such
position and responsibilities.  This means that if the Employee, as the
Chief Executive Officer of the Company, does not become the chief
executive officer of the successor corporation, there will be a
reduction in his duties; (v)  a successor company fails or refuses to
assume the Company's obligations under this Agreement; or (vi) any
purported termination of the Executive which is not effected for death,
disability or for Cause, or any purported termination for which the
grounds relied upon are not valid.
(6) Successors.
 (a) Company's Successors.  Any successor to the Company (whether
direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's
business and/or assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in
the same manner and to the same extent as the Company would be required
to perform such obligations in the absence of a succession.  For all
purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 6(a) or
which becomes bound by the terms of this Agreement by operation of law.
 (b) Employee's Successors.  The terms of this Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be
enforceable by, the Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
(7) Notice.
 (a) General.  Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid.  In the
case of the Employee, mailed notices shall be addressed to him at the
home address which he most recently communicated to the Company in
writing.  In the case of the Company, mailed notices shall be addressed
to its corporate headquarters, and all notices shall be directed to the
attention of its President.
 (b) Notice of Termination.  Any termination by the Company for Cause
or by the Employee as a result of a voluntary resignation or an Involun-
tary Termination shall be communicated by a notice of termination to the
other party hereto given in accordance with Section 8(a) of this
Agreement.  Such notice shall indicate the specific termination
provision in this Agreement relied upon, shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the
termination date (which shall be not more than 30 days after the giving
of such notice).  The failure by the Employee to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Employee hereunder or
preclude the Employee from asserting such fact or circumstance in
enforcing his rights hereunder.
(8) Miscellaneous Provisions.
 (a) No Duty to Mitigate.  The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor
shall any such payment be reduced by any earnings that the Employee may
receive from any other source.
 (b) Waiver.  No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of
the Company (other than the Employee).  No waiver by either party of any
breach of, or of compliance with, any condition or provision of this
Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another
time.
 (c) Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto and supersedes in their entirety all prior
representations, understandings, undertakings or agreements (whether
oral or written and whether expressed or implied) of the parties with
respect to the subject matter hereof.
 (d) Choice of Law.  The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State
of California.
 (e) Severability.  The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full
force and effect.
 (f) Withholding.  All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
 (g) Counterparts.  This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together
will constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day
and year set forth below.
COMPANY:                                DIAMOND MULTIMEDIA SYSTEMS, INC.
                                        By:             /s/ James M. Walker
                                        Title:          SVP & CFO
                                        Date:           June 21, 1999

EMPLOYEE:                               WILLIAM J. SCHROEDER
                                        By:     /s/ William J. Schroeder
                                        Title:  President & CEO
                                        Date:           June 21, 1999