DIAMOND MULTIMEDIA SYSTEMS INC, S-8, 1999-08-23

DIAMOND MULTIMEDIA SYSTEMS INC
S-8, 1999-08-23
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<PAGE> 1
As filed with the Securities and Exchange Commission on August 23, 1999
Registration No. 333-__________
================================================================================

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

FORM S-8

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------

DIAMOND MULTIMEDIA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 77-0390654
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

2880 JUNCTION AVENUE
SAN JOSE, CALIFORNIA 95134-1922
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

1998 NONSTATUTORY STOCK OPTION PLAN
1995 EMPLOYEE STOCK PURCHASE PLAN
1995 DIRECTOR OPTION PLAN
(Full title of the plans)

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

WILLIAM J. SCHROEDER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DIAMOND MULTIMEDIA SYSTEMS, INC.
2880 JUNCTION AVENUE
SAN JOSE, CALIFORNIA 95134-1922
(408) 325-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

Copy to:

HOWARD S. ZEPRUN, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (1) PRICE FEE (2)
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
- - to be issued under 1998 Nonstatutory Stock Option Plan 353,997 $5.00 $1,769,985 $492.06
- - to be issued under the 1995 Employee Stock Purchase Plan 400,000 $5.00 $2,000,000 $556.00
- - to be issued under the 1995 Director Option Plan 150,000 $5.00 $750,000 $208.50
Total 903,997 $4,519,985.00 $1,256.56
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated in accordance with Rule 457(h) of Regulation C solely for the
purpose of calculating the registration fee. The proposed maximum aggregate
offering price per share with respect to the 903,997 shares authorized and
reserved for issuance under the 1998 Nonstatutory Stock Option Plan, the
1995 Employee Stock Purchase Plan and the 1995 Director Option Plan was
determined by reference to the average between the high and low price
reported in the Nasdaq National Market on August 19, 1999 (the "FMV").

(2) Amount of Registration Fee was calculated pursuant to Section 6(b) of the
Securities Act of 1933, which states that the fee shall be $278 per
$1,000,000 offered or sold.

<PAGE> 2

DIAMOND MULTIMEDIA SYSTEMS, INC.

REGISTRATION STATEMENT ON FORM S-8

PART II

ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.

There are hereby incorporated by reference into this Registration Statement
the following documents and information heretofore filed with the Securities and
Exchange Commission (the "Commission") by the Registrant:

1. The contents of the Registration Statement on Form S-8, file number
333-61147 filed by the Company with the Securities and Exchange Commission
on August 11, 1998.

2. The Company's Annual Report on Form 10-K/A filed with the SEC for the
fiscal year ended December 31, 1998.

3. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 filed pursuant to Section 13 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").

4. The description of Registrant's Common Stock contained in the Registrant's
Registration Statement on Form 8-A dated February 10, 1995, filed with the
Securities and Exchange Commission pursuant to Section 12 of the Exchange
Act, including any amendment or report filed for the purpose of updating
such description.

All documents filed by Registrant pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date hereof, and prior to the filing of a
post-effective amendment which indicates that all securities offered hereunder
have been sold or which deregisters all securities then remaining unsold under
this registration statement, shall be deemed to be incorporated by reference
herein and to be part hereof from the date of filing of such documents.

ITEM 4. DESCRIPTION OF SECURITIES.

Not applicable.

ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.

The validity of the issuance of shares of Common Stock offered hereby will
be passed upon for the Registrant by Wilson Sonsini Goodrich & Rosati,
Professional Corporation ("WSGR"), Palo Alto, California. Jeffrey D. Saper, a
member of WSGR, is a director and Secretary of the Registrant. As of the date of
this Form S-8 Registration Statement, Mr. Saper beneficially owned 19,642 shares
of Registrant's Common Stock.

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporations Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnification 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 Act. The Registrant's
Bylaws provides for the mandatory indemnification of its directors and officers
and permissible indemnification of employees and other agents to the maximum
extent permitted by Delaware General Corporation Law. Registrant has entered
into an indemnification agreement with each of its officers and directors which
provide the Registrant's officers and directors with indemnification to the
maximum extent permitted by the Delaware General Corporation Law. In addition,
the Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for a
breach of the directors' fiduciary duty as a director to Registrant and its
stockholders, provided that such liability does not arise from certain
proscribed conduct. Registrant also currently maintains officer and director
liability insurance.

-2-
<PAGE> 3

ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.

Not applicable.

ITEM 8. INDEX TO EXHIBITS.

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<S> <C>
5.1 Opinion of Counsel as to legality of securities being registered.
10.1 1998 Nonstatutory Stock Option Plan.
10.2 1995 Employee Stock Purchase Plan.
10.3 1995 Director Option Plan.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Counsel (contained in Exhibit 5.1).
24.1 Power of Attorney (see page 5).
</TABLE>

ITEM 9. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement.

(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(5) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Certificate of Incorporation, Bylaws,
indemnification agreements 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

-3-
<PAGE> 4

SIGNATURES

Pursuant to 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 S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on this 23rd day of
August, 1999.

DIAMOND MULTIMEDIA SYSTEMS, INC.

By: /s/ William J. Schroeder
--------------------------------------
William J. Schroeder,
President and Chief Executive Officer

<PAGE> 5

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William J. Schroeder and James M. Walker
jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Registration Statement on Form S-8 and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorney-in-fact, or his or her substitute or substitutes, may do or cause to be
done by virtue hereof.

Pursuant to 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 indicated.

<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/William J. Schroeder Director, Chief Executive Officer and August 23, 1999
- ------------------------------------ President (Principal Executive Officer)
William J. Schroeder

/s/James M. Walker Chief Financial Officer (Principal August 23, 1999
- ------------------------------------ Financial Officer)
James M. Walker

/s/ Carl W. Neun Director August 23, 1999
- ------------------------------------
Carl W. Neun

/s/ Bruce C. Edwards Director August 23, 1999
- ------------------------------------
Bruce C. Edwards

/s/ James T. Schraith Director August 23, 1999
- ------------------------------------
James T. Schraith

/s/ Gregorio Reyes Director August 23, 1999
- ------------------------------------
Gregorio Reyes

/s/ Jeffrey D. Saper Director August 23, 1999
- ------------------------------------
Jeffrey D. Saper
</TABLE>

<PAGE> 6

EXHIBIT INDEX

<PAGE> 1

EXHIBIT 5.1

Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone (650) 493-9300 Facsimile (650) 493-6811

August 23, 1999

Diamond Multimedia Systems, Inc.
2880 Junction Avenue
San Jose, CA 95134-1922

Re: Registration Statement on Form S-8

Gentlemen:

We have examined the Registration Statement on Form S-8 to be filed by you
with the Securities and Exchange Commission on or about August 23, 1999 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of 903,997 shares of your Common Stock under
the 1998 Nonstatutory Stock Option Plan, the 1995 Employee Stock Purchase Plan
and the 1995 Director Option Plan (the "Plans"). Such shares of Common Stock are
referred to herein as the "Shares". As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the issuance and sale
of the Shares pursuant to the Plans.

It is our opinion that, when issued and sold in the manner described in the
Plans and pursuant to the agreements which accompany each purchase under the
Plans, the Shares will be legally and validly issued, fully-paid and
non-assessable.

We consent to the use of this opinion as an exhibit to the Registration
Statement, and consent to the use of our name wherever appearing in the
Registration Statement and any amendments thereto.

Very truly yours,

WILSON SONSINI GOODRICH &ROSATI
Professional Corporation

/s/ Wilson Sonsini Goodrich & Rosati

<PAGE> 1

EXHIBIT 10.1

DIAMOND MULTIMEDIA SYSTEMS, INC.
1998 NONSTATUTORY STOCK OPTION PLAN

1. Purposes of the Plan. The purposes of this Nonstatutory Stock Option
Plan are:

- to attract and retain the best available personnel for positions
of substantial responsibility,

- to provide additional incentive to Employees, Directors and
Consultants, and

- to promote the success of the Company's business.

Options granted under the Plan will be Nonstatutory Stock Options.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.

(d) "Code" means the Internal Revenue Code of 1986, as amended.

(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.

(f) "Common Stock" means the Common Stock of the Company.

(g) "Company" means Diamond Multimedia Systems, Inc., a Delaware
corporation.

(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.

(i) "Director" means a member of the Board.

(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

(k) "Employee" means any person, including Officers, employed by the
Company or any Parent or Subsidiary of the Company. A Service Provider shall not
cease to be an Employee in the case of (i) any leave of absence approved by the
Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

<PAGE> 2

(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

(n) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.

(o) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(p) "Option" means a nonstatutory stock option granted pursuant to
the Plan, that is not intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code and the regulations promulgated
thereunder.

(q) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

(r) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.

(s) "Optioned Stock" means the Common Stock subject to an Option.

(t) "Optionee" means the holder of an outstanding Option granted
under the Plan.

(u) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(v) "Plan" means this 1998 Nonstatutory Stock Option Plan.

(w) "Service Provider" means an Employee including an Officer,
Consultant or Director.

(x) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.

(y) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

<PAGE> 3

3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is three hundred fifty three thousand nine hundred ninety seven
(353,997) Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock.

If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).

4. Administration of the Plan.

(a) Administration. The Plan shall be administered by (i) the Board
or (ii) a Committee, which committee shall be constituted to satisfy Applicable
Laws.

(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

(i) to determine the Fair Market Value of the Common Stock;

(ii) to select the Service Providers to whom Options may be
granted hereunder;

(iii) to determine whether and to what extent Options are
granted hereunder;

(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;

(v) to approve forms of agreement for use under the Plan;

(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;

(viii) to institute an Option Exchange Program;

(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;

(x) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

(xi) to modify or amend each Option (subject to Section
14(b) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;

<PAGE> 4

(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;

(xiii) to determine the terms and restrictions applicable to
Options;

(xiv) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and

(xv) to make all other determinations deemed necessary or
advisable for administering the Plan.

(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.

5. Eligibility. Options may be granted to Service Providers.

6. Limitation. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.

7. Term of Plan. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for ten (10) years, unless sooner terminated
under Section 14 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Option
Agreement.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator.

(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.

(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:

(i) cash;

(ii) check;

(iii) promissory note;

(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair

<PAGE> 5

Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised;

(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;

(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or

(viii) any combination of the foregoing methods of payment.

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. An Option may not be exercised for a fraction of
a Share.

An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified

<PAGE> 6

in the Option Agreement, to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

11. Non-Transferability of Options . Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition,

<PAGE> 7

the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place at the time
and in the manner contemplated. To the extent it has not been previously
exercised, an Option will terminate immediately prior to the consummation of
such proposed action.

(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock, immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.

13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

14. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.

(b) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.

15. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

(b) Investment Representations. As a condition to the exercise of an
Option the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.

<PAGE> 8

16. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

<PAGE> 9

DIAMOND MULTIMEDIA SYSTEMS, INC.

1998 NONSTATUTORY STOCK OPTION PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.

I. NOTICE OF STOCK OPTION GRANT

[OPTIONEE'S NAME AND ADDRESS]

You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:

Grant Number
------------------------------
Date of Grant
------------------------------
Vesting Commencement Date
------------------------------
Exercise Price per Share $
-----------------------------
Total Number of Shares Granted
------------------------------
Total Exercise Price $
------------------------------
Type of Option: Nonstatutory Stock Option

Term/Expiration Date:
------------------------------

Vesting Schedule:

Subject to the Optionee continuing to be a Service Provider on such dates,
this Option shall vest and become exercisable in accordance with the following
schedule:

[25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER THE
VESTING COMMENCEMENT DATE, AND 1/48TH OF THE SHARES SUBJECT TO THE OPTION SHALL
VEST UPON THE LAST DAY OF EACH MONTH THEREAFTER.]

Termination Period:

This Option may be exercised for _____ [DAYS/MONTHS] after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for such longer period as provided in the Plan. In no
event shall this Option be exercised later than the Term/Expiration Date as
provided above.

<PAGE> 10

II. AGREEMENT

1. Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 14(b)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.

2. Exercise of Option.

(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to [TITLE]. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.

No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.

3. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:

(a) cash;

(b) check;

(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or

(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.

4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.

<PAGE> 11

6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.

(a) Exercising the Option. The Optionee may incur regular federal
income tax liability upon exercise of an NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.

(b) Disposition of Shares. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.

7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.

8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.

By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.

OPTIONEE DIAMOND MULTIMEDIA SYSTEMS, INC.

- ----------------------------------- ---------------------------------------
Signature By

<PAGE> 12

- ------------------------------------ --------------------------------------
Print Name Title

- ------------------------------------
Residence Address

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

<PAGE> 13

EXHIBIT A

DIAMOND MULTIMEDIA SYSTEMS, INC.

1998 NONSTATUTORY STOCK OPTION PLAN

EXERCISE NOTICE

Diamond Multimedia Systems, Inc.
2880 Junction Avenue
San Jose, California 95134-1922

Attention: Stock Option Administrator

1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Diamond Multimedia Systems, Inc. (the
"Company") under and pursuant to the 1998 Nonstatutory Stock Option Plan (the
"Plan") and the Stock Option Agreement dated ___________, 19___ (the "Option
Agreement"). The purchase price for the Shares shall be $_______, as required
by the Option Agreement.

2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.

4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 12 of the
Plan.

5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and

<PAGE> 14

Purchaser. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.

Submitted by: Accepted by:

PURCHASER DIAMOND MULTIMEDIA SYSTEMS, INC.

- ----------------------------------- --------------------------------------
Signature By
- ----------------------------------- --------------------------------------
Print Name Title

--------------------------------------
Date Received

Address: Address: 2880 Junction Avenue
San Jose, California 95134-1922
---------------------------

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

<PAGE> 1

EXHIBIT 10.2

DIAMOND MULTIMEDIA SYSTEMS, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED MAY 21, 1999)

The following constitute the provisions of the 1995 Employee Stock Purchase
Plan of Diamond Multimedia Systems, Inc.

7. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

8. Definitions.

(a) "Board" shall mean the Board of Directors of the company.

(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Company" shall mean Diamond Multimedia Systems, Inc. and any
Designated Subsidiary of the Company.

(e) "Compensation" shall mean all base straight time gross earnings
and sales commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.

(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.

(h) "Enrollment Date" shall mean the first day of each Offering
Period.

(i) "Exercise Date" shall mean the last day of each Offering Period.

<PAGE> 2

(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:

(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;

(2) If the Common Stock is quoted on the NASDAQ System (but not
on the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;

(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.

(4) For purposes of the Enrollment Date under the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final Prospectus included within the Registration
Statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock.

(k) "Offering Period" shall mean a period of approximately six (6)
months, commencing on the first Trading Day on or after May 1 and terminating on
the last Trading Day in the period ending the following October 31, or
commencing on the first Trading Day on or after November 1 and terminating on
the last Trading Day in the period ending the following April 30, during which
an option granted pursuant to the Plan may be exercised. The first Offering
Period shall begin on the effective date of the Company's initial public
offering of its Common Stock that is registered with the Securities and Exchange
Commission and shall end on the last Trading Day on or before October 31, 1995.
The duration of Offering Periods may be changed pursuant to Section 4 of this
Plan.

(l) "Plan" shall mean this 1995 Employee Stock Purchase Plan.

(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.

(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.

<PAGE> 3

(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.

(p) "Trading Day" shall mean a day on which national stock exchanges
and the NASDAQ System are open for trading.

9. Eligibility.

(a) Any Employee (as defined in Section 2(g)), who shall be employed by
the Company on a given Enrollment Date shall be eligible to participate in the
Plan.

(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.

10. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after May 1 and November 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof. The first Offering Period shall begin on the effective date
of the Company's initial public offering of its Common Stock that is registered
with the Securities and Exchange Commission. The Board shall have the power to
change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without shareholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.

11. Participation.

(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's Human Resources
office at least 5 days prior to the applicable Enrollment Date.

(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.

12. Payroll Deductions.

<PAGE> 4

(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during an Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period. However, with respect to the first Offering Period, a participant may
elect to have payroll deductions made as above in an amount not exceeding
fifteen percent (15%) of such Compensation.

(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.

(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, but may not otherwise increase or
decrease the rate of his or her payroll deductions during the Offering Period. A
participant's subscription agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10 hereof.

(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year (the "Current
Offering Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant' s subscription
agreement at the beginning of the first Offering Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.

(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.

13. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price. In no event shall an Employee be
permitted to purchase during each Offering Period more than a number of shares
determined by dividing $25,000 by the Fair Market Value of a share of the Common
Stock on the Enrollment Date. However, with respect to the first Offering
Period, an Employee shall be permitted to purchase up to the number of shares
determined by dividing $25,000 by the Fair Market Value of a share of Common
Stock on the

<PAGE> 5

Enrollment Date of the first Offering Period. All such purchases shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of
the option shall occur as provided in Section 8 hereof, unless the participant
has withdrawn pursuant to Section 10 hereof, and shall expire on the last day of
the Offering Period.

14. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.

15. Delivery. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the shares shall be credited to an account in the
participant's name with a brokerage firm selected by the Plan Committee to hold
the shares in it's street name.

16. Withdrawal; Termination of Employment.

(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.

(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof) for any reason, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the option will
be returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 14 hereof, and such
participant's option will be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.

(c) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.

<PAGE> 6

17. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.

18. Stock.

(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 1,050,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18 hereof. If on a given Exercise Date, the aggregate number of
shares with respect to which options are to be exercised exceeds the lesser of
(i) (A) 200,000 shares in the case of the Offering Period scheduled to end May
31, 1998, and (B) 100,000 shares in the case of any other Offering Period, or
(ii) the number of the shares then available under the Plan, the Company shall
make a pro rata allocation of shares up to the lesser of (i) or (ii) in as
uniform a manner as shall be practicable and as it shall be determined to be
equitable.

(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.

(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.

19. Administration.

(a) Administrative Body. The Plan shall be administered by the Board
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.

(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.

20. Designation of Beneficiary.

(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the

<PAGE> 7

designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.

(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

21. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

22. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.

23. Reports. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.

24. Adjustments Upon Changes in Capitalization.

(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.

<PAGE> 8

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.

(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date") or to cancel each outstanding right to
purchase and refund all sums collected from participants during the Offering
Period then in progress. If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the option to be
solely common stock of the successor corporation or its parent equal in fair
market value to the per share consideration received by holders of Common Stock
and the sale of assets or merger.

The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, and in
the event of the Company being consolidated with or merged into any other
corporation.

25. Amendment or Termination.

(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423

<PAGE> 9

of the Code (or any successor rule or provision or any other applicable law or
regulation), the Company shall obtain shareholder approval in such a manner and
to such a degree as required.

(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.

26. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

27. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.

28. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.

<PAGE> 10

EXHIBIT A

DIAMOND MULTIMEDIA SYSTEMS, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT

_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1. _____________________________________ hereby elects to participate in the
Diamond Multimedia Systems, Inc. 1995 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and
the Employee Stock Purchase Plan.

2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation (not to exceed 15%) on each payday during the
Offering Period that begins on the effective date of the Company's initial
public offering of its Common Stock and ends on the last Trading Day on or
before October 31, 1995, in accordance with the Employee Stock Purchase
Plan. (Please note that no fractional percentages are permitted.)

3. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation (not to exceed 10%) on each payday during each
successive Offering Period beginning on or after November 1, 1995, in
accordance with the Employee Stock Purchase Plan. (Please note that no
fractional percentages are permitted.)

4. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.

5. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that the grant
of the option by the Company under this Subscription Agreement is subject
to obtaining shareholder approval of the Employee Stock Purchase Plan.

6. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse Only): __________

7. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at

<PAGE> 11

the time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
Company in writing within 30 days after the date of any disposition of
shares and I will make adequate provision for Federal, state or other tax
withholding obligations, if any, which arise upon the disposition of the
Common Stock. The Company may, but will not be obligated to, withhold from
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year holding period, I understand that I will
be treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of (1)
the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15%
of the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.

8. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.

9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:

NAME: (Please print)
----------------------------------------------
(First) (Middle) (Last)

- ------------------------- -------------------------------------
Relationship
-------------------------------------
(Address)

NAME: (Please print)
----------------------------------------------------
(First) (Middle) (Last)

- ------------------------- -------------------------------------
Relationship
-------------------------------------
(Address)

Employee's Social
Security Number:
----------------------------------

<PAGE> 12

Employee's Address:
----------------------------------

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

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:
-------------------------------- ----------------------------------
Signature of Employee

----------------------------------
Spouse's Signature (If beneficiary
other than spouse)

<PAGE> 13

EXHIBIT B

DIAMOND MULTIMEDIA SYSTEMS, INC.

1995 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL

The undersigned participant in the Offering Period of the Diamond
Multimedia Systems, Inc. 1995 Employee Stock Purchase Plan which began on
___________ 19____ (the "Enrollment Date") hereby notifies the Company that he
or she hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

Name and Address of Participant:

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

Signature:

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

Date:
--------------------------

<PAGE> 1

EXHIBIT 10.3

DIAMOND MULTIMEDIA SYSTEMS, INC.

1995 DIRECTOR OPTION PLAN
(AS AMENDED, MAY 21, 1999)

29. Purposes of the Plan. The purposes of this 1995 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.

All options granted hereunder shall be nonstatutory stock options.

30. Definitions. As used herein, the following definitions shall apply:

(a) "Board" means the Board of Directors of the Company.

(b) "Code" means the Internal Revenue Code of 1986, as amended.

(d) "Company" means Diamond Multimedia Systems, Inc., a Delaware
corporation.

(e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.

(f) "Director" means a member of the Board.

(g) "Employee" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.

(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(i) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the NASDAQ
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange

<PAGE> 2

with the greatest volume of trading in Common Stock) on the date of grant, as
reported in The Wall Street Journal or such other source as the Board deems
reliable;

(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable, or;

(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.

(j) "Option" means a stock option granted pursuant to the Plan.

(k) "Optioned Stock" means the Common Stock subject to an Option.

(l) "Optionee" means an Outside Director who receives an Option.

(m) "Outside Director" means a Director who is not an Employee.

(n) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(o) "Plan" means this 1995 Director Option Plan, as amended.

(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.

(q) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.

31. Stock Subject to the Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 325,000 Shares of Common Stock (the "Pool"). The Shares may be
authorized, but unissued, or reacquired Common Stock.

If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan.

32. Administration and Grants of Options under the Plan.

(a) Procedure for Grants. The provisions set forth in this Section
4(a) shall not be amended more than once every six months, other than to comport
with changes in the Code, the

<PAGE> 3

Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder. All grants of Options to Outside Directors under this Plan shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:

(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options granted to Outside Directors.

(ii) Each Outside Director elected to the Board after April
1, 1995, shall be automatically granted an Option to purchase 40,000 Shares (the
"First Option") on the date on which the later of the following events occurs:
(A) the effective date of this Plan, as determined in accordance with Section 6
hereof, or (B) the date on which such person first becomes an Outside Director,
whether through election by the shareholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that no First Option shall be
granted to an Outside Director who, immediately prior to becoming an Outside
Director, was a Director.

(iii) After the First Option has been granted to an Outside
Director, such Outside Director shall thereafter be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") on the date of such
Outside Director's Annual Re-Election to the Board, if on such date, he or she
shall have served on the Board for at least six (6) months.

(iv) Each existing Outside Director shall be automatically
granted a single Option to purchase 7,500 Shares (the "Special Option") on the
date of such Outside Director's Annual Re-Election to the Board.

(v) Notwithstanding the provisions of subsections (ii),
(iii) and (iv) hereof, any exercise of an Option made before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.

(vi) The terms of a First Option granted hereunder shall be
as follows:

(A) the term of the First Option shall be
ten (10) years.

(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.

(D) the First Option shall become exercisable as to
twenty-five percent of the Shares subject to the First Option on the first
anniversary of its date of grant and a further 1/48th of the Shares subject to
the First Option every month thereafter.

(vii) The terms of a Subsequent Option granted hereunder
shall be as follows:

<PAGE> 4

(A) the term of the Subsequent Option shall be ten
(10) years.

(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 8 hereof.

(D) the Subsequent Option shall become exercisable as
to one- hundred percent of the Shares subject to the Subsequent Option on the
fourth anniversary of its date of grant.

(viii) The terms of a Special Option granted hereunder shall
be as follows:

(A) the term of the Special Option shall be ten (10)
years.

(B) the Special Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 8 hereof.

(D) the Special Option shall become exercisable as to
thirty-four percent of the Shares subject to the Special Option on the first
anniversary of its date of grant, an additional thirty-three percent of the
Shares subject to the Special Option on the second anniversary of its date of
grant and an additional thirty-three percent of the Shares subject to the
Special Option on the third anniversary of its date of grant.

(ix) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.

33. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof. An Outside Director who has been granted an Option may, if he
or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.

The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.

<PAGE> 5

34. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.

35. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case
of Shares acquired upon exercise of an Option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) delivery of a
properly executed exercise notice together with such other documentation as the
Company and the broker, if applicable, shall require to effect an exercise of
the Option and delivery to the Company of the sale or loan proceeds required to
pay the exercise price, or (v) any combination of the foregoing methods of
payment.

36. Exercise of Option.

(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.

Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.

(b) Rule 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify Plan transactions, and
other transactions by Outside Directors that otherwise could be matched with
Plan transactions, for the maximum exemption from Section 16 of the Exchange
Act.

<PAGE> 6

(c) Termination of Continuous Status as a Director. In the event
an Optionee's Continuous Status as a Director terminates (other than upon the
Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within three (3) months from the date of such termination, and only to the
extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option on
the date of such termination, and to the extent that the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.

(d) Disability of Optionee. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within twelve (12) months from the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.

(e) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.

37. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

38. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Change of Control.

(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly

<PAGE> 7

provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.

(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option may be assumed or an equivalent option
may be substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, each
outstanding Option shall become fully vested and exercisable, including as to
Shares as to which it would not otherwise be exercisable. If an Option becomes
fully vested and exercisable in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Option shall
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the Option confers the right to purchase, for each Share of
Optioned Stock subject to the Option immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares).

39. Amendment and Termination of the Plan.

(a) Amendment and Termination. Except as set forth in Section 4, the
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made, without his
or her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.

(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.

40. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.

41. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations

<PAGE> 8

promulgated thereunder, state securities laws, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.

Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

42. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

43. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.

44. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (of 353,997 shares to be issued under the 1998
Nonstatutory Stock Option Plan, 400,000 shares to be issued under the 1995
Employee Stock Purchase Plan and 150,000 shares to be issued under the 1995
Director Option Plan) of Diamond Multimedia Systems, Inc. of our report dated
January 29, 1999 relating to the financial statements, which appears in the
Annual Report on Form 10-K/A. We also consent to the incorporation by reference
of our report dated January 29, 1999 relating to the financial statement
schedule, which appears in this Form 10- K/A.

/s/ PricewaterhouseCoopers LLP

San Jose, California
August 18, 1999