Exhibit 10.01
LERACH COUGHLIN STOIA GELLER
     RUDMAN & ROBBINS LLP
PATRICK J. COUGHLIN (111070) 
JOHN K. GRANT (169813)
LUKE O. BROOKS (212802)
100 Pine Street, Suite 2600
San Francisco, CA 94111
Telephone: 415/288-4545
415/288-4534 (fax)
PatC@lerachlaw.com
JohnKG@lerachlaw.com
LukeB@lerachlaw.com
             -and-
WILLIAM S. LERACH (68581) 
JOY ANN BULL (138009) 
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
BillL@lerachlaw.com
Lead Counsel for Plaintiffs
[Additional counsel appear on signature page.]
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

         
In re ESS TECHNOLOGY, INC.
  )   Master File No. C-02-4497-RMW
SECURITIES LITIGATION
  )    
 
  )   CLASS ACTION
 
  )    
This Document Relates To:
  )   STIPULATION OF SETTLEMENT AND
RELEASE  
ALL ACTIONS.
  )    
 
  )    

 

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     This Stipulation of Settlement and Release dated as of November 12, 2006
(the “Stipulation”), is made and entered into by and among the following
Settling Parties (as defined further in §IV hereof) to the above-entitled
Litigation: (i) the Lead Plaintiff (on behalf of himself and each of the
Class Members), by and through their counsel of record in the Litigation; and
(ii) the Defendants, by and through their counsel of record in the Litigation.
The Stipulation is intended by the Settling Parties to fully, finally and
forever resolve, discharge and settle the Released Claims, upon and subject to
the terms and conditions hereof.
I. THE LITIGATION
     On and after September 13, 2002, eight actions were filed in the United
States District Court for the Northern District of California (the “Court”) as
securities class actions on behalf of purchasers of the publicly traded
securities of ESS Technology, Inc. during a defined period of time. These
actions were consolidated for all purposes by an order filed January 21, 2003.
The consolidated actions are referred to herein collectively as the
“Litigation.” In addition, on January 21, 2003, Steve Bardack was appointed Lead
Plaintiff.
     The operative complaint in the Litigation is the Second Amended Complaint
for Violations of the Federal Securities Laws (the “Complaint”), filed
November 3, 2003. As modified by orders of the Court, the Complaint alleges
violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder on behalf of a class of purchasers of ESST
publicly traded securities between August 1, 2002 and September 12, 2002. In an
order filed on February 8, 2006, the Court certified a plaintiff class of ESST
investors, appointed Lead Plaintiff as class representative, and appointed Lead
Counsel as class counsel.
II. DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY
     The Defendants have denied and continue to deny each and all of the claims
alleged by the Lead Plaintiff in the Litigation. The Defendants expressly have
denied and continue to deny all charges of wrongdoing or liability against them
arising out of any of the conduct, statements, acts or omissions alleged, or
that could have been alleged, in the Litigation. The Defendants also have denied
and continue to deny, inter alia, the allegations that the Lead Plaintiff and/or
the Class have suffered damage, that the prices of ESST publicly traded
securities were artificially inflated by
      

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reasons of alleged misrepresentations, non-disclosures or otherwise, or that the
Lead Plaintiff or the Class were harmed by the conduct alleged in the
Litigation.
     Nonetheless, the Defendants have concluded that further conduct of the
Litigation would be protracted and expensive, and that it is desirable that the
Litigation be fully and finally settled in the manner and upon the terms and
conditions set forth in this Stipulation. The Defendants also have taken into
account the uncertainty and risks inherent in any litigation, especially in
complex cases like the Litigation. The Defendants have, therefore, determined
that it is desirable and beneficial to them that the Litigation be settled in
the manner and upon the terms and conditions set forth in this Stipulation.
Defendants’ directors’ & officers’ insurance carriers are paying the Defendants’
consideration for entering into this Stipulation.
III. CLAIMS OF THE LEAD PLAINTIFF AND BENEFITS OF SETTLEMENT
     The Lead Plaintiff believes that the claims asserted in the Litigation have
merit and that the evidence developed to date supports the claims. However,
counsel for the Lead Plaintiff recognize and acknowledge the expense and length
of continued proceedings necessary to prosecute the Litigation against the
Defendants through trial and through appeals. Counsel for the Lead Plaintiff
also have taken into account the uncertain outcome and the risk of any
litigation, especially in complex actions such as the Litigation, as well as the
difficulties and delays inherent in such litigation. Counsel for the Lead
Plaintiff also are mindful of the inherent problems of proof under and possible
defenses to the securities law violations asserted in the Litigation. Counsel
for the Lead Plaintiff believe that the settlement set forth in the Stipulation
confers substantial benefits upon the Class. Based on their evaluation, counsel
for the Lead Plaintiff have determined that the settlement set forth in the
Stipulation is in the best interests of the Lead Plaintiff and the Class.
IV. TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT
     NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the Lead
Plaintiff (for himself and the Class Members) and the Defendants, by and through
their respective counsel or attorneys of record, that, subject to the approval
of the Court, the Litigation and the Released Claims shall be finally and fully
compromised, settled and released, and the Litigation
      

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shall be dismissed with prejudice, as to all Settling Parties, upon and subject
to the terms and conditions of the Stipulation, as follows.
     1. Definitions
     As used in the Stipulation the following terms have the meanings specified
below:
     1.1 “Authorized Claimant” means any Class Member whose claim for recovery
has been allowed pursuant to the terms of the Stipulation.
     1.2 “Claims Administrator” means the firm of Gilardi & Co. LLC.
     1.3 “Class” means all Persons (other than those Persons who timely and
validly request exclusion from the Class) who purchased or otherwise acquired
ESST publicly traded securities between August 1, 2002 and September 12, 2002.
Excluded from the Class are the Defendants, their families, and directors of
ESST and their families, and short-sellers of ESST securities during the
Class Period.
     1.4 “Class Member “ or “Member of the Class” mean a Person who falls within
the definition of the Class as set forth in ¶1.3 above.
     1.5 “Class Period” means the period commencing on August 1, 2002 through
September 12, 2002, inclusive.
     1.6 “Defendants” means ESST and the Individual Defendants.
     1.7 “Effective Date” means the first date by which all of the events and
conditions specified in ¶7.1 of the Stipulation have been met and have occurred.
     1.8 “Escrow Agent” means the law firm of Lerach Coughlin Stoia Geller
Rudman & Robbins LLP or its successor(s).
     1.9 “ESST” means ESS Technology, Inc.
     1.10 “Final” means when the last of the following with respect to the
Judgment approving the Stipulation, substantially in the form of Exhibit B
attached hereto, shall occur: (i) the expiration of the time to file a motion to
alter or amend the Judgment under Federal Rule of Civil Procedure 59(e) without
any such motion having been filed; (ii) the time in which to appeal the Judgment
has passed without any appeal having been taken; and (iii) if a motion to alter
or amend is filed or if an appeal is taken, immediately after the determination
of that motion or appeal in such a manner as to
      

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permit the consummation of the settlement substantially in accordance with the
terms and conditions of this Stipulation. For purposes of this paragraph, an
appeal shall include any petition for a writ of certiorari or other writ that
may be filed in connection with approval or disapproval of this settlement, but
shall not include any appeal which concerns only the issue of attorneys’ fees
and reimbursement of expenses or any Plan of Allocation of the Settlement Fund,
as hereinafter defined.
     1.11 “Individual Defendants” means Robert L. Blair, James B. Boyd,
Frederick S. L. Chan and Patrick Ang.
     1.12 “Judgment” means the judgment to be rendered by the Court,
substantially in the form attached hereto as Exhibit B.
     1.13 “Lead Counsel” means Lerach Coughlin Stoia Geller Rudman & Robbins
LLP, Joy Ann Bull, 655 W. Broadway, Suite 1900, San Diego, CA, 92101; and Lerach
Coughlin Stoia Geller Rudman & Robbins LLP, John K. Grant, 100 Pine Street,
Suite 2600, San Francisco, CA 94111.
     1.14 “Lead Plaintiff” means Steve Bardack.
     1.15 “Person” means an individual, corporation, partnership, limited
partnership, association, joint stock company, estate, legal representative,
trust, unincorporated association, government or any political subdivision or
agency thereof, and any business or legal entity and their spouses, heirs,
predecessors, successors, representatives, or assignees.
     1.16 “Plan of Allocation” means a plan or formula of allocation of the
Settlement Fund whereby the Settlement Fund shall be distributed to Authorized
Claimants after payment of expenses of notice and administration of the
settlement, Taxes and Tax Expenses and such attorneys’ fees, costs, expenses and
interest as may be awarded by the Court. Any Plan of Allocation is not part of
the Stipulation and neither Defendants nor their Related Parties shall have any
responsibility or liability with respect thereto.
     1.17 “Related Parties” means each of a Defendant’s past or present
directors, officers, employees, partners, insurers, co-insurers, reinsurers,
controlling shareholders, attorneys, accountants, auditors, personal or legal
representatives, predecessors, successors, parents, subsidiaries, divisions,
joint ventures, assigns, spouses, heirs, related or affiliated entities, any
entity in which a Defendant has a controlling interest, any members of any
Individual Defendant’s
      

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immediate family, or any trust of which any Individual Defendant is the settlor
or which is for the benefit of any Individual Defendant’s family.
     1.18 “Released Claims” shall collectively mean any and all claims, demands,
rights, actions, causes of action, liabilities, damages, losses, obligations,
judgments, duties, suits, costs, expenses, matters and issues of any kind or
nature whatsoever whether individual, direct, class, representative, legal,
equitable, or any other type or in any other capacity, (including “Unknown
Claims” as defined in ¶1.22 hereof) relating to and/or arising from both the
purchase or acquisition of ESST publicly traded securities during the
Class Period and the acts, facts, statements, or omissions that were or could
have been alleged by the Lead Plaintiff in the Litigation or in any court,
tribunal or proceeding by or on behalf of the Lead Plaintiff or by or on behalf
of any other member of the Class, including the allegations, acts, events,
facts, matters, transactions, occurrences, statements, representations,
misrepresentations or omissions or any other matter, thing or cause whatsoever,
or any series thereof, embraced, involved or set forth in, or referred to or
otherwise related, directly or indirectly, in any way to, the Litigation or the
subject matter of or allegations in the Litigation, and including without
limitations any claims in any way related to any investment or loss involving
ESST securities, or any benefits received by Released Persons, or disclosures or
public statements made in connection with any of the foregoing, including, but
not limited to, the accuracy, adequacy and completeness of such disclosures.
     1.19 “Released Persons” means each and all of the Defendants and their
Related Parties.
     1.20 “Settlement Fund” means Three Million Five Hundred Thousand Dollars
($3,500,000) in cash to be paid to the Escrow Agent pursuant to¶ 2.1 of this
Stipulation, plus all interest subsequently earned thereon.
     1.21 “Settling Parties” means, collectively, the Defendants and the Lead
Plaintiff on behalf of himself and the Members of the Class.
     1.22 “Unknown Claims” means any Released Claims which the Lead Plaintiff or
any Class Member does not know or suspect to exist in his, her or its favor at
the time of the release of the Released Persons which, if known by him, her or
it, might have affected his, her or its settlement with and release of the
Released Persons, or might have affected his, her or its decision not to object
      

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to this settlement. With respect to any and all Released Claims, the Settling
Parties stipulate and agree that, upon the Effective Date, the Lead Plaintiff
shall expressly and each of the Class Members shall be deemed to have, and by
operation of the Judgment shall have, expressly waived the provisions, rights
and benefits of California Civil Code §1542, which provides:
     A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.
The Lead Plaintiff shall expressly and each of the Class Members shall be deemed
to have, and by operation of the Judgment shall have, expressly waived any and
all provisions, rights and benefits conferred by any law of any state or
territory of the United States, or principle of common law, which is similar,
comparable or equivalent to California Civil Code § 1542. The Lead Plaintiff and
Class Members may hereafter discover facts in addition to or different from
those which he, she or it now knows or believes to be true with respect to the
subject matter of the Released Claims, but the Lead Plaintiff shall expressly
and each Class Member, upon the Effective Date, shall be deemed to have, and by
operation of the Judgment shall have, fully, finally, and forever settled and
released any and all Released Claims, known or unknown, suspected or
unsuspected, disclosed or undisclosed, contingent or non-contingent, liquidated
or unliquidated, matured or unmatured, accrued or unaccrued, apparent or
unapparent, whether or not concealed or hidden, which now exist, or heretofore
have existed, or arise hereafter upon any theory of law or equity now existing
or coming into existence in the future, (including, but not limited to, any
claims arising under federal, state or foreign statutory or common law,
including the federal securities laws and any state statutory disclosure law,
claims relating to alleged fraud, breach of any duty or rule, negligence or
otherwise, intentional conduct, actions with and without malice, and any claims
related to alleged unjust enrichment or self-dealing), and without regard to the
subsequent discovery or existence of such different or additional facts. The
Lead Plaintiff acknowledges, and the Class Members shall be deemed by operation
of the Judgment to have acknowledged, that the foregoing waiver was separately
bargained for and a key element of the settlement of which this release is a
part.
      

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     2. The Settlement
          a. The Settlement Fund
     2.1 Defendants agree to the payment by their insurance carriers of
$3,500,000 in settlement consideration. The principal amount of $3.5 million in
cash shall be paid to the Escrow Agent within 20 calendar days after the Court
enters the Notice Order as defined in ¶ 3.1 below. If the agreed upon amount is
not paid on or before the above date, interest will accrue at 8% per annum from
the date due until the date the $3.5 million is paid to the Escrow Agent.
          b. The Escrow Agent
     2.2 The Escrow Agent shall invest the Settlement Fund deposited pursuant to
¶2.1 hereof in instruments backed by the full faith and credit of the United
States Government or fully insured by the United States Government or an agency
thereof and shall reinvest the proceeds of these instruments as they mature in
similar instruments at their then-current market rates. All risks related to the
investment of the Settlement Fund shall be borne by the Settlement Fund.
Defendants and their Related Parties are not in any way responsible for such
investments and bear no risk whatsoever relating to such investments.
     2.3 The Escrow Agent shall not disburse the Settlement Fund except as
provided in the Stipulation, by an order of the Court, or with the written
agreement of counsel for Defendants.
     2.4 Subject to further order(s) and/or directions as may be made by the
Court, or as provided in the Stipulation, the Escrow Agent is authorized to
execute such transactions as are consistent with the terms of the Stipulation.
     2.5 All funds held by the Escrow Agent shall be deemed and considered to be
in custodia legis of the Court, and shall remain subject to the jurisdiction of
the Court, until such time as such funds shall be distributed pursuant to the
Stipulation and/or further order(s) of the Court.
     2.6 Within five (5) days after payment of the Settlement Fund to the Escrow
Agent pursuant ¶2.1 hereof, the Escrow Agent may establish a “Notice and
Administration Fund,” and may deposit up to $100,000 from the Settlement Fund in
it. The Notice and Administration Fund may be used by Lead Counsel to pay costs
and expenses reasonably and actually incurred in connection with providing
notice to the Class, locating Class Members, assisting with the filing of
claims,
      

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administering and distributing the Settlement Fund to Authorized Claimants,
processing Proof of Claim and Release forms and paying escrow fees and costs, if
any. The Notice and Administration Fund shall also be invested and earn interest
as provided for in ¶2.2 of this Stipulation.
             c. Taxes
     2.7 (a) The Settling Parties and the Escrow Agent agree to treat the
Settlement Fund as being at all times a “qualified settlement fund” within the
meaning of Treas. Reg. §1.468B-1. In addition, the Escrow Agent shall timely
make such elections as necessary or advisable to carry out the provisions of
this ¶2.7, including the “relation-back election” (as defined in Treas. Reg.
§1.468B-1) back to the earliest permitted date. Such elections shall be made in
compliance with the procedures and requirements contained in such regulations.
It shall be the responsibility of the Escrow Agent to timely and properly
prepare and deliver the necessary documentation for signature by all necessary
parties, and thereafter to cause the appropriate filing to occur.
          (b) For the purpose of §468B of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, the “administrator” shall
be the Escrow Agent. The Escrow Agent shall timely and properly file all
informational and other tax returns necessary or advisable with respect to the
Settlement Fund (including without limitation the returns described in Treas.
Reg. §1.468B-2(k)). Such returns (as well as the election described in ¶2.7(a)
hereof) shall be consistent with this ¶2.7 and in all events shall reflect that
all Taxes (including any estimated Taxes, interest or penalties) on the income
earned by the Settlement Fund shall be paid out of the Settlement Fund as
provided in ¶2.7(c) hereof.
          (c) All (a) Taxes (including any estimated Taxes, interest or
penalties) arising with respect to the income earned by the Settlement Fund,
including any Taxes or tax detriments that may be imposed upon the Defendants or
their Related Parties or counsel with respect to any income earned by the
Settlement Fund for any period during which the Settlement Fund does not qualify
as a “qualified settlement fund” for federal or state income tax purposes
(“Taxes”), and (b) expenses and costs incurred in connection with the operation
and implementation of this ¶2.7 (including, without limitation, expenses of tax
attorneys and/or accountants and mailing and distribution costs and expenses
relating to filing (or failing to file) the returns described in this ¶2.7)
(“Tax Expenses”), shall
      

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be paid out of the Settlement Fund; in all events the Defendants and their
Related Parties and counsel shall have no liability or responsibility for the
Taxes or the Tax Expenses. The Settlement Fund shall indemnify and hold each of
the Defendants and their Related Parties and counsel harmless for Taxes and Tax
Expenses (including, without limitation, Taxes payable by reason of any such
indemnification). Further, Taxes and Tax Expenses shall be treated as, and
considered to be, a cost of administration of the Settlement Fund and shall be
timely paid by the Escrow Agent out of the Settlement Fund without prior order
from the Court and the Escrow Agent shall be authorized (notwithstanding
anything herein to the contrary) to withhold from distribution to Authorized
Claimants any funds necessary to pay such amounts including the establishment of
adequate reserves for any Taxes and Tax Expenses (as well as any amounts that
may be required to be withheld under Treas. Reg. §1.468B-2(1)(2)); neither the
Defendants nor their Related Parties or counsel are responsible nor shall they
have any liability therefor. The parties hereto agree to cooperate with the
Escrow Agent, each other, and their tax attorneys and accountants to the extent
reasonably necessary to carry out the provisions of this ¶2.7.
          (d) For the purpose of this ¶2.7, references to the Settlement Fund
shall include both the Settlement Fund and the Notice and Administration Fund
and shall also include any earnings thereon.
          d. Termination of Settlement
     2.8 In the event that the Stipulation is not approved or the Stipulation is
terminated, canceled, or fails to become effective for any reason, the
Settlement Fund (including accrued interest) less expenses paid, incurred or due
and owing in connection with the settlement provided for herein, shall be
refunded to the Defendants’ insurance carriers based on their respective
contributions to the Settlement Fund.
     3. Notice Order and Settlement Hearing
     3.1 Promptly after execution of the Stipulation, the Settling Parties shall
submit the Stipulation together with its Exhibits to the Court and shall apply
for entry of an order (the “Notice Order”), substantially in the form of
Exhibit A attached hereto, requesting, inter alia, the preliminary approval of
the settlement set forth in the Stipulation, and approval for the mailing of a
settlement
      

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notice (the “Notice”) and publication of a summary notice, substantially in the
forms of Exhibits A-l and A-3 attached hereto. The Notice shall include the
general terms of the settlement set forth in the Stipulation, the proposed Plan
of Allocation, the general terms of the Fee and Expense Application as defined
in ¶ 6.1 hereof and the date of the Settlement Hearing as defined below.
     3.2 Lead Counsel shall request that after notice is given, the Court hold a
hearing (the “Settlement Hearing”) and approve the settlement of the Litigation
as set forth herein. At or after the Settlement Hearing, Lead Counsel also will
request that the Court approve the proposed Plan of Allocation and the Fee and
Expense Application and the Lead Plaintiff’s request for reimbursement of
expenses.
     4. Releases
     4.1 Upon the Effective Date, as defined in ¶ 1.7 hereof, the Lead Plaintiff
and each of the Class Members shall be deemed to have, and by operation of the
Judgment shall have, fully, finally, and forever released, relinquished and
discharged all Released Claims against the Released Persons, whether or not such
Class Member executes and delivers the Proof of Claim and Release.
     4.2 The Proof of Claim and Release to be executed by Class Members shall
release all Released Claims against the Released Persons and shall be
substantially in the form contained in Exhibit A-2 attached hereto.
     4.3 Upon the Effective Date, as defined in ¶ 1.7 hereof, each of the
Released Persons shall be deemed to have, and by operation of the Judgment shall
have, fully, finally, and forever released, relinquished and discharged each and
all of the Class Members and counsel to the Lead Plaintiff from all claims
(including Unknown Claims), arising out of, relating to, or in connection with
the institution, prosecution, assertion, settlement or resolution of the
Litigation or the Released Claims.
     5. Administration and Calculation of Claims and Supervision and
Distribution of the Settlement Fund
     5.1 The Claims Administrator, subject to such supervision and direction of
the Court as may be necessary or as circumstances may require, shall administer
and calculate the claims submitted by Class Members and shall oversee
distribution of the Net Settlement Fund (defined below) to Authorized Claimants.
      

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     5.2 The Settlement Fund shall be applied as follows:
          (a) to pay counsel to the Lead Plaintiff attorneys’ fees and expenses
with interest thereon (the ‘Fee and Expense Award’), and to reimburse the Lead
Plaintiff for his expenses, if and to the extent allowed by the Court;
          (b) to pay all the costs and expenses reasonably and actually incurred
in connection with providing notice, locating Class Members, assisting with the
filing of claims, administering and distributing the Settlement Fund to
Authorized Claimants, processing Proof of Claim and Release forms and paying
escrow fees and costs, if any;
          (c) to pay the Taxes and Tax Expenses described in ¶ 2.7 hereof; and
          (d) to distribute the balance of the Settlement Fund (the “Net
Settlement Fund”) to Authorized Claimants as allowed by the Stipulation, the
Plan of Allocation, or the Court.
     5.3 Upon the Effective Date and thereafter, and in accordance with the
terms of the Stipulation, the Plan of Allocation, or such further approval and
further order(s) of the Court as may be necessary or as circumstances may
require, the Net Settlement Fund shall be distributed to Authorized Claimants,
subject to and in accordance with the following.
     5.4 Within ninety (90) days after the mailing of the Notice or such other
time as may be set by the Court, each Person claiming to be an Authorized
Claimant shall be required to submit to the Claims Administrator a completed
Proof of Claim and Release, substantially in the form of Exhibit A-2 attached
hereto, signed under penalty of perjury and supported by such documents as are
specified in the Proof of Claim and Release and as are reasonably available to
the Authorized Claimant.
     5.5 Except as otherwise ordered by the Court, all Class Members who fail to
timely submit a Proof of Claim and Release within such period, or such other
period as may be ordered by the Court, or otherwise allowed, shall be forever
barred from receiving any payments pursuant to the Stipulation and the
settlement set forth herein, but will in all other respects be subject to and
bound by the provisions of the Stipulation, the releases contained herein, and
the Judgment. Notwithstanding the foregoing, Lead Counsel shall have the
discretion to accept late-submitted
      

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claims for processing by the Claims Administrator so long as distribution of the
Net Settlement Fund is not materially delayed thereby.
     5.6 The Net Settlement Fund shall be distributed to the Authorized
Claimants substantially in accordance with the Plan of Allocation set forth in
the Notice and approved by the Court. If there is any balance remaining in the
Net Settlement Fund after six (6) months from the initial date of distribution
of the Net Settlement Fund (whether by reason of tax refunds, uncashed checks or
otherwise), Lead Counsel shall, if feasible, reallocate such balance among
Authorized Claimants in an equitable and economic fashion. Thereafter, any
balance which still remains in the Net Settlement Fund shall be donated to an
appropriate non-profit organization.
     5.7 The Defendants and their Related Parties shall have no responsibility
for, interest in, or liability whatsoever with respect to the distribution of
the Net Settlement Fund, the Plan of Allocation, the determination,
administration, or calculation of claims, the payment or withholding of Taxes,
or any losses incurred in connection therewith.
     5.8 No Person shall have any claim against Lead Counsel or the Claims
Administrator, or other Person designated by Lead Counsel, or Defendants or
their counsel based on the distributions made substantially in accordance with
the Stipulation and the settlement contained herein, the Plan of Allocation, or
further order(s) of the Court.
     5.9 It is understood and agreed by the Settling Parties that any proposed
Plan of Allocation of the Net Settlement Fund including, but not limited to, any
adjustments to an Authorized Claimant’s claim set forth therein, is not apart of
the Stipulation and is to be considered by the Court separately from the Court’s
consideration of the fairness, reasonableness and adequacy of the settlement set
forth in the Stipulation, and any order or proceeding relating to the Plan of
Allocation shall not operate to terminate or cancel the Stipulation or affect
the finality of the Court’s Judgment approving the Stipulation and the
settlement set forth therein, or any other orders entered pursuant to the
Stipulation.
      

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     6. Lead Plaintiff’s Counsel’s Attorneys’ Fees and Reimbursement of Expenses
     6.1 Counsel to the Lead Plaintiff may submit an application or applications
(the “Fee and Expense Application”) for distributions from the Settlement Fund
for: (a) an award of attorneys’ fees; (b) reimbursement of actual expenses
incurred in connection with prosecuting the Litigation; and (c) any interest on
such attorneys’ fees and expenses at the same rate and for the same periods as
earned by the Settlement Fund (until paid), as may be awarded by the Court. Lead
Counsel reserve the right to make additional applications for fees and expenses
incurred.
     6.2 The fees and expenses, as awarded by the Court, shall be paid to Lead
Counsel from the Settlement Fund, as ordered, immediately after the Court
executes an order awarding such fees and expenses. Such counsel may thereafter
allocate the attorneys’ fees among other plaintiff’s counsel in a manner in
which they in good faith believe reflects the contributions of such counsel to
the initiation, prosecution and resolution of the Litigation. In the event that
the Effective Date does not occur, or the Judgment or the order making the Fee
and Expense Award is reversed or modified, or the Stipulation is canceled or
terminated for any other reason, and in the event that the Fee and Expense Award
has been paid to any extent, then such plaintiff’s counsel who have received any
portion of the Fee and Expense Award shall within five (5) business days from
receiving notice from Defendants’ counsel or from a court of appropriate
jurisdiction, refund to the Settlement Fund such fees and expenses previously
paid to them from the Settlement Fund plus interest thereon at the same rate as
earned on the Settlement Fund in an amount consistent with such reversal or
modification. Each such plaintiff’s counsel’s law firm receiving fees and
expenses, as a condition of receiving such fees and expenses, on behalf of
itself and each partner and/or shareholder of it, agrees that the law firm and
its partners and/or shareholders are subject to the jurisdiction of the Court
for the purpose of enforcing the provisions of this paragraph. Without
limitation, plaintiff’s counsel and their partners agree that the Court may,
upon application of Defendants and notice to Lead Counsel, summarily issue
orders including, but not limited to, judgments and attachment orders, and may
make appropriate findings of or sanctions for contempt, should such law firm
fail timely to repay fees and expenses pursuant to this ¶ 6.2.
      

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     6.3 Lead Plaintiff may submit an application for reimbursement of his time
and expenses incurred in the prosecution of the Litigation.
     6.4 The procedure for and the allowance or disallowance by the Court of any
applications by any plaintiff’s counsel for attorneys’ fees and expenses, or the
expenses of the Lead Plaintiff, to be paid out of the Settlement Fund, are not
part of the settlement set forth in the Stipulation, and are to be considered by
the Court separately from the Court’s consideration of the fairness,
reasonableness and adequacy of the settlement set forth in the Stipulation, and
any order or proceeding relating to the Fee and Expense Application, or the Lead
Plaintiff’s expense application, or any appeal from any order relating thereto
or reversal or modification thereof, shall not operate to terminate or cancel
the Stipulation, or affect or delay the finality of the Judgment approving the
Stipulation and the settlement of the Litigation set forth therein.
     6.5 Defendants and their Related Parties shall have no responsibility for
any payment of attorneys’ fees and expenses to plaintiff’s counsel or to Lead
Plaintiff over and above payment to the Settlement Fund.
     6.6 Defendants and their Related Parties shall have no responsibility for
the allocation among plaintiff’s counsel, and/or any other Person who may assert
some claim thereto (including without limitation Lead Plaintiff), of any Fee and
Expense Award that the Court may make in the Litigation, and Defendants and
their respective Related Parties take no position with respect to such matters.
     7. Conditions of Settlement, Effect of Disapproval, Cancellation or
Termination
     7.1 The Effective Date of the Stipulation shall be conditioned on the
occurrence of all of the following events:
          (a) Defendants’ insurance carriers have timely made their
contributions to the Settlement Fund as required by ¶2.1 hereof;
          (b) Defendants have not exercised their option to terminate the
Stipulation pursuant to ¶7.3 hereof;
          (c) the Court has entered the Notice Order, as required by ¶3.1
hereof;
      

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          (d) the Court has entered the Judgment, or a judgment substantially in
the form of Exhibit B attached hereto; and
          (e) the Judgment has become Final, as defined in ¶ 1.10 hereof.
     7.2 Upon the occurrence of all of the events referenced in ¶ 7.1 hereof,
any and all remaining interest or right of Defendants in or to the Settlement
Fund, if any, shall be absolutely and forever extinguished. If all of the
conditions specified in ¶ 7.1 hereof are not met, then the Stipulation shall be
canceled and terminated subject to ¶ 7.4 hereof unless Lead Counsel and counsel
for the Defendants mutually agree in writing to proceed with the Stipulation.
     7.3 Defendants shall have the option to terminate the settlement in the
event that Class Members who purchased or acquired more than a certain number of
shares of ESST publicly traded securities during the Class Period choose to
exclude themselves from the Class, as set forth in a separate agreement (the
‘Supplemental Agreement”) executed between Lead Counsel and Defendants’ counsel.
     7.4 Unless otherwise ordered by the Court, in the event the Stipulation
shall terminate, or be canceled, or shall not become effective for any reason,
within five (5) business days after written notification of such event is sent
by counsel for Defendants or Lead Counsel to the Escrow Agent, the Settlement
Fund (including accrued interest), plus any amount then remaining in the Notice
and Administration Fund (including accrued interest), less expenses which have
either been disbursed pursuant to ¶¶ 2.6 and 2.7 hereof, or are determined to be
chargeable to the Notice and Administration Fund, shall be refunded by the
Escrow Agent pursuant to written instructions from Defendants’ counsel. At the
request of counsel for the Defendants, the Escrow Agent or its designee shall
apply for any tax refund owed on the Settlement Fund and pay the proceeds, after
deduction of any fees or expenses incurred in connection with such
application(s) for refund, at the written direction of counsel to the
Defendants.
     7.5 In the event that the Stipulation is not approved by the Court or the
settlement set forth in the Stipulation is terminated or fails to become
effective in accordance with its terms, the Settling Parties shall be restored
to their respective positions in the Litigation as of November 11, 2006. In such
event, the terms and provisions of the Stipulation, with the exception of ¶¶
l.1-1.22,
      

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2.6, 2.7, 7.4-7.6, 8.3 and 8.4 hereof, shall have no further force or effect
with respect to the Settling Parties and shall not be used in this Litigation or
in any other proceeding for any purpose, and any judgment or order entered by
the Court in accordance with the terms of the Stipulation shall be treated as
vacated, nunc pro tunc. No order of the Court or modification or reversal on
appeal of any order of the Court concerning the Plan of Allocation or the amount
of any attorneys’ fees, costs, expenses and interest awarded by the Court to any
of plaintiff’s counsel or expenses to the Lead Plaintiff shall constitute
grounds for cancellation or termination of the Stipulation.
     7.6 If the Effective Date does not occur, or if the Stipulation is
terminated pursuant to its terms, neither the Lead Plaintiff nor any of his
counsel shall have any obligation to repay any amounts actually and properly
disbursed from the Notice and Administration Fund. In addition, any expenses
already incurred and properly chargeable to the Notice and Administration Fund
pursuant to ¶2.6 hereof at the time of such termination or cancellation but
which have not been paid, shall be paid by the Escrow Agent in accordance with
the terms of the Stipulation prior to the balance being refunded in accordance
with ¶¶2.8 and 7.4 hereof.
     7.7 If a case is commenced with respect to any Defendant under Title 11 of
the United States Code (Bankruptcy), or a trustee, receiver or conservator is
appointed under any similar law, and in the event of the entry of a final order
of a court of competent jurisdiction determining the transfer of the Settlement
Fund, or any portion thereof, by or on behalf of such Defendant to be a
preference, voidable transfer, fraudulent transfer or similar transaction, then,
at Lead Plaintiff’s option, as to such Defendant, the releases given and
Judgment entered in favor of such Defendant pursuant to this Stipulation shall
be null and void, or, alternatively, Lead Plaintiff may terminate the entire
settlement as to all Defendants.
     7.8 Each of the Defendants warrants and represents that he, she or it is
not “insolvent” within the meaning of 11 U.S.C. §101(32) as of the time this
Stipulation is executed and as of the time any payments are transferred or made
as required by this Stipulation.
     8. Miscellaneous Provisions
     8.1 The Settling Parties (a) acknowledge that it is their intent to
consummate this agreement; and (b) agree to cooperate to the extent reasonably
necessary to effectuate and implement
      

STIPULATION OF SETTLEMENT — C-02-4497-RMW   - 16 -

 

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all terms and conditions of the Stipulation and to exercise their best efforts
to accomplish the foregoing terms and conditions of the Stipulation.
     8.2 The Settling Parties intend this settlement to be a final and complete
resolution of all disputes between them with respect to the Litigation. The
settlement compromises claims which are contested and shall not be deemed an
admission by any Settling Party as to the merits of any claim or defense. The
Final Judgment will contain a finding, during the course of the Litigation, the
parties and their respective counsel at all times complied with the requirements
of Federal Rule of Civil Procedure 11. The Settling Parties agree that the
amount paid to the Settlement Fund and the other terms of the settlement were
negotiated in good faith by the Settling Parties, and reflect a settlement that
was reached voluntarily after consultation with competent legal counsel. The
Settling Parties reserve their right to rebut, in a manner that such party
determines to be appropriate, any contention made in any public forum that the
Litigation was brought or defended in bad faith or without a reasonable basis.
     8.3 Neither the Stipulation nor the settlement contained therein, nor any
act performed or document executed pursuant to or in furtherance of the
Stipulation or the settlement: (a) is or may be deemed to be or may be used as
an admission of, or evidence of, the validity of any Released Claim, or of any
wrongdoing or liability of the Defendants; or (b) is or may be deemed to be or
may be used as an admission of, or evidence of, any fault or omission of any of
the Defendants in any civil, criminal or administrative proceeding in any court,
administrative agency or other tribunal. Defendants may file the Stipulation
and/or the Judgment in any action that may be brought against them in order to
support a defense or counterclaim based on principles of res judicata,
collateral estoppel, release, good faith settlement, judgment bar or reduction
or any other theory of claim preclusion or issue preclusion or similar defense
or counterclaim.
     8.4 All agreements made and orders entered during the course of the
Litigation relating to the confidentiality of information shall survive this
Stipulation.
     8.5 All of the Exhibits to the Stipulation are material and integral parts
hereof and are fully incorporated herein by this reference.
      

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     8.6 The Stipulation may be amended or modified only by a written instrument
signed by or on behalf of all Settling Parties or their respective
successors-in-interest.
     8.7 The Stipulation and the Exhibits attached hereto and the Supplemental
Agreement constitute the entire agreement among the parties hereto and no
representations, warranties or inducements have been made to any party
concerning the Stipulation or its Exhibits or the Supplemental Agreement other
than the representations, warranties and covenants contained and memorialized in
such documents. Except as otherwise provided herein, each party shall bear its
own costs.
     8.8 Lead Counsel, on behalf of the Class, are expressly authorized by the
Lead Plaintiff to take all appropriate action required or permitted to be taken
by the Class pursuant to the Stipulation to effectuate its terms and also are
expressly authorized to enter into any modifications or amendments to the
Stipulation on behalf of the Class which they deem appropriate.
     8.9 Each counsel or other Person executing the Stipulation or any of its
Exhibits on behalf of any party hereto hereby warrants that such Person has the
full authority to do so.
     8.10 The Stipulation may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same
instrument. A complete set of original executed counterparts shall be filed with
the Court.
     8.11 The Stipulation shall be binding upon, and inure to the benefit of,
the successors and assigns of the parties hereto.
     8.12 The Court shall retain jurisdiction with respect to implementation and
enforcement of the terms of the Stipulation, and all parties hereto submit to
the jurisdiction of the Court for purposes of implementing and enforcing the
settlement embodied in the Stipulation.
     8.13 This Stipulation and the Exhibits hereto shall be considered to have
been negotiated, executed and delivered, and to be wholly performed, in the
State of California, and the rights and obligations of the parties to the
Stipulation shall be construed and enforced in accordance with, and governed by,
the internal, substantive laws of the State of California without giving effect
to that State’s choice-of-law principles.
      

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     IN WITNESS WHEREOF, the parties hereto have caused the Stipulation to be
executed, by their duly authorized attorneys, dated as of November 12, 2006.
LERACH COUGHLIN STOIA GELLER
     RUDMAN & ROBBINS LLP
PATRICK J. COUGHLIN
JOHN K. GRANT
LUKE O. BROOKS
100 Pine Street, Suite 2600
San Francisco, CA 94111
Telephone: 415/288-4545
415/288-4534 (fax)
LERACH COUGHLIN STOIA GELLER
     RUDMAN & ROBBINS LLP
WILLIAM S. LERACH
JOY ANN BULL

         
 
  /s/ JOY ANN BULL
 
JOY ANN BULL    

655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
Lead Counsel for Plaintiffs
SCOTT & SCOTT, LLC
DAVID R. SCOTT
108 Norwich Avenue
Colchester, CT 06415
Telephone: 860/537-3818
860/537-4432 (fax)
GLANCY & BINKOW LLP
LIONEL Z. GLANCY
KEVIN RUF
1801 Avenue of the Stars, Suite 311
Los Angeles, CA 90067
Telephone: 310/201-9150
310/201-9160 (fax)
Counsel for Plaintiffs
      

STIPULATION OF SETTLEMENT — C-02-4497-RMW   - 19 -

 

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O’MELVENY & MYERS LLP
MEREDITH N. LANDY
JOSHUA D. BAKER

         
 
  /s/ Meredith N. Landy
 
                  MEREDITH N. LANDY    

2765 Sand Hill Road
Menlo Park, CA 94025
Telephone: 650/473-2600
650/473-2601 (fax)
Counsel for Defendants
      

STIPULATION OF SETTLEMENT — C-02-4497-RMW   - 20 -

 

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CERTIFICATE OF SERVICE
     I hereby certify that on April 30, 2007, I electronically filed the
foregoing with the Clerk of the Court using the CM/ECF system which will send
notification of such filing to the e-mail addresses denoted on the attached
Electronic Mail Notice List, and I hereby certify that I have mailed the
foregoing document or paper via the United States Postal Service to the
non-CM/ECF participants indicated on the attached Manual Notice List.
     I further certify that I caused this document to be forwarded to the
following designated Internet site at: http://securities.lerachlaw.com/.
     I certify under penalty of perjury under the laws of the United States of
America that the foregoing is true and correct. Executed on April 30, 2007.

         
 
  s/ Joy Ann Bull
 
JOY ANN BULL    

LERACH COUGHLIN STOIA GELLER
     RUDMAN & ROBBINS LLP
655 West Broadway, Suite 1900
San Diego, CA 92101-3301
Telephone: 619/231-1058
619/231-7423 (fax)
E-mail: Joyb@lerachlaw. com

 

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Mailing Information for a Case 5:02-cv-04497-RMW
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices
for this case.

  •   Jeffrey S. Abraham     •   Joshua D. Baker
jbaker@omm.com lnewell@omm.com     •   Eric J. Belfi
ebelfi@labaton.com ElectronicCaseFiling@labaton.com     •   Luke O Brooks
lukeb@lerachlaw.com e_file_sf@lerachlaw.com     •   Patrick J. Coughlin
patc@lerachlaw.com e_file_sf@lerachlaw.com     •   Dario DeGhetaldi
deg@coreylaw.com     •   Dale M. Edmondson
dedmondson@omm.com
dbrown@omm.com;lhabbeshaw@omm.com;rbrown@omm.com;sfolchi@omm.com;jbaker@omn    
•   Sara May Folchi
sfolchi@omm.com lnewell@omm.com     •   Lionel Z. Glancy
info@glancylaw.com     •   Michael M. Goldberg
info@glancylaw.com     •   John K. Grant
johnkg@lerachlaw.com
e_file_sf@lerachlaw.com;e_file_sd@lerachlaw.com;KiyokoH@lerachlaw.com;cwood@lerachlaw
    •   Robert A. Jigarjian
CAND.USCOURTS@CLASSCOUNSEL.COM     •   Reed R. Kathrein
reed@hbsslaw.com nancyq@hbsslaw.com     •   Meredith N. Landy
mlandy@omm.com
dfurbush@omm.com;dbrown@omm.com;lhabbeshaw@omm.com;dedmondson@omm.com;jbake

 

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  •   William S. Lerach
e_file_sd@lerachlaw.com     •   Thomas D. Mauriello
tomm@maurlaw.com     •   Jerry E. Nastari
jen@coreylaw.com deg@coreylaw.com     •   Jeffrey S. Nobel
firm@snlaw.net     •   Ira M. Press
ipress@kmslaw.com lmorris@kmslaw.com     •   Darren J. Robbins     •   Lori E.
Romley
lromley@omm.com dbrown@omm.com     •   Kevin Ruf
info@glancylaw.com     •   Andrew M. Schatz
firm@snlaw.net     •   David R. Scott
drscott@scott-scott.com     •   Evan Jason Smith
esmith@brodsky-smith.com

Manual Notice List
The following is the list of attorneys who are not on the list to receive e-mail
notices for this case (who therefore require manual noticing). You may wish to
use your mouse to select and copy this list into your word processing program in
order to create notices or labels for these recipients.
Howard K. Coates
Cauley Geller Bowman & Coates LLP
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
George R. Corey
Corey Luzaich Pliska De Ghetaldi Nastari
700 El Camino Real
P.O. Box 669
Millbrae, CA 94030-0669
Kenneth A. Elan
Law Offices of Kenneth A. Elan

 

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217 Broadway
Suite 404
New York, NY 10007
Brian M. Felgoise
Law Offices of Brian M. Felgoise
230 South Broad Street
Suite 404
Philadelphia, PA 19102
Joshua M. Lifshitz
Bull & Lifshitz, LLP
246 West 38th Street
New York, NY 10018
Laurence D. Paskowitz
Abraham & Paskowitz
60 East 42nd Street
New York, NY 10165
Jack Reise
Cauley Geller Bowman & Coates LLP
One Boca Place, Suite 421A
2255 Glades Road
Boca Raton, FL 33431
Amanda L. Riddle
Corey Luzaich Pliska De Ghetaldi Nastari
700 El Camino Real
P.O. Box 669
Millbrae, CA 94030-0669
Daniel S. Sommers
Cohen Milstein Hausfeld & Toll P.L.L.C.
1100 New York Avenue N.W.
West Tower, Suite 500
Washington, DC 20005
Steven J. Toll
Cohen Milstein Hausfeld & Toll, P.L.L.C.
1100 New York Avenue, N. W.
West Tower, Suite 500
Washington, DC 20005-3964

 

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ESS Technology, Inc.
Manual Service List
 
Kip B. Shuman
Shuman & Berens LLP
801 East 17th Avenue
Denver, CO 80218
Marc A. Topaz
Schiffrin, Barroway, Topaz & Kessler, LLP
280 King of Prussia Road
Radnor, PA 19087